UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 0 13393
AMCORE FINANCIAL, INC.
NEVADA 36-3183870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Seventh Street, Rockford, Illinois 61104
Telephone number (815) 968 2241
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common stock, par value
$.33 per share, at April 30, 1997 was 16,203,215 shares.
Index of Exhibits on Page 19 Page 1 of 29
<PAGE>
AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART I Page Number
- ------ -----------
ITEM 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1996 . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 9
PART II
- -------
ITEM 4 Submission of Matters to a Vote of Security Holders . . 19
ITEM 6 Exhibits and Reports on Form 10-Q . . . . . . . . . . . 19
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(in thousands, except share data) 1997 1996
===================================================================================================================================
<S> <C> <C> <C>
ASSETS Cash and cash equivalents......................................................... $ 98,990 $ 87,740
Interest earning deposits in banks................................................ 140 156
Federal funds sold and other short-term investments............................... 7,008 12,706
Mortgage loans held for sale...................................................... 10,434 11,252
Securities available for sale..................................................... 1,158,800 1,138,351
Securities held to maturity (fair value of $ 9,653 in 1997; $10,455 in 1996)...... 9,626 10,368
-------------------------------
Total securities................................................................ $1,168,426 $1,148,719
Loans and leases, net of unearned income.......................................... 1,444,818 1,456,217
Allowance for loan and lease losses............................................... (15,744) (14,996)
-------------------------------
Net loans and leases............................................................ $1,429,074 $1,441,221
Premises and equipment, net....................................................... 45,605 46,060
Intangible assets, net............................................................ 11,782 12,255
Other real estate owned........................................................... 656 595
Other assets...................................................................... 63,050 53,846
-------------------------------
TOTAL ASSETS.................................................................... $2,835,165 $2,814,550
===============================
LIABILITIES LIABILITIES
AND Demand deposits................................................................. $ 706,362 $ 711,073
STOCKHOLDERS' Savings deposits................................................................ 140,512 140,881
EQUITY Other time deposits............................................................. 1,033,940 1,038,062
-------------------------------
Total deposits................................................................ $1,880,814 $1,890,016
Short-term borrowings............................................................. 567,425 544,508
Long-term borrowings.............................................................. 131,079 124,095
Other liabilities................................................................. 37,708 35,294
-------------------------------
TOTAL LIABILITIES............................................................. $2,617,026 $2,593,913
-------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares;
issued none...................................................................... $ - $ -
Common stock, $.33 par value: authorized 30,000,000 shares;
March 31, December 31,
1997 1996
Issued............ 14,926,695 14,926,695
Outstanding....... 14,316,957 14,265,977 4,976 4,976
Treasury.......... 609,738 660,718 (4,330) (4,908)
Additional paid-in capital........................................................ 57,022 56,687
Retained earnings................................................................. 171,170 166,602
Deferred compensation non-employee directors...................................... (668) (715)
Net unrealized gain (loss) on securities available for sale, net of taxes......... (10,031) (2,005)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY...................................................... $ 218,139 $ 220,637
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $2,835,165 $2,814,550
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
(in thousands, except per share data) 1997 1996
===================================================================================================================
<S> <C> <C> <C>
INTEREST Interest and fees on loans and leases.......................................... $30,948 $28,550
INCOME Interest on securities:
Taxable...................................................................... 16,072 12,114
Tax-exempt................................................................... 3,506 3,020
---------------
TOTAL INCOME FROM SECURITIES............................................... $19,578 $15,134
---------------
Interest on federal funds sold and other short-term investments................ 94 191
Interest and fees on mortgage loans held for sale.............................. 494 758
Interest on deposits in banks.................................................. 2 4
---------------
TOTAL INTEREST INCOME...................................................... $51,116 $44,637
---------------
INTEREST Interest on deposits........................................................... $18,487 $17,269
EXPENSE Interest on short-term borrowings.............................................. 8,439 4,507
Interest on long-term borrowings............................................... 1,666 2,156
Other.......................................................................... 163 109
---------------
TOTAL INTEREST EXPENSE..................................................... $28,755 $24,041
---------------
NET INTEREST INCOME........................................................ $22,361 $20,596
Provision for loan and lease losses............................................ 1,846 889
---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES.............. $20,515 $19,707
---------------
NON-INTEREST Trust and asset management income.............................................. $3,734 $3,242
INCOME Service charges on deposits.................................................... 1,681 1,680
Mortgage revenues.............................................................. 245 733
Insurance revenues............................................................. 448 254
Collection fee income.......................................................... 625 582
Gain on sale of credit card receivables........................................ 1,931 -
Other.......................................................................... 1,553 1,699
---------------
NON-INTEREST INCOME, EXCLUDING NET REALIZED SECURITY GAINS................. $10,217 $8,190
Net realized security gains.................................................... 860 764
---------------
TOTAL NON-INTEREST INCOME.................................................. $11,077 $8,954
OPERATING Compensation expense........................................................... $10,090 $8,996
EXPENSES Employee benefits.............................................................. 2,930 2,930
Net occupancy expense.......................................................... 1,359 1,385
Equipment expense.............................................................. 1,827 1,879
Professional fees.............................................................. 882 608
Advertising and business development........................................... 594 554
Amortization of intangible assets.............................................. 501 512
Other.......................................................................... 4,030 4,124
---------------
TOTAL OPERATING EXPENSES................................................... $22,213 $20,988
---------------
INCOME BEFORE INCOME TAXES..................................................... $9,379 $7,673
Income taxes................................................................... 2,522 2,043
---------------
NET INCOME................................................................. $6,857 $5,630
===============
EARNINGS PER COMMON SHARE.................................................. $0.48 $0.40
DIVIDENDS PER COMMON SHARE................................................. 0.16 0.16
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................................. 14,297 14,192
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands) 1997 1996
===================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS NET INCOME................................................................................... $6,857 $5,630
FROM Adjustments to reconcile net income to net
OPERATING cash provided by operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment................................. 1,335 985
Amortization and accretion of securities, net........................................... 515 1,250
Provision for loan and lease losses..................................................... 1,846 889
Amortization of intangible assets....................................................... 501 512
Gain on sale of securities available for sale........................................... (880) (804)
Loss on sale of securities available for sale........................................... 20 40
Gain on sale of credit card receivables................................................. (1,931) -
Write-down of other real estate owned................................................... 73 -
Non-employee directors compensation expense............................................. 116 119
Deferred income taxes................................................................... (720) 1,038
Originations of mortgage loans held for sale............................................ (30,927) (44,952)
Proceeds from sales of mortgage loans held for sale..................................... 31,745 49,435
Other, net.............................................................................. (283) 3,220
-------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................. $8,267 $17,362
-------------------
CASH FLOWS
FROM Proceeds from maturities of securities available for sale.................................... $39,480 $60,879
INVESTING Proceeds from maturities of securities held to maturity...................................... 1,095 283
ACTIVITIES Proceeds from sales of securities available for sale......................................... 61,744 84,057
Purchase of securities held to maturity...................................................... (8,243) -
Purchase of securities available for sale.................................................... (126,784) (405,820)
Net decrease in federal funds sold and other short-term investments.......................... 5,698 6,785
Net (increase) decrease in interest earning deposits in banks................................ 16 (56)
Proceeds from the sale of consumer finance loans and leases.................................. 663 -
Proceeds from the sale of credit card receivables............................................ 15,457 -
Loans made to customers and principal collection of loans, net............................... (4,245) (20,309)
Proceeds from the sale of premises and equipment............................................. 28 553
Purchases of premises and equipment.......................................................... (1,144) (730)
-------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES............................................ ($16,235) ($274,358)
-------------------
CASH FLOWS
FROM Net decrease in demand deposits and savings accounts......................................... ($5,080) ($31,901)
FINANCING Net increase (decrease) in time deposits..................................................... (4,122) 50,307
ACTIVITIES Net increase (decrease) in short-term borrowings............................................. (83) 165,007
Proceeds from long-term borrowings........................................................... 44,000 71,500
Payment of long-term borrowings.............................................................. (14,052) (451)
Dividends paid............................................................................... (2,290) (2,270)
Proceeds from exercise of incentive stock options............................................ 845 87
-------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................................. $19,218 $252,279
-------------------
Net change in cash and cash equivalents...................................................... $11,250 ($4,717)
-------------------
Cash and cash equivalents:
Beginning of year.......................................................................... 87,740 101,082
-------------------
End of period.............................................................................. $98,990 $96,365
===================
SUPPLEMENTAL
DISCLOSURES OF Cash payments for:
CASH FLOW Interest paid to depositors................................................................ $18,710 $16,660
INFORMATION Interest paid on borrowings................................................................ 9,823 5,715
Income taxes paid.......................................................................... 2,207 1,829
NON-CASH
ACTIVITIES Other real estate acquired in settlement of loans............................................ 306 460
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
AMCORE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and with instructions for Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, these financial statements do not include all
the information and footnotes required by generally accepted accounting
principles. These financial statements include, however, all adjustments
(consisting of normal recurring accruals), which in the opinion of management,
are considered necessary for the fair presentation of the results of
operations for the periods shown.
Operating results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Form 10-K Annual
Report of AMCORE Financial, Inc. and Subsidiaries (the "Company") for the year
ended December 31, 1996.
NOTE 2 - 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, adjusted for
common stock equivalents. Common stock equivalents consist of shares issuable
under options granted pursuant to stock plans. The fully dilutive effect of
common stock equivalents on earnings per share was less than three percent for
all periods presented (see Note 5).
6
<PAGE>
NOTE 3 - SECURITIES
A summary of securities at March 31, 1997 and December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
At March 31, 1997
Securities Available for Sale:
U.S. Treasury $ 97,955 $ 215 ($741) $ 97,429
U.S. Government agencies 138,748 72 (5,180) 133,640
Mortgage-backed securities 268,075 2,914 (3,284) 267,705
State and political subdivisions 618,092 1,345 (11,914) 607,523
Corporate obligations and other 52,649 80 (226) 52,503
------------------------------------------------------
Total Securities Available for Sale $1,175,519 $4,626 ($21,345) $1,158,800
======================================================
Securities Held to Maturity:
U.S. Treasury $1,761 $ 0 ($13) $ 1,748
State and political subdivisions 4,860 72 (32) 4,900
Corporate obligations and other 3,005 - - 3,005
------------------------------------------------------
Total Securities Held to Maturity $ 9,626 $ 72 ($45) $ 9,653
------------------------------------------------------
Total Securities $1,185,145 $4,698 ($21,390) $1,168,453
======================================================
At December 31, 1996
Securities Available for Sale:
U.S. Treasury $ 98,746 $ 494 ($429) $ 98,811
U.S. Government agencies 133,768 168 (3,676) 130,260
Mortgage-backed securities 547,765 2,494 (5,201) 545,058
State and political subdivisions 263,341 4,545 (1,330) 266,556
Corporate obligations and other 98,098 223 (655) 97,666
------------------------------------------------------
Total Securities Available for Sale $1,141,718 $7,924 ($11,291) $1,138,351
======================================================
Securities Held to Maturity:
U.S. Treasury $ 1,647 $ 5 ($4) $ 1,648
State and political subdivisions 5,504 92 (11) 5,585
Corporate obligations and other 3,217 5 - 3,222
------------------------------------------------------
Total Securities Held to Maturity $ 10,368 $ 102 ($15) $ 10,455
------------------------------------------------------
Total Securities $1,152,086 $8,026 ($11,306) $1,148,806
======================================================
</TABLE>
7
<PAGE>
NOTE 4 - LONG-TERM BORROWINGS
On March 25, 1997, the Company issued $40 million of capital securities
through AMCORE Capital Trust I (the "Trust"), a statutory business trust, of
which all common securities are owned by the Company. The capital securities
pay cumulative cash distributions semiannually at an annual rate of 9.35%. The
securities are redeemable from March 25, 2007 until March 25, 2017 at a
declining rate of 104.6750% to 100.0% of the principal amount. After March 25,
2017, they are redeemable at par until June 15, 2027 when redemption is
mandatory. Prior redemption is permitted under certain circumstances, such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities were invested by the Trust in junior subordinated debentures of the
Company. The Company guarantees the capital securities through the combined
operation of the debentures and other related documents. The Company's
obligations under the guarantee are unsecured and subordinate to senior and
subordinated indebtedness of the Company.
Several of the Company's subsidiary banks borrow from the Federal Home Loan
Bank (FHLB) in connection with the purchase of mortgage-backed securities for
the investment leveraging program. The current balance of these borrowings is
$173,250,000 with an average maturity of 2.3 years, and a weighted average
borrowing rate of 5.93%.
Scheduled reductions of long-term borrowings are as follows:
==============================================================================
(in thousands) Total
- ------------------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,900
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,326
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,602
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,380
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,442
- ------------------------------------------------------------------------------
SUB-TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $ 215,079
Less current portion of FHLB borrowings. . . . . . . . . . . . . (84,000)
- ------------------------------------------------------------------------------
TOTAL LONG-TERM BORROWINGS. . . . . . . . . . . . . . . . . $ 131,079
==============================================================================
Other long term borrowings principally include a non interest bearing note
from the January, 1993 acquisition of a local collection agency. The note
requires annual payments of $444,000 through 2002. The note was discounted at
an interest rate of 8.0%
NOTE 5 - NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has recently issued FAS No. 128
"Earning per Share". This statement requires the presentation of basic
earning per share (EPS) and diluted EPS for all income statement periods
presented in the financial statements. Basic EPS is computed by dividing
income available to common shareholders by the weighted average shares
outstanding. Diluted EPS is computed similar to basic EPS except the
denominator is increased to include the number of additional shares that
could be outstanding if potential diluted shares were issued.
Previous accounting standards did not require presentation of diluted EPS if
the dilution was less than three percent. The dilutive effect of AMCORE's
option program has been less than three percent and accordingly not presented
on the financial statements. The presentation as required by FAS 128 would be
as follows:
Quarter Ended March 31,
-----------------------
1997 1996
---- ----
Basic earnings per share $ 0.48 $ 0.40
Diluted earnings per share $ 0.47 $ 0.39
8
<PAGE>
AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the significant factors which
affected AMCORE Financial, Inc. and subsidiaries ("AMCORE") Consolidated
Balance Sheet as of March 31, 1997 as compared to December 31, 1996 and the
results of operations for the three months ended March 31, 1997 as compared to
the same period in 1996. This discussion is intended to be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this report.
This 10-Q contains and incorporates by reference certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the results of operations and businesses of AMCORE.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated, projected, forecast, estimated or budgeted in such
forward-looking statements include, among others, the following possibilities:
(i) heightened competition, including specifically the intensification of
price competition, the entry of new competitors and the formation of new
products by new and existing competitors; (ii) adverse state and federal
legislation and regulation; (iii) failure to obtain new customers or retain
existing customers; (iv) inability to carry out marketing and/or expansion
plans; (v) loss of key executives; (vi) changes in interest rates; (vii)
general economic and business conditions which are less favorable than
expected; (viii) unanticipated changes in industry trends; and (ix) changes in
Federal Reserve Board Monetary policies.
OVERVIEW OF OPERATIONS
AMCORE reported record first quarter net income of $6.9 million, an increase
of 21.8% when compared to the $5.6 million during the first quarter of 1996.
Earnings per share increased 20.0% to $.48 per share in the first three months
of 1997 when compared to $.40 per share during the comparable period in 1996.
AMCORE's return on average equity increased to 12.54% in 1997 when compared to
the 10.77% recorded in the first quarter of 1996. The return on average
assets also increased to .98% in 1997 versus .92% in 1996.
The primary factors contributing to the improved earnings performance included
an increase in net interest income resulting from earning asset growth, double
digit growth in non-interest revenue and restrained expense growth. These
factors were partially offset by an increase in the provision for loan losses
related to higher charge-offs at the consumer finance subsidiary and general
strengthening of the allowance for loan losses.
On April 18, 1997, AMCORE entered the interstate banking arena upon completing
its acquisition of First National Bancorp, Inc. ("FNB") located in Monroe,
Wisconsin. AMCORE issued 1,881,524 shares of common stock to the FNB
shareholders to effect the merger.
9
<PAGE>
FNB has approximately $219 million of assets and five locations. The
transaction will be accounted for as a pooling of interests.
AMCORE plans to further broaden its position in southern Wisconsin later this
year when it hopes to finalize the acquisition of Country Bank Shares
Corporation of Mount Horeb, Wisconsin ("Country"). Country has approximately
$300 million in assets and nine locations. On January 30, 1997, AMCORE and
Country announced a definitive agreement and plan of merger.
AMCORE views these acquisitions as a means of expanding within its geographic
area and anticipates that they will contribute favorably to future results.
AMCORE anticipates that in the future, it will have the opportunity to acquire
other successful financial institutions.
On March 25, 1997, AMCORE issued $40 million of capital securities through
AMCORE Capital Trust I, a statutory business trust, which is wholly owned by
AMCORE. The capital securities pay cumulative cash distributions semiannually
at an annual rate of 9.35%. The securities are redeemable from March 25, 2007
until March 25, 2017 at a declining rate of 104.6750% to 100.0% of the
principal amount. After March 25, 2017, they are redeemable at par until June
15, 2027 when redemption is mandatory. The proceeds of the issue will be used
to repay in full the parent company term debt, repay in full long term
borrowings of the above mentioned acquisitions, and for general corporate
purposes. The capital securities qualify as Tier I capital for regulatory
capital purposes.
AMCORE continues to be "well capitalized" as defined by regulatory guidelines.
At March 31, 1997, the company's total capital to risk weighted assets was
15.58%.
EARNINGS ANALYSIS
The analysis below discusses by major components the changes in net income
when comparing the three months ended March 31, 1997 and 1996.
NET INTEREST INCOME
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The interest income on certain loans and municipal securities is
not subject to federal income tax. For analytical purposes, the interest
income and rates on these types of assets are adjusted to a "fully taxable
equivalent" basis. The fully taxable equivalent adjustment was calculated
using the statutory federal income tax rate of 35%. Adjusted interest income
is as follows (in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Interest Income Book Basis $ 51,116 $ 44,637
Taxable Equivalent Adjustment 1,956 1,697
-------- --------
Interest Income Taxable
Equivalent Basis 53,072 46,334
Interest Expense 28,755 24,041
-------- --------
Net Interest Income Taxable
Equivalent Basis $ 24,317 $ 22,293
======== ========
</TABLE>
Net interest income on a fully taxable equivalent basis increased $2.0 million
or 9.1% during the first quarter of 1997 over the same period in 1996. The
improvement in net interest income results mainly from a 17.6% increase in
average earning assets which was partially offset by a narrowing of the
interest rate spread.
The growth in average earning assets can be attributed to strong loan growth
and increased levels of investment securities related to the investment
leveraging program. Average loans increased $162.8 million or 12.6% when
comparing the first quarters of 1997 and 1996. The investment leveraging
program, which is designed to better utilize capital, increased approximately
$276 million on average. This program contributed approximately $1.9 million
to net interest income during the first quarter of 1997, an increase of $1.0
million when compared to the same period in 1996. The program is funded
primarily through the use of repurchase agreements and Federal Home Loan Bank
borrowings. The proceeds of these borrowings are invested principally in
mortgage-backed and U.S. government agency securities.
The net interest spread is the difference between the average rates on
interest-earning assets and the average rates on interest-bearing liabilities.
The interest rate margin represents net interest income divided by average
earning assets. These ratios can also be used to analyze net interest income.
Since a significant portion of the Company s funding is derived from
interest-free sources, primarily demand deposits and total stockholders
equity, the effective rate paid for all funding sources is lower than the rate
paid on interest-bearing liabilities alone.
As the table below indicated, the interest rate spread decreased 32 basis
points to 2.97% in the first quarter of 1997 when compared to the 3.29% during
the same period in 1996. The net interest margin was 3.60% during the first
quarter of 1997, a decrease of 29 basis points from the comparable period in
1996. The interest rate spread on the investment securities included in the
investment leveraging program was 145 and 138 basis points for the quarter
ended March 31, 1997 and 1996, respectively. The interest rate spread on all
other earning assets was 3.38% and 3.54% during the comparable periods. As a
result, the effect of the leveraging program accounted for 16 basis of the
decline in the interest rate spread. The net
11
<PAGE>
interest margin was also negatively impacted by the investment leveraging
program and represented 22 basis points of the decline in the net interest
margin.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- -----
Assets
- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Taxable Securities $ 945,451 $16,072 6.81% $ 729,390 $12,114 6.65%
Tax-exempt securities (1) 266,961 5,394 8.08% 233,599 4,646 7.96%
----------------------------------------------------------------------------------
Total Securities (2) 1,212,412 21,466 7.09% 962,989 16,760 6.96%
Mortgage loans held for sale (3) 8,924 136 6.10% 10,463 185 7.07%
Loans (1) (4) 1,454,672 31,016 8.56% 1,291,853 28,621 8.82%
Other earning assets 6,985 96 5.50% 15,636 195 4.93%
Fees on mortgage loans held for sale (3) - 358 - - 573 -
---------- ------- ------ ---------- ------- -----
Total Interest-Earning Assets $2,682,993 $53,072 7.93% $2,280,941 $46,334 8.10%
Noninterest-Earning Assets:
Cash and Due from Banks 77,536 85,782
Other Assets 102,843 115,532
Allowance for Loan Losses (15,467) (13,108)
---------- ----------
Total Assets $2,847,905 $2,469,147
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $ 568,747 $ 3,446 2.46% 585,721 $ 3,535 2.43%
Time Deposits 1,038,978 15,041 5.87% 942,075 13,734 5.86%
---------- ------- ------ ---------- ------- -----
Total interest-bearing deposits 1,607,725 18,487 4.66% 1,527,796 17,269 4.53%
Short-Term Borrowings 605,623 8,439 5.59% 330,577 4,507 5.40%
Long-Term Debt 123,095 1,666 5.49% 134,737 2,156 6.44%
Other 6,455 163 10.24% 5,273 109 8.31%
---------- ------- ------ ---------- ------- -----
Total Interest-Bearing Liabilities $2,342,898 $28,755 4.96% 1,998,383 $24,041 4.81%
Noninterest-Bearing Liabilities:
Demand Deposits 254,584 236,604
Other Liabilities (3) 28,731 23,977
---------- ----------
Total Liabilities $2,626,213 $2,258,964
Stockholders' Equity (3) 221,692 210,183
---------- ----------
Total Liabilities and
Stockholders' Equity $2,847,905 $2,469,147
========== ==========
Net Interest Income $24,317 $22,293
======= =======
Net Interest Spread 2.97% 3.29%
===== =====
Interest Rate Margin 3.60% 3.89%
===== =====
</TABLE>
Notes:
(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 average balance has been adjusted to exclude the effect of
Statement of Financial Accounting Standards No. 115.
(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.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
12
<PAGE>
The level of net interest income is the result of the relationship between
total volume and mix of interest-earning assets and the rates earned, and the
total volume and mix of interest-bearing liabilities and the rates paid. The
rate and volume components associated with interest-earning assets and
interest-bearing liabilities are segregated in the table above to analyze the
changes in net interest income. Because of changes in the mix of the
components of interest-earning assets and interest-bearing liabilities, the
computations for each of the components do not equal the calculation for
interest-earning assets as a total and interest-bearing liabilities as a
total. The table below presents an analysis of the changes in net interest
income.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 / March 31, 1996
(in thousands)
---------------------------------------------------------
Total Net
Increase (Decrease) Due to Change In Increase
Average Volume Average Rate (Decrease)
---------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable Securities $3,733 $225 $3,958
Tax-Exempt Securities (1) 674 74 748
---------------------------------------------------------
Total Securities (2) 4,407 299 4,706
Mortgage Loans Held for Sale (25) (24) (49)
Loans (1) (4) 3,568 (1,173) 2,395
Other earning assets (117) 18 (99)
Fees on mortgage loans held for sale (3) (169) (46) (215)
---------------------------------------------------------
Total Interest-Earning Assets $7,992 ($1,254) $6,738
---------------------------------------------------------
Interest Expense:
Interest-bearing demand and savings deposits ($103) $14 ($89)
Time Deposits 1,403 (96) 1,307
---------------------------------------------------------
Total interest-bearing deposits 923 295 1,218
Short-Term Borrowings 3,815 118 3,933
Long-Term Debt (175) (315) (490)
Other 27 27 54
---------------------------------------------------------
Total Interest-Bearing Liabilities $4,590 $125 $4,715
---------------------------------------------------------
Net Interest Margin / Net Interest Income (FTE) $3,402 ($1,379) $2,023
=========================================================
</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 average balance has been adjusted to exclude the effect of
Statement of Financial Accounting Standards No. 115.
(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.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
13
<PAGE>
The change in net interest income due to change in average volume results from
a 12.6% increase in average loans and 25.9% growth in average investment
securities. The positive effects of these increases were partially offset by
the 56.6% increase in average borrowings used to fund the investment
leveraging program.
The decrease in net interest income due to changes in average rates resulted
as the yield on earning assets declined 17 basis points when comparing the
first quarter of 1997 and 1996. The decline is mainly a result of average
investment securities, which typically have a lower yield, increasing at a
faster rate than average loans. Average investment securities represented
45.2% of average earning assets in 1997 versus 42.2% in 1996. The rate paid
on average total interest-bearing liabilities increased 15 basis points in
1997 as average total borrowings, which had a higher cost than other average
total interest-bearing liabilities, increased to represent 31.1% of average
total interest-bearing liabilities in 1997 versus 23.3% in 1996.
PROVISION FOR LOAN AND LEASE LOSSES
Management determines an appropriate provision for loan losses based upon
historical loss experience, regular evaluation of collectibility by
management, lending officers and the corporate loan review staff, and the size
and nature of the loan portfolios. Other factors include economic and
industry outlooks, concentration characteristics of the loan portfolio and the
composition of problem loans.
The provision for loan and lease losses was $1.8 million during the first
quarter of 1997 an increase of $957,000 from the same period in 1996. The
increase in provisions relates to a $403,000 or 58.0% increase in net charge-
offs, mainly at the consumer finance subsidiary, and general strengthening of
the allowance for loan and lease losses. The allowance for loan losses as a
percent of total loans was 1.09% and 1.03% at March 31, 1997 and December 31,
1996, respectively.
Annualized net charge-offs to average loans were .30% in the first quarter of
1997 and .22% during the same period of 1996. Excluding the net charge-off at
the consumer finance subsidiary, whose loans are priced for a higher level of
risk than those of the banking subsidiaries, the ratio would have been .17%,
or a decrease of 5 basis points.
NON-INTEREST INCOME
Total non-interest income was $11.1 million in the first quarter of 1997, an
increase of $2.1 million or 23.7% from the same period in 1996. The first
quarter included a $1.9 million gain on the sale of most of the company's
credit card receivables and a $742,000 reduction in mortgage revenue resulting
from the write down of mortgage servicing rights as required by FAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
in Liabilities" which was effective January 1, 1997. Excluding these two
items, non-interest income increased 10.4% over the same period in 1996.
14
<PAGE>
Trust and asset management income increased 15.2% or $492,000 to total of $3.7
million for the first three months of 1997 versus the same period in 1996.
Mutual Fund assets increased to $725 million in the Vintage family of funds,
an increase of 27.4% from March 31, 1996. The AMCORE Vintage Equity Fund
recently received its third consecutive five star rating from Morningstar.
Mortgage revenues, excluding the previously mentioned charge for the adoption
of FAS No. 125, increased $254,000 or 34.7%. The increase relates mainly to
higher servicing revenue.
Insurance revenues increased $194,000 to $448,000 when compared to the first
quarter of 1996. The increase results from a combination of a 13.6% increase
in sales of credit life insurance and a change to recording insurance revenue
gross prior to deductions for related expenses.
OPERATING EXPENSES
Operating expenses totaled $22.2 million for the first quarter of 1997, an
increase of $1.2 million or 5.8% over the first quarter of 1996. The
efficiency ratio improved by 4.4% to 62.8% from 67.2% in the first quarter of
1996. This occurred as revenues growth out paced expense growth. The growth
in non-interest expense related primarily to increases in compensation and
professional fees expenses.
Compensation expenses increased $1.1 million or 12.2% when compared to the
first quarter of 1996 to total $10.1 million for the first quarter of 1997.
The increase relates primarily to annual merit increases and accrual for a
former executive's severance.
Professional fees totaled $882,000 for the first quarter of 1997, an increase
of $274,000 or 45.1%. The increase relates to legal and consulting fees.
INCOME TAXES
Income tax expense increased $479,000 to $2.5 million for the first quarter of
1997. The increase is due primarily to the increase in income before taxes as
the effective tax rate of 26.9% was virtually unchanged from the same period
in 1996.
BALANCE SHEET REVIEW
Total assets were $2.8 billion at March 31, 1997, an increase of $20.6
million or 2.9% annualized from December 31, 1996. Total loans and total
deposits decreased $11.4 million and $9.2 million, respectively, from December
31, 1996. The decrease in loans is attributable to the sale of most of the
company's credit card receivables and student loans totaling approximately
$17.4 million. The decrease in deposits results mainly from a reduction of
$11.3 million in brokered CD's related to the reduced funding need as a result
of loan sales.
15
<PAGE>
As previously mentioned, AMCORE issued $40 million of capital trust securities
on March 25, 1997. The proceeds from these securities were used to pay off in
full the term debt of the parent company. The remaining proceeds will be used
to pay off the debt of pending acquisitions and general corporate purposes.
ASSET QUALITY REVIEW
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses was $15.7 million at March 31,1997, an
increase of $748,000 from December 31, 1996. The allowance represented 1.09%
of total loans and 101.3% of non-performing loans at March 31, 1997. The
comparable ratios were 1.03% and 152.4% at December 31, 1996.
Net charge-offs were $1.1 million during the first quarter of 1997 versus
$695,000 for the same quarter of 1996. The increase relates primarily to
increased charge-offs at the consumer finance subsidiary related to satellite
receivables. AMCORE anticipates the higher level of charge-offs related to
satellite receivables to continue in the second quarter of 1997.
An analysis of the allowance for loan losses as of March 31, 1997 and 1996 is
presented below:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Balance at beginning of period $14,996 $13,061
Charge Offs:
Commercial loans & leases 90 259
Real estate loans 59 206
Installment loans 1,089 428
Credit card loans 189 124
------- -------
1,427 1,017
Recoveries:
Commercial loans & leases 137 119
Real estate loans 8 8
Installment loans 165 181
Credit card loans 19 14
------- -------
329 322
Net Charge-Offs 1,098 695
Provision charged to expense 1,846 889
------- -------
Balance at end of period $15,744 $13,255
======= =======
Ratio of net-charge-offs during the
period to average loans outstanding
during the period (1) 0.30% 0.22%
======= =======
</TABLE>
(1) On an annualized basis
16
<PAGE>
Approximately half of the $1.3 million increase in loans 90 days or more past
due relates to the satellite dish financing program at the consumer finance
subsidiary.
NON-PERFORMING ASSETS
Non-performing assets increased $5.8 million from December 31, 1996 to $16.2
million at March 31, 1997. A large agricultural credit of $5.4 million was
classified to non-accrual in the first quarter. AMCORE anticipates the
security behind this loan will minimize loss exposure so as not to have a
material adverse effect on future performance. Non-performing assets as of
March 31, 1997 and December 31, 1996 are presented below.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Non-accrual loans and leases $15,168 $ 9,556
Restructured loans and leases 381 283
------- -------
Total non-performing loans and leases $15,549 $ 9,839
======= =======
Other real estate owned 656 595
------- -------
Total non-performing assets $16,205 $10,434
======= =======
Loans 90 days or more past due and still accruing $ 4,521 $ 3,181
</TABLE>
CAPITAL MANAGEMENT
Total stockholder's equity was $218.1 million at March 31, 1997, a decrease of
$2.5 million from December 31, 1996. The decrease is the result in an $8.0
million downward adjustment to the market value of securities available for
sale. The book value per share of AMCORE common stock was $15.24 at March 31,
1997. AMCORE declared a $.16 per share dividend during the first quarter of
1997.
AMCORE is considered "well capitalized" based on regulatory guidelines. The
previously mentioned $40 million of trust capital securities issued during the
first quarter are considered Tier I capital for regulatory purposes and caused
an increase in all regulatory capital ratios. AMCORE's leverage ratio was
9.04% at March 31, 1997. AMCORE's ratio of Tier I capital at 14.99% and total
risk based capital of 15.92% significantly exceed the regulatory minimum as
indicated in the table below.
17
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tier I Capital $ 256,251 14.99% $ 193,817 12.51%
Tier I Capital Minimum 68,360 4.00% 61,993 4.00%
---------- ------ ---------- ------
Amount in Excess of Minimum $ 187,891 10.99% $ 131,824 8.51%
========== ====== ========== ======
Total Capital $ 271,995 15.92% $ 207,072 13.36%
Total Capital Minimum 136,720 8.00% 123,986 8.00%
---------- ------ ---------- ------
Amount in Excess of Minimum $ 135,275 7.92% $ 83,086 5.36%
========== ====== ========== ======
Risk adjusted assets $1,708,997 $1,549,820
========== ==========
</TABLE>
18
<PAGE>
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) AMCORE Financial, Inc. 1997 Annual Meeting of Stockholders was held
on May 6, 1997.
(b) Proxies were solicited by AMCORE Financial, Inc. management for the
purpose of electing four Class II directors whose term will expire in
2000. The following individuals were elected as Class II directors:
Name Votes For Votes Withheld
---- --------- --------------
Milton R. Brown 11,942,365 105,998
Carl J. Dargene 11,910,130 138,233
Richard C. Dell 11,325,482 722,881
William R. McManaman 11,941,329 107,034
(c) Proxies were solicited by AMCORE Financial, Inc. management to ratify
the appointment of McGladrey & Pullen, LLP as independent auditors.
The appointment of McGladrey & Pullen, LLP was ratified, via
11,839,251 votes for, 81,456 votes against and 127,656 votes
abstaining the ratification of the appointment.
ITEM 6. Exhibits and Reports on Form 10-Q Page
----
(a) 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 of 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* Amended and Restated Transitional Compensation Agreement
dated June 1, 1996 between AMCORE Financial, Inc. and
Robert J. Meuleman. (Incorporated by reference to Exhibit
10.3A of AMCORE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.)
10.3B* Amended and Restated Transitional Compensation Agreement
dated June 1, 1996 between AMCORE Financial, Inc. and the
following individuals: John R. Hecht, and James S.
Waddell. (Incorporated by reference to Exhibit 10.3B of
AMCORE's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996.)
19
<PAGE>
10.3C* Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and the following
individuals: Charles E. Gagnier and Gerald W. Lister.
(Incorporated by reference to Exhibit 10.3C of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996.)
10.3D* Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and the following
individuals: Kenneth E. Edge, William J. Hippensteel,
Alan W. Kennebeck and James F. Warsaw. (Incorporated by
reference to Exhibit 10.3D of AMCORE's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996.)
10.4 Commercial Paper Placement Agreement dated November 10,
1995 with M&I Marshall and Ilsley Bank (Incorporated by
reference to Exhibit 10.6 to AMCORE's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.5* Executive Insurance Agreement dated March 1, 1996 between
AFI and the following executives: Robert J. Meuleman, and
James S. Waddell (Incorporated by reference to Exhibit
10.6 of the Company's Form 10-Q for the quarter ended
March 31, 1996).
10.6 Indenture, dated as of March 25, 1997, between the
Company and The First National Bank of Chicago
(incorporated herein by reference to Exhibit 4.1 of the
Company's registration statement on Form S-4,
Registration No. 333-25375).
10.7 Form of New Guarantee between the Company and The First
National Bank of Chicago (incorporated herein by
reference to Exhibit 4.7 of the Company's registration
statement on Form S-4, Registration No. 333-25375).
22 1997 Notice of Annual Meeting of Stockholders and Proxy
Statement (Incorporated by reference to Exhibit 22 of the
Company's Annual Report on Form 10 K for the year ended
December 31, 1996).
27 Financial Data Schedule
99 Additional exhibits - Press releases dated April 22, 1997
and May 2, 1997.
(b) One report on Form 8-K was filed with the Commission on
April 30, 1997 announcing the consummation of the merger
with First National Bancorp, Inc. on April 18, 1997.
(Incorporated by reference to AMCORE's Form 8-K as filed
with the Commission on April 30, 1997.)
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCORE Financial, Inc.
(Registrant)
Date: May 15, 1997
/s/ John R. Hecht
----------------------------------
John R. Hecht
Senior Vice President and Chief
Financial Officer
(Duly authorized officer of the
registrant and principal financial
officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 98,990
<INT-BEARING-DEPOSITS> 140
<FED-FUNDS-SOLD> 7,008
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,169,234
<INVESTMENTS-CARRYING> 9,626
<INVESTMENTS-MARKET> 9,653
<LOANS> 1,444,818
<ALLOWANCE> 15,744
<TOTAL-ASSETS> 2,835,165
<DEPOSITS> 1,880,814
<SHORT-TERM> 567,425
<LIABILITIES-OTHER> 37,708
<LONG-TERM> 131,079
0
0
<COMMON> 4,976
<OTHER-SE> 213,163
<TOTAL-LIABILITIES-AND-EQUITY> 2,835,165
<INTEREST-LOAN> 30,948
<INTEREST-INVEST> 19,578
<INTEREST-OTHER> 590
<INTEREST-TOTAL> 51,116
<INTEREST-DEPOSIT> 18,487
<INTEREST-EXPENSE> 28,755
<INTEREST-INCOME-NET> 22,361
<LOAN-LOSSES> 1,846
<SECURITIES-GAINS> 860
<EXPENSE-OTHER> 22,213
<INCOME-PRETAX> 9,379
<INCOME-PRE-EXTRAORDINARY> 6,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,857
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 3.60
<LOANS-NON> 15,168
<LOANS-PAST> 4,521
<LOANS-TROUBLED> 381
<LOANS-PROBLEM> 25,261
<ALLOWANCE-OPEN> 14,996
<CHARGE-OFFS> 1,427
<RECOVERIES> 329
<ALLOWANCE-CLOSE> 15,744
<ALLOWANCE-DOMESTIC> 11,269
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,475
</TABLE>
Exhibit 99
[AMCORE FINANCIAL NEWS RELEASE LETTERHEAD]
Date: April 22, 1997
Contact: John Hecht
Chief Financial Officer
815-961-7003
Katherine Taylor
Investor Relations Manager
815-961-7164
AMCORE FINANCIAL, INC. REPORTS RECORD
FIRST QUARTER EARNINGS
ROCKFORD - A continued focus on maximizing customer relationships,
streamlining services and an effective use of capital has contributed to
record first quarter earnings for AMCORE Financial, Inc. for the period ending
March 31, 1997.
Earnings per share increased 20 percent from 40 cents to 48 cents and net
income rose 21.8 percent to $6.9 million up from $5.6 million for the same
period of 1996.
"Our goal is to rank among the top performing financial services
companies," said Robert J. Meuleman, president and chief executive officer.
"One of AMCORE's objectives is to reach a return on equity of 15 percent by
the fourth quarter of 1997."
Significant strides were made toward that goal. Return on equity for the
first quarter was 12.54 percent, up from 10.77 percent during the same period
in 1996. Return on assets also improved to .98 percent compared to .92 percent
in 1996.
Several factors have contributed to these record earnings. Net interest
income rose $1.8 million or 8.6 percent compared to the same quarter of 1996.
The increase is attributed primarily to a 12.6 percent, or $162.8 million,
increase in average loans and an increase of approximately $275 million on
average in the investment leveraging program.
<PAGE>
The increase in average loans was the result of improved sales and product
knowledge training and aligning compensation programs with sales performance.
In addition, greater efficiencies were reached through improvements in loan
processing. They included an increase in automation capacity, an expanded
network for indirect loans through dealers and targeting specific customer
groups with new database capabilities. All of these factors helped AMCORE
serve its customers more effectively and directly contributed to the improved
earnings.
The investment leveraging program better utilizes equity capital and
contributed $1.9 million to net interest income, an increase of $1 million
from the first quarter of 1996. While the investment leveraging program
contributed positively to net interest income, it accounted for 24 basis
points of the decline in the net interest margin to 3.63 percent when compared
to 3.87 percent during the same period in 1996. The core interest margin,
which excludes the effect of the leveraging program, was 4.17 percent, which
is relatively flat with the same quarter last year, but an increase from the
4.05 percent in the trailing quarter.
The financial services subsidiaries also continued to have good revenue
growth. Trust and asset management revenues increased $492,000 or 15.2
percent. The AMCORE Vintage Equity Fund recently received its third
consecutive five-star rating from Morningstar. Total Vintage Fund assets
increased 27.4 percent to $725 million compared to the same period in 1996.
Revenues from insurance increased $194,000 or 76.4 percent as a result of
new business and a change to recognize income on a gross rather than a net
basis.
Mortgage revenues rose $254,000 or 34.6 percent. This increase excludes a
charge for the adoption of FASB No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which was
effective Jan. 1, 1997. The adoption of FASB No. 125 required a $742,000 write
down of servicing rights.
During the quarter, AMCORE sold almost all of its credit card receivables
and recognized a net gain of approximately $1.9 million. "Throughout the
industry, credit card delinquencies and losses have been escalating," said
Meuleman. "We felt that selling our portfolio was a prudent way to manage our
exposure to the potential credit risks while at the same time optimizing the
value for shareholders."
Provisions for loan losses increased $957,000 or 107.6 percent to $1.8
million compared to the first quarter of 1996. Nearly half of the increase
relates to higher charge-offs at the Consumer Finance Co., while the remainder
reflects the growth in the portfolio and general reserve strengthening. This
resulted in an increase in the allowance for loan losses to total loans to
1.09 percent at March 31, 1997, compared to 1.03 percent at the end of the
first quarter of 1996.
Page 2
<PAGE>
The allowance for loan losses to non-performing loans remained above 100
percent at 101.25 percent, despite a $3.8 million or 30.8 percent increase in
non-performing assets. Total non-performing assets as of March 31, 1997 were
$16.2 million, or .57 percent of total assets. A large agricultural credit of
$5.4 million was added to non-performing assets in the first quarter. AMCORE
anticipates the security behind the loan will minimize exposure so as not to
have a material adverse effect on future performance. Excluding this credit,
non-performing assets would have declined $1.5 million or 12.5 percent.
The overall focus of management during the first quarter and for the
remainder of the year is to continue to grow revenues while minimizing the
growth of expenditures. While non-interest expense did increase $1.2 million,
or 5.8 percent, compared to the first quarter of 1996, the increase in net
revenues far offset any increase in expenses. Net revenues grew $3.9 million
or 13.2 percent, resulting in a reduction in the efficiency ratio to 62.8
percent compared to 67.2 percent for the first quarter of 1996.
AMCORE Financial, Inc., is a northern Illinois based financial services
company with assets of over $3.0 billion, including the recent acquisition on
April 18th of First National Bancorp of Monroe, Wisconsin. This marks the
beginning of interstate banking at AMCORE. AMCORE now operates six subsidiary
banks with 41 Illinois and five Wisconsin locations.
AMCORE plans to further broaden its position in south central Wisconsin
later this summer when it hopes to finalize the acquisition of Country Bank
Shares Corporation of Mount Horeb. Country Bank Shares has facilities in nine
communities and has assets of over $300 million.
The company also has five primary financial services subsidiaries: AMCORE
Investment Group, N.A., which includes trust services, a capital management
company, a brokerage company and the AMCORE Vintage family of mutual funds;
AMCORE Mortgage, Inc.; AMCORE Consumer Finance Company, Inc.; AMCORE Insurance
Group, Inc.; and Rockford Mercantile Agency, Inc., a bill collection service.
This news release, other than historical financial and other information,
may consist of forward looking statements that involve risks and uncertainties,
including the risks detailed from time-to-time in the company's SEC reports,
including its Annual Report on Form 10-K for the year ended Dec. 31, 1996.
Actual results may vary materially.
AMCORE common stock is listed on NASDAQ under the symbol "AMFI." AMCORE
Financial Inc. may be reached on the Internet at http://www.AMCORE.com.
Page 3
<PAGE>
AMCORE FINANCIAL, INC.
CONSOLIDATED KEY FINANCIAL DATA SUMMARY
<TABLE>
<CAPTION>
(in thousands, except share data) Quarter Ended Mar. 31, Trailing Twelve Months Ended Mar. 31, 1997
------------------------------------------------------------------------------
Percent Percent
Financial Highlights 1997 1996 Change 1997 1996 Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues, including security gains........ $33,438 $29,550 13.2% $128,872 $115,588 11.5%
Operating expenses............................ 22,213 20,988 5.8% 85,222 87,755 -2.9%
Net income.................................... 6,857 5,630 21.8% 27,610 19,284 43.2%
Net income per share.......................... 0.48 0.40 20.0% 1.94 1.36 42.6%
Cash dividends per share...................... 0.16 0.16 0.0% 0.64 0.61 4.9%
Book value per share.......................... 15.24 14.55 4.7%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Mar. 31,
--------------------------------------
Percent
Key Financial Ratios 1997 1996 Change
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average assets.................... 0.98% 0.92% 0.06%
Return on average equity.................... 12.54% 10.77% 1.77%
Net interest margin (FTE)................... 3.63% 3.87% -0.24%
Core interest margin (FTE).................. 4.17% 4.18% -0.01%
Other income/net revenues (A)............... 31.36% 28.45% 2.91%
Efficiency Ratio (FTE)...................... 62.76% 67.17% -4.41%
(A) Excluding net security gains.
Income Statement
- ---------------------------------------------------------------------------------------
Interest income............................... $51,116 $44,637 14.5%
Interest expense.............................. 28,755 24,041 19.6%
----------------------------------------
Net interest income......................... 22,361 20,596 8.6%
Provision for loan losses..................... 1,846 889 107.6%
Other Income:
Trust and asset management income........... 3,734 3,242 15.2%
Service charges on deposits................. 1,681 1,680 0.1%
Mortgage revenues........................... 245 733 -66.6%
Insurance revenues.......................... 448 254 76.4%
Collection fee income....................... 625 582 7.4%
Other....................................... 3,484 1,699 105.1%
----------------------------------------
Total other income........................ 10,217 8,190 24.7%
Net security gains............................ 860 764 12.6%
Operating expenses:
Personnel costs............................. 13,020 11,926 9.2%
Net occupancy expense....................... 1,359 1,385 -1.9%
Equipment expense........................... 1,827 1,879 -2.8%
Professional fees........................... 882 608 45.1%
Amortization of intangible assets........... 501 512 -2.1%
Insurance expense........................... 241 197 22.3%
Other....................................... 4,383 4,481 -2.2%
----------------------------------------
Total operating expenses.................. 22,213 20,988 5.8%
----------------------------------------
Income before income taxes.................... 9,379 7,673 22.2%
Income taxes.................................. 2,522 2,043 23.4%
----------------------------------------
Net income.................................... $ 6,857 $ 5,630 21.8%
========================================
Average shares outstanding (000).............. 14,297 14,192 0.7%
Ending shares outstanding (000)............... 14,317 14,200 0.8%
</TABLE>
Page 4
<PAGE>
AMCORE FINANCIAL, INC.
<TABLE>
<CAPTION>
QUARTER ENDED MAR. 31,
(in thousands) 1997 1996
- ------------------------------------------------------------ --------------------------------------------------
ENDING AVERAGE YIELD/ AVERAGE YIELD/
BALANCE BALANCE RATE BALANCE RATE
- ------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities.......................... $ 897,030 $ 937,609 6.80% $ 735,349 6.46%
Tax-exempt securities (FTE)................. 271,396 269,432 8.08% 236,210 8.00%
Other earning assets........................ 7,148 6,985 5.50% 18,878 4.09%
Mortgage loans held for sale................ 10,434 8,924 6.10% 10,463 6.99%
Loans, net of unearned income (FTE)......... 1,444,818 1,454,672 8.53% 1,291,853 8.76%
---------- --------------------------------------------------
Total Earning Assets (FTE)................ $2,630,826 $2,677,622 7.91% $2,292,753 7.99%
Intangible assets......................... 11,782 12,037 14,107
Other non-earning assets.................. 192,557 158,246 162,287
---------- --------------------------------------------------
TOTAL ASSETS.............................. $2,835,165 $2,847,905 $2,469,147
========== ==================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing deposits................... $1,608,926 $1,607,725 4.66% $1,527,796 4.53%
Non-interest bearing deposits............... 271,888 254,583 236,604
---------- --------------------------------------------------
Total Deposits............................ $1,880,814 $1,862,308 $1,764,400
---------- --------------------------------------------------
Short-term borrowings....................... 567,425 605,623 5.65% 330,577 5.47%
Long-term borrowings........................ 131,079 123,095 5.49% 134,737 6.42%
Other....................................... 6,533 6,455 10.24% 5,273 8.29%
---------- --------------------------------------------------
Total Interest Bearing Liabilities.......... 2,313,963 2,342,898 4.98% 1,998,383 4.83%
Other liabilities........................... 31,175 28,732 23,979
---------- --------------------------------------------------
Total Liabilities........................... $2,617,026 $2,626,213 $2,258,966
Stockholders' Equity........................ 218,139 221,692 210,181
---------- --------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........................ $2,835,165 $2,847,905 $2,469,147
========== ==================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
QUARTER ENDED MAR. 31,
------------------------------------
PERCENT
ASSET QUALITY (IN THOUSANDS) 1997 1996 CHANGE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ending allowance for loan losses.............. $15,744 $13,255 18.8%
Net charge-offs............................... 1,098 695 58.0%
Net charge-offs to average loans (B).......... 0.30% 0.22% 0.08%
Non-performing assets:
Nonaccrual.................................. $15,168 $ 9,744 55.7%
Restructured................................ 381 1,757 -78.3%
------------------------------------
Non-performing loans...................... 15,549 11,501 35.2%
Other real estate owned (OREO).............. 656 890 -26.3%
------------------------------------
Total non-performing assets............... $16,205 $12,391 30.8%
====================================
Loans 90 days past due and still accruing..... $4,521 $1,523 196.8%
(B) On an annualized basis.
KEY ASSET QUALITY RATIOS
- ----------------------------------------------
Allowance to ending loans................... 1.09% 1.03% 0.06%
Allowance to non-performing loans........... 101.25% 115.25% -14.00%
Non-performing loans to loans............... 1.08% 0.88% 0.20%
Non-performing assets to loans & OREO....... 1.12% 0.95% 0.17%
Non-performing assets to total assets....... 0.57% 0.46% 0.11%
CAPITAL ADEQUACY
- ---------------------------------------------------------------------------------------
Total risk-based capital.................... 15.58% 13.36% 2.22%
Tier 1 risk-based capital................... 14.68% 12.51% 2.17%
Leverage ratio.............................. 9.04% 7.90% 1.14%
</TABLE>
Page 5
<PAGE>
[AMCORE FINANCIAL NEWS RELEASE LETTERHEAD]
Date: May 2, 1997
Contact: John Hecht
Chief Financial Officer
815-961-7171
Katherine Taylor
Investor Relations Manager
815-961-7164
AMCORE AND COUNTRY BANK SHARES
MODIFY MERGER TERMS
ROCKFORD - AMCORE Financial, Inc. ("AMCORE") and Country Bank Shares
Corporation ("Country") of Mount Horeb, Wisconsin announced today that they
have revised the financial terms of their merger agreement.
In light of AMCORE's stock performance since the date of the original merger
agreement, the parties have elected to eliminate termination rights under the
original merger agreement associated with AMCORE's common stock prices and
have established a tiered exchange ratio related to AMCORE's stock price.
In the amendment, subject to certain provisions, AMCORE agrees to an exchange
ratio in the merger of 4.3267 shares for each Country share outstanding if the
AMCORE average stock price is greater than or equal to $19.50 but less than or
equal to $24.50. Country has 439,699 shares outstanding.
In the event the AMCORE average stock price is greater than $24.50 but less
than or equal to $28.50, each share of Country shall be exchanged in the
merger for and converted into a number of shares of AMCORE required to
maintain an aggregate value of $46.6 million for Country. If AMCORE's average
stock price is greater than $28.50, each Country share shall be exchanged into
3.7194 shares of AMCORE common stock.
-more-
<PAGE>
Page 2
If the AMCORE average stock price is greater than $15 but less than $19.50,
each share of Country shall be exchanged in the merger into a number of shares
of AMCORE required to maintain an aggregate value of $37.1 million. If the
AMCORE average stock price is less than $15, each share of Country shall be
exchanged into 5.6247 shares of AMCORE common stock.
The AMCORE average stock price will be determined by calculating the average
of the daily closing prices of AMCORE common stock during the period of twenty
trading days ending three trading days immediately preceding the Country
shareholder meeting date.
"The amended merger agreement removes a great deal of uncertainty regarding the
closing of the transaction", said Robert J. Meuleman, president and chief
executive officer of AMCORE. "We believe that these terms create a favorable
outcome for both parties, especially in light of AMCORE's recent stock
performance."
Country Bank Shares will be AMCORE's second acquisition in Wisconsin. On April
18, AMCORE acquired First National Bancorp of Monroe with assets of over $215
million. Country has assets of over $300 million. When the acquisition of
Country is completed this summer, AMCORE will have assets of over $3.3 billion
and 41 locations in northern Illinois and 13 locations in Wisconsin.
"Country Bank Shares is important in our development of the Wisconsin market,"
said Meuleman. "We are pleased the deal is moving forward. Country Bank Shares
is a well-run organization and we look forward to them joining AMCORE."
AMCORE Financial, Inc., is a northern Illinois based bank holding company with
assets of over $3 billion. Its holdings include six subsidiary banks operating
in 41 locations in Illinois and five in Wisconsin.
The company also has five primary financial services subsidiaries: AMCORE
Investment Group, N.A., which includes trust services, a capital management
company, a brokerage company and the AMCORE Vintage family of mutual funds;
AMCORE Mortgage, Inc.; AMCORE Consumer Finance Company, Inc.; AMCORE Insurance
Group, Inc.; and Rockford Mercantile Agency, Inc., a bill collection service.
This news release, other than historical financial and other information,
may consist of forward looking statements that involve risks and uncertainties,
including the risks detailed from time-to-time in the company's SEC reports,
including its Annual Report on Form 10-K for the year ended Dec. 31, 1996.
Actual results may vary materially.
AMCORE common stock is listed on NASDAQ under the symbol "AMFI." AMCORE
Financial Inc. may be reached on the Internet at http://www.AMCORE.com.
