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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0--13393
AMCORE FINANCIAL, INC.
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<S> <C> <C>
NEVADA 36-3183870
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
501 Seventh Street, Rockford, Illinois
61104
Telephone Number (815) 968-2241
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.33 par value
Common Stock Purchase Rights
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. X Yes 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.
As of March 18, 1996, 14,197,747 shares of common stock were outstanding
and the aggregate market value of the shares based upon the average of the bid
and asked price held by non-affiliates was approximately $279,038,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1996 Notice of Annual Meeting and Proxy Statement are
incorporated by reference into Part III of the Form 10-K.
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AMCORE FINANCIAL, INC.
FORM 10-K TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1 Business................................................................. 3
Item 2 Properties............................................................... 8
Item 3 Legal Proceedings........................................................ 8
Item 4 Submission of Matters to a Vote of Security Holders...................... 8
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholder
Matters.................................................................. 9
Item 6 Selected Financial Data.................................................. 9
Item 7 Management's Discussion and Analysis of the Results of Operations
and Financial Condition.................................................. 10
Item 8 Financial Statements and Supplementary Data.............................. 26
Item 9 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure................................................. 55
PART III
Item 10 Directors and Executive Officers of the Registrant....................... 55
Item 11 Executive Compensation................................................... 55
Item 12 Security Ownership of Certain Beneficial Owners and Management........... 55
Item 13 Certain Relationships and Related Transactions........................... 55
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 56
SIGNATURES.......................................................................... 58
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PART I
ITEM 1. BUSINESS
GENERAL
AMCORE Financial, Inc. (AMCORE) is a registered multi-bank holding company
incorporated under the laws of the State of Nevada in 1982. The corporate
headquarters are located at 501 Seventh Street in Rockford, Illinois. AMCORE
owns directly or indirectly all of the outstanding common stock of each of its
eight subsidiary banks, three subsidiary bank holding companies and nine
financial service subsidiaries. AMCORE provides the subsidiaries, among other
things, with advice and counsel on policies and operating matters.
BANK SUBSIDIARIES
AMCORE directly owns three second tier bank holding companies, First State
Bancorp of Princeton, Illinois, Inc. (FSB), NBA Holding Company (NBA) and NBM
Bancorp, Inc. (NBM). FSB owns two state chartered banks, AMCORE Bank Princeton
(PRINCETON) and AMCORE Bank Gridley. In August 1995, another FSB subsidiary,
AMCORE Bank Ashton, was merged into PRINCETON. NBA is a one-bank holding company
and owns AMCORE Bank Aledo, a state chartered bank. In May 1995, NBM, a two-bank
holding company which owns AMCORE Bank N.A., Mendota and AMCORE Bank N.A., Peru,
both nationally chartered banks, merged into AMCORE. AMCORE also directly owns
AMCORE Bank N.A., Rockford (ROCKFORD), AMCORE Bank N.A., Rock River Valley (ROCK
RIVER VALLEY), and AMCORE Bank N.A., Northwest, all nationally chartered banks.
In February 1995, AMCORE merged Dixon Bancorp, Inc. and its AMCORE Bank N.A.,
Dixon subsidiary into ROCK RIVER VALLEY. Two less-active state chartered banks,
AMCORE Bank Ogle County and AMCORE Bank Carpentersville, were dissolved in 1995.
The affiliate banks conduct business at 41 locations throughout northern
Illinois, excluding Cook county and the far northwestern counties. The primary
service region includes the Illinois cities of Rockford, Elgin, Woodstock,
Carpentersville, Crystal Lake, Sterling, Dixon, Princeton, Aledo, Rochelle,
Ashton, Gridley, Mt. Morris, Mendota, Peru and the surrounding communities.
Through its bank affiliates, AMCORE provides various personal banking,
commercial banking and related financial services. AMCORE also conducts banking
business through eight supermarket branches, which gives the customer convenient
access to bank services seven days a week.
Personal Banking--Personal banking services to individuals include demand,
savings and time deposit accounts. Loan services include installment loans,
mortgage loans, overdraft protection, personal credit lines and credit card
programs. AMCORE Vintage Funds, a proprietary family of mutual funds, are also
marketed through each affiliate location. The Pinnacle private banking division
also markets Vintage Funds and meets other special needs of high net worth
individuals. Automated teller machines located throughout AMCORE's market area
make banking transactions available to customers when the bank facilities and
hours are not convenient.
Commercial Banking--A wide range of financial services are provided to
commercial and governmental organizations. These services include, among others,
lending, deposits, letters of credit and cash management services.
Other Financial Services--The bank affiliates provide various services to
consumers, commercial customers and correspondent banks. Services available
include safe deposit box rental, securities safekeeping, foreign currency
exchange, lock box and other services.
AMCORE also offers three electronic banking services to commercial and
retail customers. AMCORE Data Bank facilitates access to commercial customers'
accounts via personal computers. It also permits the transfer of funds between
accounts and the initiation of wire transfers and ACH activity to accounts at
other financial institutions. AMCORE Direct is a point-of-sale system for credit
card and debit transactions. The AMCORE TeleBank service gives retail customers
the opportunity to use their telephone 24 hours a day to
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get balance and other information on their checking and savings accounts,
certificates of deposit, or mortgage loan, all from a completely automated
system.
FINANCIAL SERVICE SUBSIDIARIES
AMCORE Mortgage, Inc. (AMI), a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada in 1987. Through AMI, AMCORE provides each
bank affiliate and correspondent lenders with a variety of mortgage lending
products to meet their customer needs. All fixed rate long-term loans originated
by AMI are sold in the secondary market primarily to governmental agencies and
financial institutions. AMI also originates adjustable rate and balloon loans
for sale to affiliate banks and other investors. AMI continues to service most
of the loans that are sold.
AMCORE Trust Company (ATC), a wholly-owned subsidiary, was incorporated
under the laws of the State of Illinois in May 1990, and began operations in
August 1990. ATC includes the former trust departments of most bank affiliates
and provides personal trust services, employee benefit plan and estate
administration and various other services to corporations and individuals.
AMCORE Consumer Finance Company, Inc. (FINANCE), (f/n/a Mid-American
Financial Services Company), a wholly-owned consumer finance company, was
incorporated under the laws of the State of Nevada in September 1989 and was
acquired by AMCORE in February 1990. Through FINANCE, AMCORE provides
installment and real estate loans to a segment of the market not served by
AMCORE's affiliate banks. FINANCE has also focused its efforts with a "second
chance" lending program for loan applicants that have been rejected by the
mortgage and banking affiliates. It has also been developing financing programs
for several national satellite dish distributors.
AMCORE Financial Life Insurance Company (AFLIC), a wholly-owned subsidiary,
was incorporated under the laws of the State of Arizona in 1984. Through AFLIC,
AMCORE is engaged in reinsuring credit life and accident and health insurance in
conjunction with the lending activities of the affiliate banks.
AMCORE Investment Services, Inc. (AIS), a wholly-owned subsidiary of
ROCKFORD, was incorporated under the laws of the State of Illinois in October
1990, and in July 1991, became a member of the National Association of Security
Dealers (NASD). AIS is a full-service brokerage company that offers a full range
of investment alternatives including annuities, mutual funds, stocks, bonds and
AMCORE's Vintage Fund family. AIS services customers throughout the affiliate
bank locations.
AMCORE Investment Banking, Inc. (AIB) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary in November 1993. AIB
obtained approval in July 1993 from the Board of Governors of the Federal
Reserve System (FRB) to perform financial advisory and private placement
services. In 1995, AIB withdrew its brokerage membership with the NASD and, as
such, is currently an inactive subsidiary of AMCORE.
AMCORE Capital Management, Inc. (ACMI) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary of ROCKFORD in December 1992.
ACMI is comprised of the former ROCKFORD Investment department staff, and
manages the assets of AMCORE's Vintage Fund family, which were introduced in
December 1992. In addition to serving as investment advisor to these funds, ACMI
manages the investment portfolios for ATC and other unaffiliated institutions.
Rockford Mercantile Agency, Inc. (RMA), a local collection agency, was
acquired in January 1993. RMA has been in business in the Rockford area since
1908 and works with many nationally-known clients. RMA was incorporated under
the laws of the State of Illinois in January 1993 as a wholly-owned subsidiary
of AMCORE.
AMCORE Insurance Group, Inc. (AIG) was incorporated under the laws of the
State of Illinois as a wholly-owned subsidiary of ROCKFORD in March 1994. AIG's
main office is in South Beloit, Illinois. AIG obtained approval from the Office
of the Comptroller of the Currency to engage in the insurance agency business,
and offers a complete line of commercial and individual insurance products
including life,
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homeowners and automobile insurance. In August 1994, AIG acquired the Weller
Agency, a well established local insurance agency.
COMPETITION
Active competition exists in all services offered by AMCORE's bank and
non-bank affiliates with other national and state banks, savings and loan
associations, credit unions, finance companies, personal loan companies,
brokerage and mutual fund companies, mortgage bankers, insurance agencies,
financial advisory services, collection agencies, and other financial
institutions serving the affiliates' respective market areas. The principal
competitive factors in the banking and financial services industry are quality
of services to customers, ease of access to services and pricing of services,
including interest rates paid on deposits, interest rates charged on loans, and
fees charged for fiduciary and other professional services.
Since 1982, when Illinois multi-bank holding company legislation became
effective, there have been many bank mergers and acquisitions in Illinois. These
combinations have had the effect of increasing the assets and deposits of bank
holding companies involved in such activities. Illinois legislation, effective
December 1, 1990, permitted bank acquisitions in Illinois by institutions
headquartered in any other state which has reciprocal legislation, furthering
increased competition. See "Supervision and Regulation".
On September 29, 1994 Congress passed laws allowing interstate banking and
interstate branching. A year later, nationwide interstate banking became
effective allowing institutions to make acquisitions in any state. Beginning
July 1, 1997, interstate branching becomes effective, and banks can merge with
affiliate banks or establish de novo branches in any state. Individual states,
however, have the right to opt out of interstate branching.
EMPLOYMENT
AMCORE had 1,186 full-time equivalent employees as of December 31, 1995.
AMCORE provides a variety of benefit plans to its employees including health,
dental, group term life and disability insurance, childcare reimbursement,
retirement, profit sharing, 401(k) and flexible spending accounts, incentive
stock option, stock purchase and dividend reinvestment plans. AMCORE believes
that its relationship with its employees is good.
SUPERVISION AND REGULATION
AMCORE is subject to regulations under the Bank Holding Company Act of
1956, as amended (the Act), and is registered with the FRB under the Act. AMCORE
is required by the Act to file quarterly and annual reports of its operations
and such additional information as the FRB may require and is subject, along
with its subsidiaries, to examination by the FRB.
The acquisition of five percent or more of the voting shares or all or
substantially all of the assets of any bank requires the prior approval of the
FRB and is subject to certain other federal and state law limitations. The Act
also prohibits, with certain exceptions, a holding company from acquiring direct
or indirect ownership or control of more than five percent of the voting shares
of any company which is not a bank and from engaging in any business other than
banking, managing and controlling banks or furnishing services to banks and
their subsidiaries, except that holding companies may engage in, and may own
shares of companies engaged in, certain businesses bound by the FRB to be "so
closely related to banking as to be a proper incident thereto". On August 31,
1993, the FRB approved an amendment to add certain activities and to reduce the
burden on bank holding companies that desire to conduct these activities by
simplifying the regulatory review process.
Under current regulations of the FRB, a holding company and its non-bank
subsidiaries are permitted, among other activities, to engage in such
banking-related businesses as sales and consumer finance, equipment leasing,
computer service bureau and software operations, mortgage banking, brokerage and
financial advisory services. The Act does not place territorial restrictions on
the activities of non-bank subsidiaries of bank holding companies. In addition,
federal legislation prohibits acquisition of "control" of a bank or bank holding
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company without prior notice to certain federal bank regulators. "Control" is
defined in certain cases as acquisition of ten percent or more of the
outstanding shares of a bank or bank holding company.
Federal and state laws and regulations of general application to banks
regulate, among other things, the scope of business, investments, reserves
against deposits, capital levels relative to assets and risk, the nature and
amount of collateral for loans, the establishment of branches, mergers,
consolidations and the payment of dividends.
In late 1992, Congress passed the Federal Deposit Insurance Corporation
Improvement Act of 1992 which included many provisions that have had significant
effects on the cost structure and operational and managerial standards of
commercial banks. In addition to provisions for recapitalization of the Bank
Insurance Fund, the Act contains provisions that revise bank supervision and
regulation, including, among many other things, the monitoring of capital
levels, outline additional management reporting and external audit requirements,
and add consumer provisions that include Truth in Savings disclosures.
The foregoing references to applicable statutes and regulations are brief
summaries thereof and do not purport to be complete and are qualified in their
entirety to be referenced to such statutes and regulations.
AMCORE, FSB, NBA and NBM are supervised and examined by the FRB.
Nationally-chartered affiliate banks are supervised and regularly examined by
the Office of the Comptroller of the Currency (OCC) and are subject to
examination by the FRB. The state-chartered affiliate banks are supervised and
regularly examined by the Illinois Commissioner of Banks. In addition, all
affiliate banks are subject to periodic examination by the Federal Deposit
Insurance Corporation (FDIC).
AMI is supervised and examined by the FRB and is also licensed and
regulated by the Office of the Commissioner of Savings and Loan Associations of
the State of Illinois. ATC is regulated by the Illinois Commissioner of Banks
and Trust Companies, while FINANCE is regulated by the Illinois Department of
Financial Institutions. AFLIC is supervised and examined by the Department of
Insurance of the State of Arizona. Under Arizona law, investments, capital
levels and the level of claim reserves, among other things, are subject to
regulation. AIS and ACMI are supervised and examined by the NASD and are
regulated by the Securities and Exchange Commission (SEC). RMA is subject to the
Fair Debt Collection Practice Act and also various state collection agency acts
in the states in which RMA is licensed to conduct business. RMA is supervised
and examined by the Illinois Secretary of State Office--Department of
Professional Regulation and various state agencies in other states. AIG is
supervised and examined by the Department of Insurance of the State of Illinois,
and is regulated by the OCC.
SUBSIDIARY DIVIDENDS AND CAPITAL
Legal limitations exist as to the extent to which the bank subsidiaries can
lend or pay dividends to AMCORE. The payment of dividends by national banks
without prior regulatory approval is limited to the current year's net income
plus the adjusted retained net income for the two preceding years. The payment
of dividends by any bank or bank holding company is affected by the requirement
to maintain adequate capital pursuant to the capital adequacy guidelines issued
by the FRB and regulations issued by the FDIC and the OCC (collectively
"Agencies"). As of December 31, 1995, approximately $29.9 million was available
for payment to AMCORE in the form of dividends without prior regulatory
approval. The bank subsidiaries are also limited as to the amount they may lend
to AMCORE. At December 31, 1995, the maximum amount available to AMCORE in the
form of loans approximated $9.1 million.
In 1990, the FRB established risk-based capital guidelines for bank holding
companies. These capital rules require minimum capital levels as a percent of
risk-weighted assets. Banking organizations must have minimum capital ratios of
4% and 8% for Tier 1 capital and total capital, respectively. The FRB also
established leverage capital requirements intended primarily to establish
minimum capital requirements for those banking organizations that have
historically invested a significant portion of their funds in low risk assets.
Federally supervised banks are required to maintain a minimum leverage ratio of
not less than 4%. Refer to the Capital section of Item 7 for a summary of
AMCORE's capital ratios as of December 31, 1995 and 1994.
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GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The earnings of all subsidiaries are affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the FRB influences general economic conditions and interest rates
through various monetary policies and tools. It does so primarily through
open-market operations in U.S. Government securities, varying the discount rate
on member and non-member bank borrowings, and setting reserve requirements
against bank deposits. FRB monetary policies have had a significant effect on
the operating results of banks in the past and will continue to do so in the
future. The general effect of such policies upon the future business and
earnings of each of the subsidiary banks cannot accurately be predicted.
Interest rate sensitivity has a major impact on the earnings of bank
affiliates. As market rates change, yields earned on assets may not necessarily
move to the same degree as rates paid on liabilities. For this reason, AMCORE
attempts to minimize earnings volatility related to fluctuations in interest
rates through the use of a formal asset/liability management program and certain
off-balance sheet derivative activities. See Item 7 and Note 11 included under
Item 8 for additional discussion of interest rate sensitivity and related
derivative activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information about the executive
officers of AMCORE. There are no family relationships between any director or
executive officer of AMCORE.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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<S> <C> <C>
Carl J. Dargene............ 65 Chairman of the Board of Directors of AMCORE. Retired
in December 1995 as President and Chief Executive
Officer of AMCORE. Chairman of the Board of Directors
of ROCKFORD and Vice Chairman and a Director of ATC. He
is also a director of CLARCOR and Woodward Governor
Company.
Robert J. Meuleman......... 56 Became President and Chief Executive Officer of AMCORE
in January 1996. Previously Executive Vice President
and Chief Operating Officer--Banking Subsidiaries of
AMCORE since December 1991. President and Chief
Operating Officer of ROCKFORD from January 1990 to
December 1991.
F. Taylor Carlin........... 59 Executive Vice President and Chief Operating
Officer--Diversified Financial Services Group of AMCORE
since December 1991. Executive Vice President and Chief
Financial Officer of AMCORE from December 1991 to June
1992. Senior Vice President and Chief Financial Officer
of AMCORE from July 1990 to December 1991. President of
the Carlin Company (Consulting Firm) from 1989 to June
1990.
James S. Waddell........... 51 Executive Vice President, Chief Administrative Officer
and Corporate Secretary of AMCORE since January 1994.
Senior Vice President of Administration of AMCORE from
July 1992 to January 1994. Group Vice President of
CLARCOR from 1987 to July 1992.
Charles E. Gagnier......... 62 President and Chief Executive Officer of ROCKFORD since
January 1992. President and Chief Executive Officer of
AMCORE Bank N.A., Sterling from January 1991 to January
1992. President and Chief Executive Officer of AMCORE
Bank N.A., Pekin from 1978 to January 1991.
Kenneth E. Edge............ 50 Group Vice President, Banking Subsidiaries since June
1995. Executive Vice President of ROCKFORD from July
1992 to June 1995. Senior Vice President of ROCKFORD
from April 1989 to July 1992.
Gerald W. Lister........... 44 Group Vice President, Diversified Financial Service
Subsidiaries since April 1993. President and Chief
Executive Officer of AMI from 1987 to April 1993.
</TABLE>
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<TABLE>
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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John R. Hecht.............. 37 Senior Vice President and Chief Financial Officer of
AMCORE since July 1992. Vice President and Controller
of AMCORE from January 1991 to June 1992. Vice
President and Manager of Corporate Accounting from 1988
to December 1990.
William T. Hippensteel..... 39 Senior Vice President and Corporate Marketing Director
since January 1993. Vice President and Marketing
Director from 1984 to December 1992.
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ITEM 2. PROPERTIES
On December 31, 1995, AMCORE had 52 locations, of which 35 were owned and
17 were leased. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. See Notes 6 and 7 of the Notes
to Consolidated Financial Statements included under Item 8 of this document for
further information on properties.
ITEM 3. LEGAL PROCEEDINGS
Management believes that no litigation is threatened or pending in which
AMCORE faces potential loss or exposure which will materially affect AMCORE's
stockholders' equity or financial position. Since AMCORE's subsidiaries act as
depositories of funds, trustee and escrow agents, they are named as defendants
in lawsuits involving claims to the ownership of funds in particular accounts.
This and other litigation is incidental to AMCORE's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
See Item 6 and 8 of this document for information on stock price ranges and
dividends. The principal market for the quotations of stock prices is the NASDAQ
National Market System. There were approximately 4,500 holders of record of
AMCORE's common stock.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
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1995 1994 1993 1992 1991
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FOR THE YEAR:
Net interest income........................ $ 79,406 $ 77,760 $ 77,556 $ 73,399 $ 65,866
Provision for loan and lease losses........ 2,692 628 2,124 5,547 7,932
Other income............................... 34,013 31,034 29,605 25,695 21,417
Other expenses............................. 87,440 78,690 76,136 67,132 60,098
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Income before income taxes................. 23,287 29,476 28,901 26,415 19,253
Income taxes............................... 5,016 7,675 7,461 7,859 4,304
---------- ---------- ---------- ---------- ----------
Net income................................. $ 18,271 $ 21,801 $ 21,440 $ 18,556 $ 14,949
========== ========== ========== ========== ==========
Return on average assets(1)................ 0.97% 1.06% 1.08% 1.06% 0.89%
Return on average equity(1)................ 11.17 11.90 12.71 12.25 10.77
Net interest margin........................ 4.18 4.51 4.62 4.78 4.49
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AVERAGE FOR THE YEAR:
Total assets............................... $2,245,895 $2,062,597 $1,977,407 $1,754,653 $1,686,229
Loans and leases, net of unearned income... 1,228,175 1,088,206 1,000,759 927,354 955,786
Earning assets............................. 2,060,272 1,880,320 1,805,356 1,612,949 1,542,959
Deposits................................... 1,764,427 1,706,175 1,665,807 1,501,006 1,464,383
Long-term borrowings....................... 29,458 27,598 33,724 16,384 16,322
Stockholders' equity....................... 194,546 183,171 168,739 151,469 138,860
---------- ---------- ---------- ---------- ----------
FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end
loans.................................... 1.02% 1.14% 1.40% 1.41% 1.13%
Allowance to non-performing loans.......... 101.07 103.66 111.27 135.14 97.87
Net charge-offs to average loans........... 0.24 0.17 0.17 0.32 0.79
Non performing loans to net loans.......... 1.00 1.10 1.26 1.05 1.15
Average long-term borrowings to average
equity................................... 15.14 15.07 19.99 10.82 11.75
Average equity to average assets........... 8.66 8.88 8.53 8.63 8.23
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' DATA:
Earnings per share......................... $ 1.30 $ 1.55 $ 1.53 $ 1.36 $ 1.10
Book value per share....................... 14.81 13.26 12.68 11.59 10.60
Dividends per share........................ 0.58 0.55 0.41 0.35 0.30
Dividend payout ratio...................... 44.6% 35.4% 26.9% 25.6% 27.4%
Weighted average shares outstanding........ 14,083 14,023 13,972 13,659 13,604
========== ========== ========== ========== ==========
</TABLE>
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(1) The 1995 ratios exclude the impact of the $3.5 million, or $.25 per share,
after-tax impairment and merger-related charges.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis focuses on the significant factors
which affected AMCORE's financial statements during 1995, with comparisons to
1994 and 1993 where appropriate. All prior year financial statements and
information have been restated to reflect the May 19, 1995 merger with NBM
Bancorp, Inc. (NBM) and the 1994 mergers with First State Bancorp of Princeton,
Illinois, Inc. (FSB) and NBA Holding Company of Aledo, Illinois (NBA). Each
transaction was accounted for as a pooling of interests.
EARNINGS SUMMARY
AMCORE's net earnings in 1995 totaled $18.3 million, a 16.2% decline from
the $21.8 million in 1994. The decline was principally caused by a $3.5 million
after-tax charge for the impairment of certain long-lived assets required by a
new accounting standard and costs associated with increased merger activity.
Excluding these charges, net earnings would have totaled $21.7 million, a
$65,000 or .3% decline from 1994. Statement of Financial Accounting Standards
(FAS) No. 121--"Accounting for the Impairment of Long-Lived Assets" requires the
revaluation of long-lived and certain intangible assets whenever events or
changes in circumstances indicate the carrying value may not be fully
recoverable. See the Operating Expenses section of this narrative for a more
detailed discussion of these charges. During 1994, net earnings increased
$361,000 or 1.7% over 1993.
On a per share basis, net earnings in 1995 were $1.30 versus $1.55 in 1994.
Excluding the impairment and merger-related charges, earnings per share in 1995
would have been $1.55, no change from the 1994 total. In 1994, earnings per
share improved $.02 or 1.3% over the $1.53 earned in 1993. The following table
highlights the major factors that impacted earnings per share over the past two
years:
CHANGES IN EARNINGS PER SHARE:
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
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<S> <C> <C>
Prior period net income.................................... $ 1.55 $ 1.53
Changes due to:
Net interest income...................................... 0.09 --
Provision for loan and lease losses...................... (0.15) 0.11
------------- -------------
Net Interest Income After Provision for Loan and Lease
Losses.............................................. ($ 0.06) $ 0.11
------------- -------------
Trust revenues........................................... 0.03 0.05
Service charges on deposits.............................. 0.02 0.02
Mortgage revenues........................................ (0.01) (0.03)
Collection fee income.................................... 0.01 (0.02)
Other.................................................... 0.06 0.09
------------- -------------
Total Other Income, Excluding Net Realized Security
Gains............................................... $ 0.11 $ 0.11
Net realized security gains.............................. 0.10 (0.02)
Personnel expense........................................ (0.29) (0.03)
Net occupancy expense.................................... (0.02) (0.03)
Equipment expense........................................ (0.13) (0.09)
Insurance expense........................................ 0.12 --
Professional fees........................................ 0.05 (0.07)
Advertising and business development..................... -- (0.02)
Amortization of intangible assets........................ 0.01 0.07
Impairment of long-lived assets.......................... (0.23) --
Other.................................................... (0.10) --
------------- -------------
Total Operating Expenses.............................. ($ 0.59) ($ 0.17)
------------- -------------
Income taxes............................................. 0.19 (0.01)
------------- -------------
Current period net income................................ $ 1.30 $ 1.55
========== ==========
</TABLE>
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Higher personnel costs due to the merger-related charge and the expansion
of branch facilities and information system staffing negatively impacted
earnings by $.29 per share. Offsetting this decline were reductions in FDIC
insurance premiums, improvements in net interest income, and growth in trust,
credit card, insurance and other fee revenues. Gains from the sale of securities
also added $.10 per share during 1995. Steady loan growth and higher net
charge-offs necessitated an increase in loan loss provisions, which negatively
impacted earnings by $.15 per share. Other expenses also negatively impacted
earnings by $.10 per share primarily due to increased loan processing costs
resulting from loan growth and higher other real estate expense.
During 1994, growth in trust revenues and reduced loan loss provisions were
the major factors contributing to the increase in earnings per share over 1993.
Other contributions included higher credit card, insurance and brokerage
revenues, which were offset by additional professional fees in connection with
increased merger activity. Lower core deposit intangible amortization improved
earnings by $.07 per share. Higher equipment expense negatively impacted per
share earnings in 1994 due to a combination of conversion-related data
processing costs and the opening of six new branches.
The return on average equity for 1995 was 9.39% versus 11.90% in 1994 and
12.71% in 1993. Return on average assets was .81% in 1995 compared with 1.06% in
1994 and 1.08% in 1993. The declines in these ratios in 1995 were primarily due
to the impairment and merger-related charges. Excluding the impact of these
charges, returns on average equity and assets would have been 11.17% and .97%,
respectively.
NET INTEREST INCOME AND INTEREST RATE SENSITIVITY
Net interest income, AMCORE's primary source of earnings, totaled $79.4
million in 1995, a $1.6 million or 2.1% increase over 1994. In 1994, net
interest income totaled $77.8 million, an increase of $204,000, or .3% over
1993. Net interest income is affected by a number of factors including the
level, pricing and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations and asset quality. AMCORE's asset/liability
management program is designed to minimize earnings volatility caused by
fluctuations in interest rates. Interest rate sensitivity analysis is performed
monthly using various simulations with an asset/liability modeling system. These
analyses, as well as repricing gap reports, are reviewed by Asset and Liability
Committees (ALCO) at affiliate banks and at the corporate level, whose actions
attempt to minimize any negative impact interest rate movements may have on net
interest income. Each ALCO committee reviews the impact of liquidity, loan and
deposit pricing compared to its competition, capital adequacy and rate
sensitivity, among other things, and determines appropriate policy direction to
maintain or meet established ALCO guidelines.
Gap is defined as the repricing difference between rate sensitive assets
and liabilities within a given time period. A positive gap, or asset sensitive
position, indicates there are more rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specified time frames, which generally
has a favorable impact on net interest income in periods of rising interest
rates. Conversely, a negative gap, or liability sensitive position, would
generally imply a favorable impact on net interest income in periods of
declining interest rates. In periods of changing interest rates, net interest
margin is not only impacted by the amounts of repricing assets and liabilities,
but also impacted by the rate at which repricings occur. Earnings may also be
impacted by variances in prepayment of loans and securities. The internal gap
and rate sensitivity analysis is adjusted to quantify these and other factors.
Table 7 shows AMCORE's unadjusted repricing differences as of December 31, 1995.
Management also uses off-balance sheet derivative contracts to manage its
exposure to interest rate risk by modifying the existing interest rate risk
characteristics of on-balance sheet assets and liabilities. AMCORE does not have
any derivatives that are held or issued for trading purposes. The derivatives
utilized in the asset/liability management program predominantly comprise
interest rate swap and floor contracts. The swap contracts are primarily
utilized to hedge the spread between deposit rates and earning assets with
floating rate characteristics. The floor contracts are utilized to provide
protection in the event of a decline in interest rates.
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<PAGE> 12
The swap contracts involve the exchange of fixed and floating interest rate
payments and are based on the notional amount of the contract. The floor
contracts are also based on the notional amount of the contract. These floor
contracts are purchased at a premium, which is amortized over the lives of the
contracts. The notional amount of the swap and floor contracts only identify the
size of the contracts and are used to calculate the interest payment amounts.
The only credit risk exposure AMCORE has is in relation to the counterparty's
interest payment obligation and not the notional amount. Management only deals
with counterparties that have high credit ratings and as of December 31, 1995,
all counterparties were expected to meet any outstanding interest payment
obligations.
The total notional amount of swap contracts outstanding was $28.1 million
and $42.5 million as of December 31, 1995 and 1994, respectively. As of the end
of 1995, these contracts had an aggregate negative fair value of $68,000. The
total notional amount of floor contracts outstanding was $75.0 million at
December 31, 1995, with no outstanding contracts as of the end of 1994. These
contracts had a net positive fair value of $829,000 as of the end of 1995. For
further discussion of derivative contracts, see Notes 5 and 11 to the
Consolidated Financial Statements.
In the following analysis, net interest income is presented on a tax
equivalent basis, which adjusts reported net interest income on tax-exempt loans
and securities to compare with other sources of fully taxable interest income.
Unlike changes in volume, or rates paid or earned, it has no effect on actual
net interest income or net income, as reported in the Consolidated Financial
Statements.
As shown in Table 1, the increase in tax equivalent interest income in
1995, as compared with 1994, was $1.3 million, or 1.6%, and was due to a $3.5
million increase from volume, less a $2.2 million unfavorable rate impact. The
net interest margin, which is computed by dividing the tax equivalent net
interest income by average earning assets, declined to 4.18% in comparison with
4.51% in 1994 and 4.62% in 1993. The reduction in margin during 1995 was mainly
due to the rising rate environment, which caused funding costs to increase at a
faster pace than yields on earning assets. A shift in the deposit mix to higher
rate time deposits also contributed to the drop in net interest margin. A growth
in total average loans helped to mitigate some of the interest margin
compression.
Another factor contributing to the net interest margin decline was the
impact of an investment leveraging program, which is designed to increase
financial leverage and the return on equity at affiliate banks with excess
capital. While this program results in additional net interest income, it also
lowers the net interest margin due to the smaller interest rate spread
associated with these transactions. This program added approximately $2.2
million and $432,000 to net interest income in 1995 and 1994, respectively. It
reduced, however, the net interest margin by 22 basis points in 1995 and 10
basis points in 1994.
Total average earning assets in 1995 were $2.06 billion, an increase of
$180.0 million or 9.6% over 1994. Average earning assets as a percentage of
total assets was 91.7% in 1995, a slight increase over the 91.2% in 1994.
Average loans totaled $1.23 billion, an increase of $140.0 million or 12.9% over
1994. This increase was primarily the result of strong commercial and real
estate loan growth. Total average loans were 59.6% of total average earning
assets in 1995, an increase from 57.9% in 1994. Average total securities
increased $47.4 million during 1995 to $812.2 million, an increase of 6.2%.
Other earning assets, which include interest-bearing deposits in banks, federal
funds sold and other short-term investments, averaged $8.7 million in 1995, a
decline of $6.7 million when compared to 1994.
In 1995, average total interest-bearing liabilities were $1.79 billion and
increased $174.9 million over 1994, or 10.8%. This increase was caused by a
$107.3 million increase in short-term borrowings and a $112.3 million increase
in time deposits. The increase in short-term borrowings was due to the use of
repurchase agreements in connection with the funding for the investment
leveraging program. Higher rates on certificates of deposit caused a shift in
the deposit mix resulting in higher average time deposits, which were utilized
to fund loan growth. Average long-term borrowings increased $1.9 million due to
the impact of Federal Home Loan Bank advances in late 1995. These advances were
utilized to purchase mortgage-backed securities in connection with the
leveraging program (See Note 10 of the Notes to the Consolidated Financial
Statements for further discussion of long-term borrowings).
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<PAGE> 13
The proportion of average interest-bearing liabilities to average earning
assets in 1995 was 86.9% versus 85.9% in 1994. The average yield on earning
assets in 1995 increased 55 basis points to 8.31% and the average rate paid on
interest-bearing liabilities increased 96 basis points to 4.75%, resulting in a
41 basis point drop in the net interest spread to 3.56%. In 1994, the net
interest spread declined 14 basis points from 4.11% in 1993.
The average yield on loans increased 57 basis points in 1995 to 8.93% and,
in 1994 was down 17 basis points from 1993. The rise in the 1995 yield was the
result of increases in the prime and other market rates. Yields on securities
increased 43 basis points during 1995 to 7.14% and declined 22 basis points in
1994 as compared to 1993. The yield increase in 1995 was due to a change in
overall market rates, combined with a portfolio mix shift to higher-yielding
mortgage-backed securities. The average yield on other earning assets was 5.93%
in 1995 and 4.97% in 1994 versus 3.26% in 1993. The increases were the result of
higher short-term market rates and an increased mix of higher yielding other
investments.
The yield on mortgage loans held for sale increased 55 basis points to
7.94% in 1995, resulting from higher long-term mortgage rates during most of
1995. In 1994, the yield was 7.39%, an increase of 7 basis points when compared
to 1993. Yield-related loan fee income on the origination of these mortgage
loans increased $72,000 in 1995 and totaled $2.1 million. In 1994, mortgage loan
fee income declined by $1.5 million due to increased mortgage rates, which
curtailed refinancing volumes.
The average rate paid on interest-bearing deposits increased 82 basis
points to 4.47% in 1995. In 1994, the rate was 3.65%, a 14 basis point decline
when compared to 1993. The rate increase in 1995 was indicative of new
certificate of deposit volumes at higher market rates, rollovers of existing
deposits into higher rate deposits, and increased competition.
The average rate paid on short-term borrowings during 1995 was 6.26%, an
increase of 181 basis points over 1994. In 1994, the average rate paid was
4.45%, a 122 basis point increase over 1993. Earlier actions taken by the
Federal Reserve to raise the discount rate have increased short-term borrowing
costs during 1994 and most of 1995.
Long-term borrowings had an average rate of 6.96%, a 50 basis point decline
over 1994. This decline was mainly caused by the impact of two long-term fixed
interest rate swap agreements that have been utilized to hedge the floating rate
portion of the term loan. As the term loan amortizes, a higher percentage of the
principal is hedged, providing protection against future rate increases. Refer
to Notes 10 and 11 of the Notes to Consolidated Financial Statements for further
discussion of the term debt and related swap agreements. In early 1995, the
shorter-term interest rate swap agreement was terminated resulting in a deferred
gain of approximately $200,000. This gain is being recognized as an adjustment
to interest expense ratably over the remaining 22 months of the original
agreement. The decision to liquidate this particular swap agreement was based on
an economic analysis of the position and the existing interest term rate
structure.
NON-INTEREST INCOME
Total non-interest income primarily comprises fee-based revenues derived
from mortgage, trust, brokerage, asset management and collection agency
services. Also included in this category is fee income from bank-related
services such as credit card, deposit and other customer services. Total
non-interest income increased 5.3% in 1995 and totaled $31.7 million. This
follows a 5.9% increase in 1994.
Trust revenues are the largest source of fee-based revenues and totaled
$11.4 million in 1995, a 4.5% increase over 1994. This increase followed trust
revenue growth of 7.4% in 1994. The growth in both years was primarily due to
the favorable performance of trust assets under administration, which totaled
$2.3 billion at the end of 1995. While trust revenues have been growing, it is
difficult to predict future income trends as asset market values, plan
terminations and corporate profit-sharing contributions, among other things,
impact the level of these fees.
Another major contributor to non-interest income is mortgage revenues,
which includes income generated from underwriting and servicing fees on mortgage
loans and gains realized on the sale of these loans. Mortgage revenues totaled
$3.6 million in 1995, a 2.8% decline from 1994. In 1994, mortgage revenues
totaled $3.7 million and declined 8.9% from 1993 due to a rise in long-term
mortgage rates, which caused a significant
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<PAGE> 14
reduction in mortgage loan volumes. Excluding $1.1 million of gains recognized
from the sale of mortgage servicing rights in 1994, mortgage revenues would have
declined 38.7% when compared to 1993. Effective January 1, 1995, the mortgage
company adopted FAS No. 122--"Accounting for Mortgage Servicing Rights", which
had a $1.1 million positive impact on mortgage revenues in 1995. This new
accounting standard allows for the recognition of the value of servicing rights
on originated mortgage loans and results in an asset that is amortized over the
remaining estimated lives of the serviced loans. While the new standard has a
favorable impact on earnings at the time of sale, additional earnings volatility
may occur with changes in market conditions, particularly with fluctuations in
interest rates. For example, a decline in interest rates could result in
accelerated mortgage prepayments, which may reduce the value of this asset and
require a write-down through a valuation reserve. If subsequent valuations
result in an increase of value, recoveries can be recorded through the valuation
allowance, to the extent of the previous write-downs.
A reduction in long-term mortgage rates would create an upward trend in
origination volumes, particularly with refinancing activity. This has a positive
impact on mortgage revenues; however, the impact could be partially offset with
possible write-downs of existing mortgage servicing rights, as explained
earlier.
One component of mortgage revenues is servicing income, which totaled $2.2
million in 1995, an increase of 28.7% over 1994. Total serviced loans were $874
million at December 31, 1995 versus $620 million at the end of 1994, an increase
of 41.0%. These increases were the result of loan originations over the past
year and the purchase of a mortgage servicing rights portfolio.
Service charges generated from deposit account relationships are another
major contributor to fee-based revenue. These revenues totaled $7.0 million in
1995, a 3.6% increase over 1994, and followed a 4.4% increase over 1993. The
increases were primarily due to an increase in the number of deposit accounts.
Collection agency fee income totaled $1.8 million in 1995, an increase of
$131,000 or 7.7% over 1994. This increase followed a $213,000 or 11.1% decline
in 1994 when compared to 1993. The improvement in 1995 was primarily due to the
addition of new accounts. The decline in 1994 was mainly due to a drop in
account placements and a turnover of collection staff.
Other non-interest income, which includes fee-based income from various
banking services, brokerage, insurance and investment advisory services, among
other things, increased $826,000, or 11.7% in 1995, after a $1.2 million or
20.8% increase in 1994. Customer service fees totaling $1.9 million and credit
card fees totaling $1.8 million produced increases of 16.2% and 9.3%,
respectively, over 1994. Insurance commissions totaled $1.0 million in 1995, a
20.1% increase over 1994. Commissions from the insurance group, which was formed
in early 1994, accounted for much of this increase. The insurance group offers a
full range of insurance products and has focused on cross-selling opportunities
with mortgage, commercial and retail customers, in addition to marketing their
products to the area communities. The increase in other non-interest income in
1994 of $1.2 million was primarily the result of $354,000 in additional
brokerage commissions, $351,000 of insurance commissions and $195,000 of
investment advisory revenues.
Net security gains totaled $2.3 million in 1995 as compared to $908,000 and
$1.2 million in 1994 and 1993, respectively. The increase in 1995 was primarily
the result of a higher level of sales from the larger available for sale
portfolio. Included in 1994 net security gains were $100,000 of gross gains and
$40,000 of gross losses from the sale of held to maturity securities at FSB,
shortly after the merger. These sales were completed in conjunction with the
restructuring of FSB's investment portfolio, in order to conform with AMCORE's
interest rate risk position.
OPERATING EXPENSES
Total operating expenses for 1995 were $87.4 million, an $8.7 million or
11.1% increase over 1994. Without the $5.6 million impairment and merger-related
charges, total operating expenses would have increased $3.2 million or 4.0%. In
1994, total operating costs rose $2.6 million or 3.4% over 1993. The impairment
charge caused by the early adoption of FAS 121 totaled $3.3 million and included
write-downs of intangibles from the acquisition of a collection agency, and
reductions of the carrying values assigned to bank facilities (See Note 7 of the
Notes to Consolidated Financial Statements). The remaining $2.3 million charge
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<PAGE> 15
comprised merger-related costs from the May 1995 merger with NBM, the remaining
costs from two 1994 bank mergers, and other costs in connection with significant
upgrades to information systems technology. The merger-related costs were
included within the applicable operating expense categories on the Consolidated
Statements of Income, and primarily consisted of severance and other personnel
costs, equipment expenses, and professional fees.
As a percentage of average assets, total operating expense was 3.89% in
1995 versus 3.82% in 1994 and 3.85% in 1993. The efficiency ratio, which
measures the level of non-interest expense to total tax equivalent net revenues,
was 72.2% in 1995 as compared to 68.0% in 1994 and 67.2% in 1993. Without the
$5.6 million of impairment and merger-related charges in 1995, the operating
expense to average assets ratio would have been 3.64% and the efficiency ratio
would have been 67.6%.
Personnel costs, which includes compensation expense and employee benefits,
is the largest component of operating expense. Exclusive of the merger-related
charge, this category totaled $44.9 million in 1995 and increased $3.5 million
or 8.4% over 1994, followed by a 1.4% increase in 1994. The higher costs in 1995
were primarily caused by an increase in employees due to the expansion of branch
facilities and data processing activities, as well as normal salary increases.
Personnel costs in 1994 had a minimal increase over 1993 due to a drop in
commissions paid at the mortgage company and collection agency, and lower
incentive and profit sharing expense. As a percent of average assets, total
personnel costs were 2.03%, 2.01% and 2.06% in 1995, 1994 and 1993,
respectively. Employee benefits were 25.4% of compensation expense in 1995
compared with 26.7% in both 1994 and 1993.
Total occupancy and equipment expense in 1995, exclusive of $1.2 million in
merger-related charges, was $12.1 million, an increase of $1.1 million or 10.2%
over 1994. In 1994, total occupancy and equipment expense was $11.0 million, an
increase of $1.6 million, or 16.8% over 1993. The increase in 1995 was due to
expenses associated with the upgrade in information systems hardware and
software, as well as the expansion of branch facilities in supermarket
locations. The 1994 increase was caused by a number of factors including the
construction of a full service branch in Elgin, Illinois, the opening of
supermarket branches, and the completion of additions to the corporate training
and operations centers.
In late 1995, a new teller automation product delivery system was installed
within the bank teller lines. Plans are underway in 1996 to expand this delivery
system throughout the entire customer service platform. This will initially
increase equipment-related costs in 1996, but is expected to improve the
day-to-day efficiencies of employees, enhance customer service and improve
cross-selling effectiveness.
Insurance expense declined $1.8 million or 38.9% due to the FDIC's decision
to reduce deposit insurance premiums from $.23 to $.03 per $100 of deposit,
effective June 1995. In 1996, the premium has been eliminated for well
capitalized banks, which includes all AMCORE banks. As a result, additional
expense reduction in 1996 is expected to be approximately $1.6 million.
Professional fees, exclusive of $263,000 in merger-related charges, totaled
$2.5 million in 1995, a decline of $900,000 or 26.7% from 1994 as the majority
of legal and accounting fees associated with the FSB and NBA mergers were
incurred in 1994.
Intangibles amortization expense totaled $2.3 million in 1995, a decline of
$254,000 or 9.8% from 1994, which followed a $976,000 or 27.4% decline in 1994
when compared to 1993. These declines were due to the roll-off of core deposit
intangibles from earlier bank acquisitions. In addition, the 1995 impairment
charge of $3.3 million, as separately disclosed in the Consolidated Statements
of Income, included $1.7 million of intangibles amortization expense. The
recognition of these charges in 1995 will have the impact of lowering future
amortization expense.
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<PAGE> 16
The amortization of intangible assets, which includes goodwill, core
deposit and other intangibles, are being amortized over various time periods and
have reduced reported earnings as presented in the following table:
HISTORICAL EFFECTS OF INTANGIBLE AMORTIZATION
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income, as reported.......................... $18,271 $21,801 $21,440 $18,556 $14,949
Net income, as adjusted.......................... 21,132 23,969 24,158 20,175 16,393
------- ------- ------- ------- -------
Effect of intangible amortization................ $(2,861) $(2,168) $(2,718) $(1,619) $(1,444)
======= ======= ======= ======= =======
Earnings per share, as reported.................. $ 1.30 $ 1.55 $ 1.53 $ 1.36 $ 1.10
Earnings per share, as adjusted.................. 1.50 1.71 1.73 1.48 1.21
------- ------- ------- ------- -------
Effect of intangible amortization................ $ (0.20) $ (0.16) $ (0.20) $ (0.12) $ (0.11)
======= ======= ======= ======= =======
</TABLE>
Approximately $8.0 million of intangibles are scheduled to be amortized
during the next five years and the projected impact on net income is as follows:
PROJECTED EFFECTS OF INTANGIBLE AMORTIZATION
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Projected effect on net income................... $(1,620) $(1,603) $(1,496) $(1,065) $(1,011)
Projected effect on earnings per share using 1995
average outstanding shares..................... $ (0.12) $ (0.11) $ (0.11) $ (0.08) $ (0.07)
======= ======= =======
</TABLE>
Exclusive of the merger-related charges, other operating expenses increased
$1.4 million, or 10.7% during 1995 and totaled $14.9 million. In 1994, the
increase was only $69,000, or .5% over 1993. This category includes loan
processing costs, printing and supplies, communication expense, credit card
expense, other real estate expense, external data processing costs,
correspondent bank fees, and other miscellaneous expenses. The increase in 1995
was caused by higher loan processing costs in relation to loan growth, and
increased other real estate expense. As a percentage of average assets, these
expenses were .67%, .65% and .68% in 1995, 1994 and 1993, respectively.
INCOME TAXES
Income tax expense totaled $5.0 million in 1995 compared with $7.7 million
and $7.5 million in 1994 and 1993, respectively. The effective tax rates were
21.5%, 26.0% and 25.8% in 1995, 1994 and 1993, respectively. The effective tax
rate was less than the statutory tax rates due primarily to investments in
tax-exempt municipal bonds and loans. The lower rate in 1995 was caused by
favorable tax rates on a lower level of pre-tax earnings and $300,000 of tax
credits, which resulted from the upgrades to information systems software. Refer
to Note 14 of the Notes to Consolidated Financial Statements for a more detailed
discussion.
BALANCE SHEET SUMMARY
Total assets at December 31, 1995 were $2.42 billion, an increase of $266.5
million or 12.4% over 1994. As shown in Table 4, average total assets for 1995
increased $183.3 million, or 8.9% over 1994. Loan growth and the purchase of
securities in connection with the investment leveraging program accounted for
much of the increase in total assets.
LOANS
Loans represent the largest component of AMCORE's earning asset base. At
the end of 1995, total loans outstanding were $1.29 billion, a $124.1 million,
or 10.7% increase as compared to a year ago, caused mainly
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by steady commercial and real estate loan growth. Additional details can be
found in Table 2, which presents a comparison of the year-end loan portfolios
for the last five years.
Commercial, financial, and agricultural loan balances totaled $348.0
million at December 31, 1995, an increase of $43.2 million or 14.2% when
compared to the end of 1994. Total real estate loans were $655.1 million at the
end of 1995, an increase of $64.2 million or 10.9% over the previous year-end.
The source of this loan growth was mainly in commercial and commercial real
estate lending as a result of active economic development in the Rockford area.
Residential mortgage loans are originated by AMCORE's mortgage affiliate,
of which conforming adjustable rate and balloon residential mortgages are
normally sold to affiliate banks. The fixed-rate residential mortgage loans are
sold in the secondary market to eliminate interest rate risk and generate gains
on the sale of these loans, as well as servicing income. All loans originated by
the mortgage affiliate are considered held for sale and are recorded at the
lower of cost or market value. Installment and consumer balances, net of
unearned income, totaled $282.0 million at December 31, 1995, an increase of
$16.3 million or 6.1%, in comparison with the end of 1994.
For information on the analysis of non-performing loans and other potential
problem loans, refer to the Allowance for Loan and Lease Losses and Credit Risk
section of this narrative.
SECURITIES
Total securities at December 31, 1995 were $908.7 million, an increase of
$124.2 million, or 15.8% over the prior year-end balance. At December 31, 1995
and 1994, the total securities portfolio comprised 41.4% and 40.0%,
respectively, of total earning assets. On January 1, 1994, AMCORE adopted FAS
No. 115--"Accounting for Certain Investments in Debt and Equity Securities".
This accounting standard requires financial institutions to classify securities
into the following three categories: held to maturity, available for sale and
trading. Securities held to maturity are recorded at amortized cost using the
level yield method. Securities available for sale must be recorded at fair value
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related income tax effect. Trading securities
must be recorded at fair value with unrealized gains and losses recorded in
earnings.
In December 1995, substantially all securities classified as held to
maturity were reclassified into the available for sale category. This transfer
was done in response to the Financial Accounting Standards Board's (FASB)
decision to allow companies a one-time opportunity to reclassify their
investment portfolios. This reclassification will significantly improve the
flexibility in managing interest and liquidity risks. While this may cause
additional fluctuations in the unrealized gain or loss component of total
stockholders' equity, it has no impact on regulatory risk-based capital
calculations.
At December 31, 1995, securities held to maturity totaled $24.6 million,
while securities available for sale were $884.0 million. There were no trading
securities at the end of 1994 or 1995. As of December 31, 1995, the held to
maturity securities portfolio included $368,000 of gross unrealized gains and
$26,000 of gross unrealized losses. The securities available for sale portfolio
at the end of 1995 includes gross unrealized gains of $12.0 million and gross
unrealized losses of $2.4 million, of which the combined effect, net of tax, is
included as an unrealized gain in stockholders' equity. For comparative
purposes, at December 31, 1994 gross unrealized gains of $731,000 and gross
unrealized losses of $8.5 million were included in securities available for sale
portfolio. For further analysis of the securities portfolio see Table 5 and Note
3 of the Notes to Consolidated Financial Statements.
SOURCES OF FUNDS
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits are considered by management to be the primary and most stable
source of funding. Total core deposits were $1.51 billion at the end of 1995, a
$12.2 million or .8% decline from the prior year-end. At December 31, 1995, core
deposits were 68.8% of total earning assets, a decline from 77.6% at the end of
1994. This decline was
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<PAGE> 18
partially intentional, as the commencement of the investment leveraging program
elevates earning assets without a corresponding increase in core deposits.
Core deposits are supplemented by large certificates of deposit, brokered
deposits, other time deposits from governmental entities, repurchase agreements
and Federal Home Loan Bank borrowings. The use of repurchase agreements
increased during 1995 in conjunction with the investment leveraging program,
resulting in an $83.5 million increase in short-term borrowings to $292.0
million. Total long-term borrowings at the end of 1995 were $107.8 million, an
increase of $81.3 million over the 1994 total. Included in this total were $88.3
million of Federal Home Loan Bank borrowings with a weighted average maturity of
2.9 years. These borrowings were being utilized to fund the purchase of
mortgage-backed securities in connection with the leveraging program. See Note
10 of the Notes to Consolidated Financial Statements for further discussion of
long-term borrowings.
LIQUIDITY
The liquidity position, as it relates to AMCORE's banking subsidiaries, is
important to ensure that sufficient funds are available to meet the customers'
need for borrowings and deposit withdrawals. Sources of liquidity for banking
subsidiaries include cash received from interest and fees, maturing investments
and loans, short-term liquid assets that can be converted to cash and the
ability to attract funds from the growth of deposits and other external sources.
Tables 3 and 5 show the maturity schedule of loans and investments. Core
deposits of subsidiary banks are relatively stable and generally do not require
the maintenance of significant levels of short-term, liquid assets to meet
withdrawal needs of customers. The growth of deposits, including time deposits
over $100,000, provides a substantial amount of liquidity. Table 6 shows the
maturities of time deposits over $100,000. Short-term borrowings provide a
source of liquidity for subsidiary banks and for the funding of mortgage loans
held for sale and other consumer finance receivables.
The parent company requires adequate liquidity to pay its expenses, repay
debt when due and pay stockholder dividends. Liquidity is provided to the parent
from subsidiaries in the form of dividends and fees for services. In 1995,
dividends and fees from subsidiaries amounted to $25.7 million, compared to
$25.9 million in 1994. Other liquidity is provided by cash balances in banks,
maturing investments, interest on investments, commercial paper borrowings and
borrowings on a line of credit. While subsidiary banks are limited in the amount
of dividends they can pay, as of December 31, 1995, approximately $29.9 million
was available for payment to the parent in the form of dividends which do not
require prior regulatory approval.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT RISK
The provision for loan and lease losses and the level of the allowance for
loan and lease losses are based upon historical loss experience, regular
evaluation of collectibility by management, lending officers and corporate loan
review staff, overall loan quality, and the nature and size of the loan
portfolio. Other factors include current and anticipated economic conditions
that may affect the borrower's ability to pay, the composition of problem loans,
and other considerations necessary to maintain the allowance at an adequate
level to absorb possible future charge-offs of existing loans and leases.
Effective January 1, 1995, AMCORE adopted FAS No. 114--"Accounting by
Creditors for Impairment of a Loan" and FAS No. 118--"Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures". These new
standards require that loans be considered impaired when, based on current
information and events, it is probable that the organization will not collect
all principal and interest due. A portion of the allowance for loan and lease
losses must be set aside for impaired loans and is calculated based on the
present value of the estimated future cash flows of principal and interest,
discounted at the loan's effective rate, or on the fair value of the collateral
for collateral dependent loans. See Note 4 of the Notes to Consolidated
Financial Statements for required disclosures in relation to impaired loans.
The provision for loan and lease losses totaled $2.7 million in 1995, an
increase of $2.1 million when compared to 1994. In 1994, loan loss provisions
declined $1.5 million from the $2.1 million provided in 1993. The increased
provisions in 1995 were necessary to maintain the allowance for loan and lease
losses at a level to support the growth in loans and the level of charge-offs.
In addition, provisions were discontinued in 1994 at
18
<PAGE> 19
many of the banking affiliates due to improvements in overall credit quality.
Higher provisions were made, however, at the consumer finance affiliate during
1994 to cover increased levels of charge-offs. In December 1994, four of the
five consumer finance branches were sold due to a strategic redirection of this
affiliate. In 1995, the consumer finance affiliate has focused its lending
efforts with the initiation of a "second-chance" program for loan applications
that have been rejected by mortgage and banking affiliates. It has also been
developing financing programs for several regional wholesale satellite dish
distributors.
As shown in Table 2, total net charge-offs in 1995 were $2.9 million versus
$1.8 million in 1994, and $1.7 million in 1993. The increased net charge-offs in
1995 were primarily caused by write-downs of two non-performing commercial real
estate loans. One of these loans was subsequently transferred into other real
estate owned prior to the end of 1995. Total real estate loan net charge-offs
were $1.0 million in 1995 versus $119,000 and $115,000 in 1994 and 1993,
respectively. Commercial loan net charge-offs totaled $414,000 in 1995 versus
$349,000 in 1994 and $690,000 in 1993. In 1995, installment and consumer loan
net charge-offs rose $170,000 and totaled $1.5 million. The 1994 installment and
consumer loan net charge-offs totaled $1.3 million, which was a $424,000
increase over the 1993 charge-off level due to the higher consumer finance
charge-offs, as mentioned earlier.
The ratio of net charge-offs to average total loans outstanding rose during
1995 to .24% compared with .17% in both 1994 and 1993. Recoveries were 27.4% of
charge-offs in 1995 compared with 39.1% and 41.2% in 1994 and 1993,
respectively, the decline due to the larger commercial real estate charge-offs
in 1995.
Non-performing assets consist of loans not accruing interest, loans with
renegotiated terms, and other real estate owned. Total non-performing loans at
December 31, 1995 were $12.9 million, an increase of $91,000 or 0.7% from a year
earlier. Non-accrual loans totaled $10.4 million, a decline of $104,000 when
compared to the end of 1994. Restructured loans totaled $2.5 million at the end
of 1995 as compared to $2.3 million at December 31, 1994. Non-performing loans
comprised 1.00% of the loan portfolio at the end of 1995, an improvement from
the 1.10% at December 31, 1994. The other real estate owned balance at December
31, 1995, was $2.1 million, an increase of $1.0 million from the prior year due
to the addition of a commercial property as mentioned earlier. The ratio of
non-performing assets to total loans and other real estate owned was 1.17% at
December 31, 1995 versus 1.19% a year earlier. In addition to the non-performing
loans described in Table 2, loans totaling approximately $22.3 million were
identified as potential problem loans at the end of 1995 in comparison to $22.4
million as of December 31, 1994.
The coverage of the allowance for loan and lease losses to non-performing
loans was 101.1% at the end of 1995 versus 103.7% a year earlier. The allowance
for loan and lease losses as a percentage of loans and leases was 1.02% in
comparison to 1.14% at December 31, 1994. Management determines the adequacy of
each affiliate bank's allowance by calculating the allocated and unallocated
portions of the allowance using a combination of internal loan classifications,
weighted historical charge-off experience and an evaluation of estimated losses
on existing problem credits. The allowance is maintained to cover the allocated
requirement plus an unallocated portion, which considers current and anticipated
economic conditions, industry concentrations or concerns and other risk factors.
See Note 4 of the Notes to Consolidated Financial Statements for the allocation
of the allowance for loan and lease losses.
Commercial loans represented 41.0% of non-performing loans at December 31,
1995 compared to 46.7% a year earlier. Non-performing commercial real estate
loans increased slightly to 36.6% of total non-performing loans versus 36.3% a
year ago. Installment, consumer and residential real estate non-performing loans
rose to 22.4% of the total compared with 17.0% in 1994. Loans that were past due
90 days or more and still accruing interest totaled $1.3 million at the end of
1995 in comparison to $846,000 a year earlier.
CAPITAL
Total stockholders' equity increased 12.7% to $209.9 million at December
31, 1995. Total equity as a percent of assets was 8.68% at the end of 1995
versus 8.65% a year earlier. Included in total stockholders' equity is the net
unrealized gain on securities classified as available for sale, which amounted
to $5.8 million at the end of 1995. At the end of 1994, there was an unrealized
loss of $6.3 million. Therefore, the improvement
19
<PAGE> 20
during 1995 resulted in a $12.1 million increase in total stockholders' equity.
Without the impact of this component of stockholders' equity, total
stockholders' equity would have increased 6.0% in 1995.
AMCORE paid $8.2 million in cash dividends during 1995, representing $.58
per share and a payout ratio of 37.4%, adjusted to eliminate the $.25 per share
after-tax impact of the impairment and merger-related charges. This compares to
1994 dividends of $7.7 million, or $.55 per share, a payout ratio of 35.4%. In
1993, cash dividends were $.41 per share, a payout ratio of 26.9%.
Federal banking guidelines require banking organizations to maintain
minimum capital levels on a risk-adjusted basis. As of December 31, 1995, Tier 1
capital was 12.40% and total risk-based capital was 13.26%, well above the
required minimum ratios of 4% and 8%, respectively. AMCORE is considered a "well
capitalized" institution based on regulatory guidelines, which is the highest
category. The following table shows a comparison of 1995 and 1994 year-end
capital ratios ($ in 000's):
<TABLE>
<CAPTION>
1995 1994
---------------- MINIMUM ----------------
AMOUNT RATIO REQUIRED AMOUNT RATIO
-------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS
Tier 1 Capital......................... $189,730 12.40% 4.00% $174,142 12.68%
Total Capital.......................... 202,790 13.26% 8.00% 187,444 13.65%
SUPPLEMENTAL RATIO
Leverage Ratio......................... 189,730 8.14% 4.00% 174,142 8.94%
Risk-weighted Assets..................... 1,529,688 N/A N/A 1,373,093 N/A
</TABLE>
IMPACT OF INFLATION
The impact of inflation on a banking organization is difficult to assess.
Unlike a commercial entity, a banking organization's assets and liabilities are
primarily monetary in nature. Therefore, a banking organization will not
necessarily benefit or experience adverse effects when moderate changes in the
rate of inflation occur. Moreover, interest rates, which are a major determinant
of a banking organization's profitability, do not necessarily follow changes in
the prices of goods and services. An analysis of a banking organization's asset
and liability structure provides the best indication of how it is positioned to
respond to changing interest rates and to maintain profitability. In that
regard, your attention is directed to various data encompassing the net interest
margin and interest sensitivity analysis contained in Tables 1, 3, 5 and 7.
OTHER DEVELOPMENTS
In October 1995, the FASB issued FAS No. 123--"Accounting for Stock Based
Compensation", which must be adopted in 1996. This new standard encourages, but
does not require, companies to account for stock based compensation awards on
the basis of fair value at the date the awards are granted. The fair value of
the awards would be shown as an expense item on the income statement. If this
new accounting method is not adopted, additional footnote disclosures will be
necessary to show the impact this new accounting would have on net earnings and
earnings per share. It is expected AMCORE will elect to only provide the
required footnote disclosures in relation to this new standard.
On February 28, 1996, AMCORE filed a Form 8-K with the Securities and
Exchange Commission to announce the Board of Director's adoption of a new
shareholder rights plan. This plan replaces the existing rights plan, which
expired on February 27, 1996 and is intended to promote continuity and
stability, deter coercive or partial offers which will not provide fair value to
all shareholders, and enhance the Board's ability to represent all shareholders
and thereby maximize shareholder values. Pursuant to this new plan, one right,
with an exercise price of $70, was issued for each outstanding share of common
stock upon expiration of the previous plan. Each new right will not become
exercisable unless and until any party acquires 15% or more of the outstanding
common stock, or acquires 10% or more of the outstanding common stock and is
determined to be an adverse party by the Board. Upon either such event, each
right would entitle the holder to purchase common stock having a market value
equal to twice the exercise price. These rights are redeemable under certain
circumstances at $.01 per right and will expire, unless earlier redeemed, on
February 27, 2006.
20
<PAGE> 21
TABLE 1
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTEREST EARNED
AVERAGE BALANCE AVERAGE RATE OR PAID
- ------------------------------------ -------------------- -------------------
1995 1994 1993 1995 1994 1993 1995 1994
- ---------- ---------- ---------- ---- ---- ---- -------- --------
<C> <C> <C> <C> <C> <C> <S> <C> <C>
INTEREST EARNING ASSETS:
$ 583,372 $ 520,507 $ 542,636 6.78% 6.15% 6.41% Taxable securities........................... $ 39,530 $ 32,030
228,802 244,251 186,118 8.06 7.91 8.44 Tax-exempt securities(1)..................... 18,437 19,311
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$ 812,174 $ 764,758 $ 728,754 7.14% 6.71% 6.93% Total securities............................. $ 57,967 $ 51,341
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
11,267 12,033 31,747 7.94 7.39 7.32 Mortgage loans held for sale................. 895 889
1,228,175 1,088,206 1,000,759 8.93 8.36 8.53 Loans and leases(1)(2)....................... 109,725 90,958
8,656 15,323 44,096 5.93 4.97 3.26 Other earning assets......................... 513 761
Fees on mortgages held for sale(3)........... 2,076 2,004
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$2,060,272 $1,880,320 $1,805,356 8.31% 7.76% 7.93% TOTAL EARNING ASSETS (FTE)................... $171,176 $145,953
========== ========== ========== ===== ===== ===== ======== ========
INTEREST BEARING LIABILITIES:
Interest-bearing demand and savings
$ 597,764 $ 645,017 $ 631,860 2.58% 2.31% 2.36% deposits..................................... $ 15,397 $ 14,894
924,580 812,324 800,106 5.70 4.72 4.91 Time deposits................................ 52,665 38,308
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$1,522,344 $1,457,341 $1,431,966 4.47% 3.65% 3.79% Total interest-bearing deposits.............. $ 68,062 $ 53,202
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
232,997 125,662 92,995 6.26 4.45 3.23 Short-term borrowings........................ 14,574 5,595
29,458 27,598 31,489 6.96 7.46 6.73 Long-term borrowings......................... 2,050 2,058
5,122 4,413 3,216 7.69 7.70 9.17 Other........................................ 394 340
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$1,789,921 $1,615,014 $1,559,666 4.75% 3.79% 3.82% TOTAL INTEREST-BEARING LIABILITIES........... $ 85,080 $ 61,195
---- ---- ----
========== ========== ========== - - -
-------- --------
3.56% 3.97% 4.11% INTEREST RATE SPREAD (FTE)...................
NET INTEREST MARGIN/
4.18% 4.51% 4.62% NET INTEREST INCOME (FTE).................... $ 86,096 $ 84,758
===== ===== ===== ======== ========
<CAPTION>
1995/1994 1994/1993
CHANGE CHANGE
DUE TO DUE TO
----------------- ------------------
1993 VOLUME RATE VOLUME RATE
-------- ------- ------- ------- --------
<C> <C> <C> <C> <C>
$ 34,788 $ 4,081 $ 3,419 $(1,390) $ (1,368)
15,707 (1,239) 365 4,648 (1,044)
-------- ------- ------- ------ -------
$ 50,495 $ 2,842 $ 3,784 $ 3,258 $ (2,412)
-------- ------- ------- ------ -------
2,324 (59) 65 (1,456) 21
85,317 12,223 6,544 7,336 (1,695)
1,439 (375) 127 (1,211) 533
3,530 (182) 254 (2,739) 1,213
-------- ------- ------- ------ -------
$143,105 $14,449 $ 10,774 $ 5,188 $ (2,340)
======== ======= ======= ====== =======
$ 14,921 $(1,140) $ 1,643 $ 308 $ (335)
39,284 5,733 8,624 593 (1,569)
-------- ------- ------- ------ -------
$ 54,205 $ 4,593 $ 10,267 $ 901 $ (1,904)
-------- ------- ------- ------ -------
3,008 6,092 2,887 1,249 1,338
2,119 134 (142) (277) 216
295 55 (1) 97 (52)
-------- ------- ------- ------ -------
$ 59,627 $10,874 $ 13,011 $ 1,970 $ (402)
-------- ------- ------- ------ -------
$ 83,478 $ 3,575 $(2,237) $ 3,218 $ (1,938)
======== ======= ======= ====== =======
</TABLE>
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
- ---------------
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The balances of nonaccrual loans are included in average loans outstanding.
Interest on loans includes yield-related loan fees.
(3) The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during the
period in which they are warehoused for sale as shown above.
21
<PAGE> 22
TABLE 2
ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $ 347,996 $ 304,835 $ 289,767 $ 289,092 $303,877
Banker's acceptances, commercial paper and term
fed funds..................................... -- -- -- 9,987 --
Real estate..................................... 621,309 566,496 485,369 459,857 391,444
Real estate-construction........................ 33,797 24,380 12,997 15,574 13,495
Installment and consumer........................ 286,278 275,024 263,311 237,880 244,991
Direct lease financing.......................... 811 361 715 976 1,307
---------- ---------- ---------- ---------- --------
Gross Loans................................... $1,290,191 $1,171,096 $1,052,159 $1,013,366 $955,114
Unearned income............................... (4,230) (9,226) (16,317) (17,120) (19,680)
---------- ---------- ---------- ---------- --------
Loans, net of unearned income................. $1,285,961 $1,161,870 $1,035,842 $ 996,246 $935,434
Allowance for loan and lease losses........... (13,061) (13,302) (14,482) (14,080) (10,545)
---------- ---------- ---------- ---------- --------
NET LOANS....................................... $1,272,900 $1,148,568 $1,021,360 $ 982,166 $924,889
========== ========== ========== ========== =========
SUMMARY OF LOAN LOSS EXPERIENCE:
Allowance for loan and lease losses,
beginning..................................... $ 13,302 $ 14,482 $ 14,080 $ 10,545 $ 10,187
Amounts charged-off:
Commercial, financial and agricultural........ 818 801 1,094 2,144 6,106
Real estate................................... 1,024 173 269 117 57
Installment and consumer...................... 2,199 1,996 1,563 2,227 2,858
Direct lease financing........................ -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total Charge-offs...................... $ 4,041 $ 2,970 $ 2,926 $ 4,488 $ 9,021
---------- ---------- ---------- ---------- --------
Recoveries on amounts previously charged off:
Commercial, financial and agricultural........ 404 452 404 863 666
Real estate................................... 15 54 154 37 131
Installment and consumer...................... 689 656 646 650 650
Direct lease financing........................ -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total Recoveries....................... $ 1,108 $ 1,162 $ 1,204 $ 1,550 $ 1,447
---------- ---------- ---------- ---------- --------
Net Charge-offs........................ $ 2,933 $ 1,808 $ 1,722 $ 2,938 $ 7,574
Provision charged to expense.................... 2,692 628 2,124 5,547 7,932
Addition due to purchase of subsidiary.......... -- -- -- 1,719 --
Reduction due to sale of subsidiary............. -- -- -- (793) --
---------- ---------- ---------- ---------- --------
ALLOWANCE FOR LOAN AND LEASE LOSSES,
ENDING.................................... $ 13,061 $ 13,302 $ 14,482 $ 14,080 $ 10,545
========== ========== ========== ========== =========
NON-PERFORMING LOANS AT YEAR-END:
Non-accrual..................................... $ 10,432 $ 10,536 $ 11,644 $ 9,856 $ 5,883
Restructured.................................... 2,491 2,296 1,371 563 4,892
---------- ---------- ---------- ---------- --------
TOTAL NON-PERFORMING LOANS.................. $ 12,923 $ 12,832 $ 13,015 $ 10,419 $ 10,775
========== ========== ========== ========== =========
Past due 90 days or more not included above..... 1,301 846 1,816 1,542 3,155
========== ========== ========== ========== =========
RATIOS:
Allowance to year-end loans..................... 1.02% 1.14% 1.40% 1.41% 1.13%
Allowance to non-performing loans............... 101.07 103.66 111.27 135.14 97.87
Net charge-offs to average loans................ 0.24 0.17 0.17 0.32 0.79
Recoveries to charge-offs....................... 27.42 39.12 41.15 34.54 16.04
Non-performing loans to loans, net of
unearned...................................... 1.00 1.10 1.26 1.05 1.15
</TABLE>
22
<PAGE> 23
TABLE 3
MATURITY AND INTEREST SENSITIVITY OF LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------------
LOANS DUE AFTER
TIME REMAINING TO MATURITY ONE YEAR
----------------------------------- ---------------------
ONE AFTER FIXED FLOATING
DUE WITHIN TO FIVE FIVE INTEREST INTEREST
ONE YEAR YEARS YEARS TOTAL RATE RATE
---------- -------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............ $187,626 $146,172 $14,198 $347,996 $ 85,892 $ 74,478
Real
estate-construction..... 14,011 16,455 3,331 33,797 14,449 5,337
-------- -------- ------- -------- -------- -------
TOTAL........... $201,637 $162,627 $17,529 $381,793 $100,341 $ 79,815
======== ======== ======= ======== ======== =======
</TABLE>
TABLE 4
THREE-YEAR COMPARISON OF AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities............... $ 583,372 26.0% $ 520,507 25.2% $ 542,636 27.4%
Tax-exempt securities............ 228,802 10.2 244,251 11.9 186,118 9.4
Other earning assets............. 8,656 0.4 15,323 0.7 44,096 2.2
Mortgage loans held for sale..... 11,267 0.5 12,033 0.6 31,747 1.6
Loans and leases, net of unearned
income........................ 1,228,175 54.7 1,088,206 52.8 1,000,759 50.7
---------- ----- ---------- ----- ---------- -----
Total Earning Assets..... $2,060,272 91.8 $1,880,320 91.2 $1,805,356 91.3
Non-earning assets....... 185,623 8.2 182,277 8.8 172,051 8.7
---------- ----- ---------- ----- ---------- -----
TOTAL ASSETS............. $2,245,895 100.0% $2,062,597 100.0% $1,977,407 100.0%
========== ===== ========== ===== ========== =====
LIABILITIES AND STOCKHOLDERS'
EQUITY:
LIABILITIES:
Interest bearing deposits........ $1,522,344 67.8% $1,457,341 70.6% $1,431,966 72.5%
Non-interest bearing deposits.... 242,083 10.8 248,834 12.1 233,841 11.8
---------- ----- ---------- ----- ---------- -----
Total Deposits........... $1,764,427 78.6 $1,706,175 82.7 $1,665,807 84.3
---------- ----- ---------- ----- ---------- -----
Short-term borrowings............ $ 232,997 10.4 $ 125,662 6.1 $ 90,760 4.6
Long-term borrowings............. 29,458 1.3 27,598 1.3 33,724 1.7
Other liabilities................ 24,467 1.0 19,991 1.0 18,377 0.9
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES........ $2,051,349 91.3 $1,879,426 91.1 $1,808,668 91.5
STOCKHOLDERS' EQUITY..... 194,546 8.7 183,171 8.9 168,739 8.5
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $2,245,895 100.0% $2,062,597 100.0% $1,977,407 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
23
<PAGE> 24
TABLE 5
MATURITY OF SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT STATES AND CORPORATE
POLITICAL OBLIGATIONS
U.S. TREASURY AGENCIES SUBDIVISIONS(1) AND OTHER TOTAL
---------------- ---------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
One year or less.......... $ 6,506 4.68% -- -- $ 3,427 8.32% $ 10 6.00% $ 9,943 5.94%
After one through five
years................... 1,095 5.20 -- -- 3,641 9.83 2 7.38 4,738 8.75
After five through ten
years................... -- -- -- -- 2,030 8.68 -- -- 2,030 8.68
After ten years........... -- -- -- -- 135 8.19 7,779 5.98 7,914 6.02
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities
Held to
Maturity.......... $ 7,601 4.75% -- -- $ 9,233 8.99% $ 7,791 5.98% $ 24,625 6.73%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Securities Available for
Sale:
One year or less.......... $ 29,160 6.40% $ 9,749 6.88% $ 15,363 7.90% $12,226 6.40% $ 66,498 6.81%
After one through five
years................... 80,730 6.29 29,441 5.76 67,868 7.70 25,708 6.05 203,747 6.65
After five through ten
years................... 1,637 8.89 15,328 7.91 102,449 7.35 1,034 6.12 120,448 7.43
After ten years........... -- -- -- -- 36,947 8.69 9,251 3.96 46,198 7.72
Mortgage-backed
securities(2)........... -- -- 418,665 7.13 -- -- 28,488 6.61 447,153 7.10
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities
Available for
Sale.............. $111,527 6.35% $473,183 7.07% $222,627 7.71% $76,707 6.06% $884,044 7.05%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities.... $119,128 6.25% $473,183 7.07% $231,860 7.76% $84,498 6.05% $908,669 7.04%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
- ------------
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) Mortgage-backed security maturities may differ from contractual maturities
because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included within the maturity
categories above.
TABLE 6
MATURITY OF TIME DEPOSITS OVER $100,000
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------
TIME REMAINING TO MATURITY
----------------------------------------------------------------------------
DUE WITHIN THREE TO SIX TO AFTER
THREE MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TOTAL
------------ ---------- ------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit.... $ 55,230 $ 46,537 $44,258 $ 105,747 $251,772
Other time deposits........ 10,304 3,813 496 1,058 15,671
------------ ---------- ------------- ------------- --------
TOTAL............ $ 65,534 $ 50,350 $44,754 $ 106,805 $267,443
========== ======== =========== =========== ========
</TABLE>
24
<PAGE> 25
TABLE 7
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------
1-30 31-90 91-180 181-365 OVER 1
DAYS DAYS DAYS DAYS YEAR TOTAL
--------- --------- --------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning deposits in banks... $ 260 $ -- $ -- $ $ -- $ 260
Federal funds sold and other
short-term investments............. 9,050 -- -- -- -- 9,050
Mortgage loans held for sale......... 11,061 4,740 -- -- -- 15,801
Investment securities................ 66,220 12,638 17,777 59,898 752,136 908,669
Net loans............................ 322,825 75,287 75,129 136,482 676,238 1,285,961
--------- --------- --------- --------- ---------- ----------
Total Earning Assets............ $ 409,416 $ 92,665 $ 92,906 $ 196,380 $1,428,374 $2,219,741
========= ========= ========= ========= ========= =========
Interest-bearing deposits............ $ 635,638 $ 83,523 $ 160,799 $ 174,457 $ 458,056 $1,512,473
Short-term borrowings................ 182,770 103,930 3,480 1,862 -- 292,042
Long-term borrowings................. 446 17,004 7 14 90,332 107,803
--------- --------- --------- --------- ---------- ----------
Total Interest-Bearing
Liabilities................... 818,854 204,457 164,286 176,333 548,388 1,912,318
--------- --------- --------- --------- ---------- ----------
Net Asset (Liability) Repricing
Difference......................... (409,438) (111,792) (71,380) 20,047 879,986 $ 307,423
=========
--------- --------- --------- --------- ----------
Cumulative Asset (Liability)
Repricing Difference............... $(409,438) $(521,230) $(592,610) $(572,563) $ 307,423
========= ========= ========= ========= =========
Cumulative Rate Sensitive Assets
(RSA) to Rate Sensitive Liabilities
(RSL).............................. 0.50 0.49 0.50 0.58 1.16
========= ========= ========= ========= =========
Cumulative Asset (Liability)
Repricing Difference as a Percent
of Earning Assets.................. (18.4%) (23.5%) (26.7%) (25.8%) 13.8%
========= ========= ========= ========= =========
</TABLE>
- ---------------
The above table shows a cumulative unadjusted RSA to RSL ratio. While this is
important, it only represents a static view of interest rate sensitivity.
AMCORE's asset/liability management policy focuses on an adjusted rate
sensitivity position, which is adjusted to account for changes in the rate of
variance of net interest income resulting from changes in interest rates. For
further discussion refer to the Net Interest Income and Interest Rate
Sensitivity and Liquidity sections of the Management's Discussion and Analysis
of the Results of Operations and Financial Condition.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 101,082 $ 92,201
Interest earning deposits in banks.................................. 260 508
Federal funds sold and other short-term investments................. 9,050 5,656
Mortgage loans held for sale........................................ 15,801 10,184
Securities available for sale....................................... 884,044 318,246
Securities held to maturity (market value: $24,967 in 1995; $444,455
in 1994).......................................................... 24,625 466,211
---------- ----------
Total securities (Note 3)................................. $ 908,669 $ 784,457
Net loans and leases (Note 4)....................................... 1,272,900 1,148,568
Premises and equipment, net (Note 6)................................ 49,670 49,178
Intangible assets, net.............................................. 14,314 18,314
Other real estate owned............................................. 2,116 1,099
Other assets........................................................ 44,670 41,818
---------- ----------
TOTAL ASSETS.............................................. $2,418,532 $2,151,983
========= =========
LIABILITIES
Deposits:
Interest bearing.................................................. $1,512,473 $1,456,702
Non-interest bearing.............................................. 265,232 250,857
---------- ----------
Total deposits............................................ $1,777,705 $1,707,559
Short-term borrowings (Note 9)...................................... 292,042 208,525
Long-term borrowings (Note 10)...................................... 107,803 26,487
Other liabilities................................................... 31,120 23,253
---------- ----------
TOTAL LIABILITIES......................................... $2,208,670 $1,965,824
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares; issued
none.............................................................. $ -- $ --
Common stock, $.33 par value: authorized 30,000,000 shares;
</TABLE>
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C> <C> <C> <C>
Issued 14,926,695 14,926,695
Outstanding 14,174,183 14,039,680 .............................. 4,976 4,976
Additional paid-in capital.......................................... 56,412 56,533
Retained earnings (Notes 10 and 12)................................. 149,315 139,245
Treasury stock and other............................................ (6,659) (8,296)
Net unrealized gain (loss) on securities available for sale......... 5,818 (6,299)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................ $ 209,862 $ 186,159
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $2,418,532 $2,151,983
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases...................... $109,488 $ 90,719 $ 84,894
Interest on securities:
Taxable.................................................. 39,530 32,030 34,788
Tax-exempt............................................... 11,984 12,552 10,209
-------- -------- --------
Total Income from Securities..................... $ 51,514 $ 44,582 $ 44,997
Interest on federal funds sold and other short-term
investments.............................................. 490 585 1,289
Interest and fees on mortgage loans held for sale.......... 2,971 2,893 5,854
Interest on deposits in banks.............................. 23 176 150
-------- -------- --------
TOTAL INTEREST INCOME............................ $164,486 $138,955 $137,184
INTEREST EXPENSE
Interest on deposits....................................... $ 68,062 $ 53,202 $ 54,205
Interest on short-term borrowings.......................... 14,574 5,595 3,008
Interest on long-term borrowings........................... 2,050 2,058 2,119
Other...................................................... 394 340 295
-------- -------- --------
TOTAL INTEREST EXPENSE........................... $ 85,080 $ 61,195 $ 59,627
-------- -------- --------
NET INTEREST INCOME.............................. $ 79,406 $ 77,760 $ 77,556
Provision for loan and lease losses (Note 4)............... 2,692 628 2,124
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES................................................... $ 76,714 $ 77,132 $ 75,432
OTHER INCOME
Trust revenues............................................. $ 11,401 $ 10,910 $ 10,158
Service charges on deposits................................ 6,986 6,742 6,455
Mortgage revenues.......................................... 3,584 3,687 4,048
Collection fee income...................................... 1,831 1,700 1,913
Other...................................................... 7,913 7,087 5,868
-------- -------- --------
TOTAL OTHER INCOME, EXCLUDING NET
REALIZED SECURITY GAINS........................ $ 31,715 $ 30,126 $ 28,442
Net realized security gains................................ 2,298 908 1,163
-------- -------- --------
TOTAL OTHER INCOME............................... $ 34,013 $ 31,034 $ 29,605
OPERATING EXPENSES
Compensation expense....................................... $ 36,416 $ 32,659 $ 32,220
Employee benefits.......................................... 9,246 8,726 8,605
Net occupancy expense...................................... 5,068 4,739 4,392
Equipment expense.......................................... 8,229 6,276 5,042
Insurance expense.......................................... 2,765 4,528 4,492
Professional fees.......................................... 2,733 3,370 2,384
Advertising and business development....................... 2,437 2,377 2,079
Amortization of intangible assets.......................... 2,331 2,585 3,561
Impairment of long-lived assets (Note 7)................... 3,269 -- --
Other...................................................... 14,946 13,430 13,361
-------- -------- --------
TOTAL OPERATING EXPENSES......................... $ 87,440 $ 78,690 $ 76,136
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. $ 23,287 $ 29,476 $ 28,901
Income taxes (Note 14)..................................... 5,016 7,675 7,461
-------- -------- --------
NET INCOME................................................. $ 18,271 $ 21,801 $ 21,440
======== ======== ========
EARNINGS PER COMMON SHARE.................................. $ 1.30 $ 1.55 $ 1.53
DIVIDENDS PER COMMON SHARE................................. 0.58 0.55 0.41
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................. 14,083 14,023 13,972
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
ADDITIONAL TREASURY SECURITIES TOTAL
COMMON PAID-IN RETAINED STOCK AVAILABLE STOCKHOLDERS'
STOCK CAPITAL EARNINGS AND OTHER FOR SALE EQUITY
------ ---------- -------- --------- -------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992, as previously
reported....................................... $4,424 $ 50,727 $ 98,335 $(10,432 ) -- $143,054
Adjustment for pooling-of-interests (Note 2)..... 546 5,654 11,075 (33 ) -- 17,242
------ ------- -------- ------- ------ --------
Balance at December 31, 1992, as restated........ $4,970 $ 56,381 $109,410 $(10,465 ) -- $160,296
------ ------- -------- ------- ------ --------
Net Income..................................... -- -- 21,440 -- -- 21,440
Cash dividends on common stock--$.41 per
share........................................ -- -- (5,730) -- -- (5,730)
Issuance of 22,330 shares for Non-Employee
Directors.................................... -- 128 -- (128 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 300 -- 300
Reissuance of 140,970 treasury shares under
incentive stock option plans................. -- (7) -- 1,316 -- 1,309
------ ------- -------- ------- ------ --------
Balance at December 31, 1993..................... $4,970 $ 56,502 $125,120 $ (8,977 ) $ 0 $177,615
------ ------- -------- ------- ------ --------
Recognition of unrealized gain on securities
available for sale, net of tax............... -- -- -- -- 6,408 6,408
Net Income..................................... -- -- 21,801 -- -- 21,801
Cash dividends on common stock--$.55 per
share........................................ -- -- (7,678) -- -- (7,678)
Proceeds from sale of 17,203 shares of common
stock........................................ 6 83 -- -- -- 89
Issuance of 4,032 shares for Non-Employee
Directors.................................... -- 36 -- (36 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 360 -- 360
Reissuance of 22,533 treasury shares under
incentive stock option plans................. -- (88) 2 357 -- 271
Net change in unrealized gains and losses on
securities available for sale, net of tax.... -- -- -- -- (12,707) (12,707)
------ ------- -------- ------- ------ --------
Balance at December 31, 1994..................... $4,976 $ 56,533 $139,245 $ (8,296 ) $ (6,299) $186,159
------ ------- -------- ------- ------ --------
Net Income..................................... -- -- 18,271 -- -- 18,271
Cash dividends on common stock--$.58 per
share........................................ -- -- (8,199) -- -- (8,199)
Issuance of 36,622 shares for Non-Employee
Directors.................................... -- 120 -- (120 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 280 -- 280
Reissuance of 99,881 treasury shares under
incentive stock option plans................. -- (241) (2) 1,477 -- 1,234
Net change in unrealized gains and losses on
securities available for sale, net of tax.... -- -- -- -- 12,117 12,117
------ ------- -------- ------- ------ --------
Balance at December 31, 1995..................... $4,976 $ 56,412 $149,315 $ (6,659 ) $ 5,818 $209,862
====== ======= ======== ======= ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 18,271 $ 21,801 $ 21,440
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and
equipment........................................... 4,854 4,474 4,112
Amortization and accretion of securities, net.......... 694 3,762 5,818
Provision for loan and lease losses.................... 2,692 628 2,124
Amortization of intangible assets...................... 2,331 2,585 3,561
Gain on sale of securities............................. -- -- (1,212)
Loss on sale of securities............................. -- -- 52
Gain on sale of securities available for sale.......... (2,429) (1,465) --
Loss on sale of securities available for sale.......... 127 578 --
Gain on sale of securities held to maturity............ -- (100) --
Loss on sale of securities held to maturity............ -- 40 --
Gain on sale of trading securities..................... (1) (3) (3)
Loss on sale of trading securities..................... 5 42 --
Purchase of trading securities......................... (8,017) (475) (9,960)
Proceeds from sale of trading securities............... 8,013 1,745 9,259
Impairment of long-lived assets........................ 3,269 -- --
Write-down of other real estate owned.................. 540 -- --
Non-employee directors compensation expense............ 280 360 300
Deferred income taxes.................................. (1,784) (28) (4,105)
Net (increase) decrease in mortgage loans held for
sale................................................ (5,617) 13,629 (6,510)
Other, net............................................. 653 (1,015) 5,806
--------- --------- --------
Net cash provided by operating activities...... $ 23,881 $ 46,558 $ 30,682
========= ========= ========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities................... $ 172,705 $ 163,903 $212,191
Proceeds from sales of securities available for sale..... 242,520 81,981 --
Proceeds from sales of securities held to maturity....... -- 9,586 --
Proceeds from sales of securities........................ -- -- 62,824
Purchase of securities held to maturity.................. (65,727) (70,561) --
Purchase of securities available for sale................ (452,597) (250,434) --
Purchase of securities................................... -- -- (274,334)
Net (increase) decrease in federal funds sold
and other short-term investments....................... (3,394) 6,226 14,256
Net decrease in interest earning deposits in banks....... 248 3,850 262
Net increase in loans and leases......................... (129,639) (128,259) (43,443)
Proceeds from the sale of premises and equipment......... 300 735 236
Premises and equipment expenditures...................... (7,244) (9,773) (8,152)
Purchase of subsidiaries less cash acquired.............. -- -- (1,026)
--------- --------- --------
Net cash required for investing activities..... $(242,828) $(192,746) $(37,186)
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits and savings
accounts................................................. $ 6,189 $ 14,551 $(14,776)
Net increase in time deposits.............................. 63,957 49,326 8,799
Net increase in short-term borrowings...................... 83,517 95,179 19,600
Proceeds from long-term borrowings......................... 88,250 80 --
Payment of long-term borrowings............................ (7,120) (5,765) (3,809)
Dividends paid............................................. (8,199) (7,678) (5,730)
Proceeds from sale of common stock......................... -- 89 --
Proceeds from exercise of incentive stock options.......... 1,234 271 1,309
-------- -------- --------
Net cash provided by financing activities........ $227,828 $146,053 $ 5,393
-------- -------- --------
Net change in cash and cash equivalents.................... $ 8,881 $ (135) $ (1,111)
Cash and cash equivalents:
Beginning of year........................................ 92,201 92,336 93,447
-------- -------- --------
End of period............................................ $101,082 $ 92,201 $ 92,336
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors.............................. $ 65,730 $ 52,642 $ 54,822
Interest paid on borrowings.............................. 15,692 7,349 5,217
Income taxes paid........................................ 6,192 8,956 11,626
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of non-interest bearing note for purchase of
financial services subsidiary............................ -- -- 2,796
Other real estate acquired in settlement of loans.......... 2,615 578 2,043
Transfer of short-term investments to securities available
for sale................................................. -- 10,307 --
Transfer of investment securities to securities available
for sale................................................. -- 198,643 --
Transfer of investment securities to securities held to
maturity................................................. -- 518,790 --
Transfer of securities held to maturity to available for
sale..................................................... 398,331 -- --
Transfer of securities available for sale to held to
maturity................................................. -- 66,488 --
Unamortized unrealized loss on securities transferred from
available for sale to held to maturity, net of tax....... -- 1,425 --
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of AMCORE Financial, Inc. and
subsidiaries (Company) conform to generally accepted accounting principles. The
following is a summary of the more significant accounting policies of the
Company.
DESCRIPTION OF THE BUSINESS
The Company is a multi-bank holding company located in northern Illinois
and conducts its principal business activities with businesses and individuals
located within this market area. The primary business of the Company is the
extension of credit and the collection of deposits with commercial and
financial, agricultural, real estate and consumer loan customers throughout
northern Illinois. Although the Company has a diversified loan portfolio,
adverse changes in the local economy would have a direct impact on the credit
risk in the portfolio.
The Company also offers a variety of financial services through its
financial services subsidiaries. These include mortgage banking, personal and
employee benefit trust administration for individuals, estates and corporations,
consumer finance, investment management, brokerage, insurance, debt collection
services and the reinsurance of credit life and accident and health insurance in
conjunction with the lending activities of the Company's bank subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. All prior year financial information has
been restated to reflect the mergers that took place during 1994 and 1995 as
explained in Note 2.
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers its
cash on hand, amounts due from banks, and cash items in process of clearing to
be cash and cash equivalents.
SECURITIES
Securities are classified into three categories: held to maturity,
available for sale and trading. Securities held to maturity are reported at
amortized historical cost using the level yield method. Securities classified as
available for sale are recorded at fair value with unrealized gains and losses
recorded as a component of stockholders' equity, net of the related income tax
effect. Trading securities are recorded at fair value with unrealized gains and
losses recorded in earnings. There were no trading securities outstanding at
December 31, 1995 and 1994.
Realized gains and losses on all securities are recognized by the specific
identification method upon sale or when values are deemed to be permanently
impaired.
LOANS
Loans are carried at their principal amount outstanding plus any
unamortized net deferred origination costs or less any unamortized net deferred
origination fees. Interest on commercial, real estate, and certain installment
and consumer loans is accrued and recognized as income based upon the
outstanding principal
31
<PAGE> 32
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount and the contractual interest rate of each loan. Unearned interest on
discounted installment loans has been recognized as income using methods which
approximate level rates of return over the terms of the loans. Loan origination
fees and certain direct origination costs on loans retained in the portfolio are
deferred and amortized over the expected life of each loan as an adjustment of
the related loan's yield.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standard (FAS) No. 114--"Accounting by Creditors for Impairment of a Loan" and
FAS No. 118--"Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures". Loans are considered impaired when, based on
current information and events, it is probable that the Company will not be able
to collect all amounts due according to the contractual terms of the loan
agreement. Under these statements, the impairment is measured based on the
present value of expected future cash flows, or alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral-dependent, and for which management has
determined foreclosure is probable, the measure of impairment is based on the
fair value of the collateral. These new statements also require certain
disclosures about impaired loans and the allowance for loan losses and interest
income recognized on those loans, and are shown in Note 4. The effect of
adopting these statements was not material.
For impaired loans, the accrual of interest income is discontinued when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans reduce the principal balance, and
no interest income is recognized until the remaining principal balance has been
collected. An impaired loan is returned to accrual status when management
determines that the borrower's financial condition has improved such that both
the remaining principal and interest are deemed collectible.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is established through a provision
charged to expense. Loans and leases are charged against the allowance when
management believes the collectibility of principal is unlikely. The allowance
is an amount that management estimates will be adequate to absorb possible
future losses on existing loans and leases. The evaluation of the allowance is
based on past loan loss experience, regular evaluation collectibility by
management, lending officers and corporate loan review staff, overall loan
quality, the nature and size of the portfolio, review of specific problem loans,
and current and anticipated economic conditions that may affect the borrower's
ability to pay. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions or other factors.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
recorded at the lower of cost or estimated market value in the aggregate. Gains
and losses on the sale of mortgage loans and servicing fee income are included
in other non-interest income.
When the sale of mortgage loans results in an average contractual interest
rate, adjusted for normal servicing fees, that differs from the agreed yield to
the purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated life of such loans. The resulting difference, or
excess servicing, is capitalized and amortized over the estimated life using a
method approximating the interest method. The unamortized balance is
periodically evaluated in relation to estimated future net servicing revenues,
taking into consideration changes in interest rates, current prepayment speeds
and expected future cash flows.
32
<PAGE> 33
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE SERVICING RIGHTS
The Company elected early adoption of FAS No. 122--"Accounting for Mortgage
Servicing Rights", effective January 1, 1995. This new statement requires the
recognition as separate capitalized assets the value of rights to service
mortgage loans for others. These servicing rights are either attained through
the origination of mortgage loans or the purchase of a servicing rights
portfolio. Prior to the adoption of FAS No. 122, only purchased mortgage
servicing rights were capitalized. When the originated mortgage loans are sold
or securitized into the secondary market, the Company allocates the total cost
of the mortgage loans between mortgage servicing rights and the loans, based on
their relative fair values. The cost of mortgage servicing rights is amortized
in proportion to, and over the period of, estimated net servicing revenues.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, the servicing rights are stratified into pools
based on one or more predominant risk characteristics of the underlying loans
including loan type, interest rate, term and geographic location. Impairment
represents the excess of carrying value of a stratified pool over its fair
value, and is recognized through a valuation allowance. The fair value of each
servicing rights pool is evaluated based on the present value of estimated
future cash flows using a discount rate commensurate with the risk associated
with that pool, given current market conditions. Estimates of fair value include
assumptions about prepayment speeds, interest rates, and other factors which are
subject to change over time. Changes in these underlying assumptions could cause
the fair value of mortgage servicing rights, and the related valuation
allowance, to change significantly in the future.
PREMISES AND EQUIPMENT
Premises and equipment including leasehold improvements are stated at cost
less accumulated depreciation and amortization. Depreciation is computed
principally on the straight-line method over the estimated useful life of the
assets. Leasehold improvements are being amortized using the straight-line
method over the terms of the respective leases or their useful lives, whichever
is shorter.
INTANGIBLE ASSETS
Certain intangible assets, such as core deposit intangibles and goodwill,
have arisen from the purchase of subsidiaries. Core deposit intangibles
represent a valuation of acquired deposit relationships and are being amortized
based on the present value of the future net income or cost savings derived from
the related deposits over an original period ranging from six to twelve years.
Goodwill represents the excess of the purchase price over the fair value of the
identifiable net assets acquired and is being amortized over a maximum of
fifteen years using the straight-line method.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued FAS No. 121--"Accounting for the Impairment
of Long-Lived Assets". This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for fiscal years beginning after
December 15, 1995; however, the Company elected to adopt FAS No. 121 in June
1995. The early adoption of this new statement resulted in an impairment charge
of $3,269,000, as explained in Note 7.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of real properties acquired in partial
or full satisfaction of loans. These properties are carried in other assets at
the lower of cost or fair market value less estimated costs to sell the
properties. When the property is acquired through foreclosure, any excess of the
related loan balance over
33
<PAGE> 34
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the adjusted fair market value less expected sales costs, is charged against the
allowance for loan and lease losses. Subsequent write-downs or gains and losses
upon sale, if any, are charged to other operating expense.
TRUST ASSETS
Assets that are held by subsidiaries in a fiduciary or agency capacity are
not included in the consolidated financial statements as they are not assets of
the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company provides disclosures about the estimated fair value of its
financial instruments. A financial instrument is defined as cash, evidence of
ownership in an entity, or a contract that both imposes on one entity a
contractual obligation to deliver or exchange a financial instrument and conveys
to the other entity a contractual right to receive or exchange a financial
instrument. A significant portion of the Company's balance sheet components are
considered financial instruments, including cash, investments, loans, deposits
and borrowings. Certain off-balance sheet commitments are also considered
financial instruments. In addition, the Company provides disclosures about the
fair value of derivatives. A derivative financial instrument is defined as a
futures, forward, swap, option contract, or other financial instrument with
similar characteristics.
Estimated fair values were determined using various methods and assumptions
as explained in Note 5. See also Note 11 for further disclosure of derivative
financial instruments.
INTEREST RATE CONTRACTS
Interest rate swap agreements and other derivative contracts are used to
manage interest rate exposure by hedging certain assets and liabilities. Income
and expense are accrued under the terms of the agreements based on expected
settlement payments, and are recorded as a component of net interest income.
INCOME TAXES
The Company and its subsidiaries file consolidated federal and state income
tax returns. Deferred income taxes are provided using the asset and liability
method of accounting for income taxes. Under this method, deferred income taxes
are recognized for the tax consequences of "temporary differences" by applying
the applicable tax rate to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date of any such tax law
change.
EARNINGS PER SHARE
Earnings per share is based on dividing net income by the weighted average
number of shares of common stock outstanding during the periods, as adjusted for
common stock equivalents. Common stock equivalents consist of shares issuable
under options granted pursuant to incentive stock option plans. The
fully-dilutive effect of common equivalents on earnings per share was less than
3% for all years presented. Earnings per share amounts have been restated to
give effect to mergers accounted for as a pooling of interests.
NEW ACCOUNTING STANDARD
In October 1995, the FASB issued FAS No. 123--"Accounting for Stock Based
Compensation", which is effective for fiscal years beginning after December 15,
1995. This new standard encourages, but does not require, companies to charge to
expense, at the grant date, the fair value of stock based compensation awards.
If this new accounting method is not adopted, additional footnote disclosure is
required to show the pro-forma
34
<PAGE> 35
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impact this new accounting method would have on net earnings and earnings per
share. It is expected the Company will not adopt the new accounting methodology,
but will provide the required footnote disclosures in 1996.
NOTE 2--MERGERS AND ACQUISITIONS
On May 24, 1995, NBM Bancorp, Inc. (NBM), a two-bank holding company,
merged into the Company, which issued 6.829 common shares for each of the
240,000 outstanding NBM shares for a total of 1,638,960 shares. At the date of
the merger, NBM had total assets of approximately $166 million.
On December 19, 1994, NBA Holding Company of Aledo, Illinois (NBA), a
one-bank holding company, merged into the Company, which issued 1,020,000 shares
of common stock in exchange for all of the 10,000 outstanding shares of NBA
stock. NBA had total assets of approximately $95 million at the date of the
merger. On August 1, 1994, First State Bancorp of Princeton, Illinois, Inc.
(FSB), a three-bank holding company, merged into the Company, which issued 1.835
common shares for each of the 527,422 outstanding FSB shares for a total of
967,819 shares. FSB had total assets of approximately $160 million at the date
of the merger.
Each of these mergers were accounted for as a pooling of interests and,
accordingly, all prior year financial statements and related financial
information of the Company have been restated to include NBM, NBA and FSB. The
results of operations of the separate companies for the periods prior to the
combinations are summarized as follows:
<TABLE>
<CAPTION>
AMCORE COMBINED
FINANCIAL FSB NBA NBM TOTAL
------- ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Net interest income....................... $62,451 $5,310 $3,663 $6,132 $77,556
Net income................................ 15,783 1,372 1,897 2,388 21,440
Seven months ended July 31, 1994:
Net interest income....................... $36,000 $3,018 * * $39,018
Net income................................ 9,362 631 * * 9,993
Eleven months ended November 30, 1994:
Net interest income....................... $61,813 ** $3,505 * $65,318
Net income................................ 15,905 ** 1,660 * 17,565
Year ended December 31, 1994:
Net interest income....................... $71,726 ** ** $6,034 $77,760
Net income................................ 19,600 ** ** 2,201 21,801
Four months ended April 30, 1995:
Net interest income....................... $23,773 ** ** $1,848 $25,621
Net income................................ 5,767 ** ** 172 5,939
</TABLE>
- ---------------
* Not required since merger took place subsequent to the aforementioned date.
** The AMCORE Financial amounts include the results of mergers completed prior
to the aforementioned date.
On August 15, 1994, an affiliate of the Company acquired a local insurance
agency for $170,000 in cash. The entire purchase price was allocated to
intangible assets. As discussed in Note 7, the unamortized intangible balance of
$140,000 was written-off in 1995. The results of operations of the insurance
agency have been excluded from the consolidated statements of income for the
periods prior to the acquisition date.
On January 19, 1993, the Company purchased the assets and assumed certain
liabilities of a local collection agency for $1 million in cash and a
non-interest bearing note with a discounted value of $2.8 million.
35
<PAGE> 36
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total acquisition cost exceeded the fair value of the identifiable assets
acquired by $1 million and was allocated to goodwill. In 1995, the remaining
balance of goodwill and a portion of the remaining customer list intangible were
written-off (see Note 7). The results of operations of the collection agency
have been excluded from the consolidated statements of income for the periods
prior to the acquisition date.
NOTE 3--SECURITIES
A summary of securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1995:
Securities Held to Maturity:
U.S. Treasury.............................. $ 7,601 $ 25 $ (6) $ 7,620
State and political subdivisions........... 9,233 318 (20) 9,531
Corporate obligations and other............ 7,791 25 -- 7,816
-------- ------- -------- --------
Total Securities Held to Maturity........ $ 24,625 $ 368 $ (26) $ 24,967
======== ======= ======== ========
Securities Available for Sale:
U.S. Treasury.............................. $ 110,382 $ 1,342 $ (197) $111,527
U.S. Government agencies................... 54,128 543 (153) 54,518
Mortgage-backed securities................. 415,125 4,174 (634) 418,665
State and political subdivisions........... 218,273 5,418 (1,064) 222,627
Corporate obligations and other............ 76,546 562 (401) 76,707
-------- ------- -------- --------
Total Securities Available for Sale...... $ 874,454 $ 12,039 $ (2,449) $884,044
-------- ------- -------- --------
Total Securities...................... $ 899,079 $ 12,407 $ (2,475) $909,011
======== ======= ======== ========
At December 31, 1994:
Securities Held to Maturity:
U.S. Treasury.............................. $ 52,883 $ 85 $ (2,542) $ 50,426
U.S. Government agencies................... 51,455 21 (2,912) 48,564
Mortgage-backed securities................. 123,495 2,602 (7,655) 118,442
State and political subdivisions........... 206,972 436 (9,946) 197,462
Corporate obligations and other............ 31,406 7 (1,852) 29,561
-------- ------- -------- --------
Total Securities Held to Maturity........ $ 466,211 $ 3,151 $ (24,907) $444,455
======== ======= ======== ========
Securities Available for Sale:
U.S. Treasury.............................. $ 98,687 $ 39 $ (2,303) $ 96,423
U.S. Government agencies................... 13,960 33 (440) 13,553
Mortgage-backed securities................. 148,811 195 (4,253) 144,753
State and political subdivisions........... 28,110 408 (713) 27,805
Corporate obligations and other............ 36,466 56 (810) 35,712
-------- ------- -------- --------
Total Securities Available for Sale...... $ 326,034 $ 731 $ (8,519) $318,246
-------- ------- -------- --------
Total Securities...................... $ 792,245 $ 3,882 $ (33,426) $762,701
======== ======= ======== ========
</TABLE>
36
<PAGE> 37
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and market value of both securities held to maturity and
securities available for sale as of December 31, 1995, by contractual maturity
are shown below. Mortgage-backed security maturities may differ from contractual
maturities because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Securities Held to Maturity:
Due in one year or less...................................... $ 9,943 $ 9,973
Due after one year through five years........................ 4,738 4,823
Due after five years through ten years....................... 2,030 2,231
Due after ten years.......................................... 7,914 7,940
--------- --------
Total Securities Held to Maturity......................... $ 24,625 $ 24,967
======== ========
Securities Available for Sale:
Due in one year or less...................................... $ 66,374 $ 66,498
Due after one year through five years........................ 200,979 203,747
Due after five years through ten years....................... 118,541 120,448
Due after ten years.......................................... 44,997 46,198
Mortgage-backed securities................................... 443,563 447,153
--------- --------
Total Securities Available for Sale....................... $ 874,454 $884,044
======== ========
Total Securities.......................................... $ 899,079 $909,011
======== ========
</TABLE>
At December 31, 1995 and 1994, investment securities with a market value of
approximately $541,391,000 and $382,455,000, respectively, were pledged to
secure public deposits, securities sold under agreements to repurchase and for
other purposes required by law.
In December 1995, approximately $398,331,000 of securities classified as
held to maturity were reclassified into the available for sale category. This
transfer was done in response to the FASB's decision to allow companies a
one-time opportunity to reclassify their security portfolios. This
reclassification will significantly improve the flexibility in managing interest
and liquidity risks. While this may cause additional fluctuations in the
unrealized gain or loss component of total stockholders' equity, it has no
impact on regulatory risk-based capital calculations.
37
<PAGE> 38
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of the loan and lease portfolio at December 31, 1995 and
1994, was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 347,996 $ 304,835
Real estate-construction.................................... 33,797 24,380
Real estate-commercial...................................... 284,069 271,745
Real estate-residential..................................... 337,240 294,751
Installment and consumer.................................... 286,278 275,024
Direct lease financing...................................... 811 361
---------- ----------
Gross loans and leases.................................... $1,290,191 $1,171,096
Unearned income........................................... (4,230) (9,226)
---------- ----------
Loans and leases, net of unearned income.................. $1,285,961 $1,161,870
Allowance for loan and lease losses....................... (13,061) (13,302)
---------- ----------
NET LOANS AND LEASES.............................. $1,272,900 $1,148,568
========= =========
</TABLE>
Impaired loan information as of and for the year ended December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Impaired loans for which an allowance has been provided................ $ 2,665
Impaired loans for which no allowance has been provided................ 7,767
--------------
Total loans determined to be impaired.................................. $ 10,432
===========
Allowance provided for impaired loans, included in the allowance for
loan and lease losses................................................ $ 670
===========
Average recorded investment in impaired loans.......................... $ 10,650
Interest income recognized from impaired loans......................... 306
</TABLE>
The components of non-performing loans and leases at December 31, 1994 was
as follows:
<TABLE>
<CAPTION>
1994
--------------
(IN THOUSANDS)
<S> <C>
Non-accrual............................................................ $ 10,536
Restructured........................................................... 2,296
--------------
TOTAL NON-PERFORMING LOANS AND LEASES........................ $ 12,832
===========
</TABLE>
Past due loans 90 days or more and still accruing interest are not included
above and totaled $1,301,000 and $846,000 at December 31, 1995 and 1994,
respectively.
Non-accrual and restructured loans and leases had the following effect on
interest income for the years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------ -----
(IN THOUSANDS)
<S> <C> <C>
Income recognized................................................... $ 430 $ 524
Income that would have been recognized in accordance with the
original terms.................................................... 1,066 940
</TABLE>
38
<PAGE> 39
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the allowance for loan and lease losses for the years ended
December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $13,302 $14,482 $14,080
Provision charged to expense.......................... 2,692 628 2,124
Loans charged off..................................... (4,041) (2,970) (2,926)
Recoveries on loans previously charged off............ 1,108 1,162 1,204
------- ------- -------
BALANCE AT END OF YEAR...................... $13,061 $13,302 $14,482
======= ======= =======
</TABLE>
The allocation of the allowance for loan and lease losses at December 31, 1995
and 1994, was as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY
------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural............. $ 4,860 27.0% $ 3,910 26.0%
Real estate........................................ 2,079 50.8 2,214 50.5
Installment and consumer........................... 2,268 22.2 2,485 23.5
Impaired loans..................................... 670 * * *
Unallocated........................................ 3,184 * 4,693 *
------ ------ ------ -----
TOTAL.................................... $13,061 100.0% $13,302 100.0%
====== ====== ====== =====
</TABLE>
- ---------------
* Not applicable.
The Company's subsidiaries have had, and are expected to have in the
future, banking transactions with directors, executive officers, their immediate
families and affiliated companies in which they are a principal stockholder
(commonly referred to as related parties). These transactions were made in the
ordinary course of business on substantially the same terms as comparable
transactions with other borrowers.
Related party loan transactions during 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year..................................... $26,438 $24,996
New loans........................................................ 21,551 7,761
Repayments....................................................... (22,002) (6,319)
------ ------
BALANCE AT END OF YEAR................................. $25,987 $26,438
====== ======
</TABLE>
39
<PAGE> 40
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments have been estimated by
the Company using available market information and appropriate valuation
methodologies as discussed below. Considerable judgement was required, however,
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented below are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
The following table shows the carrying amounts and estimated fair values of
financial instruments at December 31, 1995, and 1994 that have liquid markets in
which fair value is assumed to be equal to the carrying amount, have readily
available quoted market prices, or are based on quoted prices for similar
financial instruments:
<TABLE>
<CAPTION>
1995 1994
------------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $101,082 $ 101,082 $ 92,201 $ 92,201
Interest earning deposits in banks............ 260 260 508 508
Federal funds sold and other short-term
investments................................. 9,050 9,050 5,656 5,656
Mortgage loans held for sale.................. 15,801 16,225 10,184 10,200
Securities available for sale................. 844,044 844,044 318,246 318,246
Securities held to maturity................... 24,625 24,967 466,211 444,455
</TABLE>
The carrying amounts and estimated fair values of accruing loans and leases
at December 31, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural... $ 344,562 $ 356,853 $ 301,132 $ 296,949
Real estate.............................. 649,417 656,136 585,470 585,653
Installment and consumer, net............ 280,739 280,464 264,371 259,904
Direct lease financing................... 811 816 361 336
---------- ---------- ---------- ----------
Total loans.................... $1,275,529 $1,294,269 $1,151,334 $1,142,842
</TABLE>
Fair values of loans were estimated for portfolios of loans with similar
characteristics. Loans were segregated by type as shown above and then each
category was further segmented into fixed and floating interest rate terms. The
fair value of fixed-rate loans, excluding residential real-estate loans, was
calculated by discounting contractual cash flows using estimated market discount
rates which reflect the credit and interest rate risk inherent in the loan. The
cash flows were further reduced by estimated prepayment assumptions. Fair value
for residential real-estate loans was estimated by discounting estimated future
cash flows, adjusted for prepayment estimates, using market discount rates based
on secondary market sources. Cash flow assumptions for credit card loans did not
include the value of new receivables generated from existing cardholders over
the remaining estimated life of the portfolio, thus understating the value of
the entire credit card relationship. The fair value of non-accrual loans with a
recorded book value of $10.4 million and $10.5 million in 1995 and 1994,
respectively, was not estimated because it was not practicable to reasonably
assess the credit adjustment that would be applied in the marketplace for such
loans.
40
<PAGE> 41
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the carrying amounts and estimated fair values of
financial instrument liabilities and other off-balance sheet financial
instruments at December 31, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits and savings................... $858,873 $ 858,873 $852,716 $ 852,716
Time deposits................................. 918,832 932,864 854,843 855,950
Short-term borrowings......................... 292,042 292,677 208,525 209,019
Long-term borrowings.......................... 107,803 107,803 26,487 26,487
Commitments to extend credit.................. $ -- $ (297) $ -- $ (264)
Standby letters of credit..................... (44) (201) (58) (177)
Interest rate swap agreements................. (12) (68) (40) (401)
Interest rate floor agreements................ 126 829 -- --
Forward contracts............................. -- (104) -- (20)
</TABLE>
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, NOW and money market accounts, is equal to the
carrying amount. There is, however, considerable additional value to the core
deposits of the Company, a significant portion of which has not been recognized
in the financial statements. This value results from the cost savings of these
core funding sources versus obtaining higher-rate funding in the market. The
fair value of time deposits was determined by discounting contractual cash flows
using currently offered rates for deposits with similar remaining maturities.
The estimated fair value of both accrued interest receivable and accrued
interest payable was considered to be equal to the carrying value. The fair
value of off-balance sheet instruments was estimated based on the amount the
Company would pay to terminate the contracts or agreements, using current rates
and, when appropriate, the current creditworthiness of the customer. The
off-balance sheet carrying amounts shown above represent accruals or deferred
fees arising from those unrecognized financial instruments.
The above fair value estimates were made at a discrete point in time based
on relevant market information and other assumptions about the financial
instruments. As no active market exists for a significant portion of the
Company's financial instruments, fair value estimates were based on judgements
regarding current economic conditions, future expected cash flows and loss
experience, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and therefore cannot be
calculated with precision. Changes in these assumptions could significantly
affect these estimates. In addition, the fair value estimates are based on
existing on and off-balance sheet financial instruments without attempting to
assess the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
investments in subsidiaries, specifically the trust, mortgage and brokerage
operations, are not considered financial instruments and the franchise values
have not been included in the fair value estimates. Similarly, premises and
equipment and intangible assets have not been considered.
41
<PAGE> 42
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994, follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 8,508 $ 8,358
Buildings and improvements..................................... 47,362 45,776
Furniture and equipment........................................ 30,135 26,665
Leasehold improvements......................................... 4,261 3,667
Construction in progress....................................... 1,703 771
-------- --------
Total premises and equipment................................... $ 91,969 $ 85,237
Accumulated depreciation and amortization...................... (42,299) (36,059)
-------- --------
PREMISES AND EQUIPMENT, NET.......................... $ 49,670 $ 49,178
======== ========
</TABLE>
NOTE 7--IMPAIRMENT OF LONG-LIVED ASSETS
In June 1995, the Company recognized an impairment charge totaling
$3,269,000 in conjunction with the early adoption of FAS No. 121--"Accounting
for the Impairment of Long-Lived Assets". This charge resulted from changes in
circumstances arising in 1995 that indicated the carrying values of assets noted
below may not be fully recoverable. The charge was comprised of the following:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Customer list intangibles and goodwill......... $1,674
Bank facilities................................ 1,595
-------
Total impairment charge...................... $3,269
===========
</TABLE>
The write-down of the customer list intangible at the collection agency was
based on an analysis of net revenues from the original acquired customer list.
The fair value of the customer list intangible and related goodwill was
calculated by estimating future cash flows from the original acquired customer
list. This analysis demonstrated a reduction of profitability from the original
customer base, which was caused by a loss of customers and reduced volumes from
other customers. Accordingly, the remaining unamortized balance of the customer
list intangible was considered to be partially impaired and was written-down by
$669,000. The entire unamortized balance of goodwill totaling $865,000 was
written-off, as the goodwill was directly identified with the impaired customer
list. The remaining unamortized customer list intangible acquired from a local
insurance agency, with a balance of $140,000, was written-off. This write-off
was primarily caused by an analysis of the performance of the August 1994
acquisition, which disclosed lower than anticipated renewal rates in comparison
to historical experience prior to the acquisition.
The write-down of bank facilities was based on the results of engineering
studies and appraisals conducted in 1995 that identified concerns regarding the
suitability of the buildings as income producing properties. As a result, the
Company vacated non-banking related tenants and began activities to dispose of
the buildings. The write-down was based on an estimate of future benefits from
the continuing use of the properties as bank facilities.
42
<PAGE> 43
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8--MORTGAGE SERVICING RIGHTS
The unpaid principal balance of mortgage loans serviced for others, which
are not included on the consolidated balance sheets, was $874,069,000 and
$620,172,000 at December 31, 1995 and 1994, respectively. The balance of loans
serviced for others related to both originated and purchased capitalized
servicing rights, as shown below, was $361,564,000 at the end of December 31,
1995. The remaining balance of originated loans sold and serviced for others
also have servicing rights associated with them; however, these servicing rights
arose prior to the adoption of FAS 122, and accordingly, have not been
capitalized.
The carrying value and fair value of capitalized mortgage servicing rights
consisted of the following as of December 31, 1995:
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
(IN THOUSANDS)
Unamortized cost of mortgage servicing rights.................. $4,485
Valuation allowance............................................ (147)
------
Carrying value of mortgage servicing rights.................. $4,338
======
Fair value of mortgage servicing rights...................... $6,821
======
</TABLE>
The following is an analysis of the activity for mortgage servicing rights
and the related valuation allowance for 1995:
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year................................... $1,022
Additions of purchased mortgage servicing rights............... 2,715
Additions of originated mortgage servicing rights.............. 1,088
Amortization................................................... (340)
------
Balance at end of year....................................... $4,485
======
VALUATION ALLOWANCE
Balance at beginning of year................................... $ --
Impairment allowance charged to expense........................ 147
------
Balance at end of year....................................... $ 147
======
</TABLE>
NOTE 9--SHORT-TERM BORROWINGS
At December 31, 1995 and 1994, short-term borrowings consisted of:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Securities sold under agreements to repurchase................. $243,057 $169,032
Federal Home Loan Bank borrowings.............................. 28,341 2,841
Federal funds purchased........................................ 12,759 33,300
U.S. Treasury tax and loan note accounts....................... 4,200 3,115
Commercial paper borrowings.................................... 3,150 --
Other short-term borrowings.................................... 535 237
-------- --------
TOTAL SHORT-TERM BORROWINGS.................................. $292,042 $208,525
======== ========
</TABLE>
43
<PAGE> 44
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional details on securities sold under agreements to repurchase are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Average balance during the year................................ $201,715 $ 98,660
Maximum month-end balance during the year...................... 283,703 169,032
Weighted average rate during the year.......................... 6.04% 4.40%
Weighted average rate at December 31........................... 5.48% 5.65%
======== ========
</TABLE>
The Company has a commercial paper agreement with an unrelated financial
institution that provides for the Company to issue non-rated short-term
unsecured debt obligations at negotiated rates and terms, not to exceed
$25,000,000. In the event the agent is unable to place the Company's commercial
paper on a particular day, the proceeds are provided by overnight borrowings on
a line of credit with the same financial institution. The commercial paper
agreement was primarily established for the purpose of funding consumer finance
receivables and mortgage loans held for sale.
NOTE 10--LONG-TERM BORROWINGS
Long-term borrowings consisted of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Term loan....................................................... $ 17,000 $22,000
Federal Home Loan Bank borrowings............................... 88,250 --
Other long-term borrowings...................................... 2,553 4,487
-------- -------
TOTAL LONG-TERM BORROWINGS............................ $107,803 $26,487
======== =======
</TABLE>
The term loan agreement (Agreement) was renegotiated with another unrelated
financial institution in November 1995. It provides for semi-annual principal
payments and allows for several interest rate and funding period options. At
December 31, 1995, the interest rate was 7.44%.
The Agreement contains several restrictive covenants, including
restrictions on dividends to stockholders, maintenance of various capital
adequacy levels, and certain restrictions with regard to other indebtedness.
Generally, future dividends are limited to $5,000,000 plus 35% of cumulative
consolidated net income during the period from September 30, 1995 to the end of
the most recent reporting date. As of December 31, 1995, the Company had
$5,076,000 of unrestricted earnings available for additional dividends. All
capital adequacy ratios remained well above the required minimums.
In December 1995, several of the Company's subsidiary banks borrowed
$88,250,000 from the Federal Home Loan Bank in connection with the purchase of
mortgage-backed securities. The average maturity of these borrowings is 2.9
years, with a weighted average borrowing rate of 5.70%.
Other long-term borrowings principally include a non-interest bearing note
from the January 1993 acquisition of a local collection agency, which had a
balance of $2,511,000 and $2,769,000 at December 31, 1995 and 1994,
respectively. The note requires annual principal payments of $444,000 beginning
in 1994 through 2002. The note was discounted at an interest rate of 8.0%.
44
<PAGE> 45
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled reductions of long-term borrowings are as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
1996........................................... $ 3,706
1997........................................... 41,718
1998........................................... 28,726
1999........................................... 29,002
2000........................................... 3,780
Thereafter..................................... 871
--------
TOTAL................................ $107,803
========
</TABLE>
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk.
Credit risk is the possibility that the Company will incur a loss due to
the other party's failure to perform under its contractual obligations. The
Company's exposure to credit loss in the event of non-performance by the other
party with regard to commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for actual extensions of credit. The credit risk involved for commitments
to extend credit and in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the customer. Collateral held varies but
may include accounts receivable, securities, inventory, property and equipment
and income-producing commercial properties.
Market risk is the possibility that, due to changes in interest rates or
other economic conditions, the Company's net interest income will be adversely
affected. The financial instruments utilized by the Company to manage this risk
include interest rate swaps, interest rate floor agreements, and forward
contracts. The contract or notional amounts of these instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments. The contract or notional amount of interest rate swap and floor
agreements and forward contracts do not represent exposure to credit risk.
A summary of the contract or notional amount of the Company's exposure to
off-balance sheet risk as of December 31, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk only:
Commitments to extend credit................................. $335,557 $177,323
Standby letters of credit.................................... 17,512 17,622
Financial instruments whose contract or notional amounts
represent market risk only:
Interest rate floor agreements............................... 75,000 --
Interest rate swap agreements................................ 28,127 42,500
Forward contracts............................................ 13,820 2,600
</TABLE>
Commitments to extend credit are contractual agreements entered into with
customers as long as there is no violation of any condition established on the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected
45
<PAGE> 46
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The Company has no derivative financial instruments held or issued for
trading purposes. The derivative financial instruments with which the Company is
involved are utilized for purposes of asset/liability management to modify the
existing market risk characteristics of certain hedged assets and liabilities.
An interest rate swap agreement is the most common financial instrument used for
these purposes and involves the exchange of fixed and floating rate interest
payment obligations based on the underlying notional principal amounts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the agreements and not the notional principal amounts
used only to express the volume of the transactions. The Company's credit risk
on a swap agreement is limited to nonperformance of the counterparty's
obligations under the terms of the swap agreement. The Company deals exclusively
with counterparties that have high credit ratings, and based on management's
assessments, all counterparties were expected to meet any outstanding
obligations as of December 31, 1995.
Following is a table outlining the nature and terms of each swap agreement
as of December 31, 1995:
<TABLE>
<CAPTION>
TYPE OF SWAP
- ------------------------------------ NOTIONAL MATURITY
($ IN THOUSANDS) AMOUNT PAY RECEIVE DATE
-------- --------------- ------------------------------ --------
<S> <C> <C> <C> <C>
Fixed Rate.......................... $ 5,000 Fixed (5.50%) 3 Month LIBOR 6/15/98
Federal Funds Fixed Rate............ 10,000 Fixed (5.07%) Daily Federal Funds rate 12/22/97**
Indexed Amortizing.................. 3,127 3 Month LIBOR Fixed (5.24%) 3/09/97
Periodic LIBOR Cap.................. 10,000 3 Month LIBOR* 3 Month LIBOR + 32 basis pts. 1/18/96
</TABLE>
- ---------------
* Subject to a .25% cap each quarter.
** Counterparty has an option to terminate the agreement beginning December 22,
1996 and each quarter thereafter until the maturity date.
The fixed rate swap agreement is used to hedge market risk associated with
the term loan agreement as discussed in Note 10. The federal funds fixed rate
swap is utilized to fix the interest rate paid on daily federal funds borrowing
positions. Both the indexed amortizing swap and the periodic LIBOR cap swap are
used for the purpose of hedging the spread between deposit rates such as
passbook and NOW accounts and earning assets whose yields float with the prime
rate. The notional amount of the indexed amortizing swap changes based on
certain interest rate indices. Generally, as rates fall the notional amounts
decline more rapidly and as rates increase the notional amounts decline more
slowly, similar to the characteristics of a mortgage-backed security. The
periodic LIBOR cap swap contract allows the Company to receive an amount based
on the London inter-bank offered rate (LIBOR) plus a pre-defined spread, while
paying LIBOR. The periodic repricing of this contract is subject to certain
defined caps. No collateral has been pledged by either party to any of these
swap transactions.
The Company is also party to various interest rate floor contracts with a
notional amount totaling $75,000,000. These contracts provide the Company with a
market risk hedge on the mortgage-backed security portfolio in the event of a
significant decline in interest rates.
Each of the interest rate swap agreements require a quarterly cash
settlement of the net difference between the calculated pay and receive amounts
on each transaction. The net difference between the calculated pay and receive
amounts is accrued on a monthly basis and recorded as an adjustment of the
interest income or expense of the asset or liability being hedged. Premiums paid
for the purchase of interest
46
<PAGE> 47
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate floor contracts are amortized over the respective lives of the contracts.
Each floor rate reprices quarterly and a cash settlement is received from the
counterparty and recorded as an adjustment to interest income, if the indexed
rate falls below the floor rate. Any gains or losses on swap or floor contracts
closed out prior to the maturity date are recognized ratably over the remaining
life of the contract.
Forward contracts provide for future delivery or purchase of securities or
interest rate instruments. The Company's affiliates enter into forward contracts
in connection with specific customer transactions and to minimize the market
risk exposure of mortgage banking activities.
The Company periodically will sell options for the right to purchase
certain securities held in its investment portfolio to a bank or dealer. These
call option transactions are designed to reduce the total return volatility
associated with holding these assets and to yield additional fee income. The
type of risk associated with these transactions is opportunity cost risk. Any
option premium income generated by these transactions is deferred and recorded
upon either the expiration or exercise date of the option. If the option is
exercised by the purchaser, the premium income is recognized as a component of
the gain or loss on the underlying security. If the option expires unexercised,
the premium income is recognized as other non-interest income. There were no
call option agreements outstanding at December 31, 1995.
NOTE 12--RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Under current banking law, the banking subsidiaries of the Company are
limited in the amount of dividends they can pay without obtaining prior approval
from bank regulatory agencies. As of December 31, 1995, approximately
$29,888,000 was available for payment to the Company without prior regulatory
approval.
The subsidiaries are also limited as to the amount they may loan to the
Company unless such loans are collateralized by U.S. Treasury or agency
securities, a segregated deposit with the subsidiary or other specified
obligations. At December 31, 1995, the maximum amount available from the
subsidiaries to the Company in the form of loans approximated $9,059,000.
NOTE 13--STOCK INCENTIVE AND EMPLOYEE BENEFIT PLANS
INCENTIVE AWARDS. In May 1995, stockholders approved the adoption of the
1995 Stock Incentive Plan (Plan). The Plan provides for the ability to grant
stock options, stock appreciation rights, performance units, and stock awards to
key employees. The total number of shares approved to be available for issuance
under the Plan in its first year were 2.5% of the total shares of stock
outstanding as of the effective date and 1.5% of outstanding shares in each
subsequent Plan year not to exceed 350,000 in any year. Options to purchase
shares of common stock of the Company and performance units were granted to key
employees pursuant to both the Plan and a previous stock incentive plan.
Non-Qualified Stock Options issued are exercisable at not less than the
market value at the date of grant. Performance Units (Units) granted entitle
holders to cash or stock payments if certain long term performance targets are
met. The payout range on all Units granted is $6.67 to $16.67 per unit. In
addition, a dividend is paid on each Unit at a rate equivalent to the rate of
dividends paid on each share of the Company's common stock. The expense related
to these Units for the years ended December 31, 1995, 1994 and 1993 was
47
<PAGE> 48
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $567,000, $375,000 and $375,000, respectively. The following table
presents certain information with respect to issuances pursuant to these plans.
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ------------------ ------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............................. 885,364 $13.99 691,354 $12.08 552,844 $ 9.37
Options granted.............................................. 155,500 19.04 173,000 19.50 225,000 15.17
Options exercised............................................ (97,881) 12.01 (22,533) 11.91 (129,980) 8.41
Options lapsed............................................... -- -- -- -- -- --
Units granted................................................ 81,442 -- 78,273 -- 70,502 --
Units paid................................................... (64,770) 6.67 -- -- -- --
Units forfeited.............................................. (16,819) -- (34,730) -- (27,012) --
-------- ------- -------- ------- -------- -------
Options outstanding at end of year, all exercisable.......... 732,575 $15.32 674,956 $13.99 524,489 $12.08
-------- ------- -------- ------- -------- -------
Units outstanding at end of year............................. 210,261 -- 210,408 -- 166,865 --
======= ======= ======== ======= ======== =======
Available to grant under Plan at end of year................. 226,221 -- 14,902 -- 187,902 --
======= ======= ======== ======= ======== =======
</TABLE>
DIRECTORS' STOCK PLAN. During 1989, the Company adopted the Restricted
Stock Plan for Non-Employee Directors (Stock Plan). The Stock Plan provides that
each current eligible non-employee director and each subsequently elected
non-employee director receive, in lieu of a cash retainer, shares of common
stock of the Company, the fair value of which is equal to three times the annual
retainer. The shares vest annually over a three-year period based upon the
anniversary date of the original award. The expense related to the Stock Plan
for the years ended December 31, 1995, 1994 and 1993 was approximately $280,000,
$360,000 and $300,000, respectively.
In addition, the Company pays a lifetime annual retainer to certain retired
directors. Effective January 1, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" to
account for these benefits. This statement requires employers to recognize
postretirement benefits on an accrual basis rather than on a cash basis. The
expense in 1995 and 1994 related to this statement was $86,000 and $81,000,
respectively. The transition obligation, representing the present value of
future payments at the adoption of the statement, was approximately $842,000 and
is being amortized over a twenty year period.
In 1994, stockholders approved the 1994 Stock Option Plan for Non-Employee
Directors (Option Plan). The Option Plan provides that each current eligible
non-employee director and each subsequently elected non-employee director
receive options to purchase common stock of the Company. Each option granted
under the Option Plan will have a ten-year term and will generally become
exercisable twelve months after the grant date at an option price equal to the
fair market value of the shares on the grant date. All non-employee directors of
the Company were granted an option to purchase 1,000 common shares on May 3,
1994 at $20.125 per share and 1,000 shares on May 9, 1995 at $19.125 per share
pursuant to the Option Plan. Additionally, eligible subsidiary non-employee
directors were granted an option to purchase 500 shares on May 9, 1995 at
$19.125 per share pursuant to the Option Plan.
EMPLOYEE BENEFIT PLANS. All subsidiaries of the Company participate in the
AMCORE Financial Security Plan (Security Plan), a qualified profit sharing plan
under Section 401(a) of the Internal Revenue Code. The Security Plan offers
participants a personal retirement account, profit sharing account and personal
savings account [401(k)]. The expense related to the Security Plan and other
similar plans from FSB, NBA and NBM for the years ended December 31, 1995, 1994
and 1993 was approximately $2,374,000, $2,233,000 and $2,604,000, respectively.
In addition to the Security Plan, certain health care and life insurance
benefits are made available to active employees. The cost of these benefits is
expensed as incurred.
48
<PAGE> 49
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14--INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently paid or payable...................................... $ 6,800 $7,703 $11,566
Deferred....................................................... (1,784) (28) (4,105)
------- ------ -------
TOTAL................................................ $ 5,016 $7,675 $ 7,461
======= ====== =======
</TABLE>
Deferred income taxes consist of the tax effects of temporary differences
in reporting the following items for consolidated financial statement and income
tax purposes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities..................................................... $ (178) $ (393) $ (763)
Core deposit and other intangibles............................. (953) (457) (725)
Deferred compensation.......................................... (663) (455) (322)
Premises and equipment......................................... (478) (703) (495)
Allowance for loan and lease losses............................ (60) 439 (1,007)
Allowance for other real estate owned.......................... 263 341 (77)
Other, net..................................................... 285 1,200 (716)
------- ------ -------
TOTAL................................................ $(1,784) $ (28) $(4,105)
======= ====== =======
</TABLE>
The effective tax rates on income for 1995, 1994 and 1993 were 21.5%, 26.0%
and 25.8%, respectively. Income tax expense was less than the amounts computed
by applying the federal statutory rate of 35% due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory rate.................................. $ 8,150 $10,317 $10,115
Increase (decrease) resulting from:
Tax-exempt income........................................... (3,781) (4,193) (3,616)
State income taxes, net of federal benefit.................. 480 837 487
Net nondeductible expenses.................................. 405 383 111
Other, net.................................................. (238) 331 364
------- ------- -------
TOTAL............................................... $ 5,016 $ 7,675 $ 7,461
======= ======= =======
</TABLE>
49
<PAGE> 50
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred compensation.......................................... $ 3,214 $ 2,475
Securities..................................................... -- 3,884
Allowance for loan and lease losses............................ 4,846 4,879
Allowance for other real estate owned.......................... 39 --
Other.......................................................... 2,157 1,872
------- -------
Total deferred tax assets................................... $10,256 $13,110
------- -------
Deferred tax liabilities:
Securities..................................................... $ 4,209 $ 637
Premises and equipment......................................... 4,722 4,152
Core deposit and other intangibles............................. 796 1,210
Other.......................................................... 1,345 2,325
------- -------
Total deferred tax liabilities.............................. $11,072 $ 8,324
------- -------
TOTAL DEFERRED TAX ASSET (LIABILITY)........................ (816) 4,786
Less: Tax effect of unrealized (gain) loss on securities
available for sale............................................. (3,724) 3,662
------- -------
NET DEFERRED TAX ASSET...................................... $ 2,908 $ 1,124
======= =======
</TABLE>
No valuation allowance was considered necessary.
50
<PAGE> 51
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15--CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................. $ 1,293 $ 758
Securities held to maturity............................................ 111 40
Short-term investments................................................. -- 1,000
Due from subsidiaries.................................................. 357 604
Loans to financial services subsidiaries............................... 9,188 4,220
Investment in bank subsidiaries........................................ 206,308 185,898
Investment in financial services subsidiaries.......................... 12,043 13,451
Premises and equipment,net............................................. 3,801 2,819
Other assets........................................................... 5,257 4,704
-------- --------
TOTAL ASSETS......................................................... $238,358 $213,494
======== ========
LIABILITIES
Short-term borrowings.................................................. $ 3,150 $ --
Long-term borrowings................................................... 19,511 24,769
Other liabilities...................................................... 5,835 2,566
-------- --------
TOTAL LIABILITIES.................................................... $ 28,496 $ 27,335
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock........................................................ $ -- $ --
Common stock........................................................... 4,976 4,976
Additional paid-in capital............................................. 56,412 56,533
Retained earnings...................................................... 149,315 139,245
Treasury stock and other............................................... (6,659) (8,296)
Net unrealized gain (loss) on securities available for sale............ 5,818 (6,299)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................... $209,862 $186,159
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $238,358 $213,494
======== ========
</TABLE>
51
<PAGE> 52
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries................................. $14,740 $14,920 $14,766
Interest income............................................. 484 451 639
Management fees and other................................... 11,434 10,993 9,512
------- ------- -------
TOTAL INCOME............................................. $26,658 $26,364 $24,917
------- ------- -------
Expenses:
Interest expense............................................ $ 1,909 $ 2,102 $ 2,286
Compensation expense and employee benefits.................. 10,187 7,649 7,011
Professional fees........................................... 1,058 1,001 552
Other....................................................... 6,917 5,664 3,821
------- ------- -------
TOTAL EXPENSES........................................... $20,071 $16,416 $13,670
------- ------- -------
Income before income tax benefits and equity in undistributed
net income of subsidiaries.................................. $ 6,587 $ 9,948 $11,247
Income tax benefits......................................... (3,592) (1,742) (1,384)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries................................................ $10,179 $11,690 $12,631
Equity in undistributed net income of subsidiaries............ 8,092 10,111 8,809
------- ------- -------
NET INCOME............................................... $18,271 $21,801 $21,440
======= ======= =======
</TABLE>
52
<PAGE> 53
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 18,271 $ 21,801 $ 21,440
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization......................... 837 677 408
Non-employee directors compensation expense........... 280 360 300
Equity in undistributed net income of subsidiaries.... (8,092) (10,111) (8,809)
(Increase) decrease in due from subsidiaries.......... 247 (179) 189
Increase in other assets.............................. (553) (2,218) (2,129)
Increase in other liabilities......................... 3,269 463 747
Other, net............................................ 393 53 373
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ $ 14,652 $ 10,846 $ 12,519
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities..................................... (101) -- (40)
Proceeds from maturities of securities..................... 30 -- 30
Net decrease in short term investments..................... 1,000 -- 1,000
Dissolution of less-active state banking charters.......... 2,000 -- --
Net investment made in subsidiaries........................ (1,000) (50) (4,951)
Loans to subsidiaries...................................... (5,748) (19,851) (22,340)
Payments received on loans to subsidiaries................. 780 23,631 24,000
Proceeds from sale of premises and equipment............... -- 53 78
Premises and equipment expenditures........................ (1,819) (1,372) (1,347)
-------- -------- --------
NET CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES.......................................... $ (4,858) $ 2,411 $ (3,570)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings........... 3,150 -- (4,000)
Payment of long-term borrowings............................ (5,444) (5,444) (3,000)
Dividends paid............................................. (8,199) (7,678) (5,730)
Proceeds from sale of common stock......................... -- 89 --
Proceeds from exercise of incentive stock options.......... 1,234 271 1,309
-------- -------- --------
NET CASH REQUIRED FOR FINANCING ACTIVITIES............ $ (9,259) $(12,762) $(11,421)
-------- -------- --------
Net change in cash and cash equivalents.................... $ 535 $ 495 $ (2,472)
Cash and cash equivalents:
Beginning of year........................................ 758 263 2,735
-------- -------- --------
End of period............................................ $ 1,293 $ 758 $ 263
======== ======== ========
</TABLE>
53
<PAGE> 54
[McGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have the audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 financial statements of First State
Bancorp of Princeton, Illinois, Inc., a company which was pooled with AMCORE
Financial, Inc. in 1994 as explained in Note 2 to the consolidated financial
statements, which statements are included in the restated 1993 consolidated
financial statements and reflect net interest income constituting 7% for 1993
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion for 1993,
insofar as it relates to the amounts included for First State Bancorp of
Princeton, Illinois, Inc., is based solely upon the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of others, the consolidated
financial statements referred to above present fairly, in all material
respects, the financial position of AMCORE Financial, Inc. and subsidiaries as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.
As described in Notes 1, 7 and 8 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights and for
the impairment of long-lived assets.
McGladrey & Pullen, LLP
Rockford, Illinois
January 19, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMCORE Financial, Inc.
As independent public accountants, we hereby consent to the incorporation of
our report dated January 19, 1996, in the Form 10-K, into AMCORE Financial,
Inc.'s previously filed Form S-8 Registration Statement No. 2-95624 and Form
S-8 Registration Statement No. 33-10446.
McGladrey & Pullen, LLP
Rockford, Illinois
March 28, 1996
54
<PAGE> 55
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First State Bancorp of Princeton,
Illinois, Inc.,
Princeton, Illinois:
We have audited the consolidated statements of income, stockholders' equity,
and cash flows of First State Bancorp of Princeton, Illinois, Inc. and
subsidiaries for the year ended December 31, 1993. These consolidated
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
FC
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations
and cash flows of First State Bancorp of Princeton, Illinois, Inc. and
subsidiaries for the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 14, 1994
55
<PAGE> 56
CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income............. $38,260 $40,371 $42,432 $43,423 $32,982 $33,725 $35,290 $36,958
Interest expense............ 18,925 20,900 22,351 22,904 13,844 14,557 15,818 16,976
------- ------- ------- ------- ------- ------- ------- -------
Net interest income......... $19,335 $19,471 $20,081 $20,519 $19,138 $19,168 $19,472 $19,982
Provision for loan losses... 729 871 320 772 130 174 307 17
Other income................ 8,046 8,357 8,453 9,157 7,485 7,554 8,168 7,827
Other expense............... 20,673 26,637 19,950 20,180 19,397 19,313 19,724 20,256
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes..................... $5,979 $ 320 $8,264 $8,724 $7,096 $ 7,235 $7,609 $7,536
Income taxes................ 1,362 (820) 2,024 2,450 1,764 1,794 2,060 2,057
------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $4,617 $ 1,140 $6,240 $6,274 $5,332 $ 5,441 $5,549 $5,479
======= ======= ======= ======= ======= ======= ======= =======
Per share data:
Earnings.................... $ 0.34 $ 0.08 $ 0.44 $ 0.44 $ 0.38 $ 0.39 $ 0.39 $ 0.39
Dividends................... 0.13 0.15 0.15 0.15 0.13 0.13 0.14 0.15
Stock price ranges -high.... 21.25 19.75 23.25 24.00 20.50.. 21.75 22.75 21.25
-low...... 18.25 17.00 18.50 19.75 16.25 15.75 20.00 16.00
-close.... 19.25 18.50 22.75 20.25 16.25 21.25 21.25 18.75
</TABLE>
- ------------
Quotes have been obtained from the National Association of Security Dealers.
These quotes do not reflect retail mark-ups, mark-downs or commissions nor are
they necessarily representative of actual transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. The 1996 Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 28, 1996 is incorporated herein by
reference.
(b) Executive Officers of the Registrant. The information is presented in
Item 1 of this document.
ITEM 11. EXECUTIVE COMPENSATION
The 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
56
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of AMCORE are filed as a
part of this document under Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets--December 31, 1995 and 1994
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
(a)3. EXHIBITS
<TABLE>
<S> <C>
3. Amended and Restated Articles of Incorporation of AMCORE Financial, Inc.
dated May 1, 1990 (Incorporated by reference to Exhibit 23 of AMCORE's Annual
Report on Form 10-K for the year ended December 31, 1989).
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990 (Incorporated by
reference to Exhibit 3.1 of AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1994).
4. Rights Agreement dated February 21, 1996, between AMCORE Financial, Inc. and
Firstar Trust Company (Incorporated by reference to AMCORE's Form 8-K as
filed with the Commission on February 28, 1996).
10.1* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 22 of
AMCORE's Annual Report on Form 10-K for the year ended December 31, 1994).
10.2* AMCORE Financial, Inc. 1994 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit 23 of AMCORE's Annual Report on Form
10-K for the year ended December 31, 1993).
10.3A* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and Robert J. Meuleman (Incorporated by reference to Exhibit
10.1 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3B* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and John R. Hecht (Incorporated by reference to Exhibit 10.2
to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3C* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and F. Taylor Carlin (Incorporated by reference to Exhibit
10.3 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3D* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and James S. Waddell (Incorporated by reference to Exhibit
10.4 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C>
10.3E* Severance Agreement dated March 5, 1993 between AMCORE Financial, Inc. and
Charles E. Gagnier (Incorporated by reference to Exhibit 10.2 to AMCORE's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.3F* Severance Agreement dated March 5, 1993 between AMCORE Financial, Inc. and
Gerald W. Lister. (Incorporated by reference to Exhibit 10.3F to AMCORE's
Annual Report on Form 10-K for the year ended December 31, 1993).
10.4 Agreement and Plan of Reorganization by and among AMCORE Financial, Inc., NBM
Acquisition, Inc., and NBM Bancorp, Inc. (Incorporated by reference to
AMCORE's Amendment No. 1 to Form S-4 as filed with the Commission on February
23, 1995).
10.5 Loan Agreement for $17,000,000 Term Loan and $25,000,000 Line of Credit Note
dated November 10, 1995 with M & I Marshall & Ilsley Bank.
10.6 Commercial Paper Placement Agreement dated November 10, 1995 with M & I
Marshall & Ilsley Bank.
11. Statement Re: Computation of Per Share Earnings.
13. 1995 Summary Annual Report to Stockholders.
21. Subsidiaries of the Registrant.
22. 1996 Notice of Annual Meeting of Stockholders and Proxy Statement.
24. Powers of Attorney.
</TABLE>
(b) There were no Form 8-K's filed during the fourth quarter of 1995.
- ---------------
* These Exhibits are management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rockford, State of
Illinois, on this 28th day of March 1996.
AMCORE FINANCIAL, INC.
By John R. Hecht
------------------------------------
John R. Hecht
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 28th day of March, 1996 by the following persons on
behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
Robert J. Meuleman
- --------------------------------------------- President and Chief Executive Officer
Robert J. Meuleman (principal executive officer)
John R. Hecht
- --------------------------------------------- Senior Vice President and Chief Financial
John R. Hecht Officer
(principal financial officer and principal
accounting officer)
</TABLE>
Directors: Milton R. Brown, Carl J. Dargene, Richard C. Dell, Robert A. Doyle,
Frank A. Fiorenza, Theresa Paulette Gilbert, Lawrence E. Gloyd,
Robert A. Henry, Robert J. Meuleman, Ted Ross, Robert J. Smuland,
Jack D. Ward and Gary L. Watson
<TABLE>
<C> <S>
Robert J. Meuleman
- ---------------------------------------------
Robert J. Meuleman*
John R. Hecht
- ---------------------------------------------
John R. Hecht*
</TABLE>
- ------------
* Attorney in Fact*
59
<PAGE> 1
EXHIBIT 10.5
LOAN AGREEMENT
BY AND BETWEEN
M&I MARSHALL & ILSLEY BANK
AND
AMCORE FINANCIAL, INC.
DATED AS OF NOVEMBER 10, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE II.
THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.1. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.2. Line of Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.3. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.4. Notice of Borrowing; Continuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
2.5. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.6. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.7. Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.8. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.9. Deposits Unavailable or Interest Rate Unascertainable . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.10. Change in Law Rendering Interbank Rate Loans Unlawful. . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.11. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.12. Discretion of M&I as to Manner of Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
ARTICLE III.
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.1. General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.2. Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.1. Corporate Existence and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.3. No Conflict: Government Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.5. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.7. Litigation and Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.8. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.9. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.10. Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.11. Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.12. Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.13. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.14. Ownership of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.15. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.16. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ARTICLE V.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.1. Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.3. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.9. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.10. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
5.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
5.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
5.14. Investments and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
5.15. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
5.16. Fixed Asset Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
5.17. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
5.18. Borrower Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
5.19. Consolidated Total Equity Capital to Asset Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
5.20. Debt to Total Equity Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
5.21. Consolidated Loan Loss Reserve to Non-Performing Loans Ratio . . . . . . . . . . . . . . . . . . . . . . -25-
5.22. Capital Adequacy Ratios of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
5.23. Adequately Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
5.24. Reno Stock Redemption Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
5.25. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
ARTICLE VI.
DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
6.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
ARTICLE VII.
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
7.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
7.2. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
7.3. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
ARTICLE VIII.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.1. Expenses and Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
8.2. Assignability; Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
8.3. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
8.4. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
8.5. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
8.6. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
8.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.8. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.10. Amendments; Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.12. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.15. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
</TABLE>
(iii)
<PAGE> 5
Exhibit A - Form of Compliance Certificate
Exhibit B - Line of Credit Note
Exhibit C - Term Note
Exhibit D - Form of Opinion
Exhibit E - Secretary's Certificate
Schedule 4.7 - Litigation
Schedule 4.8 - Subsidiaries and Other Investments
Schedule 4.14 - Indebtedness and Liens
Schedule 5.11 - Existing Indebtedness
(iv)
<PAGE> 6
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of November 10, 1995 by and between M&I
MARSHALL & ILSLEY BANK and AMCORE FINANCIAL, INC.
IN CONSIDERATION of the mutual covenants, conditions and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
ARTICLE I.
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries: (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election
of directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of
the outstanding partnership interests of a partnership.
"Adjusted Interbank Rate" means an annual rate with respect to any
Interest Period for any Loan (rounded upwards, if necessary, to the nearest
1/100 of 1%), determined pursuant to the following formula:
Adjusted Interbank Rate = Interbank Rate
---------------------
1 - Interbank Reserve
Requirement
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person
owns 10% or more of any class of voting securities (or other ownership
interests) of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or
otherwise.
"Agreement" or "Loan Agreement" shall mean this Loan Agreement,
together with any Exhibits and Schedules attached hereto, as the same shall be
amended from time to time in accordance with the terms hereof.
<PAGE> 7
"Authorized Officer" means any of the Chief Executive Officer,
President, Chief Financial Officer or any Executive Vice President of the
Borrower, acting singly.
"Banking Subsidiary" means any Subsidiary which is a bank or thrift
organized under the laws of the United States or any state thereof.
"Borrower" means AMCORE Financial, Inc., a Nevada corporation, and its
successors and assigns.
"Business Day" shall mean any day other than a Saturday, Sunday,
public holiday or other day when commercial banks in Wisconsin are authorized
or required by Law to close.
"Capital Commitment" means any commitment by the Borrower or any of
its Subsidiaries to the Federal Deposit Insurance Corporation, the Resolution
Trust Corporation, the Director of the Office of Thrift Supervision, the
Comptroller of the Currency or the Board of Governors of the Federal Reserve
System, or any of their predecessors or successors, to maintain the capital of
an insured depository institution in a required amount, within the meaning of
Section 365(o) of Title 11, United States Code, as amended or supplemented from
time to time.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with generally accepted accounting principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
generally accepted accounting principles.
"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock
of the Borrower.
"Closing Date" shall mean the date upon which the loan transactions
contemplated by this Loan Agreement are consummated.
"Commercial Paper" means the interest bearing or discounted short-term
unsecured debt obligations issued by the Borrower under the Commercial Paper
Agreement.
"Commercial Paper Agreement" means the Commercial Paper Placement
Agreement dated as of November 10, 1995 between the Borrower and M&I, together
with the Exhibits attached thereto, as the same shall be amended from time to
time in accordance with the terms thereof.
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<PAGE> 8
"Compliance Certificate" means a compliance certificate, in
substantially the form of Exhibit A hereto, signed by the Borrower's chief
financial officer, stating, among other things, that no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists, stating the
nature and status thereof.
"Consolidated Financial Statements" means the Consolidated Financial
Statements for Bank Holding Companies With Total Consolidated Assets of $150
Million or More, or With More Than One Subsidiary Bank--FR Y-9 C, as such
report may be amended or modified from time to time, and any similar report
required to be filed by the Borrower.
"Consolidated Net Income" means the Borrower's net income determined
in a manner consistent with that used in preparing the Borrower's Consolidated
Financial Statements.
"Consolidated Net Operating Income" means the Borrower's net income
determined in a manner consistent with that used in preparing the Borrower's
Consolidated Financial Statements but excluding non-recurring non-cash charges
or adjustments.
"Consolidated Total Assets" means total assets of the Borrower
determined in a manner consistent with that used in preparing the Borrower's
Consolidated Financial Statements.
"Contingent Obligation" of a Person means any agreement, undertaking
or arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person,
or agrees to maintain the net worth or working capital or other financial
condition of any other Person, or otherwise assures any creditor of such other
Person against loss, including, without limitation, any comfort letter,
operating agreement, take-or-pay contract or application for a letter of
credit.
"Default" means an event described in Article VI hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and as in effect from time to time.
"FASB 115" means Statement of Financial Accounting Standards No. 115
adopted by the Financial Accounting Standards Board.
"Indebtedness" of a Person means such Person's: (i) obligations for
borrowed money; (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade);
(iii) obligations, whether or not assumed, secured by Liens or payable out of
the proceeds or production from property now or hereafter owned or acquired by
such Person; (iv) obligations which are evidenced by notes, acceptances, or
other instruments; (v) Capitalized Lease Obligations, (vi) Contingent
Obligations;
-3-
<PAGE> 9
(vii) obligations for which such Person is obligated pursuant to a letter of
credit; and (viii) Permitted Banking Subsidiary Indebtedness.
"Interbank Rate" means with respect to any Loan for any Interest
Period, the rate per annum equal to the rate (rounded upwards, if necessary, to
the nearest 1/16 of 1%) quoted to M&I as the rate at which dollar deposits in
immediately available funds are offered to M&I on the first day of the
applicable Interest Period in the London interbank Eurodollar market as at or
about 9:00 A.M., Milwaukee time, for delivery on the first day of such Interest
Period, for the number of days comprised therein and in an amount equal or
comparable to the amount of such Loan for such Interest Period. The Interbank
Rate shall be determined by M&I in accordance with the terms of this Agreement.
Each such determination shall be conclusive and binding upon the parties hereto
in the absence of demonstrable error.
"Interbank Reserve Requirement" means, with respect to each Interest
Period for a Loan, a percentage (expressed as a decimal) equal to the aggregate
reserve requirements in effect on the first day of such Interest Period
(including all basic, supplemental, marginal and other reserves and taking into
account any transitional adjustments or other scheduled changes in reserve
requirements during such Interest Period) specified for "Eurocurrency
Liabilities" under Regulation D of the Board of Governors of the Federal
Reserve System, or any other regulation of the Board of Governors which
prescribes reserve requirements applicable to "Eurocurrency Liabilities" as
presently defined in Regulation D, as then in effect, as applicable to the
class or classes of banks of which M&I is a member. As of the date of this
Loan Agreement, the Interbank Reserve Requirement is 0%.
"Interest Period" for any Loan shall commence on the date such Loan is
made or continued pursuant to Section 2.4 hereof, and shall end on the date
which is one (1), two (2) or three (3) months thereafter, as the Borrower may
specify in the related notice of borrowing or of continuation pursuant to
Section 2.4 hereof. Each Interest Period which would otherwise end on a day
which is not a day of the year on which banks are open for business in London
or Milwaukee and on which dealings are carried on in the London interbank
Eurodollar market ("Banking Day") shall end on the next succeeding Banking Day
(unless such next succeeding Banking Day is the first Banking Day of a calendar
month, in which case such Interest Period shall end on the preceding Banking
Day). No Interest Period may end after the maturity date for the Term Loan or
after the Line Termination Date.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade), deposit account or contribution of capital by such Person to any other
Person or any
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<PAGE> 10
investment in, or purchase or other acquisition of, the stock, partnership
interests, notes, debentures or other securities of any other Person made by
such Person.
"Law" shall mean any federal, state, local or other law, rule,
regulation or governmental requirement of any kind, and the rules, regulations,
written interpretations and orders promulgated thereunder.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Line of Credit Commitment" means the commitment of M&I to make Line
of Credit Loans to the Borrower up to a maximum principal amount outstanding,
from time to time, equal to Twenty-Five Million Dollars ($25,000,000) minus the
aggregate outstanding principal amount owing under the Borrower's Commercial
Paper.
"Line of Credit Loans" means the loans made to the Borrower by M&I
pursuant to Section 2.2 of this Agreement.
"Line of Credit Note" means a promissory note from the Borrower to M&I
evidencing the Line of Credit Loans and in substantially the form of Exhibit B
to this Agreement.
"Line Termination Date" means November 9, 1996.
"Loan Documents" means this Agreement and the Notes.
"Loan Loss Reserve" means the Borrower's allowance for loan and lease
losses determined in a manner consistent with that used in preparing the
Borrower's Consolidated Financial Statements.
"Loans" means the Line of Credit Loans and the Term Loan.
"M&I" shall mean M&I Marshall & Ilsley Bank, a Wisconsin banking
corporation.
"Material Adverse Effect" means a material adverse effect on: (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole; (ii) the
ability of the Borrower to perform its obligations under the Loan Documents; or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of M&I thereunder.
"Non-Performing Loans" means: (i) the total of loans which are placed
on a nonaccrual status; (ii) the total of loans which are past due 90 days or
more and are still accruing; and
-5-
<PAGE> 11
(iii) the total of loans and leases restructured and in compliance with
modified terms, in each case determined in a manner consistent with that used
in preparing the Borrower's Consolidated Financial Statements.
"Notes" means the Term Note and the Line of Credit Note.
"Overnight Line of Credit Loans" means those Line of Credit Loans made
to the Borrower by M&I on an overnight basis when the Borrower or its agent is
unable to place its Commercial Paper.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor to any or all of its functions under ERISA.
"Permitted Subsidiary Indebtedness" means obligations incurred by any
Subsidiary in the ordinary course of business in such circumstances as may be
incidental or usual in carrying on their normal business, including, without
limitation, obligations incurred in connection with (i) any deposits with or
funds collected by such Subsidiary, (ii) any banker's acceptance credit of such
Subsidiary, (iii) any check, note, certificate of deposit, instrument, money or
Letter of Credit issued by such Subsidiary, (iv) any check, note, certificate
of deposit, money order, traveler's check, draft or bill of exchange issued,
accepted or endorsed by such Subsidiary, (v) any discount with, borrowing from,
or other obligation to, any Federal Reserve Bank, (vi) any agreement made by
such Subsidiary to purchase or repurchase securities loans or Federal funds or
any interest or participation in any thereof, (vii) any guarantee or similar
obligation incurred by such Subsidiary in the ordinary course of its banking or
trust business, (viii) any transaction in the nature of an extension of credit,
whether in the form of a commitment or otherwise, undertaken by such Subsidiary
for the account of a third party with the application of the same banking
considerations and legal lending limits that would be applicable if the
transaction were a loan to such party, (ix) any transaction in which such
Subsidiary acts solely in the fiduciary or agency capacity, and (x) other
short-term liabilities similar to those enumerated in clauses (i) and (vi)
above, including United States Treasurer tax and loan borrowings.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means each pension, profit sharing, stock bonus, thrift,
savings and employee stock ownership plan established or maintained, or to
which contributions have been made, by the Borrower or any Subsidiary or any
trade or business which together with the Borrower or any Subsidiary would be
treated as a single employer under Section 4001 of ERISA.
-6-
<PAGE> 12
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Rate Hedging Obligations" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, interest rate futures,
interest rate swaps, forward currency exchange agreements, interest rate cap or
collar protection agreements, forward rate currency or interest rate options,
puts and warrants, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by banks for the purpose of purchasing or carrying
margin stocks applicable to member banks of the Federal Reserve System.
"Reno Stock Redemption Agreement" means that certain Section 303 Stock
Redemption Agreement, dated February 26, 1985, between the Borrower and Roger
Reno, as Trustee, Janice O. Reno, Roger Reno, Susan M. Reno, Sheri J. Reno
Rudolph and Michael G. Reno, as such agreement has been amended prior to the
date hereof and as such agreement may hereafter be amended or modified from
time to time in accordance with the terms hereof.
"Subsidiary" of a Person means: (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries; or (ii) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall
mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the
Borrower and its Subsidiaries, Property which: (i) represents more than 10% of
the consolidated assets of the Borrower and its Subsidiaries as would be shown
in the consolidated financial statements of the Borrower and its Subsidiaries
as at the beginning of the twelve-month period ending with the month in which
such determination is made, or
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<PAGE> 13
(ii) is responsible for more than 10% of the consolidated net sales or of the
consolidated net income of the Borrower and its Subsidiaries as reflected in
the financial statements referred to in clause (i) above.
"Term Loan" means the loan made to the Borrower by M&I pursuant to
Section 2.1 of this Agreement.
"Term Note" means a promissory note from the Borrower to M&I
evidencing the Term Loan and in substantially the form of Exhibit C to this
Agreement.
"Thrift Financial Report" means the Thrift Financial Report, as such
report may be amended or modified from time to time, and any similar report
required to be filed by any Banking Subsidiary.
"Total Equity Capital" means the Borrower's total equity capital
determined in a manner consistent with that used in preparing the Borrower's
Consolidated Financial Statements but excluding the effect (positive or
negative) on the calculation of total equity capital directly related to the
adoption of FASB 115.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means: (i) any Subsidiary all
of the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person; or (ii) any partnership, association, joint
venture or similar business organization 100% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II.
THE LOANS
2.1. Term Loan. (a) On the Closing Date and subject to the terms
and conditions set forth in this Agreement, M&I agrees to make a loan to the
Borrower in the original principal amount of Seventeen Million Dollars
($17,000,000). The Term Loan shall be evidenced by the Term Note and shall
mature on November 10, 2000. The Borrower may, from time to time and without
premium or penalty, prepay the Term Loan in whole or in part; provided,
however, that any such partial prepayment shall be in integral multiples of One
Million Dollars ($1,000,000) and shall be made only on the last day of the
Interest Period applicable thereto.
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<PAGE> 14
(b) The proceeds of the Term Loan shall be used to pay
off indebtedness of the Borrower outstanding as of the Closing Date under that
certain Credit Agreement dated as of November 16, 1992 among the Borrower, the
Lenders specified therein and The First National Bank of Chicago, as Agent, as
amended, and for working capital purposes.
2.2. Line of Credit Loans. (a) From time to time prior to the Line
Termination Date and subject to the terms and conditions set forth in this
Agreement, M&I agrees to extend to the Borrower loans in an amount not to
exceed the Line of Credit Commitment. All Line of Credit Loans shall be
evidenced by the Line of Credit Note, the Borrower being obligated, however, to
pay only the amount of Line of Credit Loans actually made and outstanding from
time to time, together with interest on the amount which remains outstanding
from time to time. The Borrower may borrow, repay and reborrow under this
Section subject to the terms and conditions of this Agreement; provided that
any payment of any Line of Credit Loan shall be made only on the last day of
the Interest Period relating thereto.
(b) The initial Line of Credit Loan shall be in an
integral multiple of One Hundred Thousand Dollars and not less than Five
Hundred Thousand Dollars ($500,000). Each subsequent Line of Credit Loan shall
be in an integral multiple of One Hundred Thousand Dollars ($100,000).
(c) The proceeds of the Line of Credit Loans shall be
used as a back-up line of credit to support the issuance of the Borrower's
Commercial Paper or in the event that the Borrower or its agent is unable to
place the Borrower's Commercial Paper.
(d) If, at the request of the Borrower, M&I agrees in its
sole discretion to increase the amount of the Line of Credit Commitment in
effect on the date of this Agreement, the Borrower shall pay M&I, at the time
of any such increase, a fee equal to 0.125% of the amount of the increase.
2.3. Interest. (a) The unpaid principal of the Term Loan shall
bear interest at an annual rate equal to the Adjusted Interbank Rate plus 162.5
basis points.
(b) Except as provided in paragraph (c) below, the unpaid
principal of the Line of Credit Loans shall bear interest at an annual rate
equal to the Adjusted Interbank Rate plus 137.5 basis points.
(c) The unpaid principal of the Overnight Line of Credit
Loans shall bear interest at an annual rate equal to the overnight LIBOR
(Eurodollar Deposit Offered Rate) rate quoted on Knight Ridder News Service or
any comparable news service, in the discretion of M&I for the day in question
plus 137.5 basis points.
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<PAGE> 15
(d) In the event that any amount of the principal of, or
interest on, any of the Notes is not paid on the date when due (whether at
stated maturity, by acceleration or otherwise), the entire principal amount
outstanding under such Note shall bear interest, in addition to the interest
otherwise payable and to the extent permitted by Law, at the annual rate of two
percent (2.0%) from the day following the due date until all such overdue
amounts have been paid in full.
(e) All interest due in respect of the Loans shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
2.4. Notice of Borrowing; Continuation. (a) Prior to any proposed
borrowing, the Borrower may request that M&I provide the Borrower with a quote
of the then-current Adjusted Interbank Rate for the various Interest Period
options.
(b) Each Loan shall be made on written notice or
telephonic notice from an Authorized Officer to the Person designated by M&I.
Such notice shall be given at least two (2) Business Days prior to the day of a
borrowing. Each day of a borrowing shall be a Business Day. Each notice shall
specify: (i) whether the Loan is a Line of Credit Loan or the Term Loan; (ii)
the date and amount of such Loan; and (iii) the duration of the initial
Interest Period. Each such notice shall be effective upon receipt, provided
that any notice received after 12:00 noon, Milwaukee time, may be deemed by
M&I, in its sole discretion, effective as of the next Business Day. The
Borrower shall promptly confirm any such telephonic request in writing.
(c) At the end of any Interest Period for any Loan, an
Authorized Officer shall give M&I two (2) Business Days prior notice of its
election to either: (i) continue all or part of such Loan from the current
Interest Period into a subsequent Interest Period (which shall begin on the day
after the last day of such current Interest Period); and/or (ii) prepay all or
part of such Loan. Each notice shall be received by M&I by 12:00 noon,
Milwaukee time, at least two (2) Business Days prior to prepayment and/or
continuation and shall be in writing or by telephone to be promptly confirmed
in writing by the Borrower and shall specify: (i) the date and amount of the
Loan to be prepaid and/or continued; and (ii) if the Loan, or any part of the
Loan is to be continued, the duration of the Interest Period. Absent such
notice, each Loan shall automatically be continued for a subsequent Interest
Period of equal duration as the current Interest Period on the day after the
last day of the current Interest Period of such Loan.
(d) Notwithstanding the foregoing paragraphs (b) and (c),
Overnight Line of Credit Loans shall be made on telephonic notice from an
Authorized Officer to the Person designated by M&I no later than 3:00 p.m.,
Milwaukee time, and shall specify the amount of such Loan and that such Loan is
to be an Overnight Line of Credit Loan.
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<PAGE> 16
(e) Each notice of borrowing or continuation shall
automatically constitute a warranty by the Borrower to M&I that, on the date of
the requested date of such borrowing or continuation: (i) all of the
representations and warranties of the Borrower contained in this Loan Agreement
shall be true and correct on such date as though made on such date; and (ii) no
Default or Unmatured Default shall exist on such date.
2.5. Payments. (a) The outstanding unpaid principal balance of
the Line of Credit Loans shall be paid in full on the Line Termination Date;
provided, however, that the outstanding principal balance of each Overnight
Line of Credit Loan shall be paid in full on the day following any such
borrowing. In the event that the outstanding principal balance of the Line of
Credit Loans at any time exceeds the Line of Credit Commitment, the Borrower
shall immediately pay the amount necessary to reduce such balance to be less
than or equal to the Line of Credit Commitment.
(b) The principal of the Term Loan shall be repaid in
nine (9) consecutive semiannual installments, each in the amount of One Million
Seven Hundred Thousand Dollars ($1,700,000), commencing on May 10, 1996, with
subsequent installments on each November 10 and May 10 of each year thereafter,
and a final installment in the amount of One Million Seven Hundred Thousand
Dollars ($1,700,000) on November 10, 2000.
(c) Interest accrued on the Loans shall be paid as
follows: (i) at the end of each Interest Period; (ii) with respect to the Term
Loan any unpaid accrued interest shall be paid with the final payment of
principal; and (iii) with respect to the Line of Credit Loans any unpaid
accrued interest shall be paid on the Line Termination Date. Notwithstanding
the foregoing, interest on any Overnight Line of Credit Loan shall be paid in
full daily.
(d) All payments of principal and interest on account of
the Loans and all other payments made pursuant to this Loan Agreement shall be
delivered M&I at 770 North Water Street, Milwaukee, Wisconsin 53202, Attention:
Commercial Loan Services or at such other place as M&I shall designate in
writing to the Borrower, in immediately available funds by 12:00 noon,
Milwaukee time on the date when due, and if received after such time on any day
shall be deemed to have been made on the next Business Day. Whenever any
payment to be made under this Loan Agreement or under the Notes shall be stated
to be due on a day which is not a Business Day, the day for such payment shall
be extended to the next succeeding Business Day, and such extension of time
shall be included in the computation of interest.
2.6. Commitment Fee. On the last day of January, April, July and
October in each year, beginning on January 31, 1996 and continuing until the
Line Termination Date (with a proportionate fee due on the Line Termination
Date), the Borrower agrees to pay to M&I a commitment fee, computed at the rate
of 0.1875% per
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annum, on the daily average amount by which the Line of Credit Commitment
exceeds the daily average amount of Line of Credit Loans outstanding during the
previous fiscal quarter.
2.7. Recordkeeping. M&I shall record in its records the date and
amount of the Loans and each payment of principal of, and interest on, the
Loans. The aggregate amounts so recorded shall be rebuttable presumptive
evidence of the principal and interest owing and unpaid on the Notes. The
failure to so record any such amount or any error in so recording any such
amount shall not, however, limit or otherwise affect the obligations of the
Borrower under this Loan Agreement or under the Notes to repay the principal
amount of the Loans together with all interest accruing thereon.
2.8. Increased Costs. If Regulation D of the Board of Governors of
the Federal Reserve System, or the adoption of any applicable law, rule or
regulation of general application, or any change therein, or any interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by M&I with any request or directive of general application (whether
or not having the force of law) of any such authority, central bank or
comparable agency:
(a) shall subject M&I to any tax, duty or other charge
with respect to the Loans, the Notes or its obligation to make the Loans, or
shall change the basis of taxation of payments to M&I of the principal of or
interest on the Loans or any other amounts due under this Loan Agreement in
respect of the Loans or its obligation to make the Loans (except for changes in
the rate of tax on the overall net income of M&I); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of Governors
of the Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to this Loan Agreement), special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, M&I; or
(c) shall affect the amount of capital required or
expected to be maintained by M&I or any corporation controlling M&I; or
(d) shall impose on M&I any other condition affecting the
Loans, the Notes or its obligation to make the Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) M&I of making or
maintaining any Loans, or to reduce the amount of any sum received or
receivable by M&I under this Loan Agreement or under the Notes with respect
thereto, then within twenty-one (21) days after demand by M&I (which demand
shall be accompanied by a statement setting forth the basis of such
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<PAGE> 18
demand), the Borrower shall pay M&I such additional amount or amounts as will
compensate M&I for such increased cost or such reduction. Determinations by
M&I for purposes of this Section of the effect of any change in applicable laws
or regulations or of any interpretations, directives or requests thereunder on
its costs of making or maintaining any Loans or sums receivable by it in
respect of the Loans, and of the additional amounts required to compensate M&I
in respect thereof, shall be conclusive, absent manifest error.
2.9. Deposits Unavailable or Interest Rate Unascertainable. If M&I
is advised that deposits in dollars (in the applicable amount) are not being
offered to banks in the relevant market for an Interest Period; or M&I
otherwise determines (which determination shall be binding and conclusive on
all parties) that: (a) by reason of circumstances affecting the interbank
London Eurodollar market adequate and reasonable means do not exist for
ascertaining the applicable Interbank Rate or (b) the Interbank Rate does not
accurately reflect the cost of making or maintaining loans based on the
Interbank Rate then so long as such circumstances shall continue, M&I shall not
be under any obligation to make or continue Loans based on the Interbank Rate
and on the last day of the then-current Interest Period, such Loans shall bear
interest at an annual rate of interest mutually agreed to by M&I and the
Borrower. If such an agreement cannot be reached, such Loans shall be repaid
in full by the Borrower.
2.10. Change in Law Rendering Interbank Rate Loans Unlawful. In the
event that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it unlawful for any M&I to make, maintain or
fund Loans based on the Interbank Rate, then: (a) M&I shall promptly notify the
Borrower; (b) the obligation of M&I to make or continue Loans based on the
Interbank Rate shall be suspended for the duration of such unlawfulness; and (c)
on the last day of the then-current Interest Period, such Loans shall bear
interest at an annual rate of interest mutually agreed to by M&I and the
Borrower. If such an agreement cannot be reached, such Loans shall be repaid in
full by the Borrower.
2.11. Indemnity. The Borrower will indemnify M&I against any and all
loss or expense which it may sustain or incur (including, without limitation,
any loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by M&I to fund or maintain Loans based on the
Interbank Rate), as reasonably determined by M&I: (a) in employing deposits to
effect, fund or maintain any Loan based on the Interbank Rate, as a consequence
of any failure the Borrower to make any payment when due of any amount due
hereunder in connection with such Loan; (b) due to any failure the Borrower to
borrow or continue an Interbank Rate Loan on a date specified therefor in a
notice thereof; or (c) due to any payment or
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<PAGE> 19
prepayment of any Interbank Rate Loan on a date other than the last day of the
Interest Period for such Loan.
2.12. Discretion of M&I as to Manner of Funding. Notwithstanding any
provision of this Loan Agreement to the contrary, M&I shall be entitled to fund
and maintain its funding of all or any part of the Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Loan Agreement
all determinations hereunder, including without limitation the indemnification
in Section 2.11 above, shall be made as if M&I had actually funded and
maintained each Interbank Rate Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Interbank Rate, as the
case may be, for such Interest Period.
ARTICLE III.
CONDITIONS
3.1. General Conditions. The obligation of M&I to make any Loan is
subject to the satisfaction, on the date hereof and on the date of each Loan,
of the following conditions:
(a) the representations and warranties of the Borrower
contained in this Loan Agreement shall be true and accurate on and as of such
date;
(b) there shall not exist on such date any Default or
Unmatured Default; and
(c) the making of the relevant Loan shall not be prohibited
by any applicable Law and shall not subject M&I to any penalty under or
pursuant to any applicable Law.
In the event there exists any Unmatured Default on the date of any
proposed Loan, M&I may agree to lend if the Borrower is able to demonstrate to
M&I to M&I's satisfaction that all such Unmatured Defaults will be cured by the
Borrower within ten Business Days.
3.2. Deliveries at Closing. The obligation of M&I to make any Loan
is further subject to the condition that M&I shall have received, on or before
the Closing Date, each of the following:
(a) the Term Note, executed by the Borrower and dated the
Closing Date;
(b) the Line of Credit Note, executed by the Borrower and
dated the Closing Date;
(c) an executed opinion of Borrower's counsel,
substantially in the form of Exhibit D to this Agreement;
(d) an executed Compliance Certificate containing
information as of the Closing Date, except that the calculation
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of the financial covenants may be calculated as of the last day of the
immediately preceding fiscal quarter;
(e) a certificate of the secretary of state of the State
of Nevada as to the good standing of the Borrower, dated as of a recent date;
(f) a certificate of the Secretary of the Borrower, dated
the Closing Date and in the form of Exhibit E attached to this Loan Agreement,
as to: (i) the incumbency and signature of the officers of the Borrower who
have signed or will sign this Loan Agreement, the Notes, and any other
documents or materials to be delivered by the Borrower to M&I pursuant to this
Loan Agreement; (ii) the adoption and continued effect of resolutions of the
board of directors of the Borrower authorizing the execution, delivery and
performance of this Loan Agreement; (iii) the accuracy and completeness of
copies of the articles or certificate of incorporation and bylaws of the
Borrower, as amended to date; and (iv) the name, title and signature of each
Authorized Officer;
(g) a copy of the certificate of incorporation of the
Borrower, as amended to date, certified by the secretary of state of the State
of Nevada, dated as of a recent date; and
(h) such additional supporting documents and materials as M&I
or its counsel may reasonably request on or before the Closing Date.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to M&I that:
4.1. Corporate Existence and Standing. Each of the Borrower and
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the Laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
4.2. Authorization and Validity. The Borrower has the corporate
power and authority and legal right to execute and deliver the Loan Documents
and to perform its obligations thereunder. The execution and delivery by the
Borrower of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings, and the
Loan Documents constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
4.3. No Conflict: Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor
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compliance with the provisions thereof will violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Borrower or
any of its Subsidiaries or the Borrower's or any Subsidiary's articles of
incorporation or by-laws or the provisions of any indenture, instrument or
agreement to which the Borrower or any of its Subsidiaries is a party or is
subject, or by which it, or its Property, is bound, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the
terms of any such indenture, instrument or agreement. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, any of the Loan Documents.
4.4. Financial Statements. The consolidated financial statements
of the Borrower and its Subsidiaries dated December 31, 1994 heretofore
delivered to M&I were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of the Borrower and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended.
4.5. Material Adverse Change. Since December 31, 1994, there has
been no change in the business, Property, prospects, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries which
could have a Material Adverse Effect.
4.6. Taxes. The Borrower and its Subsidiaries have filed all
United States federal tax returns and all other tax returns which are required
to be filed and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided. No tax liens have been filed and no claims are
being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
4.7. Litigation and Contingent Obligations. Except as set forth on
Schedule 4.7 hereto, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower or any of its
Subsidiaries which could have a Material Adverse Effect. Other than any
liability incident to such litigation, arbitration or proceedings, the Borrower
has no material contingent obligations
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not provided for or disclosed in the financial statements referred to in
Section 4.4.
4.8. Subsidiaries. Schedule 4.8 hereto contains an accurate list
of all of the presently existing Subsidiaries of the Borrower, setting forth
their respective jurisdictions of incorporation and the percentage of their
respective capital stock owned by the Borrower or other Subsidiaries as well as
an accurate list of all investments in existing Subsidiaries. All of the
issued and outstanding shares of capital stock of such Subsidiaries have been
duly authorized and issued and are fully paid and non-assessable.
4.9. ERISA. The Borrower has no knowledge that any Plan is in
noncompliance in any material respect with the applicable provisions of ERISA.
The Borrower has no knowledge of any pending or threatened litigation or
governmental proceeding or investigation against or relating to any Plan, nor
has any knowledge of any reasonable basis for any material proceedings, claims
or actions against or relating to any Plan. The Borrower has any knowledge
that the Borrower or any Subsidiary has incurred any "accumulated funding
deficiency" within the meaning of Section 302(a)(2) of ERISA in connection with
any Plan. The Borrower has any knowledge that there has been any Reportable
Event or Prohibited Transaction (as such terms are defined in ERISA) with
respect to any Plan, the occurrence of which would have a Material Adverse
Effect, or that the Borrower or any Subsidiary has incurred any liability to
the PBGC under Section 4062 of ERISA in connection with any Plan.
4.10. Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to M&I in connection with
the negotiation of, or compliance with, the Loan Documents contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained therein not misleading.
4.11. Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of those assets of the Borrower and its Subsidiaries
which are subject to any limitation on sale, pledge, or other restriction
hereunder.
4.12. Material Agreements. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or other
corporate restriction which could have a Material Adverse Effect. Neither the
Borrower nor any Subsidiary is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in:
(a) any agreement to which it is a party, including, without limitation, any
agreement entered into by the Borrower or any Subsidiary with any federal or
state regulatory authority, which default could have a Material Adverse Effect;
or (b) any agreements or instruments evidencing or governing Indebtedness in
excess of five percent (5.0%) of Consolidated Net Operating Income.
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4.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property. Neither the Borrower
nor any Subsidiary has received any notice to the effect that its operations are
not in material compliance with any of the requirements of applicable federal,
state and local environmental, health and safety statutes and regulations or the
subject of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous waste or
substance into the environment, which non-compliance or remedial action could
have a Material Adverse Effect.
4.14. Ownership of Properties. Except as set forth on Schedule 4.14
hereto, the Borrower and its Subsidiaries have good title, free of all Liens
other than those permitted by Section 5.15, to all of the Property and assets
reflected in the financial statements as owned by it.
4.15. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
4.16. Public Utility Holding Company Act. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
ARTICLE V.
COVENANTS
From and after the date of this Loan Agreement and until: (i) the
entire amount of principal of and interest due on the Loans, and all other
amounts of fees and payments due under this Loan Agreement and the Notes, are
paid in full; and (ii) the commitment of M&I to make Revolving Credit Loans has
ended, unless M&I shall otherwise consent in writing:
5.1. Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lenders:
(a) Within 120 days after the close of each of its fiscal
years, an unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in generally accepted
principles of accounting and required or approved by the Borrower's independent
certified public accountants) audit report certified by independent
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certified public accountants, acceptable to M&I, prepared in accordance with
generally accepted accounting principles on a consolidated and consolidating
basis (consolidating statements need not be certified by such accountants) for
itself and the Subsidiaries, including balance sheets as of the end of such
period, related profit and loss and reconciliation of surplus statements, and a
statement of cash flows, accompanied by: (i) any management letter prepared by
said accountants; and (ii) a certificate of said accountants that, in the
course of their examination necessary for their certification of the foregoing,
they have obtained no knowledge of any Default or Unmatured Default, or if, in
the opinion of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof.
(b) Within 45, plus a reasonable time for delivery (not to
exceed 15 days), days after the close of the first three quarterly periods of
each of its fiscal years, for itself and the Subsidiaries, consolidated and
consolidating unaudited balance sheet as at the close of each such period and a
consolidated profit and loss and reconciliation of surplus statements and a
statement of cash flows for the period from the beginning of such fiscal year
to the end of such quarter, all certified by its chief financial officer.
(c) Together with the financial statements required
hereunder, a duly completed Compliance Certificate.
(d) Simultaneously with the preparation thereof, and not more
than 45 days after the close of each of the first three fiscal quarters of the
Borrower and not more than 60 days after the close of the last fiscal quarter
of the Borrower in each fiscal year: (i) call reports for each Banking
Subsidiary in the form delivered to (A) the Federal Reserve District Bank, the
Comptroller of the Currency or The Federal Deposit Insurance Corporation, as
the case may be, such reports to include the applicable Consolidated Reports of
Condition and Income required by regulators and all schedules thereto; and (B)
the Office of Thrift Supervision, such reports to include the applicable Thrift
Financial Reports and all schedules thereto, and (ii) the Consolidated
Financial Statements and the applicable Parent Company Only Financial
Statements of the Borrower as at the end of such quarter, each in the form
delivered to the appropriate Federal Reserve District Bank and each to include
all schedules thereto. The Borrower may transmit the information required by
this paragraph (d) to M&I electronically if and when such means are readily
available and as agreed to at such time by acknowledged letter between M&I and
the Borrower.
(e) As soon as possible and in any event within 15 days after
the Borrower knows that any Reportable Event or Prohibited Transaction (as such
terms are defined in ERISA) has occurred with respect to any Plan, a statement,
signed by the chief financial officer of the Borrower, describing said
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Reportable Event or Prohibited Transaction and the action which the Borrower
proposes to take with respect thereto.
(f) As soon as possible and in any event within 15 days after
receipt by the Borrower, a copy of: (i) any notice or claim to the effect that
the Borrower or any of its Subsidiaries is or may be liable to any Person as a
result of the release by the Borrower, any of its Subsidiaries, or any other
Person of any toxic or hazardous waste or substance into the environment; and
(ii) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower or any of its
Subsidiaries, which, in either case, could have a Material Adverse Effect.
(g) Promptly upon the furnishing thereof to the shareholders
of the Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(h) Promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other regular reports
which the Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission.
(i) Promptly upon the receipt or execution thereof: (i)
notice by the Borrower or any Subsidiary that (A) it has received a request or
directive from any federal or state regulatory agency which requires it to
submit a capital maintenance or restoration plan or restricts the payment of
dividends by any Subsidiary to the Borrower or any other Subsidiary or (B) it
has submitted a capital maintenance or restoration plan to any federal or state
regulatory agency or has entered into an agreement with any such agency,
including, without limitation, any agreement which restricts the payment of
dividends by any Subsidiary to the Borrower or any other Subsidiary; and (ii)
copies of any such plan or agreement, unless disclosure is prohibited by the
terms thereof and after the Borrower or such Subsidiary has in good faith
attempted to obtain the consent of such regulatory agency, such agency will not
consent to the disclosure of such plan or agreement to M&I.
(j) Such other information (including non-financial
information and examination reports to the extent permitted by applicable
regulatory authorities) as M&I may from time to time reasonably request.
5.2. Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Loans solely for the purposes set forth
in Sections 2.1(b) and 2.2(c) hereof. The Borrower will not, nor will it
permit any Subsidiary to use any of the proceeds of the Loans, directly or
indirectly, to purchase or carry any "margin stock" (as defined in Regulation
U).
5.3. Notice of Default. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to M&I of the occurrence of any
Default or Unmatured Default and of any other
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development, financial or otherwise, which could have a Material Adverse
Effect.
5.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and to do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct its business in
each jurisdiction in which its business is conducted.
5.5. Taxes. The Borrower will, and will cause each Subsidiary to,
pay when due all taxes, assessments and governmental charges and levies upon it
or its income, profits or Property, except those which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been set aside.
5.6. Insurance. The Borrower will, and will cause each Subsidiary
to, maintain with financially sound and reputable insurance companies insurance
on all their Property in such amounts and covering such risks as is consistent
with sound business practice, and the Borrower will furnish to M&I upon request
full information as to the insurance carried.
5.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all Laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject.
5.8. Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect and
keep its Property in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times.
5.9. Inspection. The Borrower will, and will cause each Subsidiary
to, permit M&I, by its representatives and agents, to inspect any of the
Property, corporate books and financial records of the Borrower and each
Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and each Subsidiary, and to discuss the
affairs, finances and accounts of the Borrower and each Subsidiary with, and to
be advised as to the same by, their respective officers at such reasonable
times and intervals as M&I may designate.
5.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except
that: (a) any Subsidiary may declare and pay dividends to the Borrower or to a
Wholly-Owned Subsidiary; (b) Borrower may repurchase stock as
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required under the Reno Stock Redemption Agreement; and (c) the Borrower may
declare or pay dividends on its capital stock or redeem, repurchase or
otherwise acquire or retire any of its capital stock, net of proceeds from new
shares issued, during the period from September 30, 1995 to the date of
calculation in an amount not to exceed the sum of: (i) $5,000,000 plus (ii)
35% of the Borrower's Consolidated Net Operating Income for such period,
computed on a cumulative basis for such period; provided that in the case of
clause (c) above, such cumulative amount is first reduced by any net losses
incurred by the Borrower during such period; and provided further that in the
case of each of clauses (a), (b) and (c) above, after giving effect to such
event, no Default or Unmatured Default exists.
5.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower to M&I;
(b) Permitted Subsidiary Indebtedness;
(c) Indebtedness of any Subsidiary to any other Subsidiary
and to the Borrower;
(d) Contingent Obligations incurred with respect to the
endorsement of instruments for deposit or collection in the ordinary course of
business;
(e) Rate Hedging Obligations incurred by the Borrower or
any Subsidiary in compliance with the Borrower's investment policy;
(f) Capitalized Lease Obligations of the Borrower and its
Subsidiaries (other than any Subsidiary now owned or hereafter acquired by the
Borrower which is an intermediate bank holding company) in an aggregate
principal amount not exceeding $2,000,000 at any one time outstanding;
(g) Unsecured Indebtedness of the Borrower and its
Subsidiaries (other than any Subsidiary now owned or hereafter acquired by the
Borrower which is an intermediate bank holding company) in an aggregate
principal amount not exceeding $3,000,000 at any one time outstanding; provided
that such Indebtedness has a maturity of one year or less from the date of
creation thereof and that the proceeds of such Indebtedness are used for
working capital purposes; and
(h) Indebtedness in existence on the Closing Date, which
is described in Schedule 5.11 provided that such Indebtedness is not increased,
except for increases in Indebtedness related to deferred compensation matters.
5.12. Merger. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other
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Person, except that a Subsidiary may merge with the Borrower or a Wholly-Owned
Subsidiary.
5.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person except for sales in the ordinary course of business and, prior to a
Default, sales or other disposition of Property with an aggregate book value or
market value (whichever is greater) of less than $1,000,000.
5.14. Investments and Acquisitions. The Borrower will not, nor will
it permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
(a) short-term obligations of, or fully guaranteed by, the
United States of America or any agency or instrumentality thereof;
(b) commercial paper rated A-1 or better by Standard and
Poor's Corporation or P-1 or better by Moody's Investors Service, Inc. maturing
within one year of the date of acquisition;
(c) Investments that are investment grade within the limits
set by applicable regulatory authorities consistent with the Borrower's
investment policy as approved by the applicable regulatory authorities;
(d) demand deposit accounts maintained in the ordinary course
of business;
(e) Investments in Subsidiaries and other Investments in
existence on the date hereof and described in Schedule 4.8 hereto;
(f) Investments of any Subsidiary in the Borrower;
(g) Investments of any Banking Subsidiary in the ordinary
course of its banking or trust business consisting of extensions of credit in
the form of loans, acceptances, repurchase agreements, letters of credit, and
similar transactions;
(h) Investments of any Banking Subsidiary in the ordinary
course of its banking or trust business in marketable securities and
money-market instruments which it is permitted to hold and invest in under
applicable law and regulation;
(i) Investments of the Borrower and its Subsidiaries and
Acquisitions (other than Acquisitions of Banking Subsidiaries and holding
companies thereof); provided that (i) such
-23-
<PAGE> 29
Investments together with the aggregate purchase price of all such Acquisitions
made after the date of this agreement shall not at any one time outstanding
exceed an aggregate principal amount of $30,000,000; (ii) any such Acquisition
shall have been approved and recommended by the Board of Directors of the
entity being acquired; and (iii) immediately prior to and after the
consummation of any such Acquisition, no Default or Unmatured Default exists;
and
(j) any Acquisition of a Banking Subsidiary or a holding
company thereof; provided that (i) the total assets acquired pursuant to such
Acquisition do not exceed an aggregate amount of $300,000,000; (ii) such
Acquisition shall have been approved and recommended by the board of directors
of such entity; and (iii) immediately prior to and after the consummation of
any such Acquisition, no Default or Unmatured Default exists; and provided
further that (x) if such Acquisition is of a bank or a bank holding company,
such bank or holding company shall have a composite CAMEL rating of two or
better and (y) if such Acquisition is of a savings and loan association or
branch thereof, either (1) such savings and loan association or branch thereof
has a composite MACRO rating of two or better, or (2) such Acquisition is being
made from the Resolution Trust Corporation or any successor thereof and is
being assisted by the Resolution Trust Corporation or any successor thereof.
5.15. Liens. The Borrower will not create, incur, or suffer to exist
any Lien in, of or on the Property of the Borrower, except:
(a) Liens for taxes, assessments or governmental charges or
levies on its Property that are not yet due and payable or that are being
contested in good faith and by appropriate proceedings and for which adequate
reserves in accordance with generally accepted principles of accounting shall
have been set aside on its books;
(b) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its books;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation or in connection with
or to secure the performance of bids, tenders, trade contracts or leases, or to
secure statutory obligations or surety or appeal bonds, or other pledges or
deposits of like nature and all in the ordinary course of business;
(d) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a
-24-
<PAGE> 30
nature generally existing with respect to properties of a similar character and
which do not in any material way affect the marketability of the same or
interfere with the use thereof in the business of the Borrower or the
Subsidiaries;
(e) Liens granted by the Borrower or a Subsidiary in the
ordinary course of its banking and trust business in connection with any
Permitted Subsidiary Indebtedness;
(f) Liens to secure public funds or other pledges of funds
required by law to secure deposits; and
(g) repurchase agreements, reverse purchase agreements and
other similar transactions entered into by any Banking Subsidiary in the
ordinary course of its banking or trust business.
5.16. Fixed Asset Expenditures. The Borrower will not, nor will it
permit any Subsidiary to, expend, or commit to expend, at any time an amount in
excess of the maximum amount permitted by any regulatory agency having
jurisdiction over them in the acquisition of fixed assets.
5.17. Consolidated Net Worth. The Borrower and its Subsidiaries
shall maintain at all times Consolidated Net Worth equal to at least
$175,000,000 (before any adjustments in respect of FASB 115). Consolidated Net
Worth shall mean the excess of all consolidated assets of the Borrower and all
Subsidiaries over all consolidated liabilities of the Borrower and all
Subsidiaries, each determined in accordance with generally accepted accounting
principles consistently applied.
5.18. Borrower Tangible Net Worth. The Borrower shall maintain at
all times Tangible Net Worth (before any adjustments in respect of FASB
115)equal to at least $150,000,000. Tangible Net Worth shall mean the excess of
all assets of the Borrower (excluding goodwill, patents, trademarks, trade
names, copyrights and other assets properly classified as intangible assets)
over all liabilities of the Borrower, each determined in accordance with
generally accepted accounting principles consistently applied.
5.19. Consolidated Total Equity Capital to Asset Ratio. The Borrower
will maintain as at the last day of each fiscal quarter a ratio of Total Equity
Capital to Consolidated Total Assets which is equal to or greater than .0625 to
1.0.
5.20. Debt to Total Equity Capital Ratio. The Borrower will maintain
as at the last day of each fiscal quarter a ratio of debt to total equity
capital (determined in a manner consistent with that used in preparing the
Borrower's Parent Company Only Financial Statements) which is less than .45 to
1.0.
5.21. Consolidated Loan Loss Reserve to Non-Performing Loans Ratio.
The Borrower will maintain as at the last day of
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<PAGE> 31
each fiscal quarter a ratio of the Loan Loss Reserve to Non-Performing Loans of
not less than .85 to 1.0; provided, however, the Borrower will be permitted one
quarter's grace during any consecutive four-quarter period from the foregoing
ratio, but in no event shall such ratio be less than .75 to 1.0.
5.22. Capital Adequacy Ratios of the Borrower. The Borrower will
maintain at all times "well capitalized" risk based capital ratios, as defined
by applicable regulators, (a) for the Borrower on a consolidated basis and (b)
for the Banking Subsidiaries on a consolidated basis.
5.23. Adequately Capitalized. Each Banking Subsidiary shall at all
times be at least "adequately capitalized" as defined in the Federal Deposit
Insurance Corporation Improvement Act of 1991 and any regulations to be issued
thereunder, as such statute or regulations may each be amended or supplemented
from time to time.
5.24. Reno Stock Redemption Agreement. The Borrower shall not enter
into or permit to exist any amendment, modification or waiver of the Reno Stock
Redemption Agreement without the prior written consent of M&I.
5.25. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.
ARTICLE VI.
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
6.1. Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries to M&I under or in connection
with this Agreement, any Loan, or any certificate or information delivered in
connection with this Agreement or any other Loan Document shall prove to have
been false in any material respect as of the time when made or given.
6.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any fee or other obligations under any of the Loan
Documents within five (5) days after the same becomes due.
6.3. The breach by the Borrower of any of the terms or provisions of
Sections 5.2 and 5.10 through and including 5.25.
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<PAGE> 32
6.4. The breach by the Borrower (other than a breach which
constitutes a Default under Section 6.1, 6.2 or 6.3) of any of the terms or
provisions of this Agreement which is not remedied within thirty (30) days
after written notice from M&I.
6.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness in excess of $1,000,000 in the aggregate when due; or the default
by the Borrower or any of its Subsidiaries in the performance of any term,
provision or condition contained in any agreement under which any Indebtedness
in excess of $1,000,000 in the aggregate was created or is governed, or any
other event shall occur or condition exist, the effect of which is to cause, or
to permit the holder or holders of such Indebtedness to cause, such
Indebtedness to become due prior to its stated maturity; or any Indebtedness of
the Borrower or any of its Subsidiaries in excess of $1,000,000 in the
aggregate shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the stated maturity
thereof; or the Borrower or any of its Subsidiaries shall not pay, or admit in
writing its inability to pay, its debts generally as they become due.
6.6. The Borrower or any of its Subsidiaries shall: (a) have an
order for relief entered with respect to it under the federal bankruptcy laws
as now or hereafter in effect; (b) take an assignment for the benefit of
creditors; (c) apply for, seek, consent to, or acquiesce in, the appointment of
a receiver, custodian, trustee, examiner, liquidator or similar official for it
or any Substantial Portion of its Property; (d) institute any proceeding
seeking an order for relief under the federal bankruptcy laws as now or
hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file
an answer or other pleading denying the material allegations of any such
proceeding filed against it; (e) take any corporate action to authorize or
effect any of the foregoing actions set forth in this Section 6.6 or (f) fail
to contest in good faith any appointment or proceeding described in Section
6.7.
6.7. Without the application, approval or consent of the Borrower
or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Borrower or any of its Subsidiaries
or any Substantial Portion of its Property, or a proceeding described in
Section 6.6(d) shall be instituted against the Borrower or any of its
Subsidiaries and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of thirty (30) consecutive days.
6.8. Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of (each a
"Condemnation"), all or any portion of the
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<PAGE> 33
Property of the Borrower and its Subsidiaries which, when taken together with
all other Property of the Borrower and its Subsidiaries so condemned, seized,
appropriated, or taken custody or control of, during the twelve-month period
ending with the month in which any such Condemnation occurs, constitutes a
Substantial Portion.
6.9. The Borrower or any of its Subsidiaries shall fail within
thirty (30) days to pay, bond or otherwise discharge any judgment or order for
the payment of money in excess of $1,000,000 which is not stayed on appeal or
otherwise being appropriately contested in good faith.
6.10. (a) Any Reportable Event (as defined in ERISA) shall have
occurred which constitutes grounds for the termination of any Plan by the PBGC
or for the appointment of a trustee to administer any Plan, or any Plan shall
be terminated within the meaning of Title IV of ERISA, or a trustee shall be
appointed by the appropriate court to administer any Plan, or the PBGC shall
institute proceedings to terminate any Plan or to appoint a trustee to
administer any Plan, or the Borrower or any of its Subsidiaries or any trade or
business which together with the Borrower or any of its Subsidiaries would be
treated as a single employer under Section 4001 of ERISA shall withdraw in
whole or in part from a multiemployer Plan; and (b) the aggregate amount of the
Borrower's or any Subsidiary's liability for all such occurrences, whether to a
Plan, the PBGC or otherwise, may exceed $1,000,000, and such liability is not
covered for the benefit of the Borrower or its Subsidiaries by insurance
6.11. The Borrower or any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to the release by the Borrower or
any of its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
have a Material Adverse Effect.
6.12. Any Change in Control shall occur.
6.13. Any conservator or receiver shall be appointed for the Borrower
or any Banking Subsidiary under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as it may be amended or supplemented from time to
time.
6.14. Any Banking Subsidiary shall cease to be insured under the
Federal Deposit Insurance Act of 1959, as amended, or a cease and desist order
shall be issued against the Borrower or any Subsidiary pursuant to 12 U.S.C.
1818(b) or (c) or any similar applicable provision of state law.
6.15. The Borrower or any Subsidiary shall enter into any Capital
Commitment with any federal or state regulator or any such regulator shall
require the Borrower or any Subsidiary to submit a capital maintenance or
restoration plan or the Borrower
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<PAGE> 34
or any Subsidiary shall cease to be in compliance with any such Capital
Commitments or plans existing on the date of this Agreement.
6.16. The Borrower shall default in the payment of any Commercial
Paper or shall breach any term of the Commercial Paper Agreement.
ARTICLE VII.
REMEDIES
7.1. Acceleration. (a) Upon the occurrence of a Default, described
in Section 6.6 or 6.7, then, without notice, demand or action of any kind by
M&I: (i) the obligation of M&I to make any Line of Credit Loans under this
Loan Agreement shall automatically and immediately terminate; and (ii) the
entire unpaid principal of, and accrued interest on, the Notes, and any other
amount due under this Loan Agreement, shall be automatically and immediately
due and payable.
(b) Upon the occurrence of any other Default: (i) M&I may,
upon written notice and demand to the Borrower, terminate its obligation to
make any Line of Credit Loans under this Loan Agreement; and (ii) M&I, upon
written notice and demand to Borrowers, may declare the entire unpaid principal
of, accrued interest on, the Notes, and any other amount due under the Loan
Documents, immediately due and payable.
7.2. Remedies Not Exclusive. No remedy herein conferred upon M&I
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given under
the Loan Documents or now or hereafter existing at law or in equity. No
failure or delay on the part M&I in exercising any right or remedy shall
operate as a waiver thereof nor shall any single or partial exercise of any
right preclude other or further exercise thereof or the exercise of any other
right or remedy.
7.3. Setoff. The Borrower agrees that M&I shall have all rights of
setoff and bankers' Lien provided by applicable Law, and in addition thereto,
the Borrower agrees that if at any time any payment or other amount owing by
the Borrower under any Loan Document is then due to M&I, then M&I may apply to
the payment of such payment or other amount any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter with M&I.
ARTICLE VIII.
MISCELLANEOUS
8.1. Expenses and Attorneys' Fees. The Borrower shall pay all
reasonable fees and expenses incurred by M&I and any loan participant,
including the reasonable fees of counsel, in connection with the preparation,
issuance and amendment of this Loan Agreement and the Notes and the
consummation of the
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<PAGE> 35
transactions contemplated by this Loan Agreement, and the administration
(including without limitation, matters relating to waivers), protection and
enforcement of M&I's rights under this Loan Agreement, the Notes and any other
documents or materials to be delivered by the Borrower to M&I pursuant to this
Loan Agreement, including without limitation the protection and enforcement of
such rights in any bankruptcy, reorganization or insolvency proceeding
involving the Borrower or any Subsidiary. The Borrower further agrees to pay
on demand all reasonable internal fees and accountants' fees incurred M&I in
connection with the enforcement of this Loan Agreement, the Notes, or any other
documents or materials to be delivered by the Borrower to M&I pursuant to this
Loan Agreement.
8.2. Assignability; Successors. The rights and liabilities of the
Borrower under this Loan Agreement are not assignable or delegable, in whole or
in part, without the prior written consent of M&I. The provisions of this Loan
Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of the parties.
8.3. Survival. All covenants, agreements, representations and
warranties made in this Loan Agreement or in any document delivered pursuant to
this Loan Agreement shall survive the execution and delivery of this Loan
Agreement, the issuance of the Notes, the delivery of any such document and the
repayment of the Loans pursuant to the terms of this Loan Agreement.
8.4. Governing Law. This Loan Agreement, the Notes and the other
instruments, agreements and documents issued pursuant to this Loan Agreement
shall be governed by, and construed and interpreted in accordance with, the
Laws of the State of Wisconsin applicable to agreements made and wholly
performed within such state, but giving effect to federal Laws applicable to
national banks.
8.5. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
WISCONSIN STATE COURT SITTING IN MILWAUKEE IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES, DOCUMENTS AND THE BORROWER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF M&I TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY THE BORROWER AGAINST M&I INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT OR THE NOTES SHALL BE BROUGHT ONLY IN A COURT IN MILWAUKEE,
WISCONSIN.
8.6. WAIVER OF JURY TRIAL. THE BORROWER AND M&I HEREBY WAIVE TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
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<PAGE> 36
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
AGREEMENT OR THE NOTES OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
8.7. Counterparts. This Loan Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement.
8.8. Entire Agreement. This Loan Agreement, the Notes and the
other documents referred to herein and therein contain the entire understanding
of the parties with respect to the subject matter hereof. There are no
restrictions, promises, warranties, covenants or undertakings other than those
expressly set forth in this Loan Agreement. This Loan Agreement supersedes all
prior negotiations, agreements and undertakings between the parties with
respect to such subject matter.
8.9. Notices. All communications or notices required or permitted
by this Loan Agreement shall be in writing and shall be deemed to have been
given: (a) upon delivery if hand delivered; or (b) upon deposit in the United
States mail, postage prepaid, or with a nationally recognized overnight
commercial carrier, airbill prepaid; or (c) upon transmission if by facsimile,
provided that such transmission is promptly confirmed by hand delivery, mail or
courier as provided above, and each such communication or notice shall be
addressed as follows, unless and until any party notifies the other in
accordance with this Section 8.9 of a change of address:
If to the Borrower: AMCORE Financial, Inc.
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
Attention: John R. Hecht, Sr VP & CFO
with a copy to: Maggio and Fox
501 Seventh Street
Suite 501
Rockford, Illinois 61104
Attention: Pamela S. Fox
If to M&I: M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, Wisconsin 53202
Attention: John A. Leonard
with a copy to: Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Jennifer V. Powers
8.10. Amendments; Etc. No amendment, modification, termination or
waiver of, or consent to the Borrower's
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<PAGE> 37
noncompliance with or departure from, any provision of this Loan Agreement or
the Notes shall be effective unless in writing and signed by the Borrower and
M&I.
8.11. Taxes. If any transfer or documentary taxes, assessments or
charges levied by any governmental authority shall be payable by reason of the
execution, delivery or recording of this Loan Agreement, the Notes or any other
document or instrument issued or delivered pursuant to this Loan Agreement, the
Borrower shall pay all such taxes, assessments and charges, including interest
and penalties, and hereby indemnifies M&I against any liability therefor.
8.12. Accounting Terms. Except as provided to the contrary herein,
all accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with generally accepted
accounting principles; provided, however, that compliance with Sections 5.19
through and including 5.23 shall be interpreted and all determinations
thereunder shall be made in accordance with regulatory accounting principles as
in effect from time to time.
8.13. Severability. Any provision of this Loan Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Loan Agreement in such
jurisdiction or affecting the validity or enforceability of any provision in any
other jurisdiction.
8.14. Indemnification. The Borrower hereby indemnifies, agrees to
defend and holds M&I from and against all loss, liability, damage and expense,
including costs associated with administrative and judicial proceedings and
attorneys' fees, ever suffered or incurred by M&I on account of: (a) the
Borrower's or any Subsidiary's failure to comply with any environmental, health,
safety or sanitation Law or any order of any regulatory or administrative
authority with respect thereto; (b) any release of oil or hazardous materials or
substances on, upon or into real property owned, operated or controlled by the
Borrower or any Subsidiary; and (c) any and all damage to natural resources or
real property or harm or injury to Persons resulting or alleged to have resulted
from any failure to comply or any release of oil or hazardous materials or
substances as described in subsections (a) and (b) of this Section.
8.15. Participation. M&I may grant a silent participation in any
part of the Loans to any bank or banks; provided that such participants shall
have no direct relationship with the Borrower and shall not have approval rights
with respect to the terms of the relationship or the Loans between M&I and the
Borrower.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the day and year first above written.
M&I MARSHALL & ILSLEY BANK
By: JOHN A. LEONARD
-------------------------------
Name: John A. Leonard
-----------------------------
Title: Vice President
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
----------------------------
AMCORE FINANCIAL, INC.
By: JOHN HECHT
--------------------------------
Name: John Hecht
-----------------------------
Title: Senior Vice President &
Chief Financial Officer
----------------------------
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<PAGE> 39
SCHEDULE 4.7
LITIGATION
<PAGE> 40
SCHEDULE 4.8
SUBSIDIARIES AND OTHER INVESTMENTS
<PAGE> 41
SCHEDULE 4.8
AMCORE FINANCIAL, INC.
Investments in Subsidiaries
As of September 30, 1995
<TABLE>
<CAPTION>
%
NAME OF AFFILIATE OWNED BUSINESS PARENT CO. INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMCORE Bank N.A., Rockford(1) 100% National Bank AMCORE Financial, Inc. National Charter
AMCORE Bank N.A., Rock River Valley 100% National Bank AMCORE Financial, Inc. National Charter
NBM Bancorp, Inc.(1) 100% Bank Holding Co. AMCORE Financial, Inc. Delaware
First State Bancorp of Princeton, Illinois, Inc.(1) 100% Bank Holding Co. AMCORE Financial, Inc. Delaware
AMCORE Bank N.A., Northwest 100% National Bank AMCORE Financial, Inc. National Charter
NBA Holding Company(1) 100% Bank Holding Co. AMCORE Financial, Inc. Delaware
AMCORE Mortgage, Inc. 100% Mtg. Banking AMCORE Financial, Inc. Nevada
AMCORE Consumer Finance Company, Inc. 100% Consumer Credit AMCORE Financial, Inc. Nevada
AMCORE Trust Company 100% Trust Company AMCORE Financial, Inc. Illinois
Rockford Mercantile Agency, Inc. 100% Collection Agency AMCORE Financial, Inc. Illinois
AMCORE Financial Life Insurance Company 100% Credit Life, A&H AMCORE Financial, Inc. Arizona
AMCORE Investment Banking, Inc. 100% Investment Banking AMCORE Financial, Inc. Illinois
Total Investment in Subsidiaries
<CAPTION>
TOTAL TOTAL TOTAL
NAME OF AFFILIATE EQUITY DEBT INVESTMENT (2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMCORE Bank N.A., Rockford(1) $ 80,307,506 $ 517,812 $ 80,825,317
AMCORE Bank N.A., Rock River Valley 58,757,886 58,757,886
NBM Bancorp, Inc.(1) 21,505,807 21,505,807
First State Bancorp of Princeton, Illinois, Inc.(1) 13,144,852 13,144,852
AMCORE Bank N.A., Northwest 15,491,057 15,491,057
NBA Holding Company(1) 10,775,829 10,775,829
AMCORE Mortgage, Inc. 5,409,046 5,409,046
AMCORE Consumer Finance Company, Inc. 484,175 5,000,000 5,484,175
AMCORE Trust Company 3,863,596 3,863,596
Rockford Mercantile Agency, Inc. 1,672,993 150,000 1,822,993
AMCORE Financial Life Insurance Company 862,147 862,147
AMCORE Investment Banking, Inc. 74,711 74,711
----------------------------------------------------------
Total Investment in Subsidiaries $210,349,604 $ 5,687,812 $216,017,416
==========================================================
</TABLE>
(1) - Includes consolidated subsidiaries
(2) - Excludes intercompany receivables
<PAGE> 42
SCHEDULE 4.14
INDEBTEDNESS AND LIENS
<PAGE> 43
SCHEDULE 4.14
AMCORE FINANCIAL, INC.
Ownership of Properties & Liens
As of September 30, 1995
<TABLE>
<CAPTION>
EXISTING LIENS
DATE FINANCING
SECURED PARTY DEBTOR FILED STATEMENT # COLLATERAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMCORE Bank N.A., Rockford AMCORE Consumer Finance Various Various Consumer notes
AMCORE Bank N.A., Rockford as AMCORE Mortgage, Inc. Various Various All mortgages and mortgage
agent for all participating AMCORE Banks notes now owned or hereafter
acquired by Debtor, etc.
</TABLE>
<PAGE> 44
SCHEDULE 5.15
EXISTING INDEBTEDNESS
<PAGE> 45
SCHEDULE 5.15
AMCORE FINANCIAL, INC.
Indebtedness
As of September 30, 1995
<TABLE>
<CAPTION>
EXISTING INDEBTEDNESS
---------------------
INDEBTEDNESS INDEBTEDNESS PROPERTY MATURITY
INCURRED BY OWED TO PURPOSE ENCUMBERED DATE AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMCORE Financial, Inc. First Chicago, et al Dixon Acquisition NA October 15, 1998 $17,000,000
AMCORE Financial, Inc. Neva Kelley, Executrix RMA Acquisition NA January 19, 2002 $ 2,464,552
AMCORE Financial, Inc. Dir. & Officers Deferred Comp NA Various $ 644,286
AMCORE Bank N.A., Rockford Dir. & Officers Deferred Comp NA Various $ 3,652,591
AMCORE Bank N.A., Rock River Valley Dir. & Officers Deferred Comp NA Various $ 40,707
AMCORE Bank N.A., Northwest Dir. & Officers Deferred Comp NA Various $ 29,030
NBM Bancorp, Inc. Dir. & Officers Deferred Comp NA Various $ 76,000
NBA Holding Company Dir. & Officers Deferred Comp NA Various $ 240,000
AMCORE Trust Company Dir. & Officers Deferred Comp NA Various $ 282,446
Rockford Mercantile Agency, Inc. Dir. & Officers Deferred Comp NA Various $ 5,838
AMCORE Mortgage, Inc. Dir. & Officers Deferred Comp NA Various $ 180,757
-----------
$24,616,207
===========
</TABLE>
<PAGE> 46
EXHIBIT A
COMPLIANCE CERTIFICATE
To: M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: John Leonard
This Compliance Certificate is furnished pursuant to that certain Loan
Agreement dated as of November 10, 1995 (as amended, modified, renewed or
extended from time to time, the "Agreement") by and between the Borrower and
M&I. Unless otherwise defined herein, capitalized terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly appointed Chief Financial Officer of the
Borrower;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or event which
constitutes a Default or Unmatured Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
Described below are the exceptions if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
None
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
AMCORE FINANCIAL, INC.
By:
_____________________________
<PAGE> 47
EXHIBIT B
LINE OF CREDIT NOTE
$25,000,000 Milwaukee, Wisconsin
November 10, 1995
FOR VALUE RECEIVED, AMCORE FINANCIAL, INC., a Nevada corporation (the
"Borrower"), hereby promises to pay to the order of M&I MARSHALL & ILSLEY BANK
("M&I"), the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000) or such
lesser amount of loans which remain outstanding under this Note, as provided in
the Loan Agreement described below, but in any event no later than November 9,
1996.
This Note constitutes the Line of Credit Note issued pursuant to a Loan
Agreement dated as of November 10, 1995 (the "Loan Agreement") by and between
M&I and the Borrower, as such Loan agreement may be amended from time to time,
to which Loan Agreement reference is hereby made for a statement of the terms
and conditions under which the Line of Credit Loan evidenced hereby may be made
and a description of the terms and conditions upon which this Note may be
prepay in whole or in part. In case a Default, as defined in the Loan
Agreement, shall occur, the entire unpaid balance and accrued interest may be
automatically due and payable or may be declared due and payable as provided in
the Loan Agreement.
The unpaid principal of this Note shall bear interest from the date
hereof until paid at an annual rate, computed on the basis of a 360-day year,
as set forth in the Loan Agreement. Interest accrued on the unpaid principal
balance shall be payable in accordance with the terms of the Loan Agreement.
Payments of principal, interest and other amounts due hereunder are to
be made in lawful money of the United States of America to M&I at 770 N. Water
Street, Milwaukee, Wisconsin 53202, Attention: Commercial Loan Services or at
such other place as the holder shall designate in writing to the Borrower.
The maker and all endorsers hereby severally waive presentment for
payment, protest and demand, notice of protest, demand and of dishonor and
nonpayment of this Note. The Borrower hereby agrees to pay all reasonable fees
and expenses incurred by M&I or any subsequent holder, including the reasonable
fees of counsel, in connection with the protection and enforcement of the
rights of M&I or any subsequent holder under this Note, including without
limitation the collection of any amounts due under this Note and the protection
and enforcement of such rights in any bankruptcy, reorganization or insolvency
proceeding involving the Borrower.
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of
<PAGE> 48
Wisconsin applicable to contracts made and wholly performed within such state.
AMCORE FINANCIAL, INC.
By:_____________________________
Name:___________________________
Its:____________________________
2
<PAGE> 49
EXHIBIT C
TERM NOTE
$17,000,000 Milwaukee, Wisconsin
November 10, 1995
FOR VALUE RECEIVED, AMCORE FINANCIAL, INC., a Nevada corporation (the
"Borrower"), hereby promises to pay to the order of M&I MARSHALL & ILSLEY BANK
("M&I"), the principal sum of SEVENTEEN MILLION DOLLARS ($17,000,000) in nine
(9) equal semiannual installments of $1,700,000, commencing on May 10, 1996 and
on each November 10 and May 10 of each year thereafter, with a final
installment of $1,700,000 on November 10, 2000, together with interest as set
forth in the Loan Agreement defined below.
This Note constitutes the Term Note issued pursuant to a Loan Agreement
dated as of November 10, 1995 (the "Loan Agreement") by and between M&I and the
Borrower, as such Loan agreement may be amended from time to time, to which
Loan Agreement reference is hereby made for a statement of the terms and
conditions under which the Term Loan evidenced hereby may be made and a
description of the terms and conditions upon which this Note may be prepay in
whole or in part. In case a Default, as defined in the Loan Agreement, shall
occur, the entire unpaid balance and accrued interest may be automatically due
and payable or may be declared due and payable as provided in the Loan
Agreement.
The unpaid principal of this Note shall bear interest from the date
hereof until paid at an annual rate, computed on the basis of a 360-day year,
as set forth in the Loan Agreement. Interest accrued on the unpaid principal
balance shall be payable in accordance with the terms of the Loan Agreement.
Payments of principal, interest and other amounts due hereunder are to
be made in lawful money of the United States of America to M&I at 770 N. Water
Street, Milwaukee, Wisconsin 53202, Attention: Commercial Loan Services or at
such other place as the holder shall designate in writing to the Borrower.
The maker and all endorsers hereby severally waive presentment for
payment, protest and demand, notice of protest, demand and of dishonor and
nonpayment of this Note. The Borrower hereby agrees to pay all reasonable fees
and expenses incurred by M&I or any subsequent holder, including the reasonable
fees of counsel, in connection with the protection and enforcement of the
rights of M&I or any subsequent holder under this Note, including without
limitation the collection of any amounts due under this Note and the protection
and enforcement of such rights in any bankruptcy, reorganization or insolvency
proceeding involving the Borrower.
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of
<PAGE> 50
Wisconsin applicable to contracts made and wholly performed within such state.
AMCORE FINANCIAL, INC.
By:_____________________________
Name:___________________________
Its:____________________________
2
<PAGE> 51
EXHIBIT D
M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: John Leonard
Gentlemen/Ladies:
We are counsel for AMCORE FINANCIAL, INC. (the "Borrower") and have
represented the Borrower in connection with its execution and delivery of a Loan
Agreement dated as of November 10, 1995 by and between the Borrower and M&I
providing for a Term Loan in the original principal amount of $17,000,000 and
Line of Credit Loans in an aggregate principal amount of $25,000,000 (the
"Agreement"). All capitalized terms used in this opinion and not otherwise
defined shall have the meaning attributed to them in the Agreement.
We have examined the Borrower's articles of incorporation, by-laws,
resolutions, the Loan Documents and such other matters of fact and law which we
deem necessary in order to render this opinion. Based upon the foregoing, it
is our opinion that:
1. The Borrower and each Subsidiary are corporations duly incorporated,
validly existing and in good standing under the laws of their states of
incorporation and have all requisite authority to conduct their business in
each jurisdiction in which their business is conducted.
2. The making, execution, delivery and performance of the Loan Documents
by the Borrower and compliance with their respective terms, have been duly
authorized by all necessary corporate action and proceedings on the part of the
Borrower and will not:
(a) require any consent of the Borrower's shareholders;
(b) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its
Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation
or by-laws or any indenture, instrument or agreement binding upon the
Borrower or any of its Subsidiaries; or
(c) result in, or require, the creation or imposition of any Lien
pursuant to the provisions of any indenture, instrument or agreement
binding upon the Borrower or any of its Subsidiaries.
3. The Loan Documents have each been duly executed and delivered by the
Borrower and constitute legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in
<PAGE> 52
accordance with their respective terms, except to the extent the enforcement
thereof may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and subject also to the availability
of equitable remedies if equitable remedies are sought.
4. There is no litigation or proceeding against the Borrower or any of its
Subsidiaries which, if adversely determined, could have a Material Adverse
Effect.
5. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Borrower or any of
its Subsidiaries, is necessary or required in connection with the making,
execution and delivery of the Loan Documents by the Borrower or the performance
by the Borrower of its obligations thereunder.
This opinion may be relied upon M&I, its participants, assignees and other
transferees.
Very truly yours,
____________________________________
2
<PAGE> 53
EXHIBIT E
CERTIFICATE OF SECRETARY
The undersigned does hereby certify that:
1. I am the duly elected, qualified and acting Secretary of AMCORE
Financial, Inc., a Nevada corporation (the "Borrower").
2. Attached hereto is a true and correct copy of resolutions duly
adopted by the Board of Directors of the Borrower on _____________, 1995, and
such resolutions have not in any way been rescinded or amended and have been in
full force and effect at all times since their adoption up to and including the
date hereof and are now in full force and effect.
3. Attached hereto are true and correct copies of the certificate of
incorporation and bylaws of the Borrower, as in effect on the date hereof.
4. The following are duly elected, qualified and acting officers of
the Borrower, holding the respective offices set forth opposite their
respective names and the signature of each such officer hereof is his/her true
genuine signature:
<TABLE>
<CAPTION>
NAME OFFICE SIGNATURE
- ---- ------ ---------
<S> <C> <C>
Carl J. Dargene President & ____________________
CEO
F. Taylor Carlin Executive Vice ____________________
President & COO
Richard A. Catlin Executive Vice ____________________
President & CAO
James F. Waldell Executive Vice ____________________
President & COO
John R. Hecht Senior Vice ____________________
President & CFO
</TABLE>
Each of the foregoing is an Authorized Officer, as defined in the Loan
Agreement.
5. This certificate is delivered to M&I Marshall & Ilsley M&I ("M&I")
in connection with that certain Loan Agreement dated as of November 10, 1995
between the Borrower and M&I ("Loan Agreement"). M&I is entitled to rely on
this certificate until canceled or amended by delivery to M&I of a further
certificate of the Secretary or an Assistant Secretary of the Borrower.
IN WITNESS WHEREOF, I have executed this certificate in my official
capacity on November 10, 1995.
_____________________________
Secretary
<PAGE> 1
EXHIBIT 10.6
COMMERCIAL PAPER PLACEMENT AGREEMENT
THIS AGREEMENT is entered into as of November 10, 1995, by and between
AMCORE Financial, Inc. Corporation (hereinafter referred to as "Issuer"), a
corporation with a place of business at 501 7th Street, Rockford, IL 61104 and
M&I Marshall & Ilsley Bank, (hereinafter referred to as "Agent"), 770 North
Water Street, Milwaukee, Wisconsin 33202.
W I T N E S S E T H:
WHEREAS, Issuer desires to sell, from time to time, interest bearing or
discounted short-term unsecured debt obligations having maturities of no more
than two hundred seventy (270) days (hereinafter such debt obligations being
referred to as "Commercial Paper"); and
WHEREAS, Issuer desires to retain Agent to advise Issuer with respect
to its issuance of Commercial Paper, to solicit purchasers for such Commercial
Paper as Issuer from time to time advises Agent it desires to issue, and to
place Commercial Paper with purchasers (hereinafter "Purchaser" or
"Purchasers"); and
WHEREAS, Issuer desires to compensate Agent for the services Agent will
be performing for Issuer from time to time as herein described.
NOW, THEREFORE, in consideration of the premises and the undertakings
hereinafter set forth, Issuer and Agent hereby agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, including the Exhibits
attached hereto, the following terms shall have the following
meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"AUTHORIZED PERSONS OF ISSUER" shall mean the individuals whose
names appear in Exhibit A attached hereto and made a part hereof (as
such Exhibit may be revised from time to time by written notice
given to Agent by Issuer).
"BACK-UP LINES OF CREDIT" shall mean those lines of credit listed on
the Certificate attached hereto as Exhibit B, as such Certificate
may be amended from time to time by the Issuer as provided herein.
"ISSUER'S BOOK ENTRY COMMERCIAL PAPER TRANSACTION" shall mean
Issuer's Commercial Paper which Agent has placed from time to time
with a Purchaser, with issuance and sale of such Commercial Paper,
including the principal amount, rate, discount (if applicable) and
maturity thereof, (i) being manifested on Issuer's books and
records, and (ii) not being represented by a promissory note
instrument of Issuer.
"ISSUER'S COMMERCIAL PAPER" shall mean Issuer's interest bearing or
discounted short-term unsecured debt obligations issued hereunder,
evidenced either by Issuer's Book Entry Commercial Paper
Transactions, or substituted promissory notes given therefor, issued
in minimum denominations of $100,000 (for maturities from 15 days to
270 days), or in minimum denominations of $100,000 (for maturities
from 5 days to 14 days).
"SETTLEMENT DATE" shall mean the date on which payment in
immediately available funds is made by Purchaser to Issuer of the
purchase price of Issuer's Commercial Paper under an Issuer's Book
Entry Commercial Paper Transaction; provided that such payment from
Purchaser to Issuer may be accomplished, at Agent's discretion,
through a special clearing account established with agent for such
purpose, and in such case
<PAGE> 2
"SETTLEMENT DATE" shall mean the date on which payment in
immediately available funds of the purchase price is made to Issuer
from Agent's special clearing account.
Section 2. AGGREGATE LIMITS ON ISSUER'S COMMERCIAL PAPER. Issuer covenants and
agrees that the outstanding principal amount owing under Issuer's
Commercial Paper placed by Agent with Purchasers pursuant to this
Agreement, when added to the amounts drawn and outstanding under
Back-Up Lines of Credit, shall not at any time exceed $25,000,000.
Section 3. CERTAIN RELATIONSHIPS CREATED BETWEEN ISSUER AND AGENT; SCOPE OF
AGENT'S DUTIES. Agent will be acting hereunder as Issuer's agent to
assist Issuer in selling Issuer's Commercial Paper without recourse
and solely upon the order and for the account of Issuer. Agent will
limit its solicitation of prospective Purchasers of Issuer's
Commercial Paper to institutional investors or other sophisticated
investors who normally purchase commercial paper. Agent will not
make any general solicitation or advertisement to the public with
respect to a particular placement of Issuer's Commercial Paper.
Commercial paper issued by the Issuer from time to time hereunder
shall be issued in reliance upon the commercial paper exemption from
registration contained in Section 3(a)(3) of the Securities Act of
1933, as amended, and the appropriate exemption from registration
contained in applicable state securities laws. Agent will in no
event purchase or repurchase Issuer's Commercial Paper for Agent's
own account, nor will Agent take any ownership interest of any kind
in any of the Issuer's Commercial Paper placed hereunder.
Section 4. PROCEDURES. With respect to the sale from time to time of Issuer's
Commercial Paper, the Agent and Issuer shall follow the procedures
described in this Section:
(a) When Issuer desires Agent's assistance in the sale of Issuer's
Commercial Paper, an Authorized Person of Issuer will contact a duly
authorized employee of Agent and inform Agent of the amount of
commercial paper that Issuer desires to issue. Such Authorized
Person of Issuer and authorized employee of Agent will then mutually
agree on other details respecting the proposed issuance of Issuer's
Commercial Paper, including, without limitation, rate, maturity date
and proposed Settlement Date.
(b) Following such advice from Issuer referred to in subparagraph
(a), Agent will solicit Purchasers for Issuer's Commercial Paper as
described in Section 3. Upon negotiating a sale to Purchaser, on
each Settlement Date, Agent will debit Purchaser's account with
Agent, and credit Issuer's Account #19313 with Agent, with credit
advice to Issuer, in immediately available funds, (i) the total
principal amount of interest bearing Issuer Commercial Paper
purchased by Purchaser, scheduled to be settled on such date, and/or
(ii) the total net proceeds of Issuer's Commercial Paper, purchased
by Purchaser at a discount, scheduled to be settled on such date.
(c) Daily cutoff time for same day settlement shall be 12:00 Noon.
(d) On the maturity dates specified the Agent shall charge Issuer's
Account #19313 with Agent, with debit advice to Issuer, for the
total amount of principal and interest payable to Purchasers with
respect to Issuer's Book Entry Commercial Paper Transactions
maturing on such dates, and Agent shall forthwith credit such
amounts in immediately available funds to Purchasers' accounts
maintained with Agent for such purpose.
(e) So long as Issuer has Issuer Commercial Paper outstanding
hereunder, Issuer agrees to maintain with Agent the accounts
referred to in subparagraphs (b) and (d) above.
(f) Agent may establish and utilize such special clearing accounts
as may be necessary or appropriate to carry out the transactions
contemplated by this section.
<PAGE> 3
Section 5. SUBSTITUTION. If at any time requested in writing by Agent,
Issuer shall promptly issue and deliver to Agent a promissory
note in customary form, payable to bearer or to Agent (as
designated by Agent), in substitution for and in cancellation
of any Issuer Book Entry Commercial Paper Transaction. Agent
will make such substitution request of Issuer only in the event
that a Purchaser has requested Agent to obtain delivery and
possession of a promissory note to evidence Issuer's obligation
to Purchaser, in lieu of and in substitution for Issuer's Book
Entry Commercial Paper Transaction. Upon maturity of any such
substituted promissory note, the payment procedures specified
in Section 4(d) above shall be followed, and Agent thereafter
shall promptly return to the Issuer the original promissory
note marked "paid".
Section 6. TERMINATION. Either the Issuer or Agent may terminate this
Agreement at any time by written notice to the other, but such
termination shall not affect their respective rights,
duties and obligations with respect to Issuer's Commercial
Paper transactions entered into prior to such termination.
Section 7. FINANCIAL REPORTS AND BACK-UP LINE OF CREDIT CERTIFICATES. On a
quarterly basis, Issuer will submit such financial statements
to Agent as Agent may reasonably request, which financial
statements will show the results of Issuer's operations for the
preceding three months. In addition to such financial
statements, Issuer will provide Agent with a certificate
substantially similar to Exhibit B attached hereto, signed by
an Authorized Person of Issuer, certifying to Agent that Issuer
has confirmed Back-Up Lines of Credit in place to cover
Issuer's Commercial Paper then outstanding.
Section 8. AGENT'S FEES. Agent will charge and collect from Issuer, on a
monthly basis, fees for Agent's services, determined as
provided in this Section. On the 7th business day of each
month, Agent will charge and collect fees from Issuer's Account
#17313 for each Issuer Book Entry Commercial Paper Transaction
during the preceding month (each such transaction being
hereinafter referred to as a "Unit".) Fees for each Unit
will be determined by multiplying the principal amount of each
Unit times a rate of .0015% per annum for the number of days
from and including Settlement Date to the scheduled maturity
date of the Unit, calculated on the basis of a year of 360
days; provided, however, that the minimum per Unit fee in any
event shall be $10.
Section 9. ISSUER COVENANTS, REPRESENTATIONS AND WARRANTIES. Issuer
covenants and agrees that it will at all times, so long as
there is Issuer Commercial Paper outstanding hereunder, have
and maintain confirmed Back-Up Lines of Credit in place and
available to be drawn upon in an amount at least equal to
amounts outstanding under Issuer's Commercial Paper. Issuer
will pay all such fees and charges as may become due and owing
to keep such Back-Up Lines of Credit valid, binding and in
full force and effect, and will not take or refuse to take any
action, or permit any condition to arise or occur, which would
amount to a breach of any term or condition of any Back-Up Line
of Credit such that the obligor thereof could consider the
Issuer to be in default thereunder. Issuer represents and
warrants to Agent that the execution of this Agreement and
performance by Issuer hereunder have been duly authorized by
all necessary corporate action, and Issuer shall deliver to
Agent at the time of executing this Agreement a Certificate
substantially similar to Exhibit C attached hereto, confirming
such due corporate authority and related matters. Issuer
further represents and warrants that its execution and
performance hereunder will not contravene or otherwise be in
conflict with any bylaw, agreement, understanding or order
related to Issuer or as to which Issuer is a party. Issuer's
representations and warranties contained herein shall survive
execution of this Agreement.
Section 10. INFORMATION REPORTING. Agent shall comply with all applicable
information reporting and backup withholding requirements
imposed on Agent under the Internal Revenue
<PAGE> 4
Code of 1954, as amended, arising from Agent's role as
"middleman" as defined in IRS Reg. 1.6049-1(f)(4), with
respect to interest payments on Issuer's Commercial Paper
placed by Agent with Purchasers.
Section 11. NO LEGAL ADVICE. In entering into this Agreement, Issuer
acknowledges that Agent has not rendered to Issuer, nor has
Issuer sought from Agent, legal advice of any kind of nature
respecting the subject matter contained herein or the duties to
be performed hereunder by the parties hereto, and Issuer has
relied upon advice and opinions of its counsel with respect to
this Agreement.
Section 12. ENTIRE AGREEMENT. This Agreement, including the Exhibits
attached hereto, contains and constitutes the entire and only
agreement and understanding by and between Issuer and Agent
respecting the subject matter hereof, and cannot be changed,
modified, supplemented, amended or waived except as expressly
set forth in a written instrument signed by an Authorized
Person of Issuer and an authorized employee of Agent.
Section 13. GOVERNING LAW. The terms and provisions of this Agreement and
the rights, duties and obligations of Issuer and Agent
hereunder shall be governed by and construed in accordance
with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, Issuer and Agent have caused this Agreement to be
signed by duly authorized officers, as of the day and year first above written.
ISSUER: AMCORE FINANCIAL, INC.
-------------------------------
By: JOHN R. HECHT
-------------------------------
Its: Senior Vice President &
Chief Financial Officer
-------------------------------
AGENT: M&I MARSHALL & ILSLEY BANK
By:
-------------------------------
Its:
-------------------------------
<PAGE> 1
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Years Ended,
(in 000's) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
EARNINGS
Income applicable to common stock $18,271 $21,801 $21,440
SHARES
Weighted average number of common shares 14,083 14,023 13,972
Dilutive effect of outstanding options (as
determined by application of the treasury
stock method) 224 196 153
------- ------- -------
Weighted average number of shares, as adjusted 14,307 14,219 14,125
======= ======= =======
PRIMARY EARNINGS PER SHARE* $ 1.277 $ 1.533 $ 1.518
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
EARNINGS
Income applicable to common stock $18,271 $21,801 $21,440
SHARES
Weighted average number of shares, as adjusted
per primary computation above 14,307 14,219 14,125
Additional dilutive effect of outstanding options
(as determined by application of the treasury
stock method) -- -- 62
------- ------- -------
Weighted average number of shares, as adjusted 14,307 14,219 14,187
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE* $ 1.277 $ 1.533 $ 1.511
======= ======= =======
</TABLE>
* This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
<PAGE> 1
AMCORE FINANCIAL, INC. is a northern Illinois-based bank holding company
with assets of over $2.4 billion. Its holdings include eight subsidiary banks
operating in 37 locations. The company also has seven primary financial
services subsidiaries: a trust company, a mortgage company, a full-service
broker-dealer, a capital management company, a collection agency, a consumer
finance company, and an insurance company. AMCORE common stock is listed on
NASDAQ under the symbol "AMFI".
<TABLE>
<CAPTION>
AMCORE FINANCIAL TIMETABLE
<S> <C>
Jan. 5, 1995 Announcement of the sale of four offices of AMCORE Consumer Finance Company, Inc. to Associates Corp., Dallas, Texas.
Jan. 10 Grand opening of super in-store branch in Roscoe Hilander grocery store.
Feb. 1 AMCORE Bank, Rock River Valley and AMCORE Bank, Dixon combine.
March 9 AMCORE Bank, Rockford inaugurates 24-hour-a-day loan application program.
March 23 AMCORE Financial receives Illinois State Chamber of Commerce Athena Award for handling of women's issues.
April 6 Grand opening of super in-store branch in Belvidere Dal Pra Pacemaker grocery store.
April 26 First quarter earnings $4.6 million, or 34 cents per share.
May 9 Roger Reno retires after serving as Chairman for 13 years, and Carl Dargene assumes chairmanship.
May 12 AMCORE announces its Partnership In Opportunity, a program employing disadvantaged young people.
May 24 Merger with NBM Bancorp, Inc. of Mendota and Peru, Illinois.
July 5 AMCORE Bank, Princeton and AMCORE Bank, Ashton merge.
July 26 Second quarter earnings $1.1 million, or 8 cents per share after $3.5 million in impairment and merger-related
charges, net of tax.
Sept. 27 Aggressive Growth Fund added to Vintage Mutual Funds family.
Oct. 10 Teller automation system goes online providing data needed to offer additional services to customers.
Oct. 18 Third quarter earnings, a record $6.2 million, or 44 cents per share.
Oct. 18 AMCORE Bank, Rockford receives Illinois Director's Award from Small Business Administration.
Dec. 7 Banking facility in Carpentersville transferred from AMCORE Bank, Northwest to AMCORE Bank, Rockford.
Jan. 1, 1996 Robert J. Meuleman becomes President and CEO of AFI; Carl J. Dargene remains as Chairman.
Jan. 22 Fourth quarter earnings were a record $6.3 million, or 44 cents per share.
</TABLE>
<PAGE> 2
NORTHERN ILLINOIS, excluding Chicago, is the primary service area for
AMCORE Financial, Inc. The economy of the region is primarily based on
manufacturing and agriculture. During 1995, the regional unemployment rate was
below the national and state averages. Contributing to the strong local
economies was the strength of the automobile industry and significant expansion
by companies such as Motorola and United Parcel Service. The northern portion
of the service area, including Rockford, also felt the impact of residential
and retail growth as the Chicago economy continued to expand westward.
FINANCIAL HIGHLIGHTS Earnings per share in 1995 equaled the 1994 amount of
$1.55, excluding the 25 cents per share impact of impairment and merger-related
charges. Dividends per share totaled 58 cents in 1995, a 5.5 percent increase
over 1994 and a 23.3 percent annualized growth rate over the past five years.
In 1995, shareholders benefited from a 37.4 percent dividend payout ratio,
excluding the impact of the impairment and merger-related charges. This
compares favorably to the 35.4 percent dividend payout ratio in 1994. Since the
end of 1991, book value per share has increased almost 40 percent from $10.60
to $14.81. Average assets totaled $2.25 billion in 1995, a 33.2 percent
increase since 1991.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE $ 1.10 $ 1.38 $ 1.53 $ 1.55 $ 1.30
DIVIDENDS PER SHARE $ 0.30 $ 0.35 $ 0.41 $ 0.55 $ 0.58
BOOK VALUE PER SHARE $10.60 $11.59 $12.68 $13.26 $14.81
TOTAL AVERAGE ASSETS (IN MILLIONS) $1,686 $1,755 $1,978 $2,063 $2,246
</TABLE>
<PAGE> 3
DEAR SHAREHOLDER After eighteen months of unprecedented expansion, resulting in
the acquisition of three bank holding companies and an increase in assets
of 25 percent, AMCORE devoted much of 1995 to assimilating these new resources
and fine-tuning the organization.
AMCORE finished the year with annual earnings of $18.3 million, down $3.5
million from 1994 due to a second quarter charge relating to the early adoption
of a new accounting standard and costs associated with increased merger
activity.
During the past decade total assets have grown from $950 million in 1985
to $2.4 billion, and the number of shares outstanding has risen from 2.2
million to more than 14 million. Investing $1,000 in AMCORE stock at the end of
1985 and reinvesting dividends would have resulted in stock worth almost $4,300
at year-end 1995, for an average annual increase of nearly 15 percent. A decade
ago the company consisted of five banks operating in 14 locations. Now it has
eight banks operating in 37 locations in addition to seven financial services
companies acquired or formed during the past decade.
AMCORE ended the year as the primary supplier of financial services in the
Rockford area and a number of other northern Illinois communities. This strong
position is the result of investing in people and in traditional and
non-traditional product lines, delivery systems and advanced data processing
technology.
AMCORE will continue its three-pronged strategy of diversifying into new
lines of business, acquiring of high-performance banks and financial services
companies, and consolidating operations to increase efficiency. A top priority
for AMCORE will be to continue improving the company's financial performance,
with a short-term goal of enhancing return on equity and earnings per share.
The consolidation of the financial services industry offers a number of
opportunities for AMCORE in a region that includes Illinois, Wisconsin and
Iowa. The company will continue its policy of seeking to acquire institutions
that are well managed, leaders in their communities, and capable of creating
long-term value for our shareholders.
AMCORE is focusing on three types of markets: the service economy of
suburban Chicago; the manufacturing
3
<PAGE> 4
economy of Rockford and other cities; and the agricultural economy, which is
the mainstay of rural communities. AMCORE is proud to be the third largest
agricultural bank lender in Illinois.
A number of changes in the company's senior management occurred during
1995. Roger Reno, who had served as Chairman of the Board for more than a
decade, retired in May, and Carl J. Dargene assumed the title of Chairman. At
year-end, Mr. Dargene retired as President and Chief Executive Officer, passing
those titles to Robert J. Meuleman, who has been with AMCORE for almost 15
years.
AMCORE is positioned to accelerate its evolution from a product focus to a
customer relationship focus. Our highest priority is to satisfy customers'
needs with the appropriate products and services at the right place and time.
Customers demand broad financial services, and we offer everything from
new and innovative debit cards and mutual funds to traditional checking and
lending services. We also provide customers with a broad range of mortgage,
investment and insurance products. These are delivered through an extensive
branch network which includes supermarket locations that are open seven days a
week, including evenings. Customers can also access their account information
and apply for loans over the telephone anytime day or night. Information about
AMCORE and its products is also available at http://www.AMCORE.com on the
Internet.
During 1996, AMCORE will continue its emphasis on customer relations.
Branches will become financial service centers offering an even wider range of
products. As the organization continues to evolve, it will adhere to the core
values of honesty, responsibility and respect for people that have
distinguished the company for 85 years.
We are confident AMCORE Financial's preferred course of remaining
independent will prove rewarding for our shareholders, customers, employees and
communities. We are committed to the development of the full potential of our
banking and financial services franchises as we position the company for a
prosperous future.
Robert J. Meuleman Carl J. Dargene
Robert J. Meuleman Carl J. Dargene
President and Chief Executive Officer, Chairman, AMCORE Financial, Inc.
AMCORE Financial, Inc.
4
<PAGE> 5
EFFICIENCY OF OPERATIONS Overall, 1995 was a good year for AMCORE Financial,
Inc., with solid loan growth, stable asset quality and the successful
integration of three acquisitions. Financial results for the year were affected
by the early adoption of a new accounting standard in relation to the impairment
of long-lived assets and costs associated with increased merger activity. In
total, these charges amounted to $3.5 million and reduced per share earnings by
approximately 25 cents.
Annual earnings were $18.3 million, down 16 percent from $21.8 million in
1994. Earnings per share, excluding the charges mentioned above, were $1.55,
the same as in 1994. Without the impact of the charges, the return on equity
was 11.17 percent, down from 11.90 percent in 1994, and the return on average
assets was .97 percent, down from 1.06 percent.
Net interest income for the year was up $1.6 million or 2 percent from
1994 due to loan growth. A 7 percent decline in the net interest margin to
4.18 percent was primarily caused by a shift in mix to higher rate time
deposits and higher overall funding costs.
Total fee income for the year was $31.7 million, up over 5 percent from
1994. As a result of the growth of the company, the opening of new facilities
and the upgrading of information and product delivery systems, expenses in 1995
rose $3.2 million or 4 percent, excluding the above-mentioned charges.
Consolidation of service functions, realignment of reporting relationships
and standardization of operating policies also were priorities during the year.
As part of the process, a centralized risk management area was created to
supervise interest rate risk for all of the AMCORE banks.
To improve market efficiency and service, several banks were realigned
during the year. AMCORE Bank N.A., Rock River Valley merged with AMCORE Bank
N.A., Dixon, resulting in a bank with over a half-billion dollars in assets and
a service region that coincides with the trade areas of the interdependent
communities it serves. All banks' consumer lending operations were
centralized, thus eliminating costs and shortening response times.
AMCORE Consumer Finance Company, Inc. redirected its focus by selling four
branch offices in late 1994
5
<PAGE> 6
and developing relationships with communications equipment wholesalers. By
year-end, the company had entered into agreements with two satellite dish
distributors serving 32 states. This resulted in increased loan volume and
earnings.
The newest start-up, AMCORE Insurance Group, Inc., which began operations
in 1994, showed promising growth during the year. The agency offers a full
range of insurance products to both retail and commercial customers.
AMCORE Capital Management, Inc., the investment advisor for the AMCORE
Vintage family of mutual funds, had an outstanding year. The amount invested in
the mutual fund family at year-end was $588 million, up 39 percent from 1994.
Riding a strong year in the stock markets, the Vintage Equity Fund had a return
of 35.7 percent during 1995. Those investing in the Intermediate Tax Free Fund
were well rewarded by 1995's annual return of 15 percent. The Tax-Free Fund's
exceptional performance placed it in the top ten in the United States among
funds in its category. Nelson's Directory of Investment Managers continues to
rank AMCORE's Equity Fund among the top 25 in the world in three- and five-year
average returns. The AMCORE Vintage Aggressive Growth Fund, which started in
October, has exceeded our expectations.
As a result of the changes made in 1995, AMCORE is well positioned to move
forward as a high-performance regional financial services organization.
NEW DEVELOPMENTS IN 1995
SATELLITE DISH FINANCING
AMCORE Consumer Finance Company, Inc. experienced strong
growth in loan volume as a result of agreements reached with two wholesalers of
satellite dishes, which resulted in the company entering national markets.
NEW DATA PROCESSING CAPABILITIES
New hardware and software have gone online to allow the
generation of improved customer statements and more sophisticated
tracking of depositor relationships.
TELLER AUTOMATION GOES ONLINE
Tellers have an additional tool to identify
customers' needs as a result of new automation equipment.
6
<PAGE> 7
REACHING THE CUSTOMER Developing a full range of products and services
to give customers what they need is only half the job. Equally important is the
efficient delivery of products when and where customers want them.
An emphasis on customer convenience has led to a major expansion in the
AMCORE banking system. Nine in-store branches have been opened in the past two
years to provide the ease of access that customers seek. In-store branches also
have proven to be a low-cost way to enter new markets.
During 1995, "super in-store branches" were opened in Roscoe and
Belvidere, Illinois. These new facilities offer the accessibility and longer
hours of supermarket locations along with the full range of services offered by
traditional branches. Banking is no longer a 9 to 5 business. In-store
facilities and drive-up banks are open from early morning to late evening and
on weekends.
Giving customers what they want often involves entering niche markets
focused on the needs of special groups. AMCORE has done this in a number of
instances. For example, the Pinnacle Private Banking Group provides
personalized services for the affluent. The program, which began in Rockford,
has been expanded to Rock River Valley, Freeport and Elgin. A small business
center within the Rockford bank provides the financial services and expertise
needed by smaller businesses which make up about 60 percent of the bank's
commercial customer base. Special services also include an international
banking department based in Rockford which offers documentation and fund
transfer assistance to businesses dealing in the export or import markets, and
Ambassador Clubs to serve the banking and investment needs of our senior market
customers.
As AMCORE continues to review its operations, the company strives to
maintain a balance between the efficiency of consolidation and the
responsiveness of local autonomy. For instance, all credit review functions
have been consolidated, and a standardized credit scoring system has largely
supplanted a cumbersome system of reviews by loan committees. The final
decision on all credit applications, however, still remains with personnel at
the individual banks.
New technology is another key to improved customer service and increased
operational efficiency. Internal operations have benefited from the
installation of faster processing equipment and improved software. One
7
<PAGE> 8
of the enhanced services is the All-In-One statement showing customers the
status of all their AMCORE banking accounts. The new system also provides
AMCORE with a better understanding of the additional products and services
customers might need.
A new teller automation system, implemented at year-end, makes it possible
to process transactions quickly while eliminating paperwork. Customers now can
receive account information with each transaction, and tellers are alerted to
opportunities to cross-sell products. New channels for product delivery are
also opening due to the rapid growth of communications technology. Many retail
customers now have access to the AMCORE TeleBank system, allowing them
telephone access to information about their account balances and recent
transactions. Another telephone-based system is the 24-hour AMLOAN program
which allows customers to start the loan application process from their homes
and then go to any branch to finish the paperwork and receive their funds
within a day.
Computer technology is at the heart of the AMCORE DataBank funds
management service. Using personal computers, businesses can access account
information, transfer funds between AMCORE accounts, pay bills, or make wire
transfers of funds to accounts at other banks. AMCORE has opened a home page on
the Internet and continues to assess the potential for this new technology. As
customers' needs continue to evolve, AMCORE will continue to adapt.
NEW DELIVERY SYSTEMS IN 1995
1-800-59-AMLOAN
Customers can now apply for a loan by telephone 24 hours a day,
seven days a week and complete the transfer at any AMCORE bank the next day.
IN-STORE BRANCHES EXPAND
Branches located in supermarkets have proven to be
extremely popular with customers. The concept has been expanded to
super in-store branches that include offices for representatives of the
trust, mortgage and insurance subsidiaries.
ALL-IN-ONE STATEMENT
New computer capabilities allow customers to receive a
single statement detailing activity in all of their AMCORE banking accounts.
AMCORE ON THE INTERNET
AMCORE began providing additional electronic services to
customers with the launch of an Internet home page. The page located
at http://www.AMCORE.com gives shareholders and customers the
opportunity to find out more about AMCORE and leave e-mail messages.
8
<PAGE> 9
PRODUCT DIVERSIFICATION Giving customers the appropriate products and
services at the right time and place is the driving force behind the continuing
growth of AMCORE Financial, Inc. AMCORE still is true to its roots in community
banking despite having grown into a regional provider of financial services. As
the industry continues to evolve, new products and services are constantly
developed to meet customers' needs and maintain the company's competitive
leadership.
Niche markets, such as agricultural customers, will grow increasingly
important. AMCORE is making use of its breadth of services to provide crop and
equipment loans, insurance and investment services to farmers. The company now
is the third largest agricultural bank lender in Illinois.
Many of the new offerings represent refinements of existing operations. An
example of this is AMCORE Capital Management, Inc. which began as the
investment portfolio manager for AMCORE Trust Company. Building on that
foundation, AMCORE Capital has established a world-class record of investment
results for the trust company and the AMCORE family of Vintage Mutual Funds.
The mutual fund family has grown from an initial offering of four funds to
seven, accommodating a wider variety of investment objectives. The funds are
marketed by the trust company and AMCORE Investment Services, as well as at most
banking locations by more than 60 personal bankers who have received special
mutual funds training.
Existing products, such as automatic teller machine cards, are continually
being enhanced to meet customers' needs. With AMCHECK cards, customers use one
card to access automatic teller machines and to make purchases at VISA
merchants throughout the world. Because the amount of the purchase is deducted
directly from the customer's checking account, monthly bills and finance
charges are eliminated.
AMCORE's VISA and MasterCard have been enhanced by the introduction of Air
Miles, a program which rewards customers with points for air travel based upon
the amount charged to their credit cards. In the first month of the program,
the volume of new card applications equaled that of the previous six months.
9
<PAGE> 10
Refocusing the activities of AMCORE Consumer Finance Company, Inc. made it
possible to sell four of the company's five offices while increasing the size
of its loan portfolio from $5 million to $18 million. The finance company now
works closely with the banks to offer a "second chance" loan program popular
with consumers who otherwise do not qualify for bank loans. Also, the company
has entered into a nationwide lending market by working through wholesale
merchandise distributors to provide financing for retail purchasers of consumer
products.
The range of products and services offered by AMCORE will grow and evolve
as customers' needs change, new technology becomes available and regulatory
restrictions loosen. The trend is for a continued blurring of the distinctions
between the banking and financial services subsidiaries as they work together
to meet customers' needs.
Well informed customer service personnel are the key to improved service.
The need for highly trained people is especially critical when they must be
able to meet customers' needs by recommending products from other subsidiaries.
To make employees aware of AMCORE's full range of products and services, more
than 600 people were included in a 16-week, self-study program. Employees'
product knowledge was tested before and after the course. On average, their
knowledge of AMCORE products improved greatly, with customer contact employees
averaging near perfect scores. This curriculum will be a continuing part of our
training program.
By using methods such as the product knowledge program, AMCORE will
continue to shift its corporate culture from one of rivalry between
subsidiaries to one of teamwork in which a new focus on relationship management
enables the entire organization to work together to develop the new services
sought by customers.
NEW PRODUCTS IN 1995
AIR MILES
AMCORE credit card users now can accumulate points toward
discounted or free airline tickets on any airline, anywhere in the United
States, including Alaska and Hawaii.
ADVANTAGE AT WORK
A complete package of discounted bank services including
checking accounts, credit cards and installment loans is made available
to the employees of commercial banking customers.
AMCHECK
A combination of a VISA brand debit card and an
automatic teller machine card proves popular in test markets.
PURCHASING CARD
A credit card for corporate purchasing departments was introduced.
Only a handful of banks in the country offer these purchasing cards.
FOCUS 401(K)
This new retirement plan service gives employees a wider
selection of investment opportunities to use in their retirement fund accounts.
10
<PAGE> 11
CARING FOR THE COMMUNITY For the past decade AMCORE has held to a philosophy
that places equal importance on each of its constituencies: shareholders,
employees, customers and communities. Since its founding 85 years ago as
Swedish-American National Bank of Rockford, AMCORE has always placed a high
priority on being a good corporate citizen. This commitment takes many forms.
Because each community has a distinctive personality, AMCORE stresses the
autonomy of local management. Facilities are grouped to serve market areas, and
each bank has its own board of directors comprised of local leaders who
understand the needs of the area.
In Sterling, employee volunteers stage an annual food drive that collects
truckloads of canned goods which are then donated to the needy. In Princeton,
the bank sponsors an annual community concert. In all AMCORE locations,
employees are key players in United Way fund drives and volunteers for scores
of community organizations. The participation of hundreds of employees in
various community organizations is a measure of the skill and enthusiasm of the
people who are AMCORE.
Extra efforts are made to reach out to those who might otherwise be
overlooked. Employees involved in a first-time home buyer program in Rockford
offer credit counseling and information about the various state and federal
programs that can help people make the leap from tenant to homeowner. Special
financing is made available to community development groups, such as Zion
Development Corporation which is actively involved in efforts to upgrade
deteriorated residential and commercial properties in the area around the
AMCORE corporate headquarters in Rockford.
Young people are a prime concern. For the past four years, AMCORE
employees have volunteered as tutors at a Rockford grade school. Such strong
bonds have formed between the employees and the children of the school that for
the past three years all 450 children and staff members have been guests of
AMCORE for a holiday celebration.
Each year AMCORE hires students in the communities it serves to work in a
variety of jobs. Some openings are held for special purposes, such as the
Partnership In Opportunity program which gives disadvantaged young people an
opportunity to enter the workplace and to save for their education. A number of
at-risk or
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<PAGE> 12
disadvantaged high school students are selected each year from a list prepared
by school counselors. A volunteer employee mentor is assigned to each student in
the program to help ease the transition into the workplace. The students are
offered after-school jobs during the school year and full time jobs during the
summer. One quarter of each participant's wages is held in escrow and will be
matched by the company when the young person graduates from high school.
Other programs involving young people include employee participation in Junior
Achievement, support of a technical school preparation program at Rock Valley
College in Rockford, and a management training program which is open to recent
college graduates.
As a result of their emphasis on community involvement, all AMCORE banks
have achieved "Satisfactory" ratings during Community Reinvestment Act
evaluations by federal examiners, and two have been given the highest rating of
"Outstanding." That rating is given only to those banks in the top 10 percent
in the nation for commitment to serving everyone in their communities.
The company's efforts in human relations issues in general, and women's
issues in particular, were recognized by the Illinois State Chamber of Commerce
with its first Athena Award. In giving the award, the chamber noted that 75
percent of AMCORE's employees are women. The award also cited the company's
commitment to the advancement of women, demonstrated in its Management Training
Program, in which eight of the ten graduates have been female.
AMCORE's strong commitment to its customers, communities and employees
also has rewards in the marketplace. When smaller banks are reviewing
acquisition partners, they often consider AMCORE to be the acquirer of choice
because of its demonstrated emphasis on solid community relations.
COMMUNITY INVOLVEMENT IN 1995
HELPING CHILDREN
Volunteer tutors in Rockford assisted teachers at a local grade school for
the fourth year. The program has drawn praise from school administrators.
HELPING THE NEEDY
AMCORE Bank, Rock River Valley gathered more than a
truckload of canned goods during the Christmas season for
donation to food pantries in the Sterling area.
PARTNERSHIP IN OPPORTUNITY
Disadvantaged youths gained an opportunity to learn job skills
from employee mentors and save for their continued education in a high
school work program sponsored by AMCORE Bank, Rockford.
COMMUNITY SPIRIT
AMCORE Bank, Princeton sponsors an annual
public band concert which is well received in the community.
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<PAGE> 13
AMCORE Financial, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994
As of December 31,
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 101,082 $ 92,201
Interest earning deposits in banks 260 508
Federal funds sold and other short-term investments 9,050 5,656
Mortgage loans held for sale 15,801 10,184
Securities available for sale 884,044 318,246
Securities held to maturity (market value of $24,967 in 1995;
$444,445 in 1994) 24,625 466,211
---------- ----------
Total securities 908,669 784,457
Loans and leases, net of unearned income 1,285,961 1,161,870
Allowance for loan and lease losses (13,061) (13,302)
---------- ----------
Net loans and leases 1,272,900 1,148,568
Premises and equipment, net 49,670 49,178
Intangible assets, net 14,314 18,314
Other real estate owned 2,116 1,099
Other assets 44,670 41,818
---------- ----------
Total Assets $2,418,532 $2,151,983
========== ==========
LIABILITIES
Deposits:
Interest bearing $1,512,473 $1,456,702
Non-interest bearing 265,232 250,857
---------- ----------
Total deposits 1,777,705 1,707,559
Short-term borrowings 292,042 208,525
Long-term borrowings 107,803 26,487
Other liabilities 31,120 23,253
---------- ----------
Total Liabilities $2,208,670 $1,965,824
========== ==========
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value:
authorized 10,000,000 shares; issued none $ - $ -
Common stock, $.33 par value: authorized 30,000,000 shares;
1995 1994
Issued 14,926,695 14,926,695
Outstanding 14,174,183 14,039,680 4,976 4,976
Additional paid-in capital 56,412 56,533
Retained earnings 149,315 139,245
Net unrealized gain (loss) on securities available for sale 5,818 (6,299)
Treasury stock and other (6,659) (8,296)
---------- ----------
Total Stockholders' Equity 209,862 186,159
---------- ----------
Total Liabilities and Stockholders' Equity $2,418,532 $2,151,983
========== ==========
</TABLE>
13
<PAGE> 14
AMCORE Financial, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $109,488 $ 90,719 $ 84,894
Interest on securities:
Taxable 39,530 32,030 34,788
Tax-exempt 11,984 12,552 10,209
-------- --------- ---------
Total Income from Securities $ 51,514 $ 44,582 $ 44,997
-------- --------- ---------
Interest on federal funds sold and other short-term investments 490 585 1,289
Interest and fees on mortgage loans held for sale 2,971 2,893 5,854
Interest on deposits in banks 23 176 150
-------- --------- ---------
Total Interest Income $164,486 $ 138,955 $ 137,184
======== ========= =========
INTEREST EXPENSE
Interest on deposits $ 68,062 $ 53,202 $ 54,205
Interest on short-term borrowings 14,574 5,595 3,008
Interest on long-term borrowings 2,050 2,058 2,119
Other 394 340 295
-------- --------- ---------
Total Interest Expense $ 85,080 $ 61,195 $ 59,627
======== ========= =========
Net Interest Income $ 79,406 $ 77,760 $ 77,556
Provision for loan and lease losses 2,692 628 2,124
-------- --------- ---------
Net Interest Income After Provision for Loan and Lease Losses $ 76,714 $ 77,132 $ 75,432
======== ========= =========
OTHER INCOME
Trust revenues $ 11,401 $ 10,910 $ 10,158
Service charges on deposits 6,986 6,742 6,455
Mortgage revenues 3,584 3,687 4,048
Collection fee income 1,831 1,700 1,913
Other 7,913 7,087 5,868
-------- --------- ---------
Total Other Income, Excluding Net Security Gains $ 31,715 $ 30,126 $ 28,442
-------- --------- ---------
Net realized security gains 2,298 908 1,163
======== ========= =========
OPERATING EXPENSES
Compensation expense $ 36,416 $ 32,659 $ 32,220
Employee benefits 9,246 8,726 8,605
Net occupancy expense 5,068 4,739 4,392
Equipment expense 8,229 6,276 5,042
Insurance expense 2,765 4,528 4,492
Professional fees 2,733 3,370 2,384
Advertising and business development 2,437 2,377 2,079
Amortization of intangible assets 2,331 2,585 3,561
Impairment of long-lived assets 3,269 -- --
Other 14,946 13,430 13,361
-------- --------- ---------
Total Operating Expenses $ 87,440 $ 78,690 $ 76,136
-------- --------- ---------
Income Before Income Taxes $ 23,287 $ 29,476 $ 28,901
Income taxes 5,016 7,675 7,461
-------- --------- ---------
Net Income $ 18,271 $ 21,801 $ 21,440
======== ========= =========
Earnings per Common Share $ 1.30 $ 1.55 $ 1.53
Dividends per Common Share 0.58 0.55 0.41
Average Common Shares Outstanding 14,083 14,023 13,972
</TABLE>
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<PAGE> 15
AMCORE Financial, Inc. and Subsidiaries
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 186,159 $ 177,615 $ 160,296
Net income 18,271 21,801 21,440
Net common stock transactions 1,234 360 1,309
Non-Employee Directors compensation expense 280 360 300
Cash dividends (8,199) (7,678) (5,730)
Net unrealized gain (loss) on securities available for sale 12,117 (6,299) --
---------- --------- ----------
Balance at end of year $ 209,862 $ 186,159 $ 177,615
========== ========= ==========
</TABLE>
CONDENSED AVERAGE BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
1995 1994
Years ended December 31,
--------------------------------------------------------
% of % of
Amount Total Amount Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Taxable securities $ 583,372 26.0% $ 520,507 25.2%
Tax-exempt securities 228,802 10.2 244,251 11.9
Other earning assets 8,656 0.4 15,323 0.7
Mortgage loans held for sale 11,267 0.5 12,033 0.6
Loans and leases, net of unearned income 1,228,175 54.7 1,088,206 52.8
----------- ---------- ----------- ----------
Total Earning Assets 2,060,272 91.8 1,880,320 91.2
Intangible assets, net 16,295 0.7 19,063 0.9
Other non-earning assets 169,328 7.5 163,214 7.9
----------- ---------- ----------- ----------
Total Assets $ 2,245,895 100.0% $ 2,062,597 100.0%
=========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing deposits $ 1,522,344 67.8% $ 1,457,341 70.6%
Non-interest bearing deposits 242,083 10.8 248,834 12.1
----------- ---------- ----------- ----------
Total Deposits 1,764,427 78.6 1,706,175 82.7
Short-term borrowings 232,997 10.4 125,662 6.1
Long-term borrowings 29,458 1.3 27,598 1.3
Other liabilities 24,467 1.0 19,991 1.0
----------- ---------- ----------- ----------
Total Liabilities 2,051,349 91.3 1,879,426 91.1
Stockholders' Equity 194,546 8.7 183,171 8.9
----------- ---------- ----------- ----------
Total Liabilities and Stockholders' Equity $ 2,245,895 100.0% $ 2,062,597 100.0%
=========== ========== =========== ==========
</TABLE>
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<PAGE> 16
AMCORE Financial, Inc. and Subsidiaries FINANCIAL REVIEW
This financial review focuses on key financial trends and results for 1995 and
1994. A more comprehensive presentation of the financial statements and review
of operations can be found in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission, which has been provided to all
shareholders. All financial statements and information have been restated to
reflect the May 24, 1995 merger with NBM Bancorp, Inc., Mendota, Illinois (NBM)
and the 1994 mergers with First State Bancorp of Princeton, Illinois, Inc.
(FSB) and NBA Holding Company of Aledo, Illinois (NBA). Each of these
transactions was accounted for as a pooling of interests.
Earnings Summary
AMCORE's net earnings in 1995 totaled $18.3 million, a 16.2% decline over the
$21.8 million in 1994. The decline was caused by a $3.5 million after-tax
charge for the early adoption of a new accounting standard and costs associated
with increased merger activity. Excluding these charges, net earnings would
have totaled $21.7 million, a $65,000 or .3% decline from 1994. In 1995, AMCORE
elected early adoption of Statement of Financial Accounting Standards (FAS) No.
121 - "Accounting for the Impairment of Long-Lived Assets", which requires the
revaluation of an asset's carrying value when it is determined the carrying
value is not fully recoverable. Management also recognized merger-related
expenses at the closing date rather than throughout the integration process.
During 1994, net earnings increased $361,000 or 1.7% over 1993.
On a per share basis, net earnings in 1995 were $1.30 versus $1.55 in 1994.
Excluding the impairment and merger-related charges, earnings per share in 1995
would have been $1.55, no change from the 1994 total. In 1994, earnings per
share improved $.02 or 1.3% over the $1.53 earned in 1993. The following table
highlights the major factors that impacted earnings per share over the past two
years:
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Changes in Earnings Per Share
Prior period net income $ 1.55 $ 1.53
Changes due to:
Net interest income 0.09 _
Provision for loan and lease losses (0.15) 0.11
------ -------
Net Interest Income After Provision for Loan and Lease Losses (0.06) 0.11
------ -------
Trust revenues 0.03 0.05
Service charges on deposits 0.02 0.02
Mortgage revenues (0.01) (0.03)
Collection fee income 0.01 (0.02)
Other 0.06 0.09
------ -------
Total Other Income, Excluding Net Security Gains 0.11 0.11
------ -------
Net realized security gains 0.10 (0.02)
Personnel expense (0.29) (0.03)
Net occupancy expense (0.02) (0.03)
Equipment expense (0.13) (0.09)
Insurance expense 0.12 _
Professional fees 0.05 (0.07)
Advertising and business development _ (0.02)
Amortization of intangible assets 0.01 0.07
Impairment of long-lived assets (0.23) _
Other (0.10) _
------ -------
Total Operating Expenses (0.59) (0.17)
------ -------
Income taxes 0.19 (0.01)
------ -------
Current period net income $ 1.30 $ 1.55
====== =======
</TABLE>
16
<PAGE> 17
Higher personnel costs due to the merger-related charge and the expansion of
branch facilities and information system resources negatively impacted earnings
by $.29 per share. Offsetting this decline were reductions in FDIC insurance
premiums, improvements in net interest income, and growth in trust, credit
card, insurance and other fee revenues. Gains from the sale of securities also
added $.10 per share during 1995. Steady loan growth and higher net
charge-offs resulted in an increase in loan loss provisions, which negatively
impacted earnings by $.15 per share.
During 1994, growth in trust revenues and reduced loan loss provisions were the
major factors contributing to the increase in earnings per share. Other
contributions included higher credit card, insurance and brokerage revenues,
which were offset by additional professional fees in connection with increased
merger activity. The completion of core deposit intangible amortization from
earlier acquisitions improved earnings by $.07 per share. Higher equipment
expense negatively impacted per share earnings in 1994 due to a combination of
conversion-related data processing costs and the opening of six new branches.
The return on average equity for 1995 was 9.39% versus 11.90% in 1994 and
12.71% in 1993. Return on average assets was .81% in 1995 compared with 1.06%
in 1994 and 1.08% in 1993. The declines in these ratios in 1995 were primarily
due to the impairment and merger-related charges. Excluding the impact of
these charges, returns on average equity and assets would have been 11.17% and
.97%, respectively.
AMCORE utilizes simulation modeling techniques to project earnings volatility
caused by fluctuations in interest rates. This interest rate sensitivity
analysis is reviewed by Asset and Liability Committees (ALCOs) at affiliate
banks and at the corporate level. ALCO actions attempt to minimize the impact
interest rate movements may have on net interest income. Each ALCO committee
also reviews the bank's current liquidity position, loan and deposit pricing
compared to its competition, and determines appropriate policy direction to
maintain or meet established ALCO guidelines.
Net interest income, AMCORE's primary source of earnings, totaled $79.4 million
in 1995, a $1.6 million or 2.1% increase over 1994. In 1994, net interest
income totaled $77.8 million, an increase of $204,000 or .3% over 1993. The net
interest margin declined to 4.18% in comparison with 4.51% in 1994 and 4.62% in
1993. The reduction in margin during 1995 was mainly due to the rising rate
environment, which caused funding costs to increase at a faster pace than
yields on earning assets. A shift in the deposit mix to higher rate time
deposits also contributed to the drop in net interest margin. A 12.9% growth in
total average loans, helped to mitigate some of the interest margin
compression.
NET INTEREST MARGIN-4.18% IN 1995
1991 1992 1993 1994 1995
4.49% 4.80% 4.62% 4.51% 4.18%
Another factor contributing to the net interest margin decline was the impact
of an investment leveraging program, which is designed to increase financial
leverage and the return on equity at affiliate banks which have strong capital
positions. While this program results in additional net interest income, it
also lowers the net interest margin due to the smaller interest rate spread
associated with these transactions. This program added approximately $2.2
million and $432,000 to net interest income in 1995 and 1994, respectively. It
reduced, however, the net interest margin by 22 basis points in 1995 and 10
basis points in 1994, as shown above in the shaded area of the graph.
The average yield on earning assets in 1995 increased 55 basis points to 8.31%
and the average rate paid on interest-bearing liabilities increased 96 basis
points to 4.75%, resulting in a 41 basis point drop in the net interest spread
to 3.56%.
17
<PAGE> 18
Total non-interest income is comprised primarily of fee-based revenues derived
from mortgage, trust, brokerage, asset management and collection agency
services. Also included in this category is fee income from bank-related
services such as credit card, deposit and other customer services. Total
non-interest income increased 5.3% in 1995, totaled $31.7 million and
contributed 28.5% to total net revenues. This follows a 5.9% increase and 27.9%
contribution to total net revenues in 1994. Trust revenues are the largest
source of fee-based revenues and totaled $11.4 million in 1995, a 4.5% increase
over 1994. This increase followed trust revenue growth of 7.4% in 1994. The
growth in both years was primarily due to the favorable performance of trust
assets under administration, which totaled $2.3 billion at the end of 1995.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
FEE-BASED REVENUES/TOTAL NET REVENUE 23.1% 24.8% 26.8% 27.9% 28.5%
</TABLE>
Another major contributor to non-interest income is mortgage revenues, which
include income generated from underwriting and servicing fees on mortgage loans
and gains realized on the sale of these loans. Total mortgage revenues were
$3.6 million in 1995, a 2.8% decline from 1994. In 1994, mortgage revenues
totaled $3.7 million and declined 8.9% from 1993 due to a rise in long-term
mortgage rates, which caused a significant reduction in mortgage loan volumes.
Effective January 1, 1995, AMCORE adopted FAS No. 122 - "Accounting for
Mortgage Servicing Rights", which had a $1.1 million positive impact on
mortgage revenues in 1995. This new accounting standard allows for the
recognition of the value of servicing rights on originated mortgage loans sold,
and results in an asset that is amortized over the remaining estimated lives of
the serviced loans. While the new standard has a favorable impact on earnings
at the time of sale, additional earnings volatility may occur with changes in
market conditions, particularly with fluctuations in interest rates. For
instance, a decline in interest rates could result in accelerated mortgage
prepayments, which may reduce the value of this asset and require a write-down.
Excluding the impact of FAS 122, mortgage revenues would have declined 32.3% in
1995 due to higher levels of refinancing and gains from the sale of servicing
rights in 1994. A recent reduction in long-term mortgage rates has begun an
upward trend in origination volumes, particularly with refinancing activity.
Service charges generated from deposit account relationships are another major
contributor to fee-based revenue. These totaled $7.0 million in 1995, a 3.6%
increase over 1994, and followed a 4.4% increase over 1993. Other sources of
fee-based revenues were credit card fees and collection agency commissions,
each totaling $1.8 million in 1995 with increases of 9.3% and 7.7%,
respectively. Insurance commissions from our full-service insurance group added
$1.0 million in revenues, a 20.1% increase over 1994. This group offers a full
range of insurance products and has focused on cross-selling opportunities with
mortgage, commercial and retail customers in addition to marketing their
products to the communities served by AMCORE.
Total operating expenses for 1995 were $87.4 million, an $8.7 million or 11.1%
increase over 1994. Without the $5.6 million impairment and merger-related
charges, total operating expenses would have increased $3.2 million or 4.0%. In
1994, total operating costs rose $2.6 million or 3.4% over 1993. The impairment
charge caused by the early adoption of FAS 121 totaled $3.3 million and
included write-downs of intangibles from the 1993 acquisition of a collection
agency, and reductions of the carrying value assigned to a local bank facility.
The remaining $2.3 million charge was comprised of merger-related costs from
the May 1995 merger with NBM, the remaining costs from two 1994 bank mergers,
and other costs in connection with significant upgrades to management
information systems.
The efficiency ratio, which measures the level of non-interest expense to total
tax equivalent net revenues, was 67.6% in 1995, exclusive of impairment and
merger-related charges, as compared to 68.0% in 1994.
Personnel costs, which include compensation expense and employee benefits, is
the largest component of operating expense. Exclusive of merger-related
charges, this category totaled $44.9 million in 1995 and increased $3.5 million
or 8.4% over 1994,
18
<PAGE> 19
following a 1.4% increase over 1993. The higher costs in 1995 were primarily
caused by an increase in employees due to the expansion of branch facilities
and data processing activities, as well as normal salary increases. As a
percent of average assets, total personnel costs were 2.03%, 2.01% and 2.06% in
1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
EFFICIENCY RATIO 64.1% 63.7% 67.2% 68.0% 72.2%
</TABLE>
Equipment costs, excluding merger-related charges, totaled $7.1 million in 1995
and increased $832,000 or 13.3% over 1994 due to expenses associated with the
upgrade in information systems hardware and software, as well as the expansion
of branch facilities in supermarket locations.
Insurance expense declined $1.8 million or 38.9% due to the FDIC's decision to
reduce deposit insurance premiums from $.23 to $.03 per $100 of deposit,
effective June 1995. In 1996, the premium has been eliminated for well
capitalized banks, which includes all AMCORE banks. Professional fees,
excluding merger-related charges, declined $900,000 or 26.7% from 1994 as the
majority of legal and accounting fees associated with the FSB and NBA
transactions were incurred in 1994.
Income taxes totaled $5.0 million in 1995, a $2.7 million or 34.6% decline from
1994. The effective tax rate in 1995 was 21.5% versus 26.0% in 1994 and 25.8%
in 1993. The decline in 1995 was caused by lower pre-tax earnings, and research
and experimentation tax credits, which resulted from the upgrades to
information systems software.
Balance Sheet Summary
Total assets at the end of 1995 were $2.42 billion, an increase of $266.5
million or 12.4% over 1994. Average total assets increased $183.3 million or
8.9% during 1995, to $2.25 billion. The primary contributors to asset growth
during 1995 were increased loan demand and the impact of the investment
leveraging program. Total loans, net of unearned income, were $1.29 billion at
year-end, an increase of $124.1 million or 10.7% over 1994. Average loans
increased $140.0 million during 1995, or 12.9%, mostly due to commercial loan
growth. Total securities were $908.7 million at the end of 1995, a $124.2
million or 15.8% increase over 1994, and average securities totaled $812.2
million, a $47.4 million or 6.2% increase. This growth was primarily in the
mortgage-backed security portfolio as a result of the investment leveraging
program.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
TOTAL AVERAGE LOANS (in millions) $ 956 $ 927 $ 1,001 $ 1,088 $ 1,228
</TABLE>
In December 1995, substantially all securities classified as held to maturity
were reclassified into the available for sale category. This transfer was done
in response to the Financial Accounting Standards Board's decision to allow
companies a one-time opportunity to reclassify their investment portfolios
without consequence. This reclassification will significantly improve the
flexibility in managing interest and liquidity risks; however, it may cause
additional fluctuations in the unrealized gain or loss component of total
stockholders' equity.
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits are considered by management to be the primary and most stable
source of funding. Total core deposits were $1.51 billion at the end of 1995, a
$12.2 million or .8% decline over the prior year-end. These core deposits are
supplemented by large certificates of deposit, brokered deposits, other time
deposits from governmental entities, repurchase agreements and Federal Home
Loan Bank borrowings.
The use of repurchase agreements increased during 1995 in conjunction with the
investment leveraging program, resulting in a $107.3 million increase in
average short-term borrowings to $233.0 million. Total long-term borrowings at
the end of 1995 were $107.8 million, an increase of $81.3 million over the 1994
total. At December 31, 1995, Federal Home Loan Bank borrowings with maturities
between two and four years totaled $88.3 million and were being utilized to
fund the purchase of mortgage-backed securities.
19
<PAGE> 20
Asset Quality
The provision for loan losses totaled $2.7 million in 1995, an increase of $2.1
million when compared to 1994. In 1994, loan loss provisions declined $1.5
million from the $2.1 million provided in 1993. The increase in 1995 was
necessary to maintain the loan loss reserve at a level in line with the growth
in loans and the level of charge-offs. Total net charge-offs in 1995 were $2.9
million versus $1.8 million in 1994 and $1.7 million in 1993. The increased
charge-offs in 1995 were primarily caused by write-downs of two non-performing
commercial loans.
Total non-performing loans were $12.9 million at December 31, 1995, an increase
of $228,000 or 1.8% from the previous year-end. Total non-performing loans
comprised 1.00% of the loan portfolio at the end of 1995, an improvement from
the 1.09% a year earlier. The coverage of the allowance for loan losses to
non-performing loans was 101.1% at the end of 1995 versus 104.8% a year
earlier. The allowance for loan losses as a percentage of loans was 1.02% at
year-end in comparison to 1.14% at the end of 1994. Total non-performing
assets, which include other real estate owned, were $15.0 million at December
31, 1995 and represented 1.17% of total loans and other real estate. At the end
of 1994, non-performing assets totaled $13.8 million and were 1.19% of total
loans and other real estate.
Capital
Total stockholders' equity increased 12.7% to $209.9 million at December 31,
1995. Total equity as a percent of assets was 8.68% at the end of 1995 versus
8.65% a year earlier. Included in total stockholders' equity is the net
unrealized gain on securities classified as available for sale, which amounted
to $5.8 million at the end of 1995. At the end of 1994, there was an unrealized
loss of $6.3 million, therefore, the improvement during 1995 resulted in a
$12.1 million increase in total stockholders' equity. Without the impact of
this component of stockholders' equity, total stockholders' equity increased
6.0% in 1995.
AMCORE paid $8.2 million in cash dividends during 1995, representing $.58 per
share and a payout ratio of 37.4%, adjusted to eliminate the $.25 per share
after-tax impact of the impairment and merger-related charges. This compares
favorably to 1994 dividends of $7.7 million, or $.55 per share, at a payout
ratio of 35.4%.
Federal banking guidelines require banking organizations to maintain minimum
capital levels on a risk-adjusted basis. As of December 31, 1995, Tier 1
capital was 12.40% and total risk-based capital was 13.26%, well above the
required minimum ratios of 4% and 8%, respectively. AMCORE is considered a
"well capitalized" institution based on regulatory guidelines.
Independent Auditors' Report
The Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of AMCORE Financial, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995,
1994, and 1993 (not presented herein); and in our report dated January 19,
1996, we expressed an unqualified opinion on those consolidated financial
statements, based on our report and the report of other auditors. We did not
audit the financial statements of First State Bancorp of Princeton, Illinois,
Inc., a consolidated subsidiary, which was pooled with AMCORE Financial, Inc.
during 1994, for the year ended December 31, 1993. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion for 1993, insofar as it relates to the amounts included for First State
Bancorp of Princeton, Illinois, Inc., is based solely on the report of the
other auditors.
In our opinion, the information set forth in the condensed consolidated
financial information appearing on pages 22 to 24 is fairly presented, in all
material respects, in relation to the consolidated financial statements from
which it has been derived.
Our report on the consolidated financial statements of AMCORE Financial, Inc.
and subsidiaries referred to above contains an explanatory paragraph related to
the change in the company's method of accounting for mortgage servicing rights
and for the impairment of long-lived assets.
McGladrey & Pullen, LLP
Rockford, Illinois
January 19, 1996
20
<PAGE> 21
NOTICE OF ANNUAL MEETING AND STOCKHOLDER INFORMATION
Annual Meeting
The annual meeting of the stockholders will be held at 5:30 p.m. on Tuesday,
May 7, 1996 at Michaels at Perryville, located at 601 North Perryville Road,
Rockford, Illinois.
Stock Listing and Stock Price
Common stock of AMCORE Financial, Inc. is traded on the National Market System
of NASDAQ under the symbol "AMFI." The principal market makers as of December
31, 1995 were:
Robert W. Baird & Co., Inc.
The Chicago Corporation
Everen Securities
Herzog, Heine, Geduld, Inc.
Howe Barnes Investments, Inc.
Mayer & Schweitzer
Principal Financial Securities, Inc.
The stock of AMCORE has been traded on NASDAQ since May 29, 1986. Prior to that
time, AMCORE was traded in the over-the-counter market. The high and low prices
were $21.75 and $21.25 per share, respectively, as of February 29, 1996.
Form 10-K
A copy of the Annual Report to the Securities and Exchange Commission on Form
10-K will be furnished free of charge upon written request to F. Taylor
Carlin, Executive Vice President and Chief Operating Officer, AMCORE Financial,
Inc., 501 Seventh Street, Rockford, Illinois 61104, (815) 961-7003.
The number of stockholders of record as of February 29, 1996 was approximately
4,500. Dividends are declared and paid quarterly, the amount of which is
dependent on a number of factors. Earnings, regulatory constraints, restrictive
covenants with lenders, equity requirements of subsidiaries as well as the debt
service requirements of AMCORE will determine, in large part, the amounts
AMCORE will pay as dividends. (See the Form 10-K Annual Report for more
information.)
Safeguard your AMCORE Financial, Inc. stock. If lost, the cost to the
shareholder for replacement is approximately 2 percent of the current market
value of the shares.
The stock transfer agent for AMCORE Financial, Inc. is:
Firstar Trust Company
615 E. Michigan Street
4th Floor
Milwaukee, Wisconsin 53202
1-800-637-7549
<PAGE> 22
CORPORATE EXECUTIVE STAFF
R. David Bitting
Chairman of the Board
President & Chief Executive Officer
AMCORE Bank, Aledo
J. Birney Brown
Chairman of the Board
President & Chief Executive Officer
AMCORE Bank, Princeton
Richard L. Brown
President & Chief Operating Officer
Rockford Mercantile Agency, Inc.
F. Taylor Carlin
Executive Vice President &
Chief Operating Officer
Diversified Financial Services Group
AMCORE Financial, Inc.
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Chairman of the Board
AMCORE Bank N.A., Rockford
Kenneth E. Edge
Group Vice President
AMCORE Financial, Inc.
Jay H. Evans
President & Chief Investment Officer
AMCORE Capital Management, Inc.
Charles E. Gagnier
President & Chief Executive Officer
AMCORE Bank N.A., Rockford
John R. Hecht
Senior Vice President &
Chief Financial Officer
AMCORE Financial, Inc.
Dwight G. Heckert
Chairman, President & Chief Executive Officer
AMCORE Bank N.A., Mendota
William T. Hippensteel
Senior Vice President
Corporate Marketing
AMCORE Financial, Inc.
Alan W. Kennebeck
Group Vice President
AMCORE Financial, Inc.
President
AMCORE Trust Company
Jerry A. Lecklider
President & Chief Executive Officer
AMCORE Bank N.A., Rock River Valley
Gerald W. Lister
Group Vice President
AMCORE Financial, Inc.
Joseph B. McGougan
President & Chief Operating Officer
AMCORE Mortgage, Inc.
Robert McNamara
President & Chief Executive Officer
AMCORE Bank, Gridley
Robert J. Meuleman
President and Chief Executive Officer
AMCORE Financial, Inc.
Donald L. Miller
President
AMCORE Consumer Finance Company, Inc.
James S. Waddell
Executive Vice President &
Chief Administrative Officer,
Corporate Secretary
AMCORE Financial, Inc.
James F. Warsaw
Executive Vice President &
Chief Operating Officer
AMCORE Bank N.A., Rockford
Richard D. Wendt
President & Chief Executive Officer
AMCORE Bank N.A., Peru
Jack A. Wolfe
President
AMCORE Insurance Group, Inc.
Charie A. Zanck
President & Chief Executive Officer
AMCORE Bank N.A., Northwest
<PAGE> 23
DIRECTORS OF AMCORE FINANCIAL INC.
Milton R. Brown
Chairman of the Board, President and Chief Executive Officer
Suntec Industries Incorporated
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Richard C. Dell
Group President
Newell Co.
Robert A. Doyle
President
Yenom Development Company
Frank A. Fiorenza
Retired
President and Chief Operating Officer
Elco Industries, Inc.
Theresa Paulette Gilbert
Assistant Professor
Rock Valley College
Lawrence E. Gloyd
Chairman and Chief Executive Officer
CLARCOR
Robert A. Henry, M.D.
Owner/Partner
The Visioneering Group
Robert J. Meuleman
President and Chief Executive Officer
AMCORE Financial, Inc.
Ted Ross
President
TRoss, Inc.
Robert J. Smuland
Executive Vice President and Chief Operating Officer
Aerospace
Sundstrand Corporation
Jack D. Ward, Esq.
Reno, Zahm, Folgate, Lindberg and Powell, Attorneys
Gary L. Watson
President/Newspaper Division
Gannett Co., Inc.
Director Emeriti of AMCORE Financial, Inc.
David A. Carlson
Retired Chairman
Carlson Roofing Company
Thomas L. Clinton, Sr.
Chairman
Clinton Electronics Corporation
C. Roger Greene
Retired Chairman
Rockford Clutch Division
Borg-Warner Corporation
Roger Reno, Esq.
Chairman Emeritus
AMCORE Financial, Inc.
ROGER RENO
For more than a decade, Roger Reno, as chairman of AMCORE
Financial, Inc., provided stability to the company
during a time of rapid growth. A strong, but
unpretentious person, he has preferred to work behind
the scenes asking a question or giving a word of advice
to keep his beloved company true to its course. After
ensuring a smooth transition to his successor, Mr. Reno
stepped down as chairman in May 1995, upon reaching the
mandatory retirement age for directors. For most of his
life, Mr. Reno has been involved in nurturing AMCORE and
its predecessors. Even in retirement, his devotion to
AMCORE is unchanged. He is a true gentleman, and we
will always value his wise counsel.
<PAGE> 24
<TABLE>
<CAPTION>
AMCORE LOCATIONS
<S> <C> <C>
AMCORE Bank Services Group AMCORE Bank, Aledo Sterling Main Bank
302 First Avenue
AMCORE Bank N.A., Rockford Aledo Office and Drive-Up Sterling, Illinois 61081
201 West Main Street
Seventh Street Corporate Office Aledo, Illinois 61231 Rock Falls Office and Auto Bank
501 Seventh Street 941 First Avenue
Rockford, Illinois 61110 AMCORE Bank, Gridley Rock Falls, Illinois 61071
Alpine Village Office and Drive-Up Gridley Office Mt. Morris Office
2510 S. Alpine Road 325 Center Street 2 West Main Street
Rockford, Illinois 61108 Gridley, Illinois 61744 Mt. Morris, Illinois 61054
Belvidere Pacemaker Office and AMCORE Bank, N.A., Mendota Leaf River Office
Drive-Up 104 West Second Street
413 Frontage Road Mendota Office and Drive-Up Leaf River, Illinois 61047
Belvidere, Illinois 61008 801 Washington Street
Mendota, Illinois 61342 AMCORE Diversified Financial
Brynwood Office and Drive-Up Services Group
2705 N. Mulford Road AMCORE Bank N.A., Northwest
Rockford, Illinois 61114 AMCORE Capital Management, Inc.
Crystal Lake Office AMCORE Financial Plaza
Brynwood Hilander Office 5100 Northwest Highway 501 Seventh Street
2601 N. Mulford Road Crystal Lake, Illinois 60014 P. O. Box 1537
Rockford, Illinois 61114 Rockford, Illinois 61104
Woodstock Office (815) 961-7779
Carpentersville Office and Drive-Up 225 West Jackson
94 Kennedy Memorial Drive Woodstock, Illinois 60098 AMCORE Financial Life
Carpentersville, Illinois 60110 Insurance Company
AMCORE Bank N.A., Peru AMCORE Financial Plaza
Colonial Village Office 501 Seventh Street
1480 S. Alpine Road Peru Office and Drive-Up P. O. Box 1537
Rockford, Illinois 61108 1810 Fourth Street Rockford, Illinois 61104
Peru, Illinois 61354 (815) 968-2241
East State Drive-Up
1201 E. State Street AMCORE Bank, Princeton AMCORE Insurance Group, Inc.
Rockford, Illinois 61104 640 Blackhawk Boulevard
Princeton Office and Drive-Up South Beloit, Illinois 61080
Elgin Office and Drive-Up 815 South Main Street (815) 389-3451
1950 Big Timber Road Princeton, Illinois 61356
Elgin, Illinois 60123 AMCORE Investment Services, Inc.
Sullivan Foods Office AMCORE Financial Plaza
Freeport Cub Foods Office 1916 North Main Street 501 Seventh Street
1512 S. West Avenue Princeton, Illinois 61356 P. O. Box 1537
Freeport, Illinois 61032 Rockford, Illinois 61110-0037
North Office (815) 961-7049
North Alpine Cub Foods Office 1407 North Main Street
6550 N. Alpine Road Princeton, Illinois 61356 AMCORE Mortgage, Inc.
Loves Park, Illinois 61111 1021 North Mulford Road
Ashton Office P. O. Box 1687
North Main Hilander Office 803 Main Street Rockford, Illinois 61110-0187
3710 N. Main Street Ashton, Illinois 61006 (815) 961-7200
Rockford, Illinois 61103
Sheffield Office AMCORE Trust Company
Rochelle Office 113 South Main Street AMCORE Financial Plaza
1010 Highway 251 South Sheffield, Illinois 61361 501 Seventh Street
Rochelle, Illinois 61068 P. O. Box 1537
Wyanet Office Rockford, Illinois 61110-0037
Roscoe Hilander Office and Drive-Up 135 East Main Street (815) 961-7119
4844 Hononegah Road Wyanet, Illinois 61379
Roscoe, Illinois 61073 AMCORE Consumer Finance Company
5952 North Second Street
Sixth Street Drive-Up AMCORE Bank N.A., Rock River Valley P. O. Box 2685
920 Fourth Avenue Loves Park, Illinois 61132-2685
Rockford, Illinois 61104 Dixon Office (815) 633-2272
101 West First Street
South Beloit Office and Drive-Up Dixon, Illinois 61021 Rockford Mercantile Agency, Inc.
640 Blackhawk Boulevard 2502 South Alpine Road
South Beloit, Illinois 61080 Hennepin and Boyd Facility Rockford, Illinois 61108
123 West Boyd Street (815) 229-3328
South Main Office and Drive-Up Dixon, Illinois 61021
228 S. Main Street
Rockford, Illinois 61101 Independence Court Facility
1386 North Galena
Dixon, Illinois 61021
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Percent of Capital
Name of Subsidiary Organization Stock Owned
- ------------------ --------------- ------------------
AMCORE Bank N.A., Mendota United States 100%
AMCORE Bank N.A., Peru United States 100%
AMCORE Bank N.A., Rockford United States 100%
AMCORE Bank N.A., Rock River Valley United States 100%
AMCORE Bank N.A., Northwest United States 100%
First State Bancorp of
Princeton, Illinois, Inc. Delaware 100%
NBA Holding Company Delaware 100%
NBM Bancorp, Inc. Delaware 100%
AMCORE Bank Aledo Illinois 100%
AMCORE Bank Gridley Illinois 100%
AMCORE Bank Princeton Illinois 100%
AMCORE Trust Company Illinois 100%
AMCORE Mortgage, Inc. Nevada 100%
AMCORE Consumer Finance
Company, Inc. Nevada 100%
AMCORE Financial Life Insurance Arizona 100%
Company
AMCORE Capital Management, Inc. Illinois 100%
AMCORE Insurance Group, Inc. Illinois 100%
AMCORE Investment Banking, Inc. Illinois 100%
Rockford Mercantile Agency, Inc. Illinois 100%
Amcore Investment Services, Inc. Illinois 100%
<PAGE> 1
Amcore Logo
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1996
TO THE STOCKHOLDERS OF AMCORE FINANCIAL, INC.:
The Annual Meeting of Stockholders of AMCORE Financial, Inc., a Nevada
corporation, will be held at Michael's at Perryville, 601 North Perryville Road,
Rockford, Illinois on May 7, 1996, at 5:30 p.m., Rockford time, for the
following purposes:
1. To elect four directors;
2. To ratify the appointment of McGladrey & Pullen, LLP as auditors; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 18, 1996 are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting.
Stockholders are cordially invited to attend the Annual Meeting. However,
whether or not you expect to be present in person at the Annual Meeting, you are
requested to SIGN, DATE AND RETURN THE ENCLOSED PROXY in the enclosed addressed
envelope. The proxy may be revoked at any time before it is voted, provided that
written notice thereof has been given to the Secretary of the Company. If you
are present at the meeting, you may vote your shares in person and the proxy
will not be used.
For further information concerning individuals nominated as directors, the
appointment of McGladrey & Pullen, LLP as auditors and the use of the proxy, you
are respectfully urged to read the Proxy Statement on the following pages.
By order of the Board of Directors,
JAMES S. WADDELL
James S. Waddell
Secretary
March 28, 1996
Rockford, Illinois
<PAGE> 2
AMCORE FINANCIAL, INC.
501 SEVENTH STREET
ROCKFORD, ILLINOIS 61104
March 28, 1996
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of AMCORE Financial,
Inc. (Company), a Nevada corporation, to be held on May 7, 1996 at 5:30 p.m.,
Rockford time, at Michael's at Perryville, 601 North Perryville Road, Rockford,
Illinois and any adjournment thereof, and further to inform the stockholders
concerning the use of the proxy and the business to be transacted at the
meeting.
The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy may be revoked at any time before it is voted. Proxies may be revoked
by filing written notice of revocation with the Secretary of the Company before
the meeting or by attending the meeting and voting in person. The items
enumerated herein constitute the only business which the Board of Directors
intends to present or is informed that others will present at the meeting. The
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Stockholders are entitled to one vote for each
share. Only stockholders of record at the close of business on March 18, 1996
are entitled to notice of and to vote at the meeting.
Pursuant to the Bylaws of the Company, a majority of the outstanding shares
of the Company entitled to vote, represented in person or by proxy, shall
constitute a quorum at the meeting. Directors shall be elected by a plurality of
the votes cast in the election of directors. Any action to be taken by a vote of
the stockholders, other than the election of directors, must be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Under applicable Nevada law, in tabulating the vote,
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may in some cases also be
made by telephone or personal call by officers, directors or regular employees
of the Company who will not be specially compensated for such solicitation. This
proxy statement and the accompanying proxy are first being mailed or delivered
to stockholders on or about March 28, 1996.
ELECTION OF DIRECTORS
In the election of the Board of Directors, stockholders are entitled to one
vote for each common share owned by them for each of the four nominees. They may
not cumulate their votes. As of March 18, 1996, the Company had outstanding
14,197,747 shares of common stock.
There are four Class I directors to be elected at the 1996 Annual Meeting.
Proxy votes not limited to the contrary will be cast for the election of
the nominees named below, but should any of such individuals unexpectedly become
unavailable for election, the proxies reserve the right to nominate and vote for
such other person or persons as they shall designate.
The following sets forth the names, ages, principal occupations and other
information regarding the director nominees and those directors whose terms
continue after the meeting.
Nominees for Class I directors whose terms will expire in 1999 are:
Frank A. Fiorenza--Director since 1990
Mr. Fiorenza, age 62, retired in March 1991 as President and Chief Operating
Officer of Elco Industries, Inc. (manufacturer of fasteners). He is a Director
of CLARCOR (diversified manufacturer).
<PAGE> 3
Theresa Paulette Gilbert--Director since 1993
Mrs. Gilbert, age 46, has been a Professor at Rock Valley College since July
1991. She has been Chair of the Personnel Committee of the Discovery Center,
Riverfront Museum Park since January 1994.
Lawrence E. Gloyd--Director since 1987
Mr. Gloyd, age 63, has been Chairman and Chief Executive Officer of CLARCOR
(diversified manufacturer) since March 1995 and is a Director of CLARCOR. He was
previously the Chairman, President and Chief Executive Officer of CLARCOR. He is
a Director of Thomas Industries, Inc. (manufacturer of lighting fixtures, pumps
and compressors), a Director of G.U.D. Holdings LTD (diversified manufacturer)
and a Director of Woodward Governor Company (manufacturer of controls for
various types of engines).
Robert J. Meuleman--Director since 1995
Mr. Meuleman, age 56, has been President and Chief Executive Officer of the
Company since January 1996. He was Executive Vice President and Chief Operating
Officer, Banking Subsidiaries since December 1991 and was previously President
and Chief Operating Officer of AMCORE Bank N.A., Rockford. He is a director of
AMCORE Bank N.A., Rockford and a director of AMCORE Bank N.A., Rock River
Valley.
Those directors whose terms do not expire this year are:
CLASS II (TERMS EXPIRE 1997)
Milton R. Brown--Director since 1989
Mr. Brown, age 64, is Chairman, President and Chief Executive Officer of Suntec
Industries Incorporated (manufacturer of fuel unit components), is a Director of
Suntec Industries Incorporated, and a Director of Suntec Industries France. He
is a Director of CLARCOR (diversified manufacturer).
Carl J. Dargene--Director since 1982
Mr. Dargene, age 65, is Chairman of the Board of Directors of the Company. He
retired in December 1995 as President and Chief Executive Officer of the
Company. He is Chairman of the Board of Directors for AMCORE Bank N.A., Rockford
and Vice Chairman and Director of AMCORE Trust Company. He is a Director of
Woodward Governor Company (manufacturer of controls for various types of
engines) and of CLARCOR (diversified manufacturer).
Richard C. Dell--Director since 1994
Mr. Dell, age 50, has been Group President of Newell Company (diversified
manufacturer) since June 1992. He was previously President of Amerock
Corporation.
Robert A. Henry--Director since 1982
Dr. Henry, age 71, is President of Visioneering Group, previously Successful
Living Programs and Henry & Associates, (training/development seminars for
business/industry).
CLASS III (TERMS EXPIRE 1998)
Robert A. Doyle--Director since 1982
Mr. Doyle, age 69, is President of Yenom, Inc. (real estate investment) and was
previously Vice President and Secretary of Doyle & Associates (real estate
brokerage) until December 1991.
Ted Ross--Director since 1982
Mr. Ross, age 64, is President of TRoss, Inc., previously Ted Ross Associates,
(financial consultants). He has been a Director of Precision Products Group,
Inc. (manufacturer of tubes and springs) since December 1992.
Robert J. Smuland--Director since 1992
Mr. Smuland, age 60, is Executive Vice President and Chief Operating Officer of
Sundstrand Corporation, Aerospace (manufacturer of industrial and aerospace
products). He has been a Director of Sundstrand
2
<PAGE> 4
Corporation since April 1993. He was previously a Director of AMCORE Bank N.A.,
Rockford until May 1992.
Jack D. Ward--Director since 1995
Mr. Ward, age 43, is an Attorney at Law and Partner with the law firm of Reno,
Zahm, Folgate, Lindberg & Powell, and was previously a Director of AMCORE
Mortgage, Inc. until May 1995.
Gary L. Watson--Director since 1987
Mr. Watson, age 50, is President of Newspaper Division, Gannett Co., Inc. and
was previously President of Community Newspaper Division, Gannett Co., Inc.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company has an Executive Committee whose members are Messrs. Dargene,
Doyle, Gloyd, and Ross. The Executive Committee exercises those powers of the
Board of Directors in the management of the Company which have been delegated to
it by the Board of Directors. The Executive Committee did not meet during 1995.
The Company has an Audit Committee whose members are Mrs. Gilbert and
Messrs. Brown, Dargene, Fiorenza, Ward and Watson. The duties of the Audit
Committee are to review the proposed scope of the annual audit and the results
and recommendations of the independent auditors upon completion of the annual
audit; nominate a firm of independent auditors to be submitted to the Board of
Directors for approval and subsequent ratification by stockholders at the annual
meeting; approve the compensation of the independent auditors; review the
Company's system of internal controls and the performance of its internal
auditors; and monitor compliance by management with certain Company policies.
The Audit Committee met quarterly during 1995.
The Company has an Investment Committee whose members are Messrs. Dargene,
Doyle, Henry and Ross. Messrs. F. Taylor Carlin, Paul Donovan, AMCORE Bank N.A.,
Rockford Director, Jay H. Evans, AMCORE Capital Management, Inc. President,
Charles E. Gagnier and Robert J. Meuleman serve as ex-officio members of the
committee. The Investment Committee establishes the investment policies of the
Company and its subsidiaries. The Investment Committee meets as necessary.
During 1995, the Investment Committee met five times.
The Company has a Compensation Committee to advise the Company concerning
its employee compensation and benefit policies and to administer the Company's
Long-Term Incentive Plan, 1992 Stock Incentive Plan and 1995 Stock Incentive
Plan. The Compensation Committee also administers the Restricted Stock Plan for
Non-Employee Directors of the Company and its Participating Subsidiaries and the
1994 Stock Option Plan for Non-Employee Directors. The members of the
Compensation Committee are Messrs. Dargene, Dell, Fiorenza, Gloyd, and Smuland.
During 1995 the Compensation Committee held five meetings. A report of the
Compensation Committee is set forth on page nine of this Proxy Statement.
The Company has an AMCORE Financial Security Plan Advisory Committee which
serves as the advisor for the AMCORE Financial Security Plan. Messrs. Dell,
Fiorenza, Gloyd, Ross, Smuland, Ward and Watson serve on this subcommittee.
During 1995, the Advisory Committee met two times.
The Company has a Directors Affairs Committee whose members are Mrs.
Gilbert and Messrs. Brown, Dargene, Dell, Henry, Smuland, Ward and Watson. The
primary duties of the Directors Affairs Committee are to provide nominations to
the Board of Directors, make recommendations regarding directors' remuneration,
recommend policies for the retirement of directors and fulfill other
responsibilities as may be delegated to it by the Board of Directors. The
Directors Affairs Committee meets as necessary. During 1995, the Directors
Affairs Committee met once.
As of December 31, 1995, the Company had no other committees of the Board
of Directors.
The Board of Directors met six times during 1995. All directors, except Mr.
Watson, attended at least 75% of the Board meetings and meetings held by all
committees of the Board on which they served during the period they were
directors in 1995.
3
<PAGE> 5
Directors of the Company, other than Messrs. Dargene and Meuleman, earned
an annual retainer of $10,000 of the Company's common stock, pursuant to the
Non-Employee Director's Stock Plan, for services rendered to the Company as a
member of its Board of Directors. All non-employee directors earned a fee of
$600 for each Board and committee meeting attended during 1995. All non-employee
committee chairmen earned a fee of $700 for each committee meeting attended
during 1995. Mr. Reno was paid $75,000 for services rendered as Chairman of the
Board of Directors of the Company in 1995. Messrs. David A. Carlson, Thomas L.
Clinton and C. Roger Greene, as Director Emeriti, receive a lifetime retainer of
$7,000 per year. All non-employee directors were granted 1,000 common stock
options on May 3, 1994 at $20.125 and 1,000 options on May 9, 1995 at $19.125
pursuant to the 1994 Stock Option Plan for Non-Employee Directors.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following tabulation sets forth the number of shares of common stock of
the Company beneficially owned by each of the directors and nominees for
election to the Board of Directors, by each named executive officer, and by all
directors and officers as a group as of March 1, 1996 and the percentage that
these shares bear to the total common stock outstanding on that date.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
--------------------------------------------------- ---------------------- ----------
<S> <C> <C>
Milton R. Brown.................................... 14,482(2)(3) *
F. Taylor Carlin................................... 60,780(3)(4) *
Carl J. Dargene.................................... 184,236(2)(3)(4)(5) 1.30%
Richard C. Dell.................................... -- *
Robert A. Doyle.................................... 30,012(2)(3)(5) *
Frank A. Fiorenza.................................. 8,655(3)(6) *
Charles E. Gagnier................................. 76,063(2)(3)(4) *
Theresa Paulette Gilbert........................... 2,420(3) *
Lawrence E. Gloyd.................................. 15,890(3) *
Robert A. Henry.................................... 9,900(3) *
Robert J. Meuleman................................. 100,907(3)(4)(5) *
Ted Ross........................................... 20,403(3) *
Robert J. Smuland.................................. 17,075(3) *
James S. Waddell................................... 42,204(3)(4)(5) *
Jack D. Ward....................................... 3,530 *
Gary L. Watson..................................... 10,161(3)(6) *
All executive officers and directors (20
persons)......................................... 668,632(2)(3)(4)(5)(6) 4.71%
</TABLE>
- ---------------
* The amount shown is less than 1% of the outstanding shares of such class.
(1) The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company. The nature of beneficial ownership for shares shown in this column
is sole voting and investment power unless otherwise indicated herein.
(2) Includes shares held individually by certain family members of the directors
and officers as follows: Milton R. Brown--913 shares, Carl J.
Dargene--15,247 shares, Robert A. Doyle--3,465 shares, Charles E.
Gagnier--1,324 shares, and all executive officers and directors--20,949
shares.
(3) Includes shares which such person has a right to acquire within sixty days
through the exercise of stock options as follows: Milton R. Brown--1,000
shares, F. Taylor Carlin--52,282 shares, Carl J. Dargene--120,885 shares,
Robert A. Doyle--1,000 shares, Frank A. Fiorenza--1,000 shares, Charles E.
Gagnier--59,979 shares, Theresa Paulette Gilbert--1,000 shares, Lawrence E.
Gloyd--1,000 shares, Robert A. Henry--1,000 shares, Robert J.
Meuleman--66,819 shares, Ted Ross--1,000 shares, Robert J. Smuland--1,000
shares, James S. Waddell--22,440 shares, Gary L. Watson--1,000 shares and
all executive officers and directors--385,890 shares.
(4) Includes shares held in trust with power to vote but without investment
authority as follows: F. Taylor Carlin--1,669 shares, Carl J. Dargene--5,629
shares, Charles E. Gagnier--2,947 shares, Robert J. Meuleman--5,902 shares,
James S. Waddell--1,385 shares and all executive officers and
directors--24,738 shares.
4
<PAGE> 6
(5) Includes shares held in joint tenancy with the spouses of certain of the
directors and executive officers as to which voting and investment power is
shared as follows: Carl J. Dargene--1,155 shares, Robert A. Doyle--2,970
shares, Robert J. Meuleman--330 shares, James S. Waddell--10,012 shares, and
all executive officers and directors--23,026 shares.
(6) Includes shares held in trusts of which such persons are trustees having
sole voting and investment power as follows: Frank A. Fiorenza--2,242
shares, Gary L. Watson--469 shares and all executive officers and
directors--2,711 shares.
Pursuant to Section 16 of the Exchange Act, the Company's officers,
directors and holders of more than ten percent of the Company's Common Stock are
required to file reports of their trading in equity securities of the Company
with the Commission, the Company and the NASDAQ Stock Market. Based solely on
its review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports on Form 5 were
required for those persons, the Company believes that during 1995 all filing
requirements applicable to its officers, directors and more than ten percent
shareholders were complied with, except that Robert A. Doyle did not timely file
on Form 4. This transaction was subsequently reported by Mr. Doyle on Form 4
filed on December 22 with the Commission, the Company and NASDAQ.
BENEFICIAL OWNERSHIP BY CERTAIN PERSONS
The following table lists the beneficial ownership of the Company's common
stock with respect to all persons, other than those listed above, known to the
Company as of March 1, 1996 to be the beneficial owner of more than five percent
of such common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER INTEREST(1) OF CLASS
- ---------------------------------------------------------------- --------------------- --------
<S> <C> <C>
AMCORE Trust Company............................................ 1,842,180(2)(3) 12.98%
501 Seventh Street, Rockford, IL 61104
Roger Reno...................................................... 1,108,832(4) 7.81%
2515 Chickadee Trail, Rockford, IL 61107
</TABLE>
- ---------------
(1) The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company.
(2) Includes 1,842,180 shares held by nominees acting on behalf of AMCORE Trust
Company. Excludes 537,289 shares held as trustee of various trusts over
which AMCORE Trust Company has neither voting nor investment power, and as
to which beneficial ownership is disclaimed on these shares. The nature of
beneficial ownership for the shares shown in this column is as follows: sole
voting power--1,721,033 shares, shared voting power--8,914 shares, no voting
power--112,233 shares, sole investment power--1,485,832 shares, shared
investment power--305,240 shares and no investment power--51,108 shares.
(3) Although there is no affirmative duty or obligation to do so, it is the
general practice of AMCORE Trust Company to solicit the direction of trust
beneficiaries or grantors with regard to the voting of shares held in trust
on all issues which are subject to vote by proxy. The shares are then voted
as directed by the trust beneficiary or grantor.
(4) Includes 150,150 shares held in trusts for which trustee has sole voting and
investment power, 1,257 shares held in trust with power to vote but without
investment authority and 80,558 shares held individually by certain family
members.
5
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
chief executive officer and each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the year
ended December 31, 1995:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION
---------------------------------------- AWARDS
OTHER ------------- PAYOUTS
ANNUAL SECURITIES ---------- ALL OTHER
NAME AND PRINCIPAL COMPEN- UNDERLYING LTIP COMPEN-
POSITION(1) YEAR SALARY(2) BONUS(2)(3) SATION(4) OPTIONS(#)(5) PAYOUTS(6) SATION(7)
- -------------------------------------- ---- --------- ----------- ------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Carl J. Dargene....................... 1995 $400,000 $ 58,870 $8,420 15,000 $191,412 $95,495
Chairman of the Board 1994 363,000 44,129 6,383 17,000 186,542 61,027
1993 330,000 143,445 5,067 23,910 24,305 75,959
Robert J. Meuleman.................... 1995 250,000 42,044 7,091 13,000 84,999 44,358
President & Chief 1994 218,000 36,416 2,940 12,000 82,423 30,091
Executive Officer 1993 200,000 81,044 2,670 10,867 11,115 36,240
F. Taylor Carlin...................... 1995 219,500 38,364 5,083 8,000 81,776 38,108
Executive Vice President & 1994 207,100 33,226 3,060 12,000 80,002 27,615
Chief Operating Officer 1993 190,000 73,955 3,089 10,327 10,130 33,903
Diversified Financial Services Group
James S. Waddell...................... 1995 159,000 35,015 6,136 8,000 7,320 18,825
Executive Vice President & 1994 125,000 24,567 2,982 10,000 2,423 12,752
Chief Administrative Officer 1993 98,125 21,655 2,067 4,440 0 8,190
Charles E. Gagnier.................... 1995 171,600 21,937 5,928 8,000 44,715 28,914
President & Chief Executive 1994 159,600 39,217 3,849 10,000 43,884 20,060
Officer, AMCORE Bank N.A., 1993 149,100 54,488 3,882 7,200 5,887 25,505
Rockford
</TABLE>
- ---------------
(1) C. Dargene served as President and Chief Executive Officer until December
31, 1995, and R. Meuleman served as Executive Vice President and Chief
Operating Officer, Banking Subsidiaries until December 31, 1995.
(2) Compensation deferred pursuant to the Company's Deferred Compensation Plan
is included in Salary and Bonus totals.
(3) Reflects bonus earned during the year, all or a portion of which was paid
during the next year.
(4) These amounts represent reimbursements during the year for taxes.
(5) These numbers have been adjusted to reflect a three-for two stock split
which was issued December 1993.
(6) Reflects long term incentive plan payouts in 1995 and payouts in the form of
dividend equivalent payments on all outstanding Performance Units.
(7) These amounts represent the Company's contributions to the AMCORE Financial
Security Plan as follows: C. Dargene--$12,000, R. Meuleman--$12,000, T.
Carlin--$12,000, J. Waddell--$12,000, C. Gagnier--$12,000; the Company's
contributions to the supplemental retirement plan as follows: C.
Dargene--$66,192, R. Meuleman--$28,330, T. Carlin--$22,607, J.
Waddell--$5,306, C. Gagnier--$12,787; and premiums related to group term
life insurance as follows: C. Dargene--$17,303, R. Meuleman--$4,028, T.
Carlin--$3,501, J. Waddell--$1,519, C. Gagnier--$4,127.
6
<PAGE> 8
OPTION GRANTS
The following table provides information related to options granted to the
named executive officers during 1995.
<TABLE>
<CAPTION>
POTENTIAL NET
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES PERCENT OF FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM(1)
OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------
NAME GRANTED(2)(3) EMPLOYEES SHARE(2)(3) DATE 5% 10%
- --------------------------- ------------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Carl J. Dargene............ 15,000 9.7% $19.125 5/08/05 $180,414 $427,205
Robert J. Meuleman......... 13,000 8.4 19.125 5/08/05 156,359 396,244
F. Taylor Carlin........... 8,000 5.1 19.125 5/08/05 96,221 243,843
James S. Waddell........... 8,000 5.1 19.125 5/08/05 96,221 243,843
Charles E. Gagnier......... 8,000 5.1 19.125 5/08/05 96,221 243,843
</TABLE>
- ---------------
(1) Values are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
conditions and the optionholders' continued employment.
(2) Reflects options granted on May 9, 1995 to acquire shares of Common Stock
pursuant to the 1995 Stock Incentive Plan.
(3) Options granted pursuant to the 1995 Stock Incentive Plan have an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of the grant. Options generally become exercisable in their
entirety six months following the date of grant and remain exercisable for
ten years after the date of the grant unless the optionee ceases to be an
employee of the Company or its subsidiaries. The option exercise price may
be paid in cash, shares of Common Stock having a fair market value equal to
the exercise price, stock withholding or any combination of the above.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last year and
unexercised options held as of December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES YEAR END(1) YEAR END(2)
ACQUIRED ON VALUE ----------- ------------
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
- ----------------------------------------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Carl J. Dargene.......................... -- -- 120,885 $786,181
Robert J. Meuleman....................... 117,600 $263,100 66,819 386,910
F. Taylor Carlin......................... 5,000 67,080 52,282 299,353
James S. Waddell......................... 7,500 73,748 22,440 39,068
Charles E. Gagnier....................... -- -- 59,979 416,269
</TABLE>
- ---------------
(1) Options granted to acquire shares of Common Stock pursuant to the Long Term
Incentive, 1992 Stock Incentive and 1995 Stock Incentive Plans.
(2) The amounts shown reflect the value of unexercised options calculated by
determining the difference between the closing bid price of the Company's
Common Stock on the last day of the year ($20.25) and the applicable
exercise price of such options.
7
<PAGE> 9
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth information with respect to the named
executives concerning Performance Unit Awards granted during 1995 pursuant to
the Company's 1992 Stock Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF ----------------------------------
PERFORMANCE PERFORMANCE THRESHOLD TARGET OUTSTANDING
NAME UNITS(1) PERIOD 13% 14% 15%
- ------------------------------------------ ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Carl J. Dargene(2)........................ 26,800 3 years $59,585 $ 89,333 $ 148,919
Robert J. Meuleman........................ 12,500 3 years 83,375 125,000 208,375
F. Taylor Carlin.......................... 10,975 3 years 73,203 109,750 182,953
James S. Waddell.......................... 7,950 3 years 53,027 79,500 132,527
Charles E. Gagnier........................ 5,834 3 years 38,913 58,340 97,253
</TABLE>
- ---------------
(1) Performance units were granted to certain executive officers on January 1,
1995 pursuant to the 1992 Stock Incentive Plan. The holders of these
performance units will be entitled to cash or stock payments, or a
combination thereof, if certain performance targets are met during the three
year period ending December 31, 1997. The holders are also entitled to
dividend equivalent payments on these Performance Units. The target levels
applicable to the Performance Units as shown in the table above are achieved
if the average consolidated return on shareholders' equity ("ROE") for the
performance period is as shown above for each of the performance levels.
Each Performance Unit shall be of no value unless at least the minimum level
is achieved. If the Company achieves an average ROE in excess of the minimum
performance level set forth above, each Performance Unit shall have the
following values: $6.67 per unit for threshold performance, $10.00 per unit
for target performance and $16.67 per unit for outstanding performance. It
is the Company's intention to make incremental payments to executive
officers for performance levels which are between these specified target
levels.
(2) Retired executives are entitled to a pro-rata payment based upon their term
of employment during the performance period. Therefore, Mr. Dargene would
receive only one-third of any performance unit payment for the units granted
in 1995 since he retired on December 31, 1995 and two-thirds of any payment
for the units granted in 1994.
EMPLOYMENT AGREEMENTS
The Company has entered into individual Transitional Compensation
Agreements with current executive officers and certain other key employees,
including Messrs. Robert J. Meuleman, F. Taylor Carlin, James S. Waddell and one
other executive. If, during the three-year period following a change of control
of the Company (as defined in the agreements), the executive officer's
employment is ended through (1) termination by the Company without cause (as
defined in the agreements) or (2) termination by the executive officer for good
reason (as defined in the agreements) based upon a breach of the agreement by
the Company or a significant adverse change in the executive officer's
responsibilities, compensation or benefits, then a termination payment will be
made to the executive. The agreements provide that such payment will equal three
times the sum of the executive's then current annual salary and annual bonus. In
addition, Mr. Meuleman's agreement provides that, if any portion of the
termination payment is subject to an excise tax as an excess parachute payment,
as defined in the Internal Revenue Code Section 4999, the Company shall pay the
executive the amount necessary to offset the excise tax and any applicable taxes
on this additional payment. The agreements, other than Mr. Meuleman's, provide
that the total severance benefits are limited to the amount that can be received
without incurring any excise tax under the Internal Revenue Code Section 4999.
Additional provisions provide for the continuation, for three years after
termination, of welfare and other benefits to the executive and his family
unless termination is for cause. Upon a change of control of the Company, the
executive is entitled to a lump sum cash payment equivalent to the present value
of the projected benefits under certain supplemental retirement plans.
The Company also entered into severance agreements with Charles E. Gagnier
and one other executive officer. These agreements provide that if such
executive's employment is terminated within one year after a change in control
of the Company either (i) by the Company other than for "cause" or other than as
a consequence of disability or retirement (all as defined in such agreements) or
(ii) by such executive for
8
<PAGE> 10
reasons relating to a diminution of responsibilities, compensation or benefits
or relocation requiring a change in residence or a significant increase in
travel, he will receive: (a) monthly payments equal to his monthly salary in
effect at the date of termination for a period of time determined pursuant to
each agreement based upon his salary, years of service and age at the time of
his termination; (b) at the executive's option, an amount in cash equal to the
value of outstanding stock options granted under the Company's stock options
plans; (c) at the executive's option, an amount in cash equal to the value of
shares of common stock awarded or issuable as restricted shares under the
Company's incentive stock plans; (d) life, disability, accident and health
insurance as provided in the Company's insurance programs for a period of 24
months after termination of employment; and (e) certain perquisites and
outplacement services. The agreements provide for a commensurate reduction in
the amount of cash payments to be made to an executive under the agreement in
the event that (i) the payments fail to be deductible by the Company as a result
of Section 280G of the Internal Revenue Code of 1986, as amended or (ii) such
executive procures new employment during the period he is receiving severance
payments under the agreement. If these severance agreements had become operative
in December 1995, the maximum number of monthly payments payable to Charles E.
Gagnier (subject to reduction as described in the previous sentence) would have
been approximately 40 months.
In May 1990, the Company adopted a termination policy (Policy) to provide
severance pay and the continuation of health and life insurance benefits for
substantially all of the Company's employees whose employment is terminated
within one year following a change in control (as defined in the Policy). The
Policy provides for weekly or monthly payments, depending on employment status,
equal to such employee's current weekly or monthly salary for a period of time
determined pursuant to the Policy based upon his or her salary, years of service
and age. In addition, employees would receive health and life insurance
benefits, substantially similar to those received by the employee prior to the
employee's termination, during the period in which an employee receives payments
under the Policy, for up to a maximum of 24 months. The Policy provides for a
commensurate reduction in the amount of payments to be received by an employee
in the event an employee procures new employment during the period he or she is
receiving severance payments under the Policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carl J. Dargene serves as a member of the Compensation Committee and is the
Company's Chairman of the Board. Mr. Dargene also serves on the board of CLARCOR
and its Compensation Committee. Lawrence E. Gloyd, Chairman and Chief Executive
Officer of CLARCOR, also serves on the Company's Compensation Committee. Frank
A. Fiorenza, who also serves on the Company's Compensation Committee, is a
Director of CLARCOR.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews the Company's
compensation and benefit policies, including individual salaries of the
executive officers, and submits recommendations to the Board of Directors.
The Company engages an internationally recognized compensation consulting
firm on a regular basis to assist the Compensation Committee and the Board of
Directors in formulating compensation policies and determining appropriate
compensation levels. This firm provides reports directly to the Compensation
Committee.
The fundamental philosophy of the Company's compensation program is to
offer competitive compensation opportunities for all employees, including senior
management, which are based on the Company's and employee's performance. The
objectives of the Company's compensation program are to align compensation with
the Company's business goals and performance, to enable the Company to attract
and retain superior talent and reward performance, and to reward the enhancement
of stockholder value.
Executive Officer Compensation
Consistent with this philosophy, the Compensation Committee has established
a compensation program consisting of an annual base salary and the opportunity
to earn incentive compensation tied directly to the
9
<PAGE> 11
performance of the Company, personal performance and increases in stockholder
value. The Company's executive compensation program in 1995 consisted of the
following components:
- Base Salary
- Short-Term Incentive Plan
- Intermediate-Term Incentive Plan
- Long-Term Incentive Plan
The Compensation Committee, working with the compensation consulting firm,
determines a range for the executive officers' base salaries in order to be
competitive and consistent with amounts paid to executives performing similar
functions in comparable companies. The objective is to determine the salary
ranges at a level within the third quartile of trailing twelve month activity of
the comparable companies. The amount of each executive's base salary is set
within the range based upon the performance of the Company, performance of
particular business units, the personal performance of such executive officers,
cost of living increases and such other factors as the Compensation Committee
and the Board of Directors deem appropriate.
The short-term incentive component of each executive officer's compensation
is based upon participation in the Company's profit sharing plan, generally
available to all of the Company's employees, and a cash bonus, based upon a
maximum target amount assigned at the beginning of each year. Amounts payable
under the Company's profit sharing plan range between 0% and 6% of the executive
officer's total cash compensation, and are based upon the profitability of the
Company and the business unit in which such executive has responsibility. The
annual cash bonus targets for the senior management of the Company range from
25% to 50% of the midpoint of the base salaries of such officers. The amount of
targeted cash bonuses payable to the executive officers is contingent upon the
attainment of financial targets such as consolidated or affiliate earnings which
are established at the beginning of the year, personal performance of the
executive and, where appropriate, attainment of earnings goals of the operating
unit or units for which the executive has responsibility. The targets may be
adjusted from time to time to take into account unforeseen or extraordinary
events. Generally, if certain minimum target financial results are not achieved,
no annual incentive will be paid.
Generally, 10% of a targeted cash bonus will be paid upon the achievement
of at least 90% of such goals increasing to 100% of such targeted cash bonus
upon the achievement of 110% or more of such goals (which include objectives
that are, in the judgment of the Compensation Committee, difficult to obtain).
In 1995, the total short-term incentive payouts to executive officers were
approximately 43% of the maximum targets established under the plan.
The intermediate-term incentive component of each executive officer's
compensation is based upon the award of performance units which provide for cash
or stock payouts, or a combination thereof, based upon the achievement by the
Company of targeted average consolidated returns on stockholders' equity over a
three year performance period. The holders are also entitled to dividend
equivalent payments on these performance units. The three target levels
applicable to the performance units granted in 1995 are: Threshold 13% ROE,
Target 14% ROE and Outstanding 15% ROE. The target levels applicable to
performance units granted in prior years are: Threshold 11% ROE, Target 13% ROE,
and Outstanding 15% ROE. Each performance unit shall be of no value unless at
least the minimum performance level is achieved. If the Company achieves an
average ROE in excess of the minimum performance level set forth above, each
performance unit shall have the following values: $6.67 per unit for Threshold
performance, $10.00 per unit for Target performance and $16.67 per unit for
Outstanding performance. It is the Company's intention to make incremental
payments to executive officers for performance levels which are between these
specified target levels. The minimum targeted average returns on equity were
attained for the 1993 performance units expiring during 1995 and a payout of
$6.67 per unit was made to each executive officer in January 1996. See Summary
Compensation Table.
The long-term incentive component of each executive officer's compensation
involves the award of stock options or stock awards pursuant to the AMCORE
Long-Term Incentive Plan and 1992 and 1995 Stock
10
<PAGE> 12
Incentive Plans. Long-term incentives are provided to reward executives for
achieving long-term strategic goals and to provide a balance against
overemphasis on short-term results. Through stock ownership, executives'
long-term incentives are tied to stockholder value. The Compensation Committee
recommends grants of annual awards of stock options to executive officers at
levels determined with reference to fixed percentages up to 35% of base
compensation subject to increases and decreases based on individual performance.
Chief Executive Officer Compensation
The compensation package for Mr. Carl J. Dargene, who was the Chief
Executive Officer of the Company during 1995, was determined in the same manner
as for all other executive officers, except that Mr. Dargene's short-term
incentive was based 100% on the Company's total performance without reference to
any particular business unit of the Company or personal objectives. For this
purpose, Company performance was measured by comparing the consolidated earnings
of the Company to earnings goals established by the Compensation Committee.
Mr. Dargene's base salary in 1995 was $400,000 and his short-term bonus was
$58,870, for a combined total of $458,870 compared with base salary in 1994 of
$363,000 and short-term bonus of $44,129, for a total of $407,129.
The Compensation Committee believes that the executive team of the Company
will receive appropriate rewards under this program of corporate incentives, but
only if they achieve the performance goals established for them and the Company
and if they succeed in increasing stockholder value.
Carl J. Dargene
Richard C. Dell
Frank A. Fiorenza
Lawrence E. Gloyd
Robert J. Smuland
11
<PAGE> 13
COMPANY PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the cumulative total
returns on the NASDAQ Stock Market Index and NASDAQ Bank Stocks Peer Index.
Cumulative total returns have been measured by dividing the sum of the
cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and the difference between the share price at the end and the
beginning of the measurement period by the share price at the beginning of the
measurement period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(AMCORE FINANCIAL, INC., NASDAQ STOCK MARKET INDEX, NASDAQ BANK STOCK INDEX)
[GRAPH]
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
<S> <C> <C> <C> <C> <C> <C>
NASDAQ BANK STOCK INDEX 100 164.092 238.854 272.395 271.402 404.310
AMCORE FINANCIAL, INC. 100 125.799 225.397 313.290 312.334 347.372
NASDAQ STOCK MARKET INDEX 100 160.548 186.851 214.496 209.670 296.505
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The index level for all series was set to $100.0 as of December 31,
1990.
12
<PAGE> 14
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Company and their associates were
customers of, and had transactions with, the Company's subsidiaries in the
ordinary course of business during 1995. Comparable transactions may be expected
to take place in the future. All outstanding loans, commitments to loan,
transactions in repurchase agreements and certificates of deposit, and
depository relationships in the ordinary course of business, were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for transactions with other persons, and, in the opinion
of management of the Company, did not involve more than the normal risk of
collectability or present other unfavorable features. As of December 31, 1995,
various directors and officers of the Company were indebted to the Company's
subsidiaries in the amount of approximately $1,807,000. This amount represents
.14 percent of the Company's subsidiaries' outstanding loans and .86 percent of
the Company's stockholders' equity as of that date. The maximum aggregate amount
of their indebtedness to the Company's subsidiaries during 1995 was $2,014,000.
As of December 31, 1995, associates of directors and officers of the Company
were indebted to the Company's subsidiaries in the amount of approximately
$910,000. This amount represents .07 percent of the Company's subsidiaries'
outstanding loans and .43 percent of the Company's stockholders' equity as of
that date. Further, the Company's subsidiaries have additional committed, but
unfunded, lines of credit of $10,787,000 to associates of directors and officers
of the Company. The maximum aggregate amount of such associates' indebtedness to
the Company's subsidiaries during 1995 was $1,398,000.
The Board of Directors, on February 22, 1984, authorized the Executive
Committee to negotiate such agreements as may be necessary to accomplish stock
redemptions pursuant to Section 303 of the Internal Revenue Code to pay death
taxes of certain stockholders. Such redemptions will be conditioned upon any
requisite bank regulatory agency or debt covenant approvals. Bank holding
companies, such as the Company, are required to notify the Federal Reserve Board
prior to paying 10% or more of consolidated net worth to redeem shares over a
twelve-month period.
ITEM 2--APPOINTMENT OF INDEPENDENT AUDITORS
McGladrey & Pullen, LLP have been appointed to serve as the independent
auditors for the Company and subsidiaries for the fiscal year ending December
31, 1996. This appointment is being submitted to the stockholders for
ratification. Representatives of the firm are expected to be present at the
Annual Meeting to respond to appropriate questions from stockholders and to have
the opportunity to make any statements they consider appropriate. In the event
the stockholders do not ratify the appointment of McGladrey & Pullen, LLP, the
selection of independent auditors will be determined by the Audit Committee and
the Board of Directors after careful consideration of all information submitted
by the stockholders.
Accounting services rendered by McGladrey & Pullen, LLP during 1995
included the examination of the annual consolidated financial statements, review
of unaudited quarterly statements, assistance with Securities and Exchange
Commission filings, legally required special audits of subsidiaries, and
consultations in connection with various tax and accounting-related matters.
During 1995, the Board of Directors reviewed and approved in advance or
ratified the scope of all of McGladrey & Pullen, LLP's professional services
rendered to the Company and related entities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
MCGLADREY & PULLEN, LLP AS AUDITORS FOR THE YEAR 1996.
13
<PAGE> 15
STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING
NOMINATIONS FOR THE BOARD OF DIRECTORS
The Company's Bylaws provide that the notice of proposed stockholder
nominations for the election of directors must be timely and given to the
Secretary of the Company prior to the meeting at which directors are to be
elected. To be timely, notice must be received by the Company not less than 50
days nor more than 75 days prior to the meeting. The date of an annual meeting
of stockholders may be obtained from the Secretary of the Company when
determined by the Board of Directors.
Notice to the Company from a stockholder who proposes to nominate a person
at the meeting for election as a director must contain certain information about
that person, including age, business and residence addresses and principal
occupation, the class and number of shares of the Company's stock beneficially
owned and such other information as would be required to be included in a proxy
statement soliciting proxies to nominate that person. The Company may also
require any proposed nominee to furnish other information reasonably required by
the Company to determine the proposed nominee's eligibility to serve as
director. If the chairman of the meeting of stockholders determines that a
person was not nominated in accordance with the foregoing procedures, such
person shall not be eligible for election as a director.
OTHER PROPOSALS
Stockholders may submit proposals appropriate for stockholder action at the
Company's Annual Meeting consistent with the regulations of the Securities and
Exchange Commission. For proposals to be considered for inclusion in the Proxy
Statement for the 1997 Annual Meeting they must be received by the Company no
later than December 2, 1996. Such proposals should be directed to AMCORE
Financial, Inc., Attention: Corporate Secretary, 501 Seventh Street, Rockford,
Illinois 61104.
By order of the Board of Directors,
JAMES S. WADDELL
James S. Waddell
Secretary
14
<PAGE> 16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMCORE FINANCIAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMCORE
FINANCIAL, INC. FOR THE ANNUAL MEETING ON MAY 7, 1996
The undersigned holder of Common Stock of AMCORE Financial, Inc.
hereby appoints Robert J. Meuleman and F. Taylor Carlin or each of
them, with full power of substitution, to act as proxy for and to vote
the stock of the undersigned at the Annual Meeting of Stockholders of
AMCORE Financial, Inc. to be held at Michael's at Perryville, 601
North Perryville Road, Rockford, Illinois, at 5:30 p.m., Rockford
time, on May 7, 1996, or any adjournment thereof:
<TABLE>
<S> <C> <C> <C>
1. / / ELECTION OF DIRECTORS FOR all nominees / / WITHHOLD AUTHORITY to vote for
listed below (except as marked to the contrary below). all nominees listed below.
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Frank A. Fiorenza Theresa Paulette Gilbert Lawrence E.
Gloyd Robert J. Meuleman
2. Ratification of the appointment of McGladrey & Pullen, LLP as
independent auditors.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND
2.
(Please sign and date this proxy on the reverse side hereof and return
it in the enclosed envelope.)
(Continued from reverse side)
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership
name by authorized person.
---------------------------------
Signature
---------------------------------
Dated Signature , 1996
Please mark, sign, date and
return the proxy card promptly
using the enclosed envelope.
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of AMCORE Financial, Inc., a Nevada corporation, which is about to
file an annual report for the year ended December 31, 1995 pursuant to Section
13 or 15(d) of the Securities Act of 1934 on Form 10-K with the Securities and
Exchange Commission, Washington D.C., 20549 hereby constitutes and appoints
ROBERT J. MEULEMAN and JOHN R. HECHT, and each of them, his true and lawful
attorney-in-fact and agents with power of substitution and resubstitution, from
them and in their name, place and stead, in any and all capacities, to sign the
Company's Form 10-K and other documents in connection therewith with the
Securities and Exchange Commission, granting unto the attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, know that the undersigned as a director or officer has
hereunto set their hand as of this ______________ day of March, 1996.
________________________________
Signature
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 101,082
<INT-BEARING-DEPOSITS> 260
<FED-FUNDS-SOLD> 9,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 884,044
<INVESTMENTS-CARRYING> 24,625
<INVESTMENTS-MARKET> 24,967
<LOANS> 1,285,961
<ALLOWANCE> 13,061
<TOTAL-ASSETS> 2,418,532
<DEPOSITS> 1,777,705
<SHORT-TERM> 292,042
<LIABILITIES-OTHER> 31,120
<LONG-TERM> 107,803
4,976
0
<COMMON> 0
<OTHER-SE> 204,886
<TOTAL-LIABILITIES-AND-EQUITY> 2,418,532
<INTEREST-LOAN> 109,488
<INTEREST-INVEST> 51,514
<INTEREST-OTHER> 3,484
<INTEREST-TOTAL> 164,486
<INTEREST-DEPOSIT> 68,062
<INTEREST-EXPENSE> 85,080
<INTEREST-INCOME-NET> 79,406
<LOAN-LOSSES> 2,692
<SECURITIES-GAINS> 2,298
<EXPENSE-OTHER> 87,440
<INCOME-PRETAX> 23,287
<INCOME-PRE-EXTRAORDINARY> 18,271
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,271
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.18
<LOANS-NON> 10,432
<LOANS-PAST> 1,301
<LOANS-TROUBLED> 2,491
<LOANS-PROBLEM> 22,336
<ALLOWANCE-OPEN> 13,302
<CHARGE-OFFS> 4,041
<RECOVERIES> 1,108
<ALLOWANCE-CLOSE> 13,061
<ALLOWANCE-DOMESTIC> 9,877
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,184
</TABLE>
