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 September 30, 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
$.22 per share, at October 31, 1997 was 26,941,530 shares.
Index of Exhibits on Page 21 Page 1
<PAGE>
AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART I PAGE NUMBER
- ------ -----------
ITEM 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and 1996 . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 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 . . . . . . 21
ITEM 6 Exhibits and Reports on Form 10-Q . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
===================================================================================================================
<S> <C> <C> <C>
ASSETS Cash and cash equivalents............................................. $107,492 $105,347
Interest earning deposits in banks.................................... 1,709 833
Federal funds sold and other short-term investments................... 4,742 26,261
Mortgage loans held for sale.......................................... 19,355 11,730
Securities available for sale......................................... 1,563,150 1,213,957
Securities held to maturity (fair value of $ 17,083 in 1997;
$ 55,242 in 1996)................................................... 16,915 54,548
--------------------------
Total securities................................................. $1,580,065 $1,268,505
Loans and leases, net of unearned income.............................. 1,904,178 1,807,121
Allowance for loan and lease losses................................... (21,415) (19,295)
--------------------------
Net loans and leases............................................. $1,882,763 $1,787,826
Premises and equipment, net........................................... 54,469 56,567
Intangible assets, net................................................ 12,939 13,881
Other real estate owned............................................... 1,422 920
Other assets.......................................................... 60,711 60,125
--------------------------
TOTAL ASSETS..................................................... $3,725,667 $3,331,995
==========================
LIABILITIES LIABILITIES
AND Demand deposits....................................................... $857,704 $841,085
STOCKHOLDERS' Savings deposits...................................................... 175,750 192,608
EQUITY Other time deposits................................................... 1,438,954 1,317,797
--------------------------
Total deposits................................................... $2,472,408 $2,351,490
Short-term borrowings................................................. 791,953 549,081
Long-term borrowings.................................................. 131,829 131,612
Other liabilities..................................................... 48,854 42,392
--------------------------
TOTAL LIABILITIES................................................ $3,445,044 $3,074,575
--------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares;
issued none........................................................... $ - $ -
Common stock, $.22 par value: authorized 45,000,000 shares;
September 30, December 31,
1997 1996
Issued............ 27,681,153 27,627,740
Outstanding....... 26,907,805 26,706,883 6,152 6,152
Treasury.......... 773,348 920,857 (4,042) (4,908)
Additional paid-in capital............................................ 72,482 67,363
Retained earnings..................................................... 200,122 191,484
Deferred compensation non-employee directors.......................... (1,542) (715)
Net unrealized gain (loss) on securities available for sale, net
of taxes............................................................ 7,451 (1,956)
--------------------------
TOTAL STOCKHOLDERS' EQUITY....................................... $280,623 $257,420
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $3,725,667 $3,331,995
==========================
</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 FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
INTEREST Interest and fees on loans and leases................................ $42,297 $39,178 $121,899 $112,954
INCOME Interest on securities:
Taxable............................................................. 20,659 16,562 56,312 46,136
Tax-exempt.......................................................... 4,239 4,010 12,050 11,184
-------------------- --------------------
TOTAL INCOME FROM SECURITIES...................................... $24,898 $20,572 $68,362 $57,320
-------------------- --------------------
Interest on federal funds sold and other short-term investments...... 59 266 375 1,055
Interest and fees on mortgage loans held for sale.................... 836 593 2,030 2,100
Interest on deposits in banks........................................ 40 28 71 53
-------------------- --------------------
TOTAL INTEREST INCOME............................................. $68,130 $60,637 $192,737 $173,482
-------------------- --------------------
INTEREST Interest on deposits................................................. $26,091 $23,710 $74,044 $68,801
EXPENSE Interest on short-term borrowings.................................... 11,020 7,458 28,396 18,322
Interest on long-term borrowings..................................... 2,555 2,349 6,675 7,547
-------------------- --------------------
TOTAL INTEREST EXPENSE............................................ $39,666 $33,517 $109,115 $94,670
-------------------- --------------------
NET INTEREST INCOME............................................... $28,464 $27,120 $83,622 $78,812
Provision for loan and lease losses.................................. 2,673 2,296 6,524 4,355
-------------------- --------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES..... $25,791 $24,824 $77,098 $74,457
-------------------- --------------------
Trust and asset management income.................................... $3,854 $3,541 $11,575 $10,552
NON-INTEREST Service charges on deposits.......................................... 2,011 1,880 5,942 5,736
INCOME Mortgage revenues.................................................... 1,319 1,123 3,031 3,245
Insurance revenues................................................... 570 930 1,611 1,654
Collection fee income................................................ 487 501 1,659 1,647
Gain on sale of credit card receivables.............................. - - 1,931 -
Other................................................................ 2,259 3,696 6,016 7,526
-------------------- --------------------
NON-INTEREST INCOME, EXCLUDING NET REALIZED SECURITY GAINS........ $10,500 $11,671 $31,765 $30,360
Net realized security gains.......................................... 574 352 1,588 1,372
-------------------- --------------------
TOTAL NON-INTEREST INCOME......................................... $11,074 $12,023 $33,353 $31,732
Compensation expense................................................. $11,475 $10,713 $35,417 $32,249
OPERATING Employee benefits.................................................... 2,358 2,860 8,948 9,432
EXPENSES Net occupancy expense................................................ 1,634 1,649 5,252 5,000
Equipment expense.................................................... 1,822 2,240 9,002 6,447
Professional fees.................................................... 699 725 5,029 2,253
Advertising and business development................................. 491 649 2,124 2,048
Amortization of intangible assets.................................... 560 548 1,659 1,669
Other................................................................ 5,665 5,881 17,100 15,178
-------------------- --------------------
TOTAL OPERATING EXPENSES.......................................... $24,704 $25,265 $84,531 $74,276
-------------------- --------------------
Income Before Income Taxes........................................... $12,161 $11,582 $25,920 $31,913
Income taxes......................................................... 3,114 3,257 6,603 8,930
-------------------- --------------------
NET INCOME........................................................ $9,047 $8,325 $19,317 $22,983
==================== ====================
EARNINGS PER COMMON SHARE......................................... $0.34 $0.31 $0.72 $0.86
DIVIDENDS PER COMMON SHARE........................................ 0.12 0.11 0.33 0.32
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........................ 26,882 26,658 26,836 26,639
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(IN THOUSANDS) 1997 1996
==============================================================================================================================
<S> <C> <C> <C>
CASH FLOWS NET INCOME.............................................................................. $19,317 $22,983
FROM Adjustments to reconcile net income to net
OPERATING cash provided by operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment............................ 6,027 4,539
Amortization and accretion of securities, net...................................... 1,492 2,885
Provision for loan and lease losses................................................ 6,524 4,355
Amortization of intangible assets.................................................. 1,659 1,669
Gain on sale of securities available for sale...................................... (1,688) (1,465)
Loss on sale of securities available for sale...................................... 100 93
Purchase of trading securities..................................................... - (536)
Proceeds from sale of trading securities........................................... - 536
Gain on sale of credit card receivables............................................ (1,931) -
Gain on sale of merchant bankcard processing....................................... - (1,400)
Write-down of other real estate owned.............................................. 83 -
Deferred compensation expense...................................................... 241 (20)
Deferred income taxes.............................................................. (2,239) 2,351
Originations of mortgage loans held for sale....................................... (148,957) (153,617)
Proceeds from sales of mortgage loans held for sale................................ 141,332 159,960
Other, net......................................................................... 2,380 918
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... $24,340 $43,249
--------------------
CASH FLOWS
FROM Proceeds from maturities of securities available for sale............................... $144,897 $155,629
INVESTING Proceeds from maturities of securities held to maturity................................. 8,262 3,380
ACTIVITIES Proceeds from sales of securities available for sale.................................... 213,326 151,615
Purchase of securities held to maturity................................................. (14,197) (11,450)
Purchase of securities available for sale............................................... (646,835) (600,300)
Net decrease (increase) in federal funds sold and other short-term investments.......... 20,289 (47,745)
Net increase in interest earning deposits in banks...................................... (876) (663)
Proceeds from the sale of consumer finance loans and leases............................. 1,798 2,044
Proceeds from the sale of credit card receivables....................................... 15,457 -
Proceeds from the sale of merchant bankcard processing.................................. - 1,400
Loans made to customers and principal collection of loans, net.......................... (118,246) (171,927)
Proceeds from the sale of premises and equipment........................................ 97 1,947
Purchases of premises and equipment..................................................... (4,318) (4,123)
--------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES...................................... ($380,346) ($520,193)
--------------------
CASH FLOWS
FROM Net (decrease) increase in demand deposits and savings accounts......................... ($239) $56,055
FINANCING Net increase in time deposits........................................................... 121,157 127,298
ACTIVITIES Net increase in short-term borrowings................................................... 198,619 235,060
Proceeds from long-term borrowings...................................................... 59,571 75,500
Payment of long-term borrowings......................................................... (15,210) (5,139)
Dividends paid.......................................................................... (8,896) (7,106)
Issuance of common stock for employee incentive plans................................... 429 207
Issuance of treasury stock for employee incentive plans................................. 2,720 708
--------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES....................................... $358,151 $482,583
--------------------
Net change in cash and cash equivalents................................................. $2,145 $5,639
--------------------
Cash and cash equivalents:
Beginning of year..................................................................... 105,347 121,966
--------------------
End of period......................................................................... $107,492 $127,605
====================
SUPPLEMENTAL
DISCLOSURES OF Cash payments for:
CASH FLOW Interest paid to depositors........................................................... $73,699 $66,593
INFORMATION Interest paid on borrowings........................................................... 32,986 23,116
Income taxes paid..................................................................... 8,503 8,637
NON-CASH
ACTIVITIES Other real estate acquired in settlement of loans....................................... 1,420 665
Transfer of held to maturity securities to available for sale........................... 31,018 -
</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.
The consolidated financial statements and the financial information have been
restated to reflect the mergers with First National Bancorp, Inc. ("FNB"), on
April 18, 1997, and Country Bank Shares Corporation ("CBSC"), on July 16,
1997, which were accounted for using the pooling of interests method.
Operating results for the three and nine month periods ended September 30,
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). Share data for all prior year periods
presented have been restated to reflect the mergers with FNB and CBSC and the
three-for-two stock split on September 17, 1997.
6
<PAGE>
NOTE 3 - SECURITIES
A summary of securities at September 30, 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 September 30, 1997
Securities Available for Sale:
U.S. Treasury $114,461 $687 ($161) $114,987
U.S. Government agencies 277,999 880 (1,724) 277,155
Mortgage-backed securities 311,181 7,718 (303) 318,596
State and political subdivisions 784,601 6,778 (1,564) 789,815
Corporate obligations and other 62,461 243 (107) 62,597
--------------------------------------------
Total Securities Available for Sale $1,550,703 $16,306 ($3,859) $1,563,150
============================================
Securities Held to Maturity:
U.S. Treasury $11,922 $107 ($27) $12,002
State and political subdivisions 4,960 92 (4) 5,048
Corporate obligations and other 33 - - 33
--------------------------------------------
Total Securities Held to Maturity $16,915 $199 ($31) $17,083
--------------------------------------------
Total Securities $1,567,618 $16,505 ($3,890) $1,580,233
============================================
At December 31, 1996
Securities Available for Sale:
U.S. Treasury $132,377 $650 ($544) $132,483
U.S. Government agencies 165,557 216 (3,855) 161,918
Mortgage-backed securities 553,472 2,659 (5,203) 550,928
State and political subdivisions 263,341 4,545 (1,330) 266,556
Corporate obligations and other 102,504 223 (655) 102,072
--------------------------------------------
Total Securities Available for Sale $1,217,251 $8,293 ($11,587) $1,213,957
============================================
Securities Held to Maturity:
U.S. Treasury $1,647 $5 ($4) $1,648
U.S. Government agencies 5,684 61 - 5,745
State and political subdivisions 11,413 103 (115) 11,401
Mortgage-backed securities 31,587 703 (86) 32,204
Corporate obligations and other 4,217 27 - 4,244
--------------------------------------------
Total Securities Held to Maturity $54,548 $899 ($205) $55,242
--------------------------------------------
Total Securities $1,271,799 $9,192 ($11,792) $1,269,199
============================================
</TABLE>
Upon completion of the merger of First National Bancorp, Inc. ("FNB") of
Monroe, Wisconsin on April 18, 1997, approximately $31,018,000 of FNB's held
to maturity securities were transferred to available-for-sale as permitted by
FAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in order to make the portfolio consistent with AMCORE's investment
objectives.
7
<PAGE>
NOTE 4 - LONG-TERM BORROWINGS
On March 25, 1997, the Company issued $40 million of capital securities
through AMCORE Capital Trust I ("Trust"), a statutory business trust. All of
the 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 which
represents all of the assets of the Trust. The Company fully and
unconditionally 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
$152,035,000 with an average maturity of 2.4 years, and a weighted average
borrowing rate of 5.94%.
Scheduled reductions of long-term borrowings are as follows:
====================================================================
(in thousands) Total
- --------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . . $45,481
1998 . . . . . . . . . . . . . . . . . . . . 41,993
1999 . . . . . . . . . . . . . . . . . . . . 26,669
2000 . . . . . . . . . . . . . . . . . . . . 30,448
2001 . . . . . . . . . . . . . . . . . . . . 498
Thereafter . . . . . . . . . . . . . . . . . 48,840
- --------------------------------------------------------------------
Sub-Total . . . . . . . . . . . . . . . $193,929
Less current portion of FHLB borrowings . . . (62,100)
- --------------------------------------------------------------------
Total Long-Term Borrowings . . . . . . . $131,829
====================================================================
Other long-term borrowings 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 dilutive 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 earnings per share presentation as required
by FAS 128 would be as follows:
<TABLE>
<CAPTION>
Quarter Ended Sept 30, Year-to-Date Ended Sept 30,
---------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share $0.34 $0.31 $0.72 $0.86
Diluted earnings per share $0.33 $0.31 $0.71 $0.85
</TABLE>
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 September 30, 1997 as compared to December 31, 1996 and
the results of operations for the three and nine months ended September 30,
1997 as compared to the same periods in 1996. This discussion is intended to
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this report. All financial statements and
information have been restated to reflect the April 18, 1997 merger with First
National Bancorp, Inc. ("FNB") of Monroe, Wisconsin, the July 16, 1997 merger
with Country Bank Shares Corporation ("CBSC") and the September 17, 1997
three-for-two stock split.
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, forecasted or estimated 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 net income of $9.0 million for the three months ended
September 30, 1997, an increase of 8.7% from the $8.3 million in the
comparable quarter in 1996. Earnings per share for the third quarter of 1997
were $.34 versus $.31 in the same quarter of 1996, an increase of 9.7%. The
primary factors contributing to the third quarter improvement in earnings were
growth in average earning assets and lower non-interest expense. These
factors were partially offset by a decline in non-interest income which was
attributable to the gain on the sale of merchant card processing during the
third quarter of 1996.
Net income for the nine months ended September 30, 1997 was $19.3 million, a
decline of 16.0% from the $23.0 million reported during the comparable quarter
in 1996. This decline of $3.7 million is attributable to $6.4 million of
after tax charges related to the Wisconsin bank mergers and the outsourcing of
core bank data processing. Excluding these charges, net income for the first
nine months of 1997 would have been $25.8 million, an increase of 12.1 %.
Earnings per share for the nine months ending September 30 were $.72 and $.86
for 1997 and 1996, respectively. Excluding the previously mentioned charges,
earnings per share for the first nine months of 1997 would have been $.96, an
increase of 11.6% when compared to the same period in 1996.
9
<PAGE>
On April 18, 1997, AMCORE entered the interstate banking arena upon completing
its merger with FNB located in Monroe, Wisconsin. AMCORE issued 2,822,286
shares of common stock to the FNB shareholders to effect the merger. FNB has
approximately $236 million of assets and five locations. The transaction was
accounted for as a pooling of interests. Merger related charges of $1.4
million after-tax were recorded at closing related primarily to data
processing integration, legal, accounting and investment banking fees.
On July 16, 1997, AMCORE expanded its presence in Wisconsin with the
completion of the merger with CBSC, Mt. Horeb, Wisconsin. AMCORE issued
2,469,417 shares of common stock to Country shareholders. The transaction was
accounted for as a pooling of interests. Merger expenses of $2.5 million
after-tax were recorded related to the closing of a duplicate facility in
Belleville, Wisconsin, data processing integration expenses, legal, accounting
and investment banking fees.
During August of 1997, AMCORE signed an outsourcing agreement with ALLTEL,
Little Rock, Arkansas for its core bank data processing. The anticipated
benefits of outsourcing mainframe data processing include year 2000 compliant
systems, a standardized platform, current software release and technology, and
an ability to assimilate acquisitions more quickly and less expensively.
AMCORE recorded a $2.6 million after tax charge related to write-offs of
obsolete software and equipment, severance for staff reductions and conversion
costs. AMCORE anticipates modest cost reductions initially with future costs
dependent on volume. More importantly, the arrangement addresses the year
2000 and mainframe operating systems upgrade which had potential significant
expenditures related to them. AMCORE is reviewing other potential costs
related to year 2000 including P.C.'s, P.C. software and ATM's. Current
estimates indicate these costs will not have a material impact on future
performance.
On September 17, 1997, AMCORE completed a three-for-two stock split to
shareholders of record on September 5, 1997. This split increased the
shares outstanding from 17,938,536 to 26,907,805.
On September 30, 1997, AMCORE signed a definitive agreement to acquire
Investors Management Group, LTD ("IMG") of Des Moines, Iowa. IMG is Iowa's
largest independent asset management firm with more than $1.7 billion of
assets under management. IMG's expertise in fixed income securities will
complement AMCORE's award winning Vintage family of mutual funds to bring
total assets under management to over $3.5 billion. The transaction, which is
expected to close in early 1998, will be a stock exchange accounted for using
the purchase method of accounting.
On November 11, 1997, AMCORE signed a definitive agreement to merge with
Midwest Federal Financial Corp. of Baraboo, WI ("Midwest"). Midwest has total
assets of $212 million and nine offices. This merger is a stock for stock
exchange to be accounted for as pooling of interests. The merger, subject to
customary conditions to close, including regulatory approval to close, is
anticipated to occur in the second quarter of 1998. Upon completion of this
merger, AMCORE will have 22 offices and total assets of approximately $750
million in Wisconsin.
AMCORE continues to be "well capitalized" as defined by regulatory guidelines.
At September 30, 1997, the company's total capital to risk weighted assets was
14.59%.
10
<PAGE>
EARNINGS ANALYSIS
The analysis below discusses by major components the changes in net income
when comparing the three and nine month periods ended September 30, 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):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------------------------
1997 1996 1997 1996
==========================================
<S> <C> <C> <C> <C>
Interest Income Book Basis $68,130 $60,637 $192,737 $173,482
Taxable Equivalent Adjustment 2,392 2,188 6,807 6,265
--------------------------------------
Interest Income Taxable Equivalent Basis 70,522 62,825 199,544 179,747
Interest Expense 39,666 33,517 109,115 94,670
--------------------------------------
Net Interest Income Taxable Equivalent Basis $30,856 $29,308 $90,429 $85,077
======================================
</TABLE>
Net interest income on a fully taxable equivalent basis increased $1.3 million
or 4.6% during the third quarter of 1997 over the same period in 1996. The
improvement in net interest income results mainly from a 11.9% 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 loan growth and
increased levels of investment securities related to the investment leveraging
program. Average loans increased $146.9 million or 8.4% when comparing the
third quarters of 1997 and 1996. The investment leveraging program increased
approximately $259.6 million on average. This program, which earns a narrower
spread, utilizes excess capital to improve return on equity. The program
contributed approximately $2.8 million to net interest income during the third
quarter of 1997, an increase of $1.1 million when compared to the same period
in 1996. The program is funded primarily through the use of repurchase
agreements, callable brokered CD's and Federal Home Loan Bank borrowings. The
proceeds of these borrowings are invested principally in mortgage-backed and
U.S. government agency securities. Additionally, off-balance sheet swaps are
used to reduce the interest rate risk related to the investment leveraging
program.
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.
11
<PAGE>
As the table below indicates, the interest rate spread decreased 28 basis
points to 2.97% in the third quarter of 1997 when compared to the 3.25% during
the same period in 1996. The net interest margin was 3.58% during the third
quarter of 1997, a decrease of 24 basis points from the comparable period in
1996. The interest rate spread on the investment securities included in the
investment leveraging program was 151 and 141 basis points for the quarters
ended September 30, 1997 and 1996, respectively. The interest rate spread on
all other earning assets was 3.39% and 3.60% during the comparable periods.
As a result, the effect of the leveraging program accounted for 13 basis
points of the decline in the interest rate margin during these periods.
The net interest margin spread and interest rate margin were 3.03% and 3.66%
for the first nine months of 1997, respectively. These represent a decrease
of 22 and 18 basis points when compared to the same period in 1996.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-Earning Assets:
Taxable Securities $1,189,299 $20,658 6.94% $995,135 $16,562 6.65%
Tax-exempt securities (1) 323,649 6,522 8.06% 295,910 6,169 8.34%
-------------------------------------------------------------------------
Total Securities (2) 1,512,948 27,180 7.18% 1,291,045 22,731 7.04%
Mortgage loans held for sale (3) 13,538 238 7.03% 8,748 183 8.37%
Loans (1) (4) 1,897,633 42,407 8.82% 1,750,766 39,207 8.84%
Other earning assets 9,632 99 4.02% 16,739 294 6.87%
Fees on mortgage loans held for sale (3) - 598 - - 410 -
---------- ------- ----- ---------- ------- -----
Total Interest-Earning Assets $3,433,751 $70,522 8.15% $3,067,298 $62,825 8.12%
Noninterest-Earning Assets:
Cash and Due from Banks 88,550 97,344
Other Assets 130,827 112,527
Allowance for Loan Losses (20,411) (18,153)
---------- ----------
Total Assets $3,632,717 $3,259,016
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings
deposits $733,551 $5,283 2.86% 715,218 $4,605 2.56%
Time Deposits 1,402,317 20,808 5.89% 1,301,547 19,105 5.84%
---------- ------- ----- --------- ------ -----
Total interest-bearing deposits 2,135,868 26,091 4.85% 2,016,765 23,710 4.66%
Short-Term Borrowings 755,351 11,020 5.72% 523,696 7,458 5.59%
Long-Term Debt 139,420 2,555 7.27% 165,684 2,349 5.64%
---------- ------- ----- --------- ------ -----
Total Interest-Bearing Liabilities $3,030,639 $39,666 5.18% 2,706,145 $33,517 4.90%
Noninterest-Bearing Liabilities:
Demand Deposits 285,716 279,648
Other Liabilities (3) 43,541 36,398
---------- ---------
Total Liabilities $3,359,896 $3,022,191
Stockholders' Equity (3) 272,821 236,825
---------- ---------
Total Liabilities and
Stockholders' Equity $3,632,717 $3,259,016
========== =========
Net Interest Income $30,856 $29,308
======= =======
Net Interest Spread 2.97% 3.22%
===== =====
Interest Rate Margin 3.58% 3.80%
===== =====
</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.
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-Earning Assets:
Taxable Securities $1,099,477 $56,312 6.83% $947,275 $46,136 6.49%
Tax-exempt securities (1) 307,335 18,538 8.04% 276,717 17,206 8.29%
-------------------------------------------------------------------------
Total Securities (2) 1,406,812 74,850 7.10% 1,223,992 63,342 6.90%
Mortgage loans held for sale (3) 11,125 586 7.02% 10,209 621 8.11%
Loans (1) (4) 1,843,032 122,218 8.80% 1,682,582 113,198 8.90%
Other earning assets 11,217 446 5.24% 19,031 1,107 7.64%
Fees on mortgage loans held for sale (3) - 1,444 - - 1,479 -
---------- -------- ----- ---------- -------- -----
Total Interest-Earning Assets $3,272,186 $199,544 8.11% $2,935,814 $179,747 8.12%
Noninterest-Earning Assets:
Cash and Due from Banks 87,901 96,160
Other Assets 120,740 120,146
Allowance for Loan Losses (19,975) (17,614)
---------- ----------
Total Assets $3,460,852 $3,134,506
========== ==========
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $724,260 $14,790 2.73% 717,153 $13,660 2.54%
Time Deposits 1,350,422 59,254 5.87% 1,257,056 55,141 5.86%
Total interest-bearing deposits 2,074,682 74,044 4.77% 1,974,209 68,801 4.64%
Short-Term Borrowings 658,692 28,396 5.70% 445,258 18,322 5.42%
Long-Term Debt 131,704 6,675 6.78% 162,382 7,547 6.21%
---------- -------- ----- ---------- -------- -----
Total Interest-Bearing Liabilities $2,865,078 $109,115 5.08% 2,581,849 $94,670 4.87%
Noninterest-Bearing Liabilities:
Demand Deposits 291,190 277,177
Other Liabilities (3) 40,805 35,329
---------- ----------
Total Liabilities $3,197,073 $2,894,355
Stockholders' Equity (3) 263,779 240,151
---------- ----------
Total Liabilities and
Stockholders' Equity $3,460,852 $3,134,506
========== ==========
Net Interest Income $90,429 $85,077
======= =======
Net Interest Spread 3.03% 3.25%
===== =====
Interest Rate Margin 3.66% 3.84%
===== =====
</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.
14
<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>
For Three Months Ended
September 30, 1997 / September 30, 1996
(in thousands)
------------------------------------------------------------
Increase (Decrease) Due to Change in Total Net
Average Volume Average Rate Increase (Decrease)
------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable Securities $3,447 $649 $4,096
Tax-Exempt Securities (1) 564 (211) 353
---------------------------------------------
Total Securities (2) 4,011 438 4,449
Mortgage Loans Held for Sale 88 (33) 55
Loans (1) (4) 3,162 38 3,200
Other Earning Assets (99) (96) (195)
Fees on Mortgage Loans Held for Sale (3) 206 (18) 188
---------------------------------------------
Total Interest-Earning Assets $7,629 $68 $7,697
=============================================
Interest Expense:
Interest-Bearing Demand & Savings Deposits $121 $557 $678
Time Deposits 1,494 209 1,703
---------------------------------------------
Total Interest-Bearing Deposits 1,453 928 2,381
Short-Term Borrowings 3,375 187 3,562
Long-Term Debt (411) 617 206
---------------------------------------------
Total Interest-Bearing Liabilities $4,417 $1,732 $6,149
=============================================
Net Interest Margin / Net Interest Income (FTE) $3,212 ($1,664) $1,548
=============================================
</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 non-accrual loans are included in average loans
outstanding. Interest on loans includes yield- related loan fees.
The change in net interest income due to change in average volume when
comparing the third quarter of 1997 and 1996 results from the growth of
average earning assets of $366.5 million or 11.9%.
The decrease in net interest income attributable to rate between the third
quarter of 1997 and 1996 is due to the rate on interest bearing liabilities
increasing 28 basis points while the yield on earning assets did not change.
The increase in the rate paid on interest bearing liabilities is partially a
result of the increase in the rate paid on long-term debt related to the
issuance of $40 million of capital securities at a rate of 9.35% on March 25,
1997.
15
<PAGE>
<TABLE>
<CAPTION>
For Nine Months Ended
September 30, 1997 / September 30, 1996
(in thousands)
------------------------------------------------------------
Increase (Decrease) Due to Change in Total Net
Average Volume Average Rate Increase (Decrease)
------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable Securities $8,162 $2,014 $10,176
Tax-Exempt Securities (1) 1,859 (527) 1,332
-----------------------------------------------
Total Securities (2) 10,021 1,487 11,508
Mortgage Loans Held for Sale 53 (88) (35)
Loans (1) (4) 10,722 (1,702) 9,020
Other Earning Assets (372) (289) (661)
Fees on Mortgage Loans Held for Sale (3) 22 (57) (35)
-----------------------------------------------
Total Interest-Earning Assets $20,679 ($882) $19,797
===============================================
Interest Expense:
Interest-Bearing Demand & Savings Deposits $136 $994 $1,130
Time Deposits 4,097 16 4,113
-----------------------------------------------
Total Interest-Bearing Deposits 3,600 1,643 5,243
Short-Term Borrowings 9,159 915 10,074
Long-Term Debt (1,513) 641 (872)
-----------------------------------------------
Total Interest-Bearing Liabilities $11,246 $3,199 $14,445
===============================================
Net Interest Margin / Net Interest Income (FTE) $9,433 ($4,081) $5,352
===============================================
</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 non-accrual loans are included in average loans
outstanding. Interest on loans includes yield- related loan fees.
The change in net interest income due to change in average volume during the
first nine months of 1997 is due to average earning assets increasing 11.5%.
The growth in earning assets is due to a $182.8 million increase in average
investment securities and a $160.5 million increase in average loans. This
growth was funded primarily by a $213.4 million increase in short-term
borrowed funds and $100.5 million in time deposits.
The decrease in net interest income attributable to rate during the first nine
months of 1997 due to changes in average rate is a result of yield on earning
assets declining one basis point while the rate paid on interest bearing
liabilities increased 21 basis points. The decrease in the yield on earning
assets is due to the rate on average loans declining 10 basis points. The
rate paid on interest bearing liabilities increased as higher rate short-term
borrowed funds grew 47.9% and were the primary source used to fund earning
asset growth.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $2.7 million and $6.5 million for
the three and nine month periods ended September 30, 1997, respectively. This
represents an increase of $377,000 or 16.4% and $2.2 million or 49.8% over the
comparable 1996 periods. The year-to-date increase in provisions relates
mainly to $2.0 million of charge-offs of satellite receivables at the Consumer
Finance subsidiary. Net charge-offs of satellite receivables
16
<PAGE>
were $512,000 in the third quarter of 1997 a decline from the $1.0 million in
the second quarter. AMCORE has engaged a consultant to determine the
marketability of the satellite receivables into the secondary market.
Annualized net charge-offs as a percent of average loans were .30% for the
third quarter of 1997 and .32% for the nine month period compared to .22% and
.17% for the comparable 1996 periods. Excluding the charge-offs related to
the satellite receivables, the banking subsidiaries' annualized net
charge-offs as a percent of average loans would have been less than .20% for
both periods.
The reserve for loan losses as a percent of total loans was 1.12% and 1.07% at
September 30, 1997 and December 31, 1996, respectively.
NON-INTEREST INCOME
Total non-interest income in the third quarter was $11.1 million, a decrease
of $949,000 from the same period in 1996. This decline relates to the $1.4
million gain on the sale of merchant card processing included in other income
in the third quarter of 1996. On a year-to-date basis, the increase in
non-interest income is $1.6 million or 5.1%. The first quarter of 1997
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.
Trust and asset management income, the largest component of non-interest
income, increased 8.8% and 9.7% for the three and nine month periods ended
September 30, 1997 when compared to the same periods in 1996. This increase
is partially attributable to mutual fund assets in the Vintage Family of Funds
increasing to $853 million or 42.7% from September 30, 1996. The Vintage
Equity Fund has recently received its fourth consecutive five-star rating from
Morningstar.
Mortgage revenues increased $196,000 or 17.5% during the third quarter of 1997
as a result of increased origination market share and higher servicing
revenues. The mortgage servicing portfolio as of September 30, 1997 was $938
million. On a year-to-date basis, mortgage revenues, excluding the previously
mentioned write down of mortgage servicing rights, increased $528,000, or
16.3%.
Insurance revenues declined $360,000 in the third quarter of 1997 primarily as
a result of a change in reporting method during 1996.
OPERATING EXPENSES
Operating expenses were $24.7 million during the third quarter, a decline of
$561,000 or 2.2%. This decline was primarily due to reduced employee
benefits, mainly profit sharing expense, and equipment expenses as a result of
core bank data processing outsourcing. The efficiency ratio for the third
quarter of 1997 was 58.92%, which represents the first time AMCORE's
efficiency ratio has been below 60.00%.
17
<PAGE>
Operating expenses increased $10.3 million or 13.8% during the first nine
months of 1997 when compared to the similar period in 1996. The second
quarter of 1997 included $4.9 million of pre-tax merger charges and a $4.3
million pre-tax core bank data processing outsourcing charge, as discussed
previously. Without these charges, operating expenses would have increased
$1.3 million or 1.8%.
INCOME TAXES
Income tax expense for the third quarter of 1997 decreased $143,000 million or
4.4%, as a result of increased tax exempt income at both the state and federal
levels. The effective tax rate for the third quarter was 25.61% compared to
28.12% in the third quarter of 1996. For the nine months ended September 30,
1997 income taxes decreased $2.3 million or 26.1% primarily as a result of
lower income before tax due to the previously mentioned second quarter merger
and core bank data processing charges.
BALANCE SHEET REVIEW
Total assets were $3.7 billion at September 30, 1997, an increase of $393.6
million or 11.8%, from December 31, 1996. Investment securities and
short-term borrowings increased $311.6 million and $242.9 million,
respectively, due to an increase in the investment leveraging program
discussed previously.
Total loans increased $97.1 million or 7.1% annualized from December 31, 1996
despite the sale of approximately $17.4 million of credit card and student
loan receivables in the first quarter. Total deposits grew at an annualized
rate of 6.9% between December 31, 1996 and September 30, 1997. Approximately
72.5% of the increase were in brokered CD's, which were $207.4 million at
September 30, 1997.
As previously mentioned, AMCORE issued $40 million of capital trust securities
on March 25, 1997. The proceeds from these securities were used to repay in
full the term debt of the parent company totaling $17.7 million. The
remaining proceeds was used to pay off the debt of merged companies totaling
$7.8 million and general corporate purposes.
ASSET QUALITY REVIEW
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses was $21.4 million at September 30,
1997, an increase of $2.1 million from December 31, 1996. The allowance
represented 1.12% of total loans and 110.84% of non- performing loans at
September 30, 1997. The comparable ratios were 1.07% and 156.7% at December
31, 1996.
18
<PAGE>
Net charge-offs were $1.4 million during the third quarter of 1997 versus
$955,000 for the same quarter of 1996. The increase relates primarily to
$512,000 million of charge-offs at the Consumer Finance subsidiary related to
satellite receivables. AMCORE anticipates the level of charge-offs related to
satellite receivables will remain relatively stable in future quarters.
An analysis of the allowance for loan and lease losses as of September 30,
1997 and 1996 is presented below:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------------------------------
1997 1996 1997 1996
================================================
<S> <C> <C> <C> <C>
Balance at beginning of period $20,173 $17,995 $19,295 $17,107
Charge-Offs:
Commercial loans & leases 412 139 600 348
Real estate loans 132 6 426 236
Installment loans 1,103 918 3,837 2,224
Credit card loans 70 180 460 484
---------------------------------------------
1,717 1,243 5,323 3,292
Recoveries:
Commercial loans & leases 32 77 245 241
Real estate loans 19 15 33 264
Installment loans 219 176 584 601
Credit card loans 16 20 57 60
---------------------------------------------
286 288 919 1,166
Net Charge-Offs 1,431 955 4,404 2,126
Provision charged to expense 2,673 2,296 6,524 4,355
---------------------------------------------
Balance at end of period $21,415 $19,336 $21,415 $19,336
=============================================
Ratio of net charge-offs during
the period to average loans
outstanding during the period (1) 0.30% 0.22% 0.32% 0.17%
=============================================
</TABLE>
(1) On an annualized basis
NON-PERFORMING ASSETS
Non-performing assets increased $7.5 million from December 31, 1996 to $20.7
million at September 30, 1997. A large agri-business credit with a current
balance of $4.0 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 September 30, 1997 and December 31, 1996 are
presented below:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------------------
<S> <C> <C>
Non-accrual loans and leases $18,903 $12,034
Restructured loans and leases 418 283
-------------------------
Total non-performing loans and leases $19,321 $12,317
=========================
Other real estate owned 1,422 920
-------------------------
Total non-performing assets $20,743 $13,237
=========================
Loans 90 days or more past due and still accruing $4,457 $3,684
</TABLE>
19
<PAGE>
Loans 90 or more days past due increased $773,000 when compared to December
31, 1996. This includes satellite dish receivables 90 or more days past due
of $935,000 at September 30, 1997 compared to $859,000 at December 31, 1996.
Satellite dish receivables 90 or more days past due peaked at $1.6 million in
March of 1997.
CAPITAL MANAGEMENT
Total stockholder's equity was $280.6 million at September 30, 1997, an
increase of $23.2 million from December 31, 1996, including a $9.4 million
increase in the unrealized gain on securities available for sale. The book
value per share of AMCORE common stock was $10.434 at September 30, 1997.
AMCORE increased dividends paid during the third quarter to $.12 versus the
$.11 per share paid in the prior two quarters 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
8.28% at September 30, 1997. AMCORE's ratio of Tier I capital at 13.61% and
total risk based capital of 14.58% significantly exceed the regulatory minimum
as indicated in the table below:
September 30, 1997 September 30, 1996
------------------ ------------------
Amount Ratio Amount Ratio
==========================================
Tier 1 Capital $300,027 13.61% $239,003 11.82%
Tier 1 Capital Minimum 88,114 4.00% 80,881 4.00%
--------------------------------------------
Amount in Excess of Minimum $211,913 9.61% $158,122 7.82%
============================================
Total Capital $321,442 14.58% $258,205 12.76%
Total Capital Minimum 176,253 8.00% 161,884 8.00%
--------------------------------------------
Amount in Excess of Minimum $145,189 6.58% $96,321 4.76%
============================================
Risk Adjusted Assets $2,204,780 $2,022,802
========== ==========
20
<PAGE>
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
(a)-(c) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 (File No. 0-13393).
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.)
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: 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.)
10.3E Transitional Compensation Agreement dated May 21, 1997 between AMCORE
Financial, Inc. and Kenneth E. Edge.
21
<PAGE>
10.3F Transitional Compensation Agreement dated May 21, 1997 between AMCORE
Financial, Inc. and Charie A. Zanck.
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).
10.5A 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).
10.5B Executive Insurance Agreement dated May 21, 1991 between AFI and
Kenneth E. Edge.
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).
10.8 First Amendment to Loan Agreement with M & I Marshall and Ilsley
Bank dated November 9, 1996.
10.9 Second Amendment to Loan Agreement with M & I Marshall and Ilsley
Bank dated September 29, 1997.
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 release dated October 21, 1997.
- Press release dated November 12, 1997.
(b) One report on Form 8-K was filed with the Commission on October 7,
1997 announcing the signing of a definitive agreement for AMCORE to
acquire Investors Management Group on October 1, 1997 (Incorporated
by reference to AMCORE's Form 8-K as filed with the Commission on
October 7, 1997).
One report on Form 8-K was filed with the Commission on August 22,
1997 announcing the declaration of a three-for-two stock split and
cash dividend on August 18, 1997 (Incorporated by reference to
AMCORE's Form 8-K as filed with the Commission on August 22, 1997).
22
<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: November 14, 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)
23
EXHIBIT 10.5B
EXECUTIVE INSURANCE
AGREEMENT
- -----------------------------------------------------------------------------
This Agreement is made this 21st day of May, 1997, by and between Amcore
Financial, Inc., having its principal place of business in Rockford, Illinois
(the "Corporation"), and (the "Executive").
WITNESSETH
----------
WHEREAS, the Executive is a valued employee of the Corporation; and
WHEREAS, the Corporation wishes to assist the Executive with his or her
personal life insurance program both as an inducement to the Executive's
continued employment and in recognition of the Executive's ongoing valuable
contribution to the business success of the Corporation; and
WHEREAS, the Executive is the owner of an insurance policy on his or her life,
including all supplemental riders or endorsements to such insurance policy,
which policy the Executive and Corporation wish to make subject to a life
insurance plan pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set
forth below, the Corporation and Executive agree as follows:
ARTICLE I
OWNERSHIP OF THE POLICY
1.1 EXECUTIVE AS OWNER.
-------------------
The Executive shall be the owner of the policy (including all supplemental
riders or endorsements) (the "Policy") and may exercise all ownership rights
granted to the owner by the terms of the Policy, except as may otherwise be
provided in this Agreement. The Executive and the Corporation agree that the
Policy shall be subject to the terms and conditions of this Agreement.
<PAGE>
1.2 ASSIGNMENT.
-----------
The Executive agrees to execute an assignment (the "Assignment") to the
Corporation to secure the Corporation's rights under this Agreement, in the
form required by or acceptable to the issuer of the Policy (the "Issuer"), a
copy of which is attached as Exhibit I. The Assignment shall set forth the
rights of the Corporation in and with respect to the Policy pursuant to the
terms and conditions of this Agreement. The Executive and the Corporation
agree to be bound by the terms of the Assignment.
1.3 CORPORATION'S RIGHTS.
---------------------
The Corporation's rights with respect to the Policy shall be limited to the
following:
(a) The sole right to obtain one or more loans or advances against the cash
surrender value of the Policy; however, such loans shall be limited to the
amount set forth in Section 4.3 below (the "Corporate Interest");
(b) The sole right to pledge or assign the Corporate Interest as security
for loans or advances;
(c) The right to fully or partially surrender the Policy upon termination of
the Agreement;
(d) The sole right to realize up to the Corporate Interest in the cash
surrender value of the Policy on the full or partial surrender of the
Policy;
(e) The right to exercise all non-forfeiture or lapse option rights
permitted by the terms of the Policy;
(f) The right to realize the proceeds of the Policy as set forth in Section
3.2 below (the "Corporation's Death Benefit Portion") upon the Executive's
death; and
(g) The right to release the Assignment upon receipt of the Corporate
Interest.
1.4 EXECUTIVE'S RIGHTS.
-------------------
The Executive shall retain all other rights as owner of the Policy, including,
but not limited to, the following:
(a) The right to designate and to change the beneficiary or beneficiaries on
the portion of the proceeds of the Policy payable to the Executive's
beneficiary pursuant to subsection 3.1 below (the "Executive's Death
Benefit Portion") upon the Executive's death;
(b) The right to elect any optional form of settlement available with
respect to the Executive's Death Benefit Portion; and
<PAGE>
(c) The right to assign the Executive's rights in and with respect to the
Policy. including the right to assign ownership of the Policy to a third
party.
However, before the date the Corporation receives the Corporate Interest under
the terms of Article IV, the Executive shall not have the right to obtain a
loan or advance against the cash surrender value of the Policy, or to fully or
partially surrender the Policy.
ARTICLE II
----------
INSURANCE PREMIUMS
2.1 AMOUNT OF PREMIUM.
------------------
For purposes of this Agreement, the term "premium" shall mean the yearly
premium necessary to provide a life insurance benefit at least equal to the
Executive's Death Benefit Portion (as defined in Section 3.1). "Premium" shall
also include all costs associated with all supplemental riders and
endorsements to the Policy.
2.2 PAYMENT OF PREMIUM.
-------------------
The Corporation shall pay the premium on the Policy to the Issuer on or before
the due date of each premium payment, and in any event, not later than the
expiration of the grace period under the Policy for the premium payment. The
Corporation shall furnish the Executive with written notice of payment.
If the Corporation fails to make any premium payment within 20 days after its
due date, the Executive may make the premium payment. If the Executive makes
the premium payment, the Corporation shall reimburse the Executive for the
premium within ten days after the Executive makes the premium payment.
The Corporation reserves the right to require the Executive to pay a portion
of the premium or to reimburse the Corporation for part of the premium.
However, the amount of premium the Executive may be required to pay or
reimburse shall be limited to the amount that otherwise would be treated as
taxable income under Section 2.3.
2.3 TAX CONSEQUENCES TO THE EXECUTIVE.
----------------------------------
In the event that the Corporation's payment of any premium is deemed to be
taxable income to the Executive pursuant to any applicable tax law or
regulation, the Corporation shall furnish the Executive with written notice of
the amount of such taxable income. The written notice shall be provided on or
before January 31 following the year during which the premium is paid. At the
Corporation's election, the notice may be provided using IRS Form W-2.
<PAGE>
Under current tax law, the Executive will be deemed to have taxable income
equal to the amount of the annual cost of the pure insurance protection on the
life of the Executive under the Policy for the ensuing policy year. The
additional taxable income shall be equal to the lesser of the following:
(a) That rate per $1,000 of pure insurance protection promulgated by the
Internal Revenue Service in Rev. Rul. 55-747, 1955-2 C.B. 228, as the same
may be amended or replaced from time to time by published ruling (the "PS-58
rate") as applied to such amount of pure insurance protection provided to
the Executive pursuant to the terms of this Agreement; or
(b) That current published rate per $1,000 of pure insurance protection
charged by the Issuer for initial-issue individual one-year term insurance
policies available to all standard risks as applied to such amount of pure
insurance protection provided to the Executive pursuant to the terms of this
Agreement.
2.4 PAYMENT TO THE EXECUTIVE.
-------------------------
The Corporation shall increase the Executive's compensation by the amount of
any premium paid by the Executive pursuant to Section 2.2.
ARTICLE III
-----------
RIGHTS UPON DEATH OF EXECUTIVE
3.1 EXECUTIVE'S DEATH BENEFIT PORTION.
----------------------------------
Upon the death of the Executive, the Executive's designated beneficiary or
beneficiaries shall be entitled to receive the Executive's Death Benefit
Portion. The Executive's Death Benefit Portion shall be an amount equal to
$1,000,000 while remaining an active employee.
3.2 CORPORATION'S DEATH BENEFIT PORTION.
------------------------------------
Upon the death of the Executive, the Corporation shall be entitled to receive
an amount equal to the Corporation's Death Benefit Portion. The Corporation's
Death Benefit Portion shall be an amount equal to the remaining net death
benefit under the Policy after paying the Executive's Death Benefit Portion.
3.3 BENEFICIARY DESIGNATION.
------------------------
The Executive and the Corporation agree to conform the beneficiary designation
of the Policy to the provisions of this Agreement.
<PAGE>
ARTICLE IV
----------
TERMINATION OF AGREEMENT
4.1 TERMINATION DEFINED.
--------------------
The Corporation reserves the right to terminate this Agreement for any reason.
This Agreement shall automatically terminate upon the occurrence of any of the
following events:
(a) The bankruptcy, receivership or dissolution of the Corporation.
(b) The Executive's retirement from the Corporation; provided, however, if
the retirement occurs within ten years after the date the Policy was issued
or before an amount equal to the Corporate Interest can be withdrawn from
the policy without incurring tax under the Code Section 7702(f)(7) the
following applies:
(i) If the Executive waives all post-retirement life insurance benefits
from the Corporation, the Executive's retirement shall be the termination
event
(ii) If the Executive does not waive all post-retirement life insurance
benefits from the Corporation, the termination event shall be the latest
of the tenth anniversary of the date the Policy was issued or the Policy
anniversary following the final premium payment before an amount equal to
the Corporate Interest can be withdrawn from the Policy without incurring
tax under Code Section 7702(f)(7).
(c) The termination of employment of the Executive with the Corporation
(other than by reason of death or retirement).
(d) The mutual written agreement of the Executive and the Corporation.
Notwithstanding anything to the contrary in this Agreement, the Corporation
may terminate this Agreement with regard to the Executive for any reason.
The term "retirement" in this Section means a termination of employment with
the Corporation after satisfying the requirements for an early or normal
retirement. Also, if the Executive is receiving long-term disability benefits
under a plan sponsored by the Corporation, the Executive shall not be deemed
to have terminated employment with the Corporation.
<PAGE>
4.2 RIGHTS UPON TERMINATION.
------------------------
Upon termination of this Agreement, the Executive shall pay to the Corporation
the amount determined pursuant to Section 4.3 below. Upon receipt of such
amount from the Executive, the Corporation shall take all steps necessary to
release the Assignment so that the Executive (or his assignee as owner of the
Policy) shall own the Policy free of all encumbrances in favor of the
Corporation required by this Agreement. The Executive (or his assignee) may
then take any action with regard to the Policy that is available under the
terms of the Policy to the Policy's owner.
4.3 Corporate Interest. For purposes of this Agreement, the term
"Corporate Interest" means an amount payable from the cash surrender value of
the Policy equal to the cumulative amount of all premiums paid, without
interest. However, the Corporate Interest shall be decreased by the sum of
any indebtedness described in Section 1.3(a) and the surrender charges, if
any, imposed by the Issuer. In no event shall the Corporate Interest exceed
the amount of the Policy's cash surrender value. The Corporate Interest shall
be paid by the Executive as specified in Section 4.2 above or by the Issuer
upon surrender of the Policy.
ARTICLE V
---------
ADMINISTRATIVE PROVISIONS
5.1 NO OTHER LIFE INSURANCE PROVIDED BY CORPORATION.
------------------------------------------------
The Corporation shall have no obligation to provide the Executive with life
insurance benefits, either during employment by the Corporation or after
retirement, other than pursuant to this Agreement.
5.2 ISSUER'S RESPONSIBILITY.
------------------------
The Issuer shall not be considered a party to this Agreement. No provision of
this Agreement shall in any way change the obligations of the Issuer as
expressly provided in the Policy, except as the Agreement may become a part of
the Policy by the Issuer's acceptance of the Assignment.
5.3 AMENDMENT.
----------
This Agreement may be amended only by a written agreement signed by both the
Executive and a duly authorized representative of the Corporation.
<PAGE>
5.4 NOTICE.
-------
Any and all notices required to be given under the terms of this Agreement
shall be given in writing and signed by the appropriate party, and shall be
sent by certified mail, postage prepaid, to the appropriate address set forth
below:
(a) To the Executive at:
Kenneth E. Edge
1684 Oakforest Drive
Rockford, IL 61107
To the Corporation at:
Amcore Financial, Inc.
501 7th Street
P. O. Box 1537
Rockford, IL 61110-0037
Attention: Secretary
5.5 HEIRS, SUCCESSORS AND ASSIGNS.
------------------------------
This Agreement shall be binding upon and shall inure to the benefit of (i) the
Executive, his or her successors, heirs and the executors or administrators of
the Executive's estate, and (ii) the Corporation and its successors. The
Executive and the Corporation agree that either party may assign its interest
under this Agreement upon the prior written consent of the other party, and
any assignee shall be bound by the terms and conditions of this Agreement as
if an original party to the Agreement.
5.6 INTERPRETATION.
---------------
This Agreement shall be governed by and construed in accordance with the laws
of the State of Illinois.
5.7 TERMS.
------
This Agreement shall be effective as of the date first above written, and
shall continue until terminated as provided in Section 4.1 or until all
covenants under the Agreement contingent upon the death of the Executive are
fully carried out.
5.8 HEADINGS.
---------
Any headings or captions in this Agreement are for reference purposes only,
and shall not change or affect the meaning of any provision of this Agreement.
<PAGE>
5.9 COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one
and the same Agreement.
5.10 EMPLOYMENT RIGHTS.
------------------
The existence of this Agreement shall not grant Executive any legal right to
continue as an employee of the Corporation nor affect the right of the
Corporation to discharge the Executive.
5.11 FIDUCIARY.
----------
The Corporation shall be the named Fiduciary and administrator (the
"Fiduciary") of the split-dollar arrangement established pursuant to this
Agreement. The Fiduciary shall have full power to administer this Agreement,
and the Fiduciary's actions with respect hereto shall be binding and
conclusive upon all persons for all purposes; subject to Section 5.12. The
Fiduciary shall not be liable to any person for any action taken or omitted in
connection with its responsibilities, rights and duties under this Agreement
unless attributable to willful misconduct or lack of good faith.
5.12 CLAIMS PROCEDURE.
-----------------
The parties understand and agree that the Fiduciary has no authority or
control over the claims procedures of the insurance company which issues the
Policy. Any delay or denial of a claim by the Insurer shall not be controlled
by the following claims procedure.
Any controversy or claim arising out of or relating to this Agreement shall be
filed with the Fiduciary, which shall make all determinations concerning the
claim. Any decision by the Fiduciary denying the claim shall be in writing and
shall be delivered to all parties in interest in accordance with the notice
provisions of Section 5.4. The decision shall set forth the reasons for denial
in plain language. Pertinent provisions of the Agreement shall be cited and,
where appropriate, an explanation as to how the Executive can perfect the
claim will be provided. This notice of denial of benefits shall be provided
within 90 days of the Fiduciary's receipt of the Executive's claim for
benefits. If the Fiduciary fails to notify the Executive of its decision
regarding his claim within the 90 day period, the claim shall be considered
denied, and the Executive shall then be permitted to proceed with his appeal
as provided in this Section.
An Executive who has been completely or partially denied a benefit shall be
entitled to appeal this denial of his claim by filing a written statement of
his position with the Fiduciary no later than 60 days after receipt of the
written notification of the claim denial. The Fiduciary shall schedule an
opportunity for a full and fair review of the issue within 30 days after
receipt of the appeal.
<PAGE>
Following its review of any additional information submitted by the Executive,
either through the hearing process or otherwise, the Fiduciary shall render a
decision on its review of the denied claim in the following manner:
(a) The Fiduciary shall make its decision regarding the merits of the denied
claim within 60 days following its receipt of the request for review (or
within 120 days after receipt, in a case where there are special
circumstances requiring extension of time for reviewing the appealed claim).
The Fiduciary shall deliver the decision to the claimant in writing.
If an extension of time for reviewing the appealed claim is required because
of special circumstances, written notice of the extension shall be furnished
to the Executive prior to the commencement of the extension. If the decision
on review is not furnished within the prescribed time, the claim shall be
deemed denied on review.
(b) The decision on review shall set forth specific reasons for the
decision, and shall cite specific references to the pertinent Agreement
provisions on which the decision is based.
IN WITNESS OF WHICH, the Corporation and Executive have duly executed this
Agreement.
AMCORE FINANCIAL, INC.
By /s/ James S. Waddell
-----------------------
Its EVP & CAO
-----------------------
THE EXECUTIVE
/s/ Kenneth E. Edge
-----------------------
Kenneth E. Edge
(Name of Executive)
<PAGE>
COLLATERAL ASSIGNMENT OF SPLIT-DOLLAR POLICY
This Assignment is made this 21st day of May, 1997, by the undersigned (herein
called Owner), to Amcore Financial, Inc. an Illinois Corporation (herein
called Corporation), its successors and assigns.
1. The subject of this Assignment is a certain life insurance policy No.
10002500000063, issued by the Life Investors Insurance Company of
America (herein called the Insurer).
2. The Policy is subject to a Collateral Assignment Split-Dollar
Agreement (herein called Agreement) dated May 21, 1997, between the
Corporation and Kenneth E. Edge. The Agreement was created to assist
Kenneth E. Edge with his/her personal life insurance program as an
employee benefit for a valued key employee. Such Agreement is hereby
incorporated into and made a part of this Assignment.
3. The Owner hereby assigns, transfers, and sets over to the Corporation
the following specific limited rights in the Policy, and subject to
the following terms and provisions:
(a) This assignment is made, and the Policy is held as collateral
security for the premium advances to the Owner, now existing
or hereafter made by the Corporation under the terms of the
Agreement.
(b) The Corporation's rights in the Policy are to the extent of
its interest in the Policy as stated in Section 1.3 of the
attached Split Dollar Agreement.
4. The Corporation shall have a right to obtain from the Insurer one or
more loans or advances against its interest in the cash surrender
values of the Policy.
(a) The Corporation shall be responsible for the payment of
interest on any such loans by the Corporation against such
cash surrender values of the Policy during the term of the
Agreement.
(b) Such loans or withdrawals made by the Corporation against (or
from) the cash surrender values of the Policy shall be treated
as repayments of the Corporation's premium advances by the
Owner.
(c) Premium payments paid as a result of a Waiver of Premium Rider
shall be included as premium paid by the Corporation only in
the event the Corporation in fact paid the waiver of premium
charge.
<PAGE>
5. The Corporation shall have the right to be repaid to the extent of its
interest:
(a) in the event of the death of the insured on the Policy;
(b) in the event the Policy is lapsed, canceled or surrendered by
the Owner; or
(c) in the event of the termination of the Split Dollar Agreement.
6. The Corporation's rights with respect to the Policy shall be limited
to the following:
(a) The sole right to obtain one or more loans or advances against
the cash surrender value of the Policy; however, such loans
shall be limited to the Corporate Interest as defined in
Section 4.3 of the Agreement;
(b) The sole right to pledge or assign the Corporate Interest as
security for loans or advances;
(c) The right to fully or partially surrender the Policy upon
termination of the Agreement;
(d) The sole right to realize up to the Corporate Interest in the
cash surrender value of the Policy on the full or partial
surrender of the Policy;
(e) The right to exercise all non-forfeiture or lapse option
rights permitted by the terms of the Policy;
(f) The right to realize the proceeds of the Policy as set forth
in Section 3.2 of the Agreement (the "Corporation's Death
Benefit Portion") upon the Executive's death; and
(g) The right to release the Assignment upon receipt of the
Corporate Interest.
<PAGE>
7. The Owner shall retain all other rights as owner of the Policy,
including, but not limited to, the following:
(a) The right to designate and to change the beneficiary or
beneficiaries on the portion of the proceeds of the Policy
payable to the Executive's beneficiary pursuant to subsection
3.1 of the Agreement (the "Executive's Death Benefit Portion")
upon the Executive's death;
(b) The right to elect any optional form of settlement available
with respect to the Executive's Death Benefit Portion; and
(c) The right to assign the Owner's rights in and with respect to
the Policy, including the right to assign ownership of the
Policy to a third party.
However, before the date the Corporation receives the Corporate
Interest under the terms of Article IV of the Agreement, the Owner
shall not have the right to obtain a loan or advance against the cash
surrender value of the Policy, or to fully or partially surrender the
Policy.
8. The Insurer shall:
(a) have no duty or obligation to inquire into or investigate the
reason or validity of the Corporation's request to exercise
any of its rights hereunder, or whether the Owner has notice
of it. The Insurer may treat any such request by the
Corporation as an affirmation that the request conforms to
this Assignment and the Agreement, and is thereby authorized
to act upon such request;
(b) be fully protected in recognizing a request by the Owner to
exercise any right of ownership, whether or not the
Corporation has notice of such request including but not
limited to the right to surrender the Policy.
9. Upon request, the Corporation shall forward the Policy to the Insurer
for endorsement of any designation or change of the Policy
beneficiary, or any election of an optional plan for payment of the
proceeds. The Corporation shall forward the Policy for these purposes
without unreasonable delay.
10. The exercise of any right given herein to the Corporation, or retained
by the Owner shall be solely at the option of each party respectively,
and shall not require notice or consent of one party to the other.
<PAGE>
11. The Corporation shall release and reassign all of its specific rights
in the Policy transferred by this Assignment upon repayment of the
Corporate Interest (as defined in Section 4.3 of the Agreement)
without unreasonable delay.
12. The Insurer is not a party to this Assignment.
IN WITNESS WHEREOF, this Assignment is hereby executed this 15th day of
August, 1997.
/s/ James S. Waddell /s/ Kenneth E. Edge
- --------------------------- -------------------------
(Witness) James S. Waddell (Owner) Kenneth E. Edge
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT is made as of this 9th day of
November, 1996 by and between AMCORE FINANCIAL, INC. and M&I MARSHALL & ILSLEY
BANK.
NOW, THEREFORE, IN CONSIDERATION of the recitals and the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, it is hereby agreed that:
ARTICLE I - DEFINITIONS
1.1 Amendment. "Amendment" shall mean this First Amendment to Loan
Agreement.
1.2 Loan Agreement. "Loan Agreement" shall mean the Loan Agreement
between M & I and Borrower, dated as of November 10, 1995, together with the
Exhibits and Schedules attached thereto.
1.3 Other Terms. Unless otherwise defined herein, the other
capitalized terms used in this Amendment shall have the definitions in the
Loan Agreement.
ARTICLE II - AMENDMENTS
The Loan Agreement is deemed amended as of the date hereof as follows:
2.1 Article I - Definitions. The definition of "Line
Termination Date". contained in Article I of the Loan Agreement is hereby
amended by deleting "November 9, 1996" and inserting "April 30, 1997" in its
place.
2.2 Exhibit B. Exhibit B to the Loan Agreement is amended in its
entirety to provide as set forth in Exhibit B attached to this Amendment.
Borrower shall execute and deliver to M&I a Line of Credit Note in the
original principal amount of $25,000,000 dated November 10, 1995, as amended
and restated as of the date hereof. and otherwise in form and substance
satisfactory to M&I. The Line of Credit Note shall evidence the Line of
Credit Loans and shall constitute the Line of Credit Note issued pursuant to
the Loan Agreement and shall be in substitution for the Line of Credit Note
dated November 10, 1995, issued by Borrower and payable to the order of M&I.
2.3 Miscellaneous Amendments. The Loan Agreement, the Term Note, the
Line of Credit Note and all other documents, instruments and materials
executed and delivered heretofore or hereafter pursuant to the Loan Agreement
are deemed hereby to be amended so that any reference therein to the Loan
Agreement shall be a reference to such documents as amended by or pursuant to
this Amendment.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to N&I that:
3.1 Loan Agreement. All of the representations and warranties
made by Borrower in the Loan Agreement are true and correct on the date of
this Amendment. No Default or event which would constitute a Default but for
the requirement that notice be given or time elapse or both under the Loan
Agreement has occurred and is continuing as of the date of this Amendment.
3.2 Authorization: Enforceability. The making, execution, delivery
and performance of this Amendment and the Line of Credit Note as amended and
restated, and compliance with the terms of the Loan Agreement as amended and
the Line of Credit Note as amended and restated, have been duly authorized by
all necessary corporate action by Borrower. This Amendment and the Line of
Credit Note as amended and restated constitute the valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
4.3 Absence of Conflicting Obligations The making, execution,
and delivery of this Amendment and the Line of Credit Note as amended and
restated, and compliance with the terms of the Loan Agreement as amended and
the Line of Credit Note as amended and restated, do not violate any presently
existing provision of law or the certificate of incorporation or bylaws of
Borrower or any Subsidiary or any agreement to which Borrower or any
Subsidiary is a party or by which any of them are bound.
ARTICLE IV - MISCELLANEOUS
4.1 Continuance of Loan Agreement Term Note and Line of Credit
Note. Except as specifically amended by this Amendment, the Loan Agreement,
the Term Note, the Line of Credit Note and all other documents, instruments
and materials executed and delivered pursuant to the Loan Agreement shall
remain in full force and effect.
4.2 References. Whenever the Loan Agreement is referred to in the
Loan Agreement, the Term Note, the Line of Credit Note or any of the other
documents, instruments or materials executed and delivered heretofore or
hereafter pursuant to the Loan Agreement, it shall be deemed to be referred to
as amended by this Amendment.
4.3 Expenses and Attorney's Fees. Borrower shall pay all fees and
expenses incurred by M&I, including the reasonable fees of counsel, in
connection with the preparation of this Amendment and the consummation of
the transactions contemplated by this Amendment, and the protection or
enforcement of the rights of M&I under this Amendment.
-2-
<PAGE>
4.4 Survival. All agreements, representations and warranties made in
this Amendment or in any documents delivered pursuant to this Amendment shall
survive the execution of this Amendment and the delivery of any such document.
4.5 Governing Law This Amendment and the other documents issued
pursuant to this Amendment shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Wisconsin applicable
to contracts made and wholly performed within such state.
4.6 Counterparts This Amendment 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.
4.7 Severability. Any provision of this Amendment 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
Amendment or affecting the validity or enforceability of such provision in any
other jurisdiction.
4.8 Effectiveness. This Amendment shall be effective as of the date
first written above upon receipt by N&I of the following:
(a) this Amendment executed by Borrower and M&I;
(b) the Line of Credit Note as amended and restated executed by
Borrower;
(c) a certificate of the secretary of Borrower dated the date hereof
as to: (i) the incumbency and signature of the officers of
Borrower who have signed or will sign this Amendment and the Line
of Credit Note as amended and restated; and (ii) the adoption and
continuing effect of resolutions of the Board of Directors of
Borrower authorizing the execution, delivery and performance of
this Amendment and the Line of Credit Note as amended and
restated; and
(d) such additional supporting documents and materials as M&I may
reasonably request.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Loan Agreement as of the date first written above.
AMCORE FINANCIAL, INC.
By: /s/ JOHN HECHT
--------------------------
Name: John Hecht
--------------------------
Title: Senior V.P. & CFO
--------------------------
MARSHALL & ILSLEY BANK
By: /s/ JOHN A. LEONARD
--------------------------
John A. Leonard, Vice President
Attest:
--------------------------
Its:
--------------------------
-4-
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT is made as of September 29,
1997 and between AMCORE FINANCIAL, INC. and M&I MARSHALL & ILSLEY BANK.
NOW, THEREFORE, IN CONSIDERATION of the recitals and the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
1.1 Amendment. "Amendment" shall mean this Second Amendment to Loan
Agreement.
1.2 Loan Agreement. "Loan Agreement" shall mean the Loan Agreement
between M&I and Borrower, dated as of November 10, 1995, as amended by a First
Amendment to Loan Agreement dated as of November 9, 1996, together with the
Exhibits and Schedules attached thereto.
1.3 Other Terms. Unless otherwise defined herein, the other
capitalized terms used in this Amendment shall have the definitions in the
Loan Agreement.
ARTICLE II
AMENDMENTS
The Loan Agreement is deemed amended as of the date hereof as follows:
2.1 Article I - Definitions. (a) The definition of "Line
Termination Date" contained in Article I of the Loan Agreement is hereby
amended by deleting "April 30, 1997" and inserting "April 30, 1998" in
its place.
(b) Subparagraph (vii) of the definition of "Permitted Subsidiary
Indebtedness" contained in Article I of the Loan Agreement is hereby amended
in its entirety to read as follows:
(vii) any indebtedness for borrowed money (including long-term
Federal Home Loan Bank borrowings) or any guarantee or similar
obligation incurred by such Subsidiary in the ordinary course of
its banking or trust business,"
2.2 Section 2.3 - Interest. Section 2.3 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"2.3. Interest. The unpaid principal of the Line of Credit Loans
shall bear interest at an annual rate equal to the following:
<PAGE>
Outstanding Principal
Amount of Line of Line of Overnight Line
Credit Loans Credit Loans of Credit Loans
--------------------- ------------ ---------------
up to $12,500,000 0.50% plus the 0.50% plus the
Adjusted Inter- Overnight Rate
Bank Rate
$12,500,000 or greater 0.75% plus the 0.75% plus the
Adjusted Inter- Overnight Rate
Bank Rate
The "Overnight Rate" shall mean 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."
2.3 Section 5.11 - Indebtedness (a) Section 5.11(f) of the Loan
Agreement is hereby amended by deleting "$2,000,000" and inserting
"$5,000,000" in its place.
(b) Section 5.11(1) is hereby added to the Loan Agreement to read in
its entirety as follows:
"(i) Contingent Obligations of the Borrower not to exceed
$5,000,000."
2.4 Section 5.13 - Sale of Assets. Section 5.13 of the Loan
Agreement is hereby amended by adding the following to the end of such
Section:
"M&I's consent to the sale by the Borrower of any Subsidiary shall
not be unreasonably withheld."
2.5 Section 5.14 - Investments and Acquisitions. (a) Section
5.14(j) (i) is hereby amended by deleting "$300,000,000" and inserting
"$500,000,000" in its place.
(b) Section 5.14(k) is hereby added to the Loan Agreement to read in
its entirety as follows:
"(k) other Investments which are in compliance with the Borrower's
Investment Policy as required by applicable regulators; provided that
such Investment Policy has no substantive comments or criticism from any
applicable regulatory agency."
2.6 Section 5.21 - Consolidated Loan Loss Reserve to Non
Performing Loans Ratio. Section 5.21 of the Loan Agreement is hereby
amended in its entirety to read as follows:
"5.21. Consolidated Loan Loss Reserve to Nonperforming Loans
Ratio. The Borrower will maintain as at the last day of each fiscal
quarter a ratio of the Loan
-2-
<PAGE>
Loss Reserve to Non-Performing Loans of not less than .75 to 1.0."
2.7 Term Loan. Any and all references to the "Term Loan" and the
"Term Note" contained in the Loan Agreement are hereby deleted.
2.8 Exhibit B. Exhibit B to the Loan Agreement is amended in its
entirety to provide as set forth in Exhibit B attached to this Amendment.
Borrower shall execute and deliver to M&I a Line of Credit Note in the
original principal amount of $25,000,000 dated as of the date hereof and
otherwise in form and substance satisfactory to M&I. The Line of Credit Note
shall evidence the Line of Credit Loans and shall constitute the Line of
Credit Note issued pursuant to the Loan Agreement.
ARTICLE III
AGREEMENTS
M&I hereby agrees with Borrower that, due to the suspension by Borrower
and M&I of the Line of Credit for the period from May 1, 1997 through the date
hereof, Borrower shall not be required to pay to M&I a commitment fee pursuant
to Section 2.6 of the Loan Agreement during such period.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to M&I that:
4.1 Loan Agreement. All of the representations and warranties
made by Borrower in the Loan Agreement are true and correct on the date of
this Amendment. No Default or event which would constitute a Default but for
the requirement that notice be given or time elapse or both under the Loan
Agreement has occurred and is continuing as of the date of this Amendment.
4.2 Authorization; Enforceability. The making, execution, delivery
and performance of this Amendment and the Line of Credit Note, and compliance
with the terms of the Loan Agreement as amended and the Line of Credit Note,
have been duly authorized by all necessary corporate action by Borrower. This
Amendment and the Line of Credit Note constitute the valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
4.3 Absence of Conflicting Obligations. The making, execution,
and delivery of this Amendment and the Line of Credit Note, and compliance
with the terms of the Loan Agreement as amended and the Line of Credit Note,
do not violate any presently existing provision of law or the certificate of
incorporation or bylaws of Borrower or any Subsidiary or any agreement to
which Borrower or any Subsidiary is a party or by which any of them are bound.
-3 -
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 Continuance of Loan Agreement. Except as specifically amended
by this Amendment, the Loan Agreement shall remain in full force and effect.
5.2 References. Whenever the Loan Agreement is referred to in the
Loan Agreement, the Line of Credit Note or any of the other documents,
instruments or materials executed and delivered heretofore or hereafter
pursuant to the Loan Agreement, it shall be deemed to be referred to as
amended by this Amendment.
5.3 Expenses and Attorney's Fees. Borrower shall pay all fees and
expenses incurred by M&I, including the reasonable fees of counsel, in
connection with the preparation of this Amendment and the consummation of
the transactions contemplated by this Amendment, and the protection or
enforcement of the rights of M&I under this Amendment.
5.4 Survival. All agreements, representations and warranties made in
this Amendment or in any documents delivered pursuant to this Amendment shall
survive the execution of this Amendment and the delivery of any such document.
5.5 Governing Law. This Amendment and the other documents issued
pursuant to this Amendment shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Wisconsin applicable
to contracts made and wholly performed within such state.
5.6 Counterparts. This Amendment 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.
5.7 Severability. Any provision of this Amendment 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
Amendment or affecting the validity or enforceability of such provision in any
other jurisdiction.
5.8 Effectiveness. This Amendment shall be effective as of the date
first written above upon receipt by M&I of the following:
(a) this Amendment executed by Borrower and M&I;
(b) the Line of Credit Note executed by Borrower;
(c) a certificate of the secretary of Borrower dated the date
hereof as to: (i) the incumbency and signature of the officers of
Borrower who have signed or will sign this Amendment and the Line of
Credit Note; and (ii) the adoption and continuing effect of resolutions
of the Board of Directors
-4-
<PAGE>
of Borrower authorizing the execution, delivery and performance of
this Amendment and the Line of Credit Note; and
(d) such additional supporting documents and materials as M&I
may reasonably request.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Loan Agreement as of the date first written above.
AMCORE FINANCIAL, INC. M&I MARSHALL & ILSLEY BANK
By: /s/ JOHN R. HECHT By: /s/ JOHN A. LEONARD
----------------------------- --------------------------
Name: John R. Hecht John A. Leonard
----------------------------- Vice President
Title: Senior V.P. & CFO Attest:
----------------------------- --------------------------
Its:
--------------------------
-5-
<PAGE>
Exhibit B to Loan Agreement
---------------------------
LINE OF CREDIT NOTE
-------------------
$25,000,000 Milwaukee, Wisconsin
September 29, 1997
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
April 30, 1998.
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 amended, 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 Wisconsin applicable to contracts
made and wholly performed within such state.
<PAGE>
AMCORE FINANCIAL, INC.
By: /s/ JOHN R. HECHT
-----------------------------
Name: John R. Hecht
-----------------------------
Its: Senior V.P. & CFO
-----------------------------
-2-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-01-1997
<CASH> 107,492
<INT-BEARING-DEPOSITS> 1,709
<FED-FUNDS-SOLD> 4,742
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,563,150
<INVESTMENTS-CARRYING> 16,915
<INVESTMENTS-MARKET> 17,083
<LOANS> 1,904,178
<ALLOWANCE> 21,415
<TOTAL-ASSETS> 3,725,667
<DEPOSITS> 2,472,408
<SHORT-TERM> 791,953
<LIABILITIES-OTHER> 48,854
<LONG-TERM> 131,829
0
0
<COMMON> 6,152
<OTHER-SE> 274,471
<TOTAL-LIABILITIES-AND-EQUITY> 3,725,667
<INTEREST-LOAN> 42,297
<INTEREST-INVEST> 24,898
<INTEREST-OTHER> 935
<INTEREST-TOTAL> 68,130
<INTEREST-DEPOSIT> 26,091
<INTEREST-EXPENSE> 39,666
<INTEREST-INCOME-NET> 28,464
<LOAN-LOSSES> 2,673
<SECURITIES-GAINS> 574
<EXPENSE-OTHER> 24,704
<INCOME-PRETAX> 12,161
<INCOME-PRE-EXTRAORDINARY> 9,047
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,047
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 3.58
<LOANS-NON> 18,903
<LOANS-PAST> 4,457
<LOANS-TROUBLED> 418
<LOANS-PROBLEM> 28,600
<ALLOWANCE-OPEN> 20,173<F1>
<CHARGE-OFFS> 1,717
<RECOVERIES> 286
<ALLOWANCE-CLOSE> 21,415
<ALLOWANCE-DOMESTIC> 14,661
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,754
<FN>
<F1>The allowance for LOAN LOSS - BEGINNING OF PERIOD has been restated to reflect
the merger with Country Bank Shares Corporation on July 16, 1997.
Accounted for under the pooling of interests method.
</FN>
</TABLE>
EXHIBIT 99
NEWS RELEASE
Date: Oct. 21, 1997
Contact: John Hecht
Chief Financial Officer AMCORE
815-961-7003 FINANCIAL, INC.
Katherine Taylor
Investor Relations Manager
815-961-7164
AMCORE FINANCIAL, INC. REPORTS RECORD EARNINGS
ORGANIZATIONAL CHANGES IMPROVE OPERATING EFFICIENCIES
ROCKFORD - Strong earning asset growth and lower non-interest expenses
contributed to record earnings for AMCORE Financial, Inc. for the period
ending September 30, 1997.
Earnings per share increased 9.7 percent from 31 cents to 34 cents and
net income rose to $9 million up from $8.3 million for the same period of
1996.
All periods have been restated to reflect the three-for-two stock
split distributed September 17, 1997, and the merger of First National
Bancorp, Inc., Monroe, Wis., in April 1997 and Country Bank Shares
Corporation, Mount Horeb, Wis., in July 1997.
HIGHLIGHTS
- - Average earning assets increased 11.9 percent, including $147 million in
average loan growth. This was due to a vibrant economy and internal sales
management programs.
- - For the first time in AMCORE's history, the efficiency ratio fell below 60
percent to 58.9 percent.
- - A definitive agreement was signed September 30, 1997 to combine asset
management operations with Investors Management Group, LTD, Des Moines, Iowa's
largest independent asset management firm.
AMCORE Financial, Inc.
501 Seventh Street, Post Office Box 1537, Rockford, Illinois 61110-0037
Telephone 815 968-2241
<PAGE>
- - An information systems outsourcing deal was signed in August with ALLTEL,
Little Rock, Ark., which should reduce data processing costs and make AMCORE's
core banking systems year 2000 compliant.
- - A 16.4 percent increase in provision for loan losses was made for general
reserve strengthening and to cover losses from the consumer finance
subsidiary.
EARNINGS FROM OPERATIONS
"Cost savings from a more efficient organizational structure and the
initial benefits of data processing outsourcing have lowered non-interest
expenses," said Robert J. Meuleman, president and chief executive officer. "We
are always looking for ways to improve efficiency, and we are just beginning
to experience the benefits of restructuring put in place in April."
This spring AMCORE brought its banking and nonbanking subsidiaries
together under Kenneth E. Edge, executive vice president and chief operating
officer. The goal was to better leverage customer contact points to offer all
of AMCORE's products and services.
Significant strides were made toward that goal as evidenced by key
operational numbers. The efficiency ratio decreased to 58.92 percent in the
third quarter 1997, the first time AMCORE's ratio has fallen below 60 percent.
A decrease in total operating expenses of 2.2 percent to $24.7 million and a
4.4 percent decrease in taxes contributed to lower expenses when compared to
the same quarter a year ago.
The return on equity for the third quarter 1997 was 13.16 percent. "We
are not likely to reach the 15 percent ROE goal by the fourth quarter of this
year, however, this remains our short-term goal," said Meuleman.
AMCORE continues to make strides toward improving its earnings and
operations. The increase in earning assets is attributed to a 8.4 percent, or
$147 million, increase in average loans and a 56 percent increase or
approximately $260 million on average in the investment leveraging program.
This program, which earns a narrower spread, utilizes excess capital to
improve return on equity. As a result, net interest income increased 5.0
percent as the net interest margin decreased 24 basis points to 3.58 percent
when compared to third quarter 1996. The core interest margin, without the
investment leveraging program, is 4.13 percent.
The financial services subsidiaries also continued to have good
revenue growth. Mortgage revenues rose $196,000 or 17.5 percent. This is
primarily due to strong mortgage originations, which increased 52.4 percent
when compared to the same period a year ago. Trust and asset management
revenues increased $313,000 or 8.8 percent. The AMCORE Vintage Equity Fund
recently received its fourth consecutive five-star rating from Morningstar.
Total Vintage Fund assets increased 42.7 percent to $853.6 million compared to
the same period in 1996.
Page 2
<PAGE>
During the third quarter of 1996, AMCORE sold its merchant processing
business for a gain of $1.4 million. Excluding the one time gain, non-interest
income would have been slightly higher, when compared to the same time a year
ago
REPORT ON ASSET QUALITY
The provisions for loan losses increased $377,000 or 16.4 percent to
$2.7 million compared to the third quarter of 1996. This reflects the growth
in the portfolio and general reserve strengthening. A portion of the increase
also relates to continued charge- offs at the consumer finance subsidiary.
While charge-offs from the satellite dish receivables decreased by nearly half
from second quarter levels, they are expected to continue, although at a
slower pace.
The allowance for loan losses to total loans was 1.12 percent at
September 30, 1997, compared to 1.08 percent at the end of the third quarter
of 1996. The allowance for loan losses to non-performing loans remained above
100 percent at 110.84 percent, despite a $5.6 million increase in
non-performing assets. Total non-performing assets as of September 30, 1997
were $20.7 million, or .56 percent of total assets.
ACQUISITION AND OUTSOURCING HIGHLIGHTS
AMCORE signed a definitive agreement September 30, 1997, to combine
its asset management operations with Investors Management Group, LTD, Des
Moines, Iowa's largest independent asset management firm. When the deal is
completed later this year, the new organization known as IMG, will have over
$3.6 billion in assets under management and will rank in the top 15% of U.S.
asset managers. IMG's fixed income expertise and institutional focus will
complement AMCORE's strong equity management and retail distribution system.
"Asset management is a significant portion of our operations and is a core
business we expect to continue to grow," said Meuleman.
Also this quarter, AMCORE signed an outsourcing contract with ALLTEL,
Little Rock, Ark., to provide mainframe processing services. This is expected
to further reduce operating costs over the next five years. Benefits from the
arrangement include year 2000 compliant systems, a sales-oriented platform,
current software releases, state of the art technology, the ability to grow
dramatically and to redeploy capital and focus on our core businesses. "The
move to outsource our mainframe processing will dramatically improve our
operations and allow us to offer our customers better products and service,"
said Meuleman.
AMCORE Financial, Inc., headquartered in northern Illinois, is a
financial services company with assets of over $3.7 billion operating in 41
locations in Illinois and 13 in Wisconsin. The company has five financial
services companies: AMCORE Investment Group, N.A., including 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.
Page 3
<PAGE>
This news release, other than historical financial and other
information, may consist of forward-looking statements that involve risk 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
December 31, 1996. Actual results may vary materially.
AMCORE common stock is listed on NASDAQ under the symbol "AMFI."
Further information about AMCORE Financial Inc. can be found at our website at
http://www.AMCORE.com.
Page 4
<PAGE>
AMCORE FINANCIAL, INC.
CONSOLIDATED KEY FINANCIAL DATA SUMMARY
NOTE: All prior year amounts have been restated to reflect the mergers with
First National Bancorp, Inc. on April 18, 1997 and Country Bank Shares
Corporation on July 16, 1997, and the three-for-two stock split
effective September 17, 1997. These mergers were accounted for under
the pooling of interests method.
<TABLE>
<CAPTION>
(in thousands, except share data) NINE MONTHS TRAILING TWELVE MONTHS
QUARTER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ---------------------------- ---------------------------
PERCENT PERCENT PERCENT
FINANCIAL HIGHLIGHTS 1997 1996 CHANGE 1997 1996 CHANGE 1997 1996 CHANGE
- --------------------------------------------------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues, including security gains.... $39,538 $39,143 1.0% $116,975 $110,544 5.8% $155,047 $145,697 6.4%
Operating expenses........................ 24,704 25,265 (2.2)% 75,590 74,276 1.8% 109,156 98,068 11.3%
Net income from operations................ 9,047 8,325 8.7% 25,761 22,983 12.1% 34,654 30,469 13.7%
Net income................................ 9,047 8,325 8.7% 19,317 22,983 (16.0)% 28,210 30,469 (7.4)%
Net income per share from operations...... 0.34 0.31 9.7% 0.96 0.86 11.6% 1.29 1.15 12.5%
Net income per share...................... 0.34 0.31 9.7% 0.72 0.86 (16.3)% 1.05 1.15 (8.7)%
Cash dividends per share.................. 0.12 0.11 9.1% 0.33 0.32 4.2% 0.44 0.42 4.8%
Book value per share...................... 10.43 9.65 8.0%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- -------------------------------
PERCENT PERCENT
KEY FINANCIAL RATIOS (A) 1997 1996 CHANGE 1997 1996 CHANGE
- ------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Return on average assets............... 0.99% 1.02% (0.03)% 1.00% 0.98% 0.02%
Return on average equity............... 13.16% 13.98% (0.82)% 13.06% 12.78% 0.28%
Net interest margin (FTE).............. 3.58% 3.82% (0.24)% 3.66% 3.84% (0.18)%
Core interest margin (FTE).............. 4.13% 4.22% (0.09)% 4.17% 4.22% (0.05)%
Efficiency Ratio (FTE).................. 58.92% 61.13% (2.21)% 61.07% 63.59% (2.52)%
</TABLE>
(A) All 1997 ratios have been adjusted to exclude merger-related and
information systems charges recorded in the second quarter.
(B) Excluding net security gains.
<TABLE>
<CAPTION>
Income Statement
- ----------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income................................. $68,130 $60,637 12.4% $192,737 173,482 11.1%
Interest expense................................ 39,666 33,517 18.3% 109,115 94,670 15.3%
------------------------- -----------------------------
Net interest income.......................... 28,464 27,120 5.0% 83,622 78,812 6.1%
Provision for loan losses....................... 2,673 2,296 16.4% 6,274 4,355 44.1%
Non-interest income:
Trust and asset management income............ 3,854 3,541 8.8% 11,575 10,552 9.7%
Service charges on deposits.................. 2,011 1,880 7.0% 5,942 5,736 3.6%
Mortgage revenues............................ 1,319 1,123 17.5% 3,031 3,245 (6.6)%
Insurance revenues........................... 570 930 (38.7)% 1,611 1,654 (2.6)%
Collection fee income........................ 487 501 (2.8)% 1,659 1,647 0.7%
Other........................................ 2,259 3,696 (38.9)% 7,947 7,526 5.6%
------------------------- -----------------------------
Total non-interest income................. 10,500 11,671 (10.0)% 31,765 30,360 4.6%
Net security gains.............................. 574 352 63.1% 1,588 1,372 15.7%
Operating expenses:
Personnel costs.............................. 13,833 13,573 1.9% 43,164 41,681 3.6%
Net occupancy expense........................ 1,634 1,649 (0.9)% 4,946 5,000 (1.1)%
Equipment expense............................ 1,822 2,240 (18.7)% 5,963 6,447 (7.5)%
Professional fees............................ 699 725 (3.6)% 2,546 2,253 13.0%
Amortization of intangible assets............ 560 548 2.2% 1,659 1,669 (0.6)%
Insurance expense............................ 246 472 (47.9)% 760 933 (18.5)%
Other........................................ 5,910 6,058 (2.4)% 16,552 16,293 1.6%
------------------------- -----------------------------
Total operating expenses.................. 24,704 25,265 (2.2)% 75,590 74,276 1.8%
------------------------- -----------------------------
Income before income taxes...................... 12,161 11,582 5.0% 35,111 31,913 10.0%
Income taxes.................................... 3,114 3,257 (4.4)% 9,350 8,930 4.7%
------------------------- -----------------------------
Net income from operations...................... $9,047 $8,325 8.7% $25,761 $22,983 12.1%
Merger related charges, net of tax .......... 0 0 N/M 3,845 0 N/M
Information systems charge, net of tax....... 0 0 N/M 2,599 0 N/M
Net income...................................... $9,047 $8,325 8.7% $19,317 $22,983 (16.0)%
========================= =============================
Average shares outstanding (000)................ 26,882 26,658 0.8% 26,836 26,639 0.7%
Ending shares outstanding (000)................. 26,908 26,665 0.9% 26,908 26,665 0.9%
</TABLE>
<PAGE>
AMCORE Financial, Inc.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1997 1996 1997 1996
- ------------------------------------------------------ ------------------------------------- ------------------------------------
ENDING AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
- ------------------------------------------------------ ------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities...................... $1,261,469 $1,189,299 6.94% $995,135 6.73% $1,099,477 6.83% $947,275 6.49%
Tax-exempt securities (FTE)............. 318,596 323,649 8.06% 295,910 8.34% 307,335 8.04% 276,717 8.29%
Other earning assets.................... 6,451 9,632 4.02% 16,739 6.87% 11,217 5.24% 19,031 7.64%
Mortgage loans held for sale............ 19,355 13,538 7.03% 8,748 8.37% 11,125 7.02% 10,209 8.11%
Loans, net of unearned income (FTE)..... 1,904,178 1,897,633 8.82% 1,750,766 8.84% 1,843,032 8.80% 1,682,582 8.90%
---------- ------------------------------------- -------------------------------------
Total Earning Assets (FTE)........... $3,510,049 $3,433,751 8.15% $3,067,298 8.15% $3,272,186 8.11% $2,935,814 8.12%
Intangible assets.................... 12,939 13,124 14,682 13,271 15,081
Other non-earning assets............. 202,679 185,842 177,036 175,395 183,611
---------- ------------------------------------- -------------------------------------
Total Assets......................... $3,725,667 $3,632,717 $3,259,016 $3,460,852 $3,134,506
========== ===================================== =====================================
Liabilities and Stockholders' Equity:
Interest bearing deposits............... $2,169,645 $2,135,868 4.85% $2,016,765 4.66% $2,074,682 4.77% $1,974,209 4.64%
Non-interest bearing deposits........... 302,763 285,716 279,648 291,190 277,177
---------- ------------------------------------- -------------------------------------
Total Deposits....................... $2,472,408 $2,421,584 $2,296,413 $2,365,872 $2,251,386
---------- ------------------------------------- -------------------------------------
Short-term borrowings................... 791,953 755,351 5.72% 523,696 5.59% 658,692 5.70% 445,258 5.42%
Long-term borrowings.................... 131,829 139,420 7.27% 165,684 5.64% 131,704 6.78% 162,382 6.21%
Total Interest Bearing Liabilities... 3,093,427 3,030,639 5.18% 2,706,145 4.90% 2,865,078 5.08% 2,581,849 4.87%
---------- ------------------------------------- -------------------------------------
Other liabilities.................... 48,854 43,541 36,398 40,805 35,330
---------- ------------------------------------- -------------------------------------
Total Liabilities.................... $3,445,044 $3,359,896 $3,022,191 $3,197,073 $2,894,356
Stockholders' Equity................. 280,623 272,821 236,825 263,779 240,150
---------- ------------------------------------- -------------------------------------
Total Liabilities and
Stockholders' Equity................. $3,725,667 $3,632,717 $3,259,016 $3,460,852 $3,134,506
========== ===================================== =====================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------- -------------------------------
Quarter Ended September 30, Nine Months Ended September 30,
----------------------------- -------------------------------
Percent Percent
Asset Quality (in thousands) 1997 1996 Change 1997 1996 Change
- ------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ending allowance for loan losses................ $21,415 $19,336 10.8%
Net charge-offs................................. 1,428 955 49.5% 4,402 2,126 107.1%
Net charge-offs to average loans (B)............ 0.30% 0.22% 0.08% 0.32% 0.17% 0.15%
Non-performing assets:
Nonaccrual................................... $18,903 $13,977 35.2%
Restructured................................. 418 505 (17.2)%
------------------------
Non-performing loans...................... 19,321 14,482 33.4%
Other real estate owned (OREO)............... 1,422 666 113.5%
------------------------
Total non-performing assets............... $20,743 $15,148 36.9%
========================
Loans 90 days past due and still accruing....... $4,457 $2,833 57.3%
(B) On an annualized basis.
Key Asset Quality Ratios
- ------------------------------------------------------------------------------
Allowance to ending loans.................... 1.12% 1.08% 0.04%
Allowance to non-performing loans............ 110.84% 133.52% (22.68)%
Non-performing loans to loans................ 1.01% 0.81% 0.20%
Non-performing assets to loans & OREO........ 1.09% 0.85% 0.24%
Non-performing assets to total assets........ 0.56% 0.45% 0.11%
Capital Adequacy
- ------------------------------------------------------------------------------
Total risk-based capital..................... 14.59% 12.76% 1.83%
Tier 1 risk-based capital.................... 13.62% 11.82% 1.80%
Leverage ratio............................... 8.28% 7.32% 0.96%
</TABLE>
<PAGE>
NEWS RELEASE
Date: Nov. 12, 1997
Contact: John Hecht
Chief Financial Officer AMCORE
815-961-7003 FINANCIAL, INC.
Greg Sprawka
Controller
815-961-7178
AMCORE FINANCIAL ANNOUNCES PLANS TO ACQUIRE
MIDWEST FEDERAL FINANCIAL CORP.
ROCKFORD, IL. - AMCORE Financial, Inc., and Midwest Federal Financial
Corp., announced today that they have signed a definitive agreement for AMCORE
to acquire Midwest Federal, a thrift based in Baraboo, WI., with over $212
million in assets and nine offices.
This acquisition will bring AMCORE's total assets in Wisconsin to over
$750 million and will make AMCORE the sixth-largest publicly traded banking
organization in Wisconsin with 22 offices.
"Midwest Federal is a strategic acquisition for AMCORE and is a
natural extension of our market area. It positions us along the Interstate 90
corridor north of our Madison offices and south of our Westfield and Montello
offices," said Robert J. Meuleman, president and chief executive officer of
AMCORE. "We are impressed with the quality of their management team and their
history of outstanding financial performance."
The transaction is expected to be completed by the second quarter of
1998, pending regulatory approval, and will be treated as a pooling of
interest for accounting purposes. AMCORE will exchange 1.174 shares of its
stock for each Midwest Federal share outstanding. The exchange ratio is
subject to change if AMCORE's share price exceeds $27 per share or is less
than $20.43 per share. Midwest Federal has 1,627,674 shares outstanding.
Midwest Federal is a savings and loan holding company which owns 100%
of Baraboo Federal Bank, FSB, a federally-chartered savings bank. The company
more closely resembles a commercial bank than a traditional thrift in its
position in the market.
<PAGE>
"We're pleased to be joining the AMCORE family and are impressed with
the company's community banking philosophy and its commitment to the
customers, shareholders, employees and communities it serves," said Gary E.
Wegner, president and chief executive officer of Midwest Federal.
Midwest Federal has nearly $52 million in commercial loans and
commercial real estate loans. In addition, 12 of the bank's 14 officers have a
commercial banking background. The bank also has a trust department with $18
million in assets under management.
"This is a great match for us and an excellent fill-in for the
marketplace. We look forward to offering AMCORE's community banking
philosophy and diverse product line to all of the communities Midwest Federal
serves," said Meuleman. "This is an attractive area where the population is
expected to grow at least 12 percent annually from 1990 to the year 2000."
Midwest Federal's market is in Sauk, Columbia and Green Lake counties,
with a combined population of over 100,000. The company's nine offices are in
Baraboo, Portage, Sauk City, Lodi, Kingston and Dalton.
With the addition of Midwest Federal, AMCORE's assets will approach $4
billion. Midwest Federal will be AMCORE's third Wisconsin acquisition. First
National Bancorp, Inc., Monroe, WI. was acquired in April and Country Bank
Shares Corporation, Mt. Horeb, WI. was acquired in July.
AMCORE Financial, Inc., headquartered in northern Illinois, is a
financial services company with assets of over $3.7 billion, operating in 41
locations in Illinois and 13 in Wisconsin. The company has five financial
services companies: AMCORE Investment Group, N.A., including 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 contain forward-looking statements that involve certain risk
and uncertainties, including those detailed from time to time in the company's
SEC reports. As a result of said risks and uncertainties, actual results may
vary materially from those discussed herein.
AMCORE common stock is listed on NASDAQ under the symbol "AMFI."
Further information about AMCORE Financial Inc. can be found at our website at
http://www.AMCORE.com.
