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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0--13393
AMCORE FINANCIAL, INC.
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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
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.33 par value
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes __ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 17, 1997, 14,316,757 shares of common stock were outstanding and the
aggregate market value of the shares based upon the average of the bid and asked
price held by non-affiliates was approximately $386,552,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1997 Notice of Annual Meeting and Proxy Statement are
incorporated by reference into Part III of the Form 10-K.
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AMCORE FINANCIAL, INC.
FORM 10-K TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 8
Item 3 Legal Proceedings........................................... 8
Item 4 Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 9
Item 6 Selected Financial Data..................................... 9
Item 7 Management's Discussion and Analysis of the Results of
Operations and Financial Condition.......................... 10
Item 8 Financial Statements and Supplementary Data................. 26
Item 9 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 58
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 58
Item 11 Executive Compensation...................................... 58
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 58
Item 13 Certain Relationships and Related Transactions.............. 58
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 59
SIGNATURES............................................................ 61
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PART I
ITEM 1. BUSINESS
GENERAL
AMCORE Financial, Inc. (AMCORE) is a registered multi-bank holding company
incorporated under the laws of the State of Nevada in 1982. The corporate
headquarters are located at 501 Seventh Street in Rockford, Illinois. AMCORE
owns directly or indirectly all of the outstanding common stock of each of its
six subsidiary banks, one subsidiary bank holding company and eight financial
service subsidiaries. AMCORE provides the subsidiaries with advice and counsel
on policies and operating matters among other things.
BANK SUBSIDIARIES
AMCORE directly owns one second tier bank holding company. NBA Holding
Company is a one-bank holding company and owns AMCORE Bank Aledo, a state
chartered bank. AMCORE also directly owns AMCORE Bank N.A., Rockford (ROCKFORD),
AMCORE Bank N.A., Rock River Valley, AMCORE Bank N.A., North Central (NORTH
CENTRAL), AMCORE Bank N.A., Northwest, and AMCORE Investment Group, N.A. (AIG),
all nationally chartered banks. In August 1996, AMCORE merged First State
Bancorp of Princeton, Illinois, Inc. and its subsidiary banks AMCORE Bank
Princeton and AMCORE Bank Gridley; and NBM Bancorp, Inc. and its subsidiary
banks AMCORE Bank N.A., Mendota and AMCORE Bank N.A., Peru into NORTH CENTRAL.
The affiliate banks conduct business at 41 locations throughout northern
Illinois, excluding Cook county and the far northwestern counties. The primary
service region includes the Illinois cities of Rockford, Elgin, Woodstock,
Carpentersville, Crystal Lake, Sterling, Dixon, Princeton, Aledo, Rochelle,
Ashton, South Beloit, Gridley, Mt. Morris, Mendota, Peru and the surrounding
communities.
Through its bank affiliates, AMCORE provides various personal banking,
commercial banking and related financial services. AMCORE also conducts banking
business through nine supermarket branches, which gives the customer convenient
access to bank services seven days a week.
Personal Banking--Personal banking services to individuals include demand,
savings and time deposit accounts. Loan services including installment loans,
mortgage loans, overdraft protection, personal credit lines and credit card
programs. AMCORE Vintage Funds, a proprietary family of mutual funds, are also
marketed through each affiliate location. The Pinnacle private banking division
also markets Vintage Funds and meets other special needs of high net worth
individuals. Automated teller machines located throughout AMCORE's market area
make banking transactions available to customers when the bank facilities and
hours are not convenient.
Commercial Banking--A wide range of financial services are provided to
commercial and governmental organizations. These services include, among others,
lending, deposits, letters of credit and cash management services.
Other Financial Services--The bank affiliates provide various services to
consumers, commercial customers and correspondent banks. Services available
include safe deposit box rental, securities safekeeping, foreign currency
exchange, lock box and other services.
AMCORE also offers three electronic banking services to commercial and
retail customers. AMCORE Data Bank facilitates access to commercial customers'
accounts via personal computers. It also permits the transfer of funds between
accounts and the initiation of wire transfers and ACH activity to accounts at
other financial institutions. AMCORE Direct is a point-of-sale system for credit
card and debit transactions. The AMCORE TeleBank service gives retail customers
the opportunity to use their telephone 24 hours a day to get balance and other
information on their checking and savings accounts, certificates of deposit, or
mortgage loan, all from a completely automated system.
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In September 1996, AMCORE realigned three financial service subsidiaries
under a non-depository bank charter. The former AMCORE Trust Company was
converted from a state-chartered trust company charter to a nationally chartered
non-depository bank called AMCORE Investment Group, N.A. AMCORE Capital
Management, Inc. and AMCORE Investment Services, Inc. were sold by Rockford, and
became subsidiaries of AIG on the same date. These companies provide trust,
capital management, management of the Vintage mutual funds and brokerage
services.
FINANCIAL SERVICE SUBSIDIARIES
AMCORE Mortgage, Inc. (AMI), a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada in 1987. Through AMI, AMCORE provides each
bank affiliate with a variety of mortgage lending products to meet their
customer needs. All fixed rate long-term loans originated by AMI are sold in the
secondary market primarily to governmental agencies and financial institutions.
AMI also originates adjustable rate and balloon loans for sale to affiliate
banks and other investors. AMI continues to service most of the loans that are
sold.
AMCORE Consumer Finance Company, Inc. (FINANCE), (f/k/a Mid-American
Financial Services Company), a wholly-owned consumer finance company, was
incorporated under the laws of the State of Nevada in September 1989 and was
acquired by AMCORE in February 1990. Through FINANCE, AMCORE provides
installment and real estate loans to a segment of the market not served by
AMCORE's affiliate banks. FINANCE has also focused its efforts with a "second
chance" lending program for loan applicants that have been rejected by the
mortgage and banking affiliates, as well as offering small ticket lease
financing and other direct financing programs.
AMCORE Financial Life Insurance Company (AFLIC), a wholly-owned subsidiary,
was incorporated under the laws of the State of Arizona in 1984. Through AFLIC,
AMCORE is engaged in reinsuring credit life and accident and health insurance in
conjunction with the lending activities of the affiliate banks.
AMCORE Investment Services, Inc. (AIS), a wholly-owned subsidiary of AIG,
was incorporated under the laws of the State of Illinois in October 1990, and in
July 1991, became a member of the National Association of Security Dealers
(NASD). AIS is a full-service brokerage company that offers a full range of
investment alternatives including annuities, mutual funds, stocks, bonds and
AMCORE's Vintage Fund family. AIS services customers at some affiliate bank
locations.
AMCORE Capital Management, Inc. (ACM) was incorporated under the laws of
the State of Illinois in December 1992 and is a wholly-owned subsidiary of AIG.
ACM is comprised of the former ROCKFORD Investment department staff, and manages
the assets of AMCORE's Vintage Fund family, which were introduced in December
1992, as well as trust and other private investor assets.
Rockford Mercantile Agency, Inc. (RMA), a local collection agency, was
acquired in January 1993. RMA has been in business in the Rockford area since
1908 and works with many nationally-known clients. RMA was incorporated under
the laws of the State of Illinois in January 1993 as a wholly-owned subsidiary
of AMCORE.
AMCORE Insurance Group, Inc. (AIGI) was incorporated under the laws of the
State of Illinois as a wholly-owned subsidiary of ROCKFORD in March 1994. AIGI's
main office is in South Beloit, Illinois. AIGI obtained approval from the Office
of the Comptroller of the Currency to engage in the insurance agency business,
and offers a complete line of commercial and individual insurance products
including life, homeowners and automobile insurance.
AMCORE Investment Banking, Inc. (AIB) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary in November 1993. AIB
obtained approval in July 1993 from the Board of Governors of the Federal
Reserve System (FRB) to perform financial advisory and private placement
services. In 1995, AIB withdrew its brokerage membership with the NASD and, as
such, is currently an inactive subsidiary of AMCORE.
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COMPETITION
Active competition exists in all services offered by AMCORE's bank and
non-bank affiliates with other national and state banks, savings and loan
associations, credit unions, finance companies, personal loan companies,
brokerage and mutual fund companies, mortgage bankers, insurance agencies,
financial advisory services, collection agencies, and other financial
institutions serving the affiliates' respective market areas. The principal
competitive factors in the banking and financial services industry are quality
of services to customers, ease of access to services and pricing of services,
including interest rates paid on deposits, interest rates charged on loans, and
fees charged for fiduciary and other professional services.
Since 1982, when Illinois multi-bank holding company legislation became
effective, there have been many bank mergers and acquisitions in Illinois. These
combinations have had the effect of increasing the assets and deposits of bank
holding companies involved in such activities. Illinois legislation, effective
December 1, 1990, permitted bank acquisitions in Illinois by institutions
headquartered in any other state which has reciprocal legislation, further
increasing competition. See "Supervision and Regulation".
On September 29, 1994, Congress passed laws allowing interstate banking and
interstate branching. A year later, nationwide interstate banking became
effective allowing institutions to make acquisitions in any state. Beginning
July 1, 1997, interstate branching becomes effective, and banks can merge with
affiliate banks or establish de novo branches in any state. Individual states,
however, have the right to opt out of interstate branching.
EMPLOYMENT
AMCORE had 1,194 full-time equivalent employees as of December 31, 1996.
AMCORE provides a variety of benefit plans to its employees including health,
dental, group term life and disability insurance, childcare reimbursement,
retirement, profit sharing, 401(k) and flexible spending accounts, incentive
stock option, stock purchase and dividend reinvestment plans. AMCORE believes
that its relationship with its employees is good.
SUPERVISION AND REGULATION
AMCORE is subject to regulations under the Bank Holding Company Act of
1956, as amended (the Act), and is registered with the FRB under the Act. AMCORE
is required by the Act to file quarterly and annual reports of its operations
and such additional information as the FRB may require and is subject, along
with its subsidiaries, to examination by the FRB.
The acquisition of five percent or more of the voting shares or all or
substantially all of the assets of any bank requires the prior approval of the
FRB and is subject to certain other federal and state law limitations. The Act
also prohibits, with certain exceptions, a holding company from acquiring direct
or indirect ownership or control of more than five percent of the voting shares
of any company which is not a bank and from engaging in any business other than
banking, managing and controlling banks or furnishing services to banks and
their subsidiaries, except that holding companies may engage in, and may own
shares of companies engaged in, certain businesses bound by the FRB to be "so
closely related to banking...as to be a proper incident thereto". On August 31,
1993, the FRB approved an amendment to add certain activities and to reduce the
burden on bank holding companies that desire to conduct these activities by
simplifying the regulatory review process.
Under current regulations of the FRB, a holding company and its non-bank
subsidiaries are permitted, among other activities, to engage in such
banking-related businesses as sales and consumer finance, equipment leasing,
computer service bureau and software operations, mortgage banking, brokerage and
financial advisory services. The Act does not place territorial restrictions on
the activities of non-bank subsidiaries of bank holding companies. In addition,
federal legislation prohibits acquisition of "control" of a bank or bank holding
company without prior notice to certain federal bank regulators. "Control" is
defined in certain cases as acquisition of ten percent or more of the
outstanding shares of a bank or bank holding company.
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Federal and state laws and regulations of general application to banks
regulate, among other things, the scope of business, investments, reserves
against deposits, capital levels relative to assets and risk, the nature and
amount of collateral for loans, the establishment of branches, mergers,
consolidations and the payment of dividends.
In late 1992, Congress passed the Federal Deposit Insurance Corporation
Improvement Act of 1992 which included many provisions that have had significant
effects on the cost structure and operational and managerial standards of
commercial banks. In addition to provisions for recapitalization of the Bank
Insurance Fund, the Act contains provisions that revise bank supervision and
regulation, including, among many other things, the monitoring of capital
levels, outline additional management reporting and external audit requirements,
and add consumer provisions that include Truth-in-Savings disclosures.
The foregoing references to applicable statutes and regulations are brief
summaries thereof and do not purport to be complete and are qualified in their
entirety to be referenced to such statutes and regulations.
AMCORE and NBA are supervised and examined by the FRB. Nationally-chartered
affiliate banks are supervised and regularly examined by the Office of the
Comptroller of the Currency (OCC) and are subject to examination by the FRB. The
state-chartered affiliate banks are supervised and regularly examined by the
Illinois Commissioner of Banks. In addition, all affiliate banks are subject to
periodic examination by the Federal Deposit Insurance Corporation (FDIC).
AMI is supervised and examined by the FRB and is also licensed and
regulated by the Office of the Commissioner of Savings and Loan Associations of
the State of Illinois. FINANCE is regulated by the Illinois Department of
Financial Institutions. AFLIC is supervised and examined by the Department of
Insurance of the State of Arizona. Under Arizona law, investments, capital
levels and the level of claim reserves, among other things, are subject to
regulation. AIS and ACM are supervised and examined by the NASD and are
regulated by the Securities and Exchange Commission (SEC). RMA is subject to the
Fair Debt Collection Practice Act and also various state collection agency acts
in the states in which RMA is licensed to conduct business. RMA is supervised
and examined by the Illinois Secretary of State Office--Department of
Professional Regulation and various state agencies in other states. AIGI is
supervised and examined by the Department of Insurance of the State of Illinois,
and is regulated by the OCC.
SUBSIDIARY DIVIDENDS AND CAPITAL
Legal limitations exist as to the extent to which the bank subsidiaries can
lend or pay dividends to AMCORE. The payment of dividends by national banks
without prior regulatory approval is limited to the current year's net income
plus the adjusted retained net income for the two preceding years. The payment
of dividends by any bank or bank holding company is affected by the requirement
to maintain adequate capital pursuant to the capital adequacy guidelines issued
by the FRB and regulations issued by the FDIC and the OCC (collectively
"Agencies"). As of December 31, 1996, approximately $33.7 million was available
for payment to AMCORE in the form of dividends without prior regulatory
approval. The bank subsidiaries are also limited as to the amount they may lend
to AMCORE. At December 31, 1996, the maximum amount available to AMCORE in the
form of loans approximated $23.8 million.
In 1990, the FRB established risk-based capital guidelines for bank holding
companies. These capital rules require minimum capital levels as a percent of
risk-weighted assets. Banking organizations must have minimum capital ratios of
4% and 8% for Tier 1 capital and total capital, respectively. The FRB also
established leverage capital requirements intended primarily to establish
minimum capital requirements for those banking organizations that have
historically invested a significant portion of their funds in low risk assets.
Federally supervised banks are required to maintain a minimum leverage ratio of
not less than 4%. Refer to the Capital section of Item 7 for a summary of
AMCORE's capital ratios as of December 31, 1996 and 1995.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The earnings of all subsidiaries are affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the FRB influences general economic conditions and
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interest rates through various monetary policies and tools. It does so primarily
through open-market operations in U.S. Government securities, varying the
discount rate on member and non-member bank borrowings, and setting reserve
requirements against bank deposits. FRB monetary policies have had a significant
effect on the operating results of banks in the past and will continue to do so
in the future. The general effect of such policies upon the future business and
earnings of each of the subsidiary banks cannot accurately be predicted.
Interest rate sensitivity has a major impact on the earnings of bank
affiliates. As market rates change, yields earned on assets may not necessarily
move to the same degree as rates paid on liabilities. For this reason, AMCORE
attempts to minimize earnings volatility related to fluctuations in interest
rates through the use of a formal asset/liability management program and certain
off-balance sheet derivative activities. See Item 7 and Note 11 included under
Item 8 for additional discussion of interest rate sensitivity and related
derivative activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information about the executive
officers of AMCORE. There are no family relationships between any director or
executive officer of AMCORE.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Robert J. Meuleman........ 57 President and Chief Executive Officer of AMCORE since
January 1996. Previously Executive Vice President and
Chief Operating Officer--Banking Subsidiaries of AMCORE
since December 1991.
Charles E. Gagnier........ 63 Executive Vice President, Bank Mergers and Acquisitions
and Chairman of the Board of Directors of ROCKFORD
since January 1997. President and Chief Executive
Officer of ROCKFORD from January 1992 to December 1996.
President and Chief Executive Officer of AMCORE Bank
N.A., Sterling from January 1991 to January 1992.
James S. Waddell.......... 52 Executive Vice President, Chief Administrative Officer
and Corporate Secretary of AMCORE since January 1994.
Senior Vice President of Administration of AMCORE from
July 1992 to January 1994. Group Vice President of
CLARCOR from 1987 to July 1992.
Kenneth E. Edge........... 51 Group Vice President, Banking Subsidiaries since June
1995. Executive Vice President of ROCKFORD from July
1992 to June 1995. Senior Vice President of ROCKFORD
from April 1989 to July 1992.
Gerald W. Lister.......... 45 Group Vice President, Diversified Financial Service
Subsidiaries since April 1993. President and Chief
Executive Officer of AMI from 1987 to April 1993.
John R. Hecht............. 38 Senior Vice President and Chief Financial Officer of
AMCORE since July 1992. Vice President and Controller
of AMCORE from January 1991 to June 1992.
William T. Hippensteel.... 40 Senior Vice President and Corporate Marketing Director
since January 1993. Vice President and Marketing
Director from 1984 to December 1992.
James F. Warsaw........... 46 President and Chief Executive Officer of ROCKFORD since
January 1997. Executive Vice President and Chief
Operating Officer of ROCKFORD from June 1995 to
December 1996. Executive Vice President and Senior
Credit Officer of ROCKFORD from December 1992 to May
1995.
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ITEM 2. PROPERTIES
On December 31, 1996, AMCORE had 52 locations, of which 34 were owned and
18 were leased. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. See Notes 6 and 7 of the Notes
to Consolidated Financial Statements included under Item 8 of this document for
further information on properties.
ITEM 3. LEGAL PROCEEDINGS
Management believes that no litigation is threatened or pending in which
AMCORE faces potential loss or exposure which will materially affect AMCORE's
stockholders' equity or financial position. Since AMCORE's subsidiaries act as
depositories of funds, trustee and escrow agents, they are named as defendants
in lawsuits involving claims to the ownership of funds in particular accounts.
This and other litigation is incidental to AMCORE's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
See Item 6 and 8 of this document for information on stock price ranges and
dividends. The principal market for the quotations of stock prices is the NASDAQ
National Market System. There are approximately 5,200 holders of record of
AMCORE's common stock.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
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1996 1995 1994 1993 1992
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FOR THE YEAR:
Interest income............................ $ 194,934 $ 164,486 $ 138,955 $ 137,184 $ 136,345
Interest expense........................... 108,393 85,080 61,195 59,628 62,946
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Net interest income........................ 86,541 79,406 77,760 77,556 73,399
Provision for loan and lease losses........ 5,086 2,692 628 2,124 5,547
Non-interest income........................ 38,443 34,013 31,034 29,605 25,695
Operating expense.......................... 83,997 87,440 78,690 76,136 67,132
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Income before income taxes................. 35,901 23,287 29,476 28,901 26,415
Income taxes............................... 9,518 5,016 7,675 7,461 7,859
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Net income................................. $ 26,383 $ 18,271 $ 21,801 $ 21,440 $ 18,556
========== ========== ========== ========== ==========
Return on average assets(1)................ 0.98% 0.81% 1.06% 1.08% 1.06%
Return on average equity(1)................ 12.71 9.39 11.90 12.71 12.25
Net interest margin........................ 3.75 4.17 4.51 4.62 4.78
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AVERAGE BALANCE SHEET:
Total assets............................... $2,682,591 $2,245,895 $2,062,597 $1,977,407 $1,754,653
Loans and leases, net of unearned income... 1,369,030 1,228,175 1,088,206 1,000,759 927,354
Earning assets............................. 2,503,589 2,060,272 1,880,320 1,805,356 1,612,949
Deposits................................... 1,828,920 1,764,427 1,706,175 1,665,807 1,501,006
Long-term borrowings....................... 150,099 29,458 27,598 33,724 16,384
Stockholders' equity....................... 207,617 194,546 183,171 168,739 151,469
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ENDING BALANCE SHEET:
Total assets............................... $2,814,550 $2,418,532 $2,151,983 $1,987,267 $1,958,475
Loans and leases, net of unearned income... 1,456,217 1,285,961 1,161,870 1,035,841 996,277
Earning assets............................. 2,629,050 2,219,741 1,962,675 1,809,038 1,782,536
Deposits................................... 1,890,016 1,777,705 1,707,559 1,643,683 1,649,767
Long-term borrowings....................... 124,095 107,803 26,487 31,975 32,442
Stockholders' equity....................... 220,637 209,862 186,159 177,615 160,296
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FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end
loans.................................... 1.03% 1.02% 1.14% 1.40% 1.41%
Allowance to non-performing loans.......... 152.41 101.07 103.66 111.27 135.14
Net charge-offs to average loans........... 0.23 0.24 0.17 0.17 0.32
Non performing loans to net loans.......... 0.68 1.00 1.10 1.26 1.05
Average long-term borrowings to average
equity................................... 72.30 15.14 15.07 19.99 10.82
Average equity to average assets........... 7.74 8.66 8.88 8.53 8.63
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' DATA:
Earnings per share......................... $ 1.86 $ 1.30 $ 1.55 $ 1.53 $ 1.36
Book value per share....................... 15.47 14.81 13.26 12.68 11.59
Dividends per share........................ 0.64 0.58 0.55 0.41 0.35
Dividend payout ratio...................... 34.5% 44.6% 35.4% 26.9% 25.6%
Weighted average shares outstanding........ 14,214 14,083 14,023 13,972 13,659
========== ========== ========== ========== ==========
</TABLE>
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(1) The 1995 ratios excluding the impact of the $3.5 million, or $.25 per share,
after-tax impairment and merger-related charges: return on average assets
0.97%; return on average equity 11.17%
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATION AND FINANCIAL CONDITION
The following discussion highlights the significant factors affecting the
operations and financial condition of AMCORE for the three years ended December
31, 1996. The discussion should be read in conjunction with the consolidated
financial statements, accompanying notes, and selected financial data appearing
elsewhere within this report.
This review contains forward-looking statements concerning AMCORE's
business results that are based on estimates. Actual results could differ
materially due to factors such as changes in general economic and business
conditions, compression of net interest revenue due to unanticipated declines in
net interest margins and outstanding loan balances, unanticipated delays or
costs associated with recent pending acquisitions and the ability of the company
to attract and retain qualified personnel. Therefore, there can be no assurances
that actual results will correspond to these forward-looking statements.
OVERVIEW OF OPERATIONS
AMCORE reported record net income of $26.4 million for the year ended
December 31, 1996. This compares to the $18.3 million and $21.8 million reported
for the years ended 1995 and 1994, respectively. Earnings per share for 1996
were $1.86 compared to $1.30 in 1995 and $1.55 in 1994. The $8.1 million
increase between 1996 and 1995 was impacted by a $3.5 million after tax charge
in 1995 for the impairment of certain long-lived assets and costs related to
merger activity. Excluding these 1995 charges, the increase in 1996 net income
would have been $4.6 million or 21.4%. The remaining increase resulted primarily
from an increase in net interest income related to a 21.5% increase in average
earning assets.
This record level of net income resulted in a return on average equity for
1996 of 12.71% versus 9.39% in 1995 and 11.90% in 1994. AMCORE's return on
average assets for 1996 was .98% compared to .81% in 1995 and 1.06% in 1994.
In October of 1996, AMCORE announced it would be entering the interstate
banking arena by acquiring two Wisconsin based bank holding companies.
Definitive agreements have been reached with Country Bank Shares Corporation
(Country) of Mount Horeb and First National Bancorp, Inc. (FNB) of Monroe.
Country has approximately $300 million of assets and nine locations, while FNB
has approximately $215 million of assets and five locations. Both mergers are
stock for stock exchanges to be accounted for as pooling of interests. The
mergers, subject to customary conditions to close, including regulatory approval
to close, will occur during the first half of 1997.
AMCORE views these acquisitions as a means of expanding within its
geographic area and anticipates that they will contribute favorably to future
results. AMCORE anticipates, that in the future, it will have the opportunity to
acquire other successful financial institutions.
In March of 1997, AMCORE issued $40 million of capital securities through
AMCORE Capital Trust I (the "Trust"), a statutory business trust, of which all
common securities are owned by AMCORE. The capital securities pay cumulative
cash distributions semiannually at an annual rate of 9.35%. The securities are
redeemable from March 1, 2007 until March 1, 2017 at a declining rate of
104.6750% to 100.0% of the principal amount. After March 1, 2017, they are
redeemable at par until June 15, 2027 when redemption is mandatory. The proceeds
of the issue will be used to repay in full the parent company long term debt,
repay in full the long term borrowings of the above mentioned acquisitions, and
general corporate purposes. The capital securities qualify as Tier I capital for
regulatory capital purposes.
AMCORE continues to be "well capitalized" as defined by regulatory
guidelines. At December 31, 1996, the company's total capital to risk weighted
assets was 13.23%.
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EARNINGS SUMMARY
The following table highlights the major components of net income and their
impact on earnings per share for the last two years:
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 investment securities is
not subject to Federal income tax. For analytical purposes, at December 31,
1996, 1995 and 1994, the interest income and rates on these types of assets are
adjusted to a "fully taxable equivalent" basis, net of the effect of any
interest expense disallowed. The fully taxable equivalent adjustment was
calculated using the Company's statutory Federal income tax rate of 35%.
Adjusted interest income is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income Book Basis.............................. $194,934 $164,486 $138,955
Taxable Equivalent Adjustment........................... 7,588 6,690 6,998
-------- -------- --------
Interest Income Taxable
Equivalent Basis........................................ 202,522 171,176 145,953
Interest Expense........................................ 108,393 85,080 61,195
-------- -------- --------
Net Interest Income Taxable
Equivalent Basis........................................ $ 94,129 $ 86,096 $ 84,758
======== ======== ========
</TABLE>
Net interest income on a fully taxable equivalent basis increased $8.0
million or 9.3% in 1996 and $1.3 million or 1.6% in 1995. The improvement in net
interest income during 1996 results mainly from a 21.5% increase in average
earning assets which was partially offset by a narrowing in the interest rate
spread. During 1995, the improvement in net interest income related to a 9.5%
growth in average earning assets, the majority of which was offset by a narrowed
interest rate spread.
The growth in average earning assets in both 1996 and 1995 can be
attributed to strong loan growth and increased levels of investment securities
related to the investment leveraging program which began in 1994. Average loans
increased approximately $140 million in both 1996 and 1995, which represented an
increase of 11.5% and 12.9%, respectively.
The investment leveraging program, which is designed to better utilize
capital, increased approximately $295 million in 1996 and $105 million in 1995.
This program contributed approximately $6.2 million in 1996 and $2.2 million in
1995 to net interest income. The program is funded through the use of repurchase
agreements and Federal Home Loan Bank borrowings. The proceeds of these
borrowings are invested principally in mortgage-backed and U.S. government
agency securities.
The net interest spread is the difference between the average rates on
interest-earning assets and the average rates on interest-bearing liabilities.
The interest rate margin represents net interest income divided by average
earning assets. These ratios can also be used to analyze net interest income.
Since a significant portion of the Company's funding is derived from
interest-free sources, primarily demand deposits and total stockholders' equity,
the effective rate paid for all funding sources is lower than the rate paid on
interest-bearing liabilities alone.
As Table 1 indicates, the interest rate spread declined 38 basis points to
3.17% in 1996 from 3.55% in 1995 which was a decline of 41 basis points from the
1994 level of 3.96%. The interest rate margin was 3.75% in 1996, a decline of 42
basis points from 4.17% in 1995. The 1995 level was a decline of 33 basis points
from 4.50% in 1994.
The interest rate spread on the investment securities in the leveraging
program was 137 basis points in 1996 and 141 basis points in 1995. The interest
rate spread on all other earning assets was 3.58% in 1996 and
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<PAGE> 12
3.73% in 1995. As a result, the effect of this program accounted for 23 basis
points of the decline in the 1996 interest rate spread and 8 basis points of the
1995 decrease. The interest rate margin was also negatively impacted by the
investment leveraging program by approximately 29 basis points in 1996 and 12
basis points in 1995. The core interest rate margin which excludes the effect of
the investment leveraging program was 4.27%, 4.40%, and 4.61% for 1996, 1995,
and 1994, respectively.
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 can be segregated to analyze the year-to-year
changes in net interest income. Changes due to rate/volume variances have been
allocated between changes due to average volume and changes due to average rate
based on the percentage of each to the total change of both categories. 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. Table 1 analyzes the changes
attributable to the rate and volume components of net interest income.
Changes Due to Volume
The 1996 increase in net interest income due to the change in average
volume is attributable to the 11.5% growth in average loans and 37.0% growth in
average investment securities. This increase was partially offset by an increase
in borrowings of 134.5% used to fund the investment leveraging program.
The change in net interest income due to average volume in 1995 relates to
the 12.9% growth in average loans which was partially offset by 13.8% growth in
time deposits and 85.4% growth in short-term borrowings.
Changes Due to Rate
The yield on earning assets declined 23 basis points in 1996. The decline
is mainly a result of average investment securities, which typically have a
lower yield, increasing at a faster rate than average loans. Average investment
securities represented 44.4% of average earning assets in 1996 versus 39.5% in
1995. The rate paid on average total interest-bearing liabilities increased 15
basis points in 1996 as average total borrowings, which had a higher cost than
other average total interest-bearing liabilities, increased to represent 27.8%
of average total interest-bearing liabilities in 1996 versus 14.7% in 1995.
The decline in net interest income due to the rate in 1995 is primarily
attributable to the rate on average total interest-bearing liabilities
increasing more than the rate on average earning assets. This occurred as
borrowings, which had the highest rate paid, increased to represent 14.7% of
total average earning liabilities in 1995 versus 9.5% in 1994.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is an amount added to the allowance
against which loan and lease losses are charged. Management determines an
appropriate provision for loan losses based upon historical loss experience,
regular evaluation of collectibility by management, lending officers and the
corporate loan review staff, and the size and nature of the loan portfolios.
Other factors include economic and industry outlooks, concentration
characteristics of the loan portfolio and the composition of problem loans.
The provision for loan and lease losses was $5.1 million for 1996, an
increase of $2.4 million or 88.9% from the $2.7 million in 1995. During 1995,
the provision for loan and lease losses increased $2.1 million from the 1994
level of $628,000. The increase in the provision for loan and lease losses in
1996 was primarily related to the growth in the loan portfolio of 13.2%. Asset
quality improved during 1996 as both non-performing loans and net charge-offs as
a percent of loans declined. The 1995 increase in provision for loan and lease
losses was necessary to maintain the allowance for loan and lease losses at a
level to support the level of net charge-offs and the overall growth in the loan
portfolio.
During 1996, AMCORE recorded net charge-offs of $3.2 million, an increase
of $218,000 from the 1995 level of $2.9 million. The 1995 level increased by
$1.1 million when compared to 1994. AMCORE anticipates
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<PAGE> 13
that continued growth in the loan portfolio or weakening economic conditions
could cause continued increases in the provision for loan and lease losses. The
allowance for loan and lease losses as a percent of total loans was 1.03%,
1.02%, and 1.14% in 1996, 1995, and 1994, respectively. The allowance for loan
and lease losses to non-performing loans was 152.41% at year end 1996, 101.07%
at year end 1995, and 103.66% at year end 1994.
NON-INTEREST INCOME
Total non-interest income is comprised primarily of fee based revenues from
mortgage, trust, brokerage, asset management, insurance and collection agency
services. Fees from bank-related services, mainly on deposits and credit cards,
along with net securities gains or losses are also included in this category.
Total non-interest income increased $4.4 million or 13.0% in 1996 and totaled
$38.4 million. This followed a 9.6% or $3.0 million increase in 1995.
Trust and asset management income, the largest source of fee based
revenues, totaled $13.6 million, an increase of $1.7 million or 14.6%. The 1995
growth of trust and asset management fees was $329,000 or 2.9%. The growth in
both years is attributable to favorable market performance of trust accounts,
growth in our proprietary vintage mutual funds and new trust accounts. As of
December 31, 1996, the AMCORE family of vintage mutual funds totaled $642
million and trust assets under administration totaled $2.3 billion. While trust
and asset management revenues have been growing, future trends in fees are
dependent on market performance, plan terminations, corporate profit sharing
contributions, and other economic driven factors.
Service charges on deposits totaled $6.8 million in 1996, a decrease of
$231,000 or 3.3% from the $7.0 million in 1995. During 1995, service charges on
deposits increased $244,000 or 3.6%. Service charges on deposits are impacted
primarily by the level of deposits commercial customers maintain to compensate
for services.
Mortgage revenue includes fees generated from underwriting, originating and
servicing of mortgage loans along with gains realized from the sale of these
loans. Mortgage revenues increased $83,000 or 2.3% to total $3.7 million in
1996. This compares to a decline of 2.8% in 1995. Both years were positively
impacted by increased mortgage servicing volume.
Effective January 1, 1995, the mortgage company adopted Financial
Accounting Standard (FAS) No. 122 "Accounting for Mortgage Servicing Rights",
which had a $1.1 million positive impact on mortgage revenues in 1995. The new
accounting standard allows for the recognition of the value of servicing rights
on originated mortgage loans and results in an asset that is amortized over the
remaining estimated lives of serviced loans. While this has a favorable impact
on earnings at the time of origination, additional earnings volatility may occur
with changes in market conditions, particularly with fluctuations in interest
rates. For example, a decline in interest rates could result in accelerated
mortgage prepayments, which may reduce the value of this asset and require a
write-down through a valuation reserve. If subsequent valuations result in an
increase of value, recoveries can be recorded through the valuation allowance,
to the extent of the previous write-downs.
A reduction in long-term mortgage rates would create an upward trend in
origination volumes, particularly with refinancing activity. This has a positive
impact on mortgage revenues; however, the impact could be partially offset with
possible write-downs of existing mortgage service rights, as explained earlier.
Effective January 1, 1997, AMCORE adopted FAS No. 125, which requires
purchased and deferred excess mortgage servicing rights to be valued under
similar methods as used in FAS No. 122 for originated mortgage servicing rights.
The adoption of this standard may cause increased volatility in mortgage
revenues as described above. Total serviced loans at December 31, 1996 were
$921.9 million, an increase of $47.8 million.
Insurance revenues increased $1.0 million during 1996 to total $2.0
million. This follows an increase of $170,000 in 1995. The 1996 increase
resulted from a combination of a 47% increase in sales of credit life insurance
and a change to recording insurance revenue gross prior to deductions for
related expenses.
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<PAGE> 14
Collection fee income totaled $2.1 million in 1996, an increase of $314,000
or 17.1% from the $1.8 million reported in 1995. The 1995 collection fees were
an increase of $131,000 or 7.7%. The increase in both years related to increased
volume.
Other non-interest income, mainly customer service and credit card fees,
increased $1.9 million or 30.0% over 1995. This increase is primarily due to the
$1.4 million gain on the sale of the merchant bankcard processing. The sale of
this processing will cause reduced levels of fees in this category in future
periods. The other category increased $818,000 or 14.6% in 1995.
Net securities gains totaled $1.9 million in 1996 as compared to $2.3
million in 1995 and $908,000 in 1994. The level of security gains or losses is
dependent on the size of the available for sale portfolio, interest rate levels,
and the company's liquidity needs.
OPERATING EXPENSES
Total operating expenses declined $3.4 million in 1996 to $84.0 million. In
1995, total operating expenses were $87.4 million, an increase of $8.8 million
from 1994. During 1995, AMCORE recorded $5.6 million of impairment and merger
related charges. Without these charges, total operating expense would have
increased $2.1 million or 2.6% in 1996 and $3.2 million or 4.0% in 1995. The
impairment charge, caused by the early adoption of FAS No. 121, totaled $3.3
million and included write-downs of intangibles from the acquisition of a
collection agency, and reductions of the carrying values assigned to bank
facilities (See Note 7 of the Notes to Consolidated Financial Statements). The
remaining $2.3 million charge comprised merger-related costs from the May 1995
merger with NBM, the remaining costs from two 1994 bank mergers, and other costs
in connection with significant upgrades to information systems technology. The
merger related costs were included within the applicable operating expense
categories on the Consolidated Statements of Income, and primarily consisted of
severance and other personnel costs, equipment expenses, and professional fees.
Expense control remains a priority at AMCORE. A number of changes were made
in 1996 to improve efficiency. These changes include the consolidation of four
banks into one, the merging of the management of the Vintage mutual funds,
trust, capital management, and brokerage services into one entity and the
streamlining of the credit operations area.
As a percentage of average assets, total operating expense was 3.13% in
1996, versus 3.89% in 1995 and 3.82% in 1994. The efficiency ratio, which
measures the level of non-interest expense to total tax equivalent net revenues
was 63.4% in 1996 as compared to 72.8% in 1995, and 68.0% in 1994. Without the
$5.6 million of impairment and merger-related charges in 1995, the operating
expense to average assets ratio would have been 3.64% and the efficiency ratio
would have been 68.1%.
Personnel costs, which includes compensation expense and employee benefits,
are the largest component of operating expenses. Personnel costs increased $1.4
million in 1996, an increase of 3.1%. Excluding the merger related costs in
1995, the increase would have been $2.2 million or 4.9%. The higher costs in
1996 were primarily caused by increased levels of performance driven expenses,
including incentive pay and profit sharing, as well as higher medical insurance
costs. Exclusive of the merger-related charge, this category totaled $44.9
million in 1995 and increased $3.5 million or 8.4% over 1994. The higher costs
in 1995 were primarily caused by an increase in employees due to the expansion
of branch facilities and data processing activities, as well as normal salary
increases.
Net occupancy and equipment expenses totaled $12.8 million for 1996, a
decrease of $497,000 from 1995. If the $1.2 million of merger related charges in
1995 are excluded, net occupancy and equipment related expenses would have
increased $664,000 or 5.5%. In 1995, net occupancy and equipment expense,
exclusive of the merger related charges, increased $1.1 million or 10.2% over
1994. The increase in both years is attributable to the opening of supermarket
branches and the upgrade of information systems hardware and software, including
a teller automation product delivery system. The portion of the impairment
charge taken in 1995 related to occupancy and equipment reduced the level of
depreciation charges in 1996.
Professional fees declined $230,000 or 8.4% to total $2.5 million primarily
due to merger related expenses in 1995. Professional fees exclusive of $263,000
in merger-related charges, totaled $2.5 million in 1995, a
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<PAGE> 15
decline of $900,000 or 26.7% from 1994 as the majority of legal and accounting
fees associated with the FSB and NBA mergers were incurred in 1994.
Intangibles amortization expense totaled $2.0 million in 1996, a decline of
$272,000 or 11.7% from 1995, which followed a $254,000 or 9.8% decline in 1995
when compared to 1994. These changes were due to the decline of core deposit
intangibles and the 1995 impairment charge of intangibles amortization expense
and the ongoing impact of the $1.7 million impairment charge recorded separately
in 1995 related to intangible assets.
INCOME TAXES
Income tax expense totaled $9.5 million in 1996 compared with $5.0 million
and $7.7 million in 1995 and 1994, respectively. The effective tax rates were
26.5%, 21.5%, and 26.0% in 1996, 1995, and 1994, respectively. The effective tax
rate was less than the statutory tax rates due primarily to investments in
tax-exempt municipal bonds and loans. The higher rate in 1996 was caused by a
higher level of pre-tax earnings and $300,000 of 1995 tax credits, which
resulted from the upgrades to information systems software.
BALANCE SHEET REVIEW AND LIQUIDITY RISK MANAGEMENT
Liquidity represents the availability of funding to meet the obligations to
depositors, borrowers, and creditors at a reasonable cost without adverse
consequences. Accordingly, the liquidity position is influenced by the funding
base and asset mix.
The parent company requires adequate liquidity to pay its expenses, repay
debt when due and pay stockholder dividends. Liquidity is provided to the parent
from subsidiaries in the form of dividends and fees for services. In 1996,
dividends and fees from subsidiaries amounted to $40.3 million, compared to
$26.2 million in 1995. Other liquidity is provided by cash balances in banks,
liquidating short-term investments, commercial paper borrowings and borrowings
on a line of credit. While subsidiary banks are limited in the amount of
dividends they can pay, as of December 31, 1996, approximately $33.7 million was
available for payment to the parent in the form of dividends which do not
require prior regulatory approval.
Cash and cash equivalents decreased $13.3 million from December 31, 1995 to
December 31, 1996, as the net cash used for investing activities of $433.3
million in 1996 exceeded the net cash provided from operating activities of
$47.3 million and the net cash provided by financing activities of $372.7
million.
The net increase in cash provided by operating activities of $23.4 million
from December 31, 1995 to December 31, 1996 was primarily attributable to the
increase in net income of $8.1 million and the net decrease in mortgage loans
held for sale of $4.5 million in 1996 compared to an increase of $5.6 million in
these loans in 1995.
The net increase in cash used for investing activities of $190.5 million
from December 31, 1995 to December 31, 1996 is the result of the increase in net
cash used for available for sale securities. The net increase in purchases of
$169.5 million exceeds the net cash from proceeds of sales of $52.1 million from
year to year. The increase in net cash for loans of $50.2 million from 1995 to
1996 contributed to the increase in cash used for investing activities.
The net cash provided by financing activities increased by $144.8 million
from December 31, 1995 to December 31, 1996. The increase results mainly from
the increases in net cash provided by deposits of $42.2 million and short-term
borrowings of $114.4 million from 1995 to 1996.
SECURITIES
Total securities as of December 31, 1996 were $1.15 billion, an increase of
$240.1 million or 26.4% over the prior year-end. At December 31, 1996 and 1995,
the total securities portfolio comprised 43.7% and 40.9%, respectively, of total
earning assets. In December 1995, substantially all securities classified as
held to maturity were reclassified into the available for sale category. The
transfer was in response to the Financial Accounting Standards Board's (FASB)
decision to allow companies a one time opportunity to reclassify their
investment
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<PAGE> 16
portfolios. This reclassification will significantly improve AMCORE's ability to
manage interest rate and liquidity risk. This may cause additional fluctuations
in the unrealized gain or loss component of total stockholders' equity, however,
federal banking regulations exclude this component from regulatory risk-based
capital calculations.
The securities portfolio serves a primary role in the overall context of
balance sheet management. The decision to purchase or sell securities is based
upon the current assessment of economic and financial conditions, including the
interest rate environment. The portfolio's scheduled maturities and the
prepayment of mortgage-backed securities represent a significant source of
liquidity. Approximately $85.4 million or 7.4%, of the securities portfolio
matures in 1997.
Mortgage-backed securities as of December 31, 1996 totaled $571.0 million
and represent 49.7% of total securities. The distribution of mortgage-backed
securities include $466.1 million of U.S. government agency mortgage-backed pass
through securities and $79.0 million of agency collateralized mortgage
obligations and $26.9 million of private issue collateral mortgage obligations,
all of which are rated at least AAA except for one $8.6 million security rated
A3.
At December 31, 1996, securities held to maturity total $10.4 million,
while securities available for sale were $1.14 billion. There were no trading
securities at the end of 1996 or 1995. As December 31, 1996, the held to
maturity securities portfolio included $102,000 of gross unrealized gains and
$15,000 of gross unrealized losses. The securities available for sale portfolio
at the end of 1996 included gross unrealized gains of $7.9 million and gross
unrealized losses of $11.3 million, of which the combined effect, net of tax, is
included as an unrealized loss in stockholders' equity. For comparative
purposes, at December 31, 1995, gross unrealized gains of $12.0 million and
gross unrealized losses of $2.4 million were included in the securities
available for sale portfolio. For further analysis of the securities portfolio
see Table 5 and Note 3 of the Notes to Consolidated Financial Statements.
LOANS AND LEASES
Loans represent the largest component of AMCORE's earning asset base. At
year end 1996, total loans and leases, net of unearned discount, were $1.46
billion, an increase of $170.3 million or 13.2% as compared to 1995. Average
loans increased $140.9 million or 11.5% during 1996. Table 2 indicates the
growth in loans was mainly in the real estate and consumer loan categories.
Commercial, financial and agricultural loan balances totaled $366.8
million, an increase of $18.8 million or 5.4% when compared to 1995. This
increase was primarily in agricultural loans.
Total real estate loans were $778.6 million at year end 1996, an increase
of $93.3 million, or 13.6%, over 1995. The increase from 1995 is attributable to
construction and commercial real estate growth, primarily in the Rockford
market, and a successful home equity loan promotion.
Residential mortgage loans are originated by AMCORE's mortgage affiliate,
of which conforming adjustable rate and balloon residential mortgages are
normally sold to affiliate banks. The fixed-rate residential mortgage loans are
sold in the secondary market to eliminate interest rate risk and generate gains
on the sale of these loans, as well as servicing income. All loans of the
mortgage affiliate are considered held for sale and are recorded at the lower of
cost or market value.
Installment and consumer loans increased $54.1 million or 21.1% to end the
year at $310.1 million. The growth in consumer loans was diversified in direct
loans, indirect-automobile loans, and satellite dish financing at the consumer
finance subsidiary.
The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 3 shows selected loan maturity data as of December
31, 1996. Approximately 58.0% of the selected loans presented had maturities of
one year or less.
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DEPOSITS
Total deposits at December 31, 1996, were $1.89 billion, an increase of
$112.3 million or 6.3% when compared to 1995. Average total deposits increased
$64.5 million or 3.7%.
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits, are considered by management to be the primary and most stable
source of funding. Total core deposits were $1.49 billion at the end of 1996, a
$16.1 million or 1.1% increase over the prior year-end. Core deposits represent
78.8% and 82.9% of total deposits at December 31, 1996 and 1995, respectively.
These core deposits are supplemented by large certificates of deposit, brokered
deposits, and time deposits from governmental entities. Brokered deposits were
$120.5 million at year-end 1996, an increase of approximately $80.0 million.
Table 6 shows the maturity distribution of time deposits over $100,000.
BORROWINGS
Short-term and long-term borrowings have provided the financing for the
investment leveraging program. Borrowings totaled $668.6 million at year-end
1996 and were comprised of $544.5 of short-term and $124.1 of long-term. The
increase in borrowings of $268.8 million was primarily in the short-term
category and was primarily used to fund the growth in securities.
Securities sold under agreements to repurchase of $440.7 million and
Federal Home Loan Bank borrowings of $179.1 million are used primarily to fund
the investment leveraging program previously mentioned. These two types of
borrowing represent 92.7% of total borrowing at December 31, 1996 versus 89.9%
at December 31, 1995.
The parent company has a term loan outstanding with an unrelated financial
institution. The balance outstanding on this loan was $13.6 million and $17.0
million at year-end 1996 and 1995, respectively. The term loan agreement
provides for semi-annual principal payments and allows for several interest rate
and funding period options. The term loan was paid in full in March, 1997 with
the proceeds of the previously mentioned capital securities.
As an additional source of liquidity, the parent company has a commercial
paper placement agreement with an unrelated financial institution that provides
for the issuance of non-rated short-term unsecured debt obligations at
negotiated rates and terms, not to exceed $25,000,000. In the event the agent is
unable to place the parent company's commercial paper on a particular day, the
proceeds are provided by overnight borrowings on a reciprocal line of credit
with the same financial institution.
ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT
AMCORE's credit risk is centered in the loan and lease portfolio which on
December 31, 1996, totaled $1.46 billion, or 55.4%, of total earning assets. The
objective in managing loan portfolio risk is to quantify and manage credit risk
on a portfolio basis as well as reduce the risk of a loss resulting from a
customer's failure to perform according to the terms of a transaction. To
achieve this objective, AMCORE strives to maintain a loan portfolio that is
diverse in terms of loan type, industry concentration, and borrower
concentration.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's estimate of
what amount is necessary to provide for possible losses incurred in the loan
portfolio. In making this determination, management analyzes the ultimate
collectibility of the loan portfolio, incorporating feedback provided by lending
officers, the corporate loan review staff and examinations performed by
regulatory agencies. Management makes an ongoing evaluation as to the adequacy
of the allowance for loan losses. To establish the appropriate level of the
allowance, all loans (including nonperforming loans), commitments to extend
credit and standby letters of credit are reviewed and classified as to potential
loss exposure. An additional allowance is maintained based upon the size,
quality, and concentration characteristics of the remaining loan portfolio,
using both historical quantitative trends and management's evaluation of
qualitative factors including future economic and industry outlooks.
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The determination by management of the appropriate level of the allowance
amounted to $15.0 million at December 31, 1996. However, the allowance for loan
losses is based on estimates, ultimate losses will likely vary from the current
estimates. These estimates are reviewed regularly and as adjustments, either
positive or negative, become necessary they are reported in earnings in the
period in which they become known. A detailed analysis of the allowance for loan
losses for the past five years is shown in Table 2. The allocation of the
allowance for loan losses by category as of December 31, 1996 is presented in
Note 4 of the Notes to the Consolidated Financial Statements.
As of December 31, 1996, the allowance for loan losses as a percent of
total loans and non-performing loans was 1.03% and 152.41%, respectively. These
ratios were an improvement when compared to the same ratios for the prior year
of 1.02% and 101.07%. Net charge-offs as a percent of average loans decreased to
.23% for 1996 versus .24% in 1995.
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans with restructured
terms and other real estate owned. Non-performing assets totaled $10.4 million
as of year end 1996, a decline of $4.6 million or 30.6% from the $15.0 million
at year end 1995. Total non-performing assets represent 0.37% of total assets at
December 31, 1996, compared to 0.62% at December 31, 1995.
Loans are generally classified as non-accrual when there are reasonable
doubts as to the collectibility of principal and interest or when payment
becomes 90 days past due, except loans which are well secured and in the process
of payment or loans classified as credit card or consumer finance loans which
are charged off at 180 days past due. Interest collection on non-accrual loans
for which the ultimate collectibility of principal is uncertain are applied as
principal reductions. Otherwise, such collections are applied to interest when
received.
Non-performing loans declined $3.1 million or 23.9% to total $9.8 million
at December 31, 1996 when compared to the prior year-end. This decline occurred
mainly in restructured loans. As of December 31, 1996, non-performing loans to
total loans were 0.68% compared to 1.00% at year-end 1995. Table 2 presents non-
performing loans for each of the past five years.
Loans 90 days or more past due were $3.2 million at December 31, 1996, an
increase of $1.9 million from the prior year end. This increase is primarily
attributable to the satellite dish financing program at the consumer finance
company.
Other real estate declined $1.5 million, or 71.9%, to $595,000 at December
31, 1996 when compared to year-end 1995.
CONCENTRATION OF CREDIT RISKS
As previously discussed, AMCORE strives to maintain a diverse loan and
lease portfolio in an effort to minimize the effect of credit risk. Summarized
below are the characteristics of classifications which exceed 10 percent of
total loans.
Commercial, financial, and agricultural loans were $366.8 million at
December 31, 1996, and comprised approximately 25.2% of gross loans, of which
1.19% were non-performing. Net charge-offs of commercial loans represent 0.06%
during 1996 and 0.12% during 1995 of the year end balance of the category.
Construction, commercial real estate loans, and loans for farmland were
$399.4 million at December 31, 1996, comprising 27.4% of gross loans, of which
.71% were classified as non-performing. There were no net charge-offs of this
category of loans during 1996 and 0.24% of the year end balance during 1995.
Residential real estate loans, which includes home equity and permanent
residential financing, totaled $379.1 million at December 31, 1996, and
represent 26.0% of gross loans of which 0.40% are non-performing. Net
charge-offs of residential real estate loans represent 0.01% of the category
total in 1996 and there were no net charge-offs in this category in 1995.
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Installment and consumer loans were $310.1 million at December 31, 1996,
and comprised 21.3% of gross loans, of which 0.36% were non-performing. Net
charge-offs of consumer loans represented 0.94% and 0.59% of the year-end
category total for 1996 and 1995, respectively. Consumer loans are comprised of
direct loans, credit card loans, indirect auto loans, and consumer finance
company loans including those related to the satellite dish financing programs.
Indirect auto loans total $193.7 million at December 31, 1996. Both direct loans
and indirect auto loans are approved and funded through a centralized department
utilizing the same credit scoring system to provide a standard methodology for
the extension of credit.
INTEREST RATE RISK MANAGEMENT
AMCORE's asset and liability management process is utilized to manage
interest rate risk through structuring the balance sheet and off-balance sheet
portfolios to maximize net interest income while maintaining acceptable levels
of risk to changes in market interest rates. While achievement of this goal
requires a balance between profitability, liquidity and interest rate risk,
there are opportunities to enhance revenues through controlled risk.
Interest rate sensitivity analysis is performed monthly using various
simulations with an asset/liability modeling system. These analyses, as well as
repricing gap reports, are reviewed by Asset and Liability Committees (ALCO) at
affiliate banks and at the corporate level, whose actions attempt to minimize
any negative impact interest rate movements may have on net interest income.
Each ALCO committee reviews the impact of liquidity, loan and deposit pricing
compared to its competition, capital adequacy and rate sensitivity, among other
things, and determines appropriate policy direction to maintain or meet
established ALCO guidelines.
Gap is defined as the repricing difference between rate-sensitive assets
and liabilities within a given time period. A positive gap, or asset sensitive
position, indicates there are more rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specified time frames, which generally
has a favorable impact on net interest income in periods of rising interest
rates. Conversely, a negative gap or liability sensitive position would
generally imply a favorable impact on net interest income in periods of
declining interest rates. This type of analysis is at a point in time position,
when in fact that position can quickly change as market condition, customer
needs, and management strategies change. In periods of changing interest rates,
net interest income is not only impacted by the amounts of repricing assets and
liabilities, but also impacted by the rate at which repricings occur. Net
interest income may also be impacted by variances in prepayment of loans and
securities. Table 7 shows AMCORE's repricing differences as of December 31,
1996.
AMCORE had a liability sensitivity gap position in the 30 day period of
$222.1 million. The cumulative rate-sensitive gap position at one year was a
liability sensitive position of $794.1 million, which indicates a possible
benefit from falling interest rates; conversely, rising interest rates may have
a negative impact on net interest income.
Management also uses off-balance sheet derivative contracts to manage its
exposure to interest rate risk by modifying the existing interest rate risk
characteristics of on-balance sheet assets and liabilities. AMCORE does not have
any derivatives that are held or issued for trading purposes. The derivatives
utilized in the asset/liability management program predominately comprise
interest rate swap and floor contracts. The swap contracts are primarily
utilized to hedge the spread between deposit rates and earning assets with
floating rate characteristics. The floor contracts are utilized to provide
protection in the event of a decline in interest rates.
The swap contracts involve the exchange of fixed and floating interest rate
payments and are based on the notional amount of the contract. The floor
contracts are also based on the notional amount of the contract. These floor
contracts are purchased at a premium, which is amortized over the lives of the
contracts. The notional amount of the swap and floor contracts only identify the
size of the contracts and are used to calculate the interest payment amounts.
The only credit risk exposure AMCORE has is in relation to the counterparties
which all have high credit ratings. All counterparties were expected to meet any
outstanding interest payment obligations.
19
<PAGE> 20
The total notional amount of swap contracts outstanding was $145.0 million
and $28.1 million as of December 31, 1996 and 1995, respectively. As of the end
of 1996, these contracts had an aggregate negative fair value of $103,000. The
total notional amount of floor contracts outstanding was $50.0 million at
December 31, 1996, with $75.0 million outstanding floor contracts as of the end
of 1995. These contracts had a net positive fair value of $172,000 as of the end
of 1996. For further discussion of derivative contracts, see Notes 5 and 11 to
the Consolidated Financial Statements.
CAPITAL MANAGEMENT
Total stockholders' equity at December 31, 1996 was $220.6 million, an
increase of $10.8 million or 5.1%. Stockholders' equity includes an adjustment
to fair market value for securities classified as available for sale. The fair
market value of these securities declined $7.8 million during 1996. Without the
impact of this decline, stockholders' equity would have increased $18.6 million
or 9.1%.
AMCORE paid $9.1 million of cash dividends which represent $0.64 per share
or a dividend payout ratio of 34.5%. This compares to $0.58 per share paid in
1995 which represented a payout ratio of 37.4%, excluding the impairment and
merger related charges. The book value per share increased $0.66 per share to
$15.47 at December 31, 1996 from $14.81 at December 31, 1995.
AMCORE is considered a "well capitalized" institution based on regulatory
guidelines. AMCORE's leverage ratio of 7.51% at December 31, 1996 exceeds the
regulatory guidelines of 5% for well capitalized institutions. AMCORE's ratio of
tier 1 capital at 12.35% and total risk based capital at 13.23% significantly
exceed the regulatory minimums as the table below indicates as of December 31:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C> <C>
Tier 1 Capital............................... 210,384 12.35% 189,730 12.40%
Tier 1 Capital Minimum....................... 68,152 4.00% 61,187 4.00%
---------- ----- ---------- -----
Amount in Excess of Minimum.................. $ 142,232 8.35% $ 128,543 8.40%
========== ===== ========== =====
Total Capital................................ 225,381 13.23% 202,790 13.26%
Total Capital Minimum........................ 136,305 8.00% 122,375 8.00%
---------- ----- ---------- -----
Amount in Excess of Minimum.................. $ 89,076 5.23% $ 80,415 5.26%
========== ===== ========== =====
Risk adjusted assets......................... $1,703,808 $1,529,688
========== ==========
</TABLE>
20
<PAGE> 21
TABLE 1
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE BALANCE AVERAGE RATE
- ------------------------------------ ----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <S>
INTEREST EARNING ASSETS:
$ 855,502 $ 584,822 $ 522,562 6.70% 6.76% 6.13% Taxable securities(4)........................
260,099 229,693 245,216 8.10 8.03 7.88 Tax-exempt securities(1)(4)..................
- ---------- ---------- ---------- ---- ---- ----
$1,115,601 $ 814,515 $ 767,778 7.03% 7.12% 6.69% Total securities.............................
- ---------- ---------- ---------- ---- ---- ----
9,388 11,267 12,033 7.89 7.94 7.39 Mortgage loans held for sale(3)..............
1,369,030 1,228,175 1,088,206 8.82 8.93 8.36 Loans(1)(2)..................................
16,012 8,656 15,323 5.01 5.93 4.97 Other earning assets.........................
Fees on mortgage loans held for sale(3)......
- ---------- ---------- ---------- ---- ---- ----
$2,510,031 $2,062,613 $1,883,340 8.07% 8.30% 7.75% TOTAL EARNING ASSETS (FTE)...................
========== ========== ========== ==== ==== ====
INTEREST BEARING LIABILITIES:
Interest-bearing demand and savings
$ 590,496 $ 597,764 $ 645,017 2.47% 2.58% 2.31% deposits.....................................
999,183 924,580 812,324 5.87 5.70 4.72 Time deposits................................
- ---------- ---------- ---------- ---- ---- ----
$1,589,679 $1,522,344 $1,457,341 4.60% 4.47% 3.65% Total interest-bearing deposits..............
- ---------- ---------- ---------- ---- ---- ----
465,489 232,997 125,662 5.52 6.26 4.45 Short-term borrowings........................
150,099 29,458 27,598 6.01 6.96 7.46 Long-term borrowings.........................
6,040 5,122 4,413 8.16 7.69 7.70 Other........................................
- ---------- ---------- ---------- ---- ---- ----
$2,211,307 $1,789,921 $1,615,014 4.90% 4.75% 3.79% TOTAL INTEREST-BEARING LIABILITIES...........
========== ========== ========== ---- ---- ----
3.17% 3.55% 3.96% INTEREST RATE SPREAD (FTE)...................
NET INTEREST MARGIN/
3.75% 4.17% 4.50% NET INTEREST INCOME (FTE)....................
==== ==== ====
<CAPTION>
1996/1995 1995/1994
INTEREST EARNED CHANGE CHANGE
OR PAID DUE TO DUE TO
- ------------------------------ ------------------ -----------------
1996 1995 1994 VOLUME RATE VOLUME RATE
---- ---- ---- ------ ---- ------ ----
<C> <C> <C> <C> <C> <C> <C>
$ 57,327 $ 39,530 $ 32,030 $ 18,141 $ (344) $ 4,027 $ 3,473
21,072 18,437 19,311 2,462 173 (1,240) 366
- -------- -------- -------- -------- ------- ------- -------
$ 78,399 $ 57,967 $ 51,341 $ 21,168 $ (736) $ 2,787 $ 3,839
- -------- -------- -------- -------- ------- ------- -------
741 895 889 (148) (6) (59) 65
120,710 109,725 90,958 12,436 (1,451) 12,223 6,544
802 513 761 378 (89) (375) 127
1,870 2,076 2,004 (52) (154) (182) 254
- -------- -------- -------- -------- ------- ------- -------
$202,522 $171,176 $145,953 $ 36,217 $(4,871) $14,437 $10,786
======== ======== ======== ======== ======= ======= =======
$ 14,581 $ 15,397 $ 14,894 $ (159) $ (657) $(1,140) $ 1,643
58,616 52,665 38,308 4,343 1,608 5,733 8,624
- -------- -------- -------- -------- ------- ------- -------
$ 73,197 $ 68,062 $ 53,202 $ 3,063 $ 2,072 $ 2,461 $12,399
- -------- -------- -------- -------- ------- ------- -------
25,680 14,574 5,595 13,007 (1,901) 6,094 2,885
9,023 2,050 2,058 7,289 (316) 134 (142)
493 394 340 74 25 55 (1)
- -------- -------- -------- -------- ------- ------- -------
$108,393 $ 85,080 $ 61,195 $ 20,576 $ 2,737 $ 7,130 $16,755
- -------- -------- -------- -------- ------- ------- -------
$ 94,129 $ 86,096 $ 84,758 $ 15,641 $(7,608) $ 7,307 $(5,969)
======== ======== ======== ======== ======= ======= =======
</TABLE>
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
- ---------------
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The balances of nonaccrual loans are included in average loans outstanding.
Interest on loans includes yield related loan fees.
(3) The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during the
period in which they are warehoused for sale as shown above.
(4) The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
21
<PAGE> 22
TABLE 2
ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural............ $ 366,826 $ 347,996 $ 304,835 $ 289,767 $ 289,092
Banker's acceptances, commercial paper and term
fed funds....................................... -- -- -- -- 9,987
Real estate....................................... 735,633 651,495 580,311 485,369 459,857
Real estate-construction.......................... 42,917 33,797 24,380 12,997 15,574
Installment and consumer.......................... 310,143 256,092 261,209 263,311 237,880
Direct lease financing............................ 1,861 811 361 715 976
---------- ---------- ---------- ---------- ----------
Gross Loans..................................... $1,457,380 $1,290,191 $1,171,096 $1,052,159 $1,013,366
Unearned income................................. (1,163) (4,230) (9,226) (16,317) (17,120)
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income................... $1,456,217 $1,285,961 $1,161,870 $1,035,842 $ 996,246
Allowance for loan and lease losses............. (14,996) (13,061) (13,302) (14,482) (14,080)
---------- ---------- ---------- ---------- ----------
NET LOANS......................................... $1,441,221 $1,272,900 $1,148,568 $1,021,360 $ 982,166
========== ========== ========== ========== ==========
SUMMARY OF LOAN LOSS EXPERIENCE:
Allowance for loan and lease losses, beginning.... $ 13,061 $ 13,302 $ 14,482 $ 14,080 $ 10,545
Amounts charged-off:
Commercial, financial and agricultural.......... 395 818 801 1,094 2,144
Real estate..................................... 257 1,024 173 269 117
Installment and consumer........................ 3,709 2,199 1,996 1,563 2,227
Direct lease financing.......................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Charge-offs........................... $ 4,361 $ 4,041 $ 2,970 $ 2,926 $ 4,488
---------- ---------- ---------- ---------- ----------
Recoveries on amounts previously charged off:
Commercial, financial and agricultural.......... 157 404 452 404 863
Real estate..................................... 268 15 54 154 37
Installment and consumer........................ 785 689 656 646 650
Direct lease financing.......................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Recoveries............................ $ 1,210 $ 1,108 $ 1,162 $ 1,204 $ 1,550
---------- ---------- ---------- ---------- ----------
Net Charge-offs............................. $ 3,151 $ 2,933 $ 1,808 $ 1,722 $ 2,938
Provision charged to expense...................... 5,086 2,692 628 2,124 5,547
Addition due to purchase of subsidiary............ -- -- -- -- 1,719
Reduction due to sale of subsidiary............... -- -- -- -- (793)
---------- ---------- ---------- ---------- ----------
ALLOWANCE FOR LOAN AND LEASE LOSSES, ENDING... $ 14,996 $ 13,061 $ 13,302 $ 14,482 $ 14,080
========== ========== ========== ========== ==========
NON-PERFORMING LOANS AT YEAR-END:
Non-accrual....................................... $ 9,556 $ 10,432 $ 10,536 $ 11,644 $ 9,856
Restructured...................................... 283 2,491 2,296 1,371 563
---------- ---------- ---------- ---------- ----------
TOTAL NON-PERFORMING LOANS.................... $ 9,839 $ 12,923 $ 12,832 $ 13,015 $ 10,419
========== ========== ========== ========== ==========
Past due 90 days or more not included above....... $ 3,181 $ 1,301 $ 846 $ 1,816 $ 1,542
========== ========== ========== ========== ==========
RATIOS:
Allowance for loan and lease losses to year-end
loans........................................... 1.03% 1.02% 1.14% 1.40% 1.41%
Allowance to non-performing loans................. 152.41 101.07 103.66 111.27 135.14
Net charge-offs to average loans.................. 0.23 0.24 0.17 0.17 0.32
Recoveries to charge-offs......................... 27.75 27.42 39.12 41.15 34.54
Non-performing loans to loans, net of unearned
income.......................................... 0.68 1.00 1.10 1.26 1.05
</TABLE>
The allocation of the allowance for loan and lease losses at December 31,
1996, 1995, 1994, 1993, and 1992 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- -------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
LOANS IN LOANS IN LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT
------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural... $ 4,201 25.3% $ 4,860 27.0% $ 3,910 26.0% $ 4,873 27.5% $ 5,753
Real estate.......... 2,307 53.4 2,079 53.1 2,214 50.5 1,513 47.4 671
Installment and
consumer........... 3,171 21.3 2,268 19.8 2,485 23.5 2,195 25.1 2,719
Impaired loans....... 944 * 670 * * * * * *
Unallocated.......... 4,373 * 3,184 * 4,693 * 5,901 * 4,937
------- ----- ------- ----- ------- ----- ------- ----- -------
TOTAL............ $14,996 100.0% $13,061 100.0% $13,302 100.0% $14,482 100.0% $14,080
======= ===== ======= ===== ======= ===== ======= ===== =======
<CAPTION>
1992
----------
PERCENT
OF
LOANS IN
CATEGORY
--------
<S> <C>
Commercial, financial
and agricultural... 29.6%
Real estate.......... 46.9
Installment and
consumer........... 23.5
Impaired loans....... *
Unallocated.......... *
-----
TOTAL............ 100.0%
=====
</TABLE>
* Not applicable
22
<PAGE> 23
TABLE 3
MATURITY AND INTEREST SENSITIVITY OF LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
LOANS DUE AFTER
TIME REMAINING TO MATURITY ONE YEAR
--------------------------------- --------------------
ONE AFTER FIXED FLOATING
DUE WITHIN TO FIVE FIVE INTEREST INTEREST
ONE YEAR YEARS YEARS TOTAL RATE RATE
---------- ------- ----- ----- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............ $217,232 $135,202 $14,392 $366,826 $ 96,198 $53,397
Real
estate-construction..... 20,481 21,196 1,240 42,917 13,649 8,787
-------- -------- ------- -------- -------- -------
TOTAL........... $237,713 $156,398 $15,632 $409,743 $109,847 $62,184
======== ======== ======= ======== ======== =======
</TABLE>
TABLE 4
THREE-YEAR COMPARISON OF AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities.............. $ 848,326 31.6% $ 583,372 26.0% $ 520,507 25.2%
Tax-exempt securities........... 260,833 9.7 228,802 10.2 244,251 11.9
Other earning assets............ 16,012 0.6 8,656 0.4 15,323 0.7
Mortgage loans held for sale.... 9,388 0.4 11,267 0.5 12,033 0.6
Loans and leases, net of
unearned income.............. 1,369,030 51.0 1,228,175 54.7 1,088,206 52.8
---------- ----- ---------- ----- ---------- -----
Total Earning Assets.... $2,503,589 93.3% $2,060,272 91.8% $1,880,320 91.2%
Non-earning assets...... 179,002 6.7 185,623 8.2 182,277 8.8
---------- ----- ---------- ----- ---------- -----
TOTAL ASSETS............ $2,682,591 100.0% $2,245,895 100.0% $2,062,597 100.0%
========== ===== ========== ===== ========== =====
LIABILITIES AND STOCKHOLDERS'
EQUITY:
LIABILITIES:
Interest bearing deposits....... $1,589,679 59.3% $1,522,344 67.8% $1,457,341 70.6%
Non-interest bearing deposits... 239,241 8.9 242,083 10.8 248,834 12.1
---------- ----- ---------- ----- ---------- -----
Total Deposits.......... $1,828,920 68.2% $1,764,427 78.6% $1,706,175 82.7%
---------- ----- ---------- ----- ---------- -----
Short-term borrowings........... $ 465,489 17.4 $ 232,997 10.4 $ 125,662 6.1
Long-term borrowings............ 150,099 5.6 29,458 1.3 27,598 1.3
Other liabilities............... 30,466 1.1 24,467 1.0 19,991 1.0
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES....... $2,474,974 92.3% $2,051,349 91.3% $1,879,426 91.1%
STOCKHOLDERS' EQUITY.... 207,617 7.7 194,546 8.7 183,171 8.9
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY................ $2,682,591 100.0% $2,245,895 100.0% $2,062,597 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
23
<PAGE> 24
TABLE 5
MATURITY OF SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------
U.S. STATES AND CORPORATE
GOVERNMENT POLITICAL OBLIGATIONS
U.S. TREASURY AGENCIES SUBDIVISIONS(1) AND OTHER TOTAL
---------------- ---------------- ---------------- ---------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
One year or less........... $ 250 6.58% -- -- $ 1,703 10.80% $ 111 8.08% $ 2,064 10.15%
After one through five
years.................... 1,397 5.96 -- -- 2,079 7.82 102 8.86 3,578 7.12
After five through ten
years.................... -- -- -- -- 1,647 8.26 -- -- 1,647 8.26
After ten years............ -- -- -- -- 75 6.65 3,004 5.49 3,079 5.52
-------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
Total Securities Held
to Maturity.......... $ 1,647 6.05% -- -- $ 5,504 8.86% $ 3,217 5.69% $ 10,368 7.43%
-------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
Securities Available for
Sale(3):
One year or less........... $ 47,819 6.58% $ 2,399 5.28% 15,779 7.96% $ 17,315 5.83% $ 83,312 6.65%
After one through five
years.................... 50,992 6.22 27,741 6.05 66,388 7.26 14,525 6.27 159,646 6.62
After five through ten
years.................... -- -- 99,120 6.93 89,532 7.50 904 6.22 189,556 7.19
After ten years............ -- -- 1,000 8.03 94,857 8.27 22,324 5.65 118,181 7.77
Mortgage-backed
securities(2)............ -- -- 545,058 7.11 -- -- 42,598 7.59 587,656 7.15
-------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
Total Securities
Available for Sale... $ 98,811 6.40% $675,318 7.04% $266,556 7.74% $ 97,666 6.63% $1,138,351 7.11%
-------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
Total Securities....... $100,458 6.39% $675,318 7.04% $272,060 7.76% $100,883 6.60% $1,148,719 7.11%
======== ===== ======== ===== ======== ===== ======== ===== ========== =====
</TABLE>
- ---------------
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) Mortgage-backed security maturities may differ from contractual maturities
because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included within the maturity
categories above.
(3) Yields were calculated excluding the effects of FAS No. 115.
TABLE 6
MATURITY OF TIME DEPOSITS OVER $100,000
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
TIME REMAINING TO MATURITY
------------------------------------------------------------------------
DUE WITHIN THREE TO SIX TO AFTER
THREE MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TOTAL
------------ ---------- ------------- ------------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit.... $102,475 $51,141 $44,589 $135,205 $333,410
Other time deposits........ 12,474 140 300 838 13,752
-------- ------- ------- -------- --------
TOTAL............ $114,949 $51,281 $44,889 $136,043 $347,162
======== ======= ======= ======== ========
</TABLE>
24
<PAGE> 25
TABLE 7
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 OVER 1
DAYS DAYS DAYS DAYS YEAR TOTAL
---- ----- ------ ------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning deposits in
banks........................... $ 156 $ -- $ -- $ -- $ -- $ 156
Federal funds sold and other
short-term investments.......... 12,706 -- -- -- -- 12,706
Mortgage loans held for sale...... 7,876 3,376 -- -- -- 11,252
Investment securities............. 90,513 23,450 50,140 58,745 925,871 1,148,719
Net loans......................... 390,366 58,227 78,521 153,638 775,465 1,456,217
--------- --------- --------- --------- ---------- ----------
Total Earning Assets......... $ 501,617 $ 85,053 $ 128,661 $ 212,383 $1,701,336 $2,629,050
========= ========= ========= ========= ========== ==========
Interest-bearing deposits......... $ 688,609 $ 199,357 $ 181,749 $ 159,281 $ 396,594 $1,625,590
Short-term borrowings............. 86,219 362,279 5,260 87,149 3,601 544,508
Long-term borrowings.............. 13,903 7 5 18,000 92,180 124,095
--------- --------- --------- --------- ---------- ----------
Total Interest-Bearing
Liabilities................ $ 788,731 $ 561,643 $ 187,014 $ 264,430 $ 492,375 $2,294,193
--------- --------- --------- --------- ---------- ----------
Net Asset (Liability) Repricing
Difference...................... (287,114) (476,590) (58,353) (52,047) 1,208,961 $ 334,857
--------- --------- --------- --------- ---------- ==========
Effect of asset and liability
management interest rate
swaps........................... 65,000 80,000 -- (65,000) (80,000)
--------- --------- --------- --------- ----------
Adjusted Net Asset (Liability)
Repricing Difference............ $(222,114) $(396,590) $ (58,353) $(117,047) $1,128,961
========= ========= ========= ========= ==========
Cumulative Asset (Liability)
Repricing Difference............ $(222,114) $(618,704) $(677,057) $(794,104) $ 334,857
========= ========= ========= ========= ==========
Cumulative Asset (Liability)
Repricing Difference as a
Percent of Earning Assets....... (8.4)% (23.5)% (25.8)% (30.2)% 12.7%
========= ========= ========= ========= ==========
</TABLE>
- ---------------
Earning assets and interest-bearing liabilities are placed in sensitivity
categories based on contractual maturity or repricing dates. Non-maturing
interest-bearing deposits such as NOW and money-market accounts are placed in
the 1-30 days maturity category, as they are subject to immediate repricing.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1996 1995
---- ----
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 87,740 $ 101,082
Interest earning deposits in banks.......................... 156 260
Federal funds sold and other short-term investments......... 12,706 9,050
Mortgage loans held for sale................................ 11,252 15,801
Securities available for sale............................... 1,138,351 884,044
Securities held to maturity (fair value of $10,455 in 1996;
$24,967 in 1995).......................................... 10,368 24,625
---------- ----------
Total securities (Note 3)......................... $1,148,719 $ 908,669
Loans and leases, net of unearned income.................... 1,456,217 1,285,961
Allowance for loan and lease losses......................... (14,996) (13,061)
---------- ----------
Net loans and leases (Note 4)..................... $1,441,221 $1,272,900
Premises and equipment, net (Note 6)........................ 46,060 49,670
Intangible assets, net...................................... 12,255 14,314
Other real estate owned..................................... 595 2,116
Other assets................................................ 53,846 44,670
---------- ----------
TOTAL ASSETS...................................... $2,814,550 $2,418,532
========== ==========
LIABILITIES
Deposits:
Interest bearing.......................................... $1,625,590 $1,512,473
Non-interest bearing...................................... 264,426 265,232
---------- ----------
Total deposits.................................... $1,890,016 $1,777,705
Short-term borrowings (Note 9).............................. 544,508 292,042
Long-term borrowings (Note 10).............................. 124,095 107,803
Other liabilities........................................... 35,294 31,120
---------- ----------
TOTAL LIABILITIES................................. $2,593,913 $2,208,670
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares;
issued none............................................... $ -- $ --
Common stock, $.33 par value: authorized 30,000,000 shares;
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C> <C> <C>
Issued 14,926,695 14,926,695
Outstanding 14,265,977 14,174,183 ........... 4,976 4,976
Additional paid-in capital.................................. 56,687 56,412
Retained earnings (Notes 10 and 12)......................... 166,602 149,315
Deferred Compensation Non-Employee Directors................ (715) (640)
Treasury stock.............................................. (4,908) (6,019)
Net unrealized gain (loss) on securities available for sale,
net of taxes.............................................. (2,005) 5,818
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ $ 220,637 $ 209,862
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $2,814,550 $2,418,532
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases....................... $120,497 $109,488 $ 90,719
Interest on securities:
Taxable................................................... 57,327 39,530 32,030
Tax-exempt................................................ 13,697 11,984 12,552
-------- -------- --------
Total Income from Securities...................... $ 71,024 $ 51,514 $ 44,582
Interest on federal funds sold and other short-term
investments............................................... 768 490 585
Interest and fees on mortgage loans held for sale........... 2,611 2,971 2,893
Interest on deposits in banks............................... 34 23 176
-------- -------- --------
TOTAL INTEREST INCOME............................. $194,934 $164,486 $138,955
INTEREST EXPENSE
Interest on deposits........................................ $ 73,197 $ 68,062 $ 53,202
Interest on short-term borrowings........................... 25,680 14,574 5,595
Interest on long-term borrowings............................ 9,023 2,050 2,058
Other....................................................... 493 394 340
-------- -------- --------
TOTAL INTEREST EXPENSE............................ $108,393 $ 85,080 $ 61,195
-------- -------- --------
NET INTEREST INCOME............................... $ 86,541 $ 79,406 $ 77,760
Provision for loan and lease losses (Note 4)................ 5,086 2,692 628
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES.................................................... $ 81,455 $ 76,714 $ 77,132
NON-INTEREST INCOME
Trust and asset management income........................... $ 13,602 $ 11,864 $ 11,535
Service charges on deposits................................. 6,755 6,986 6,742
Mortgage revenues........................................... 3,667 3,584 3,687
Insurance revenues.......................................... 2,038 1,015 845
Collection fee income....................................... 2,145 1,831 1,700
Other....................................................... 8,366 6,435 5,617
-------- -------- --------
TOTAL NON-INTEREST INCOME, EXCLUDING NET
REALIZED SECURITY GAINS......................... $ 36,573 $ 31,715 $ 30,126
Net realized security gains................................. 1,870 2,298 908
-------- -------- --------
TOTAL NON-INTEREST INCOME......................... $ 38,443 $ 34,013 $ 31,034
OPERATING EXPENSES
Compensation expense........................................ $ 36,671 $ 36,416 $ 32,659
Employee benefits........................................... 10,396 9,246 8,726
Net occupancy expense....................................... 5,285 5,068 4,739
Equipment expense........................................... 7,515 8,229 6,276
Professional fees........................................... 2,503 2,733 3,370
Advertising and business development........................ 2,274 2,437 2,377
Amortization of intangible assets........................... 2,059 2,331 2,585
Impairment of long-lived assets (Note 7).................... -- 3,269 --
Other....................................................... 17,294 17,711 17,958
-------- -------- --------
TOTAL OPERATING EXPENSES.......................... $ 83,997 $ 87,440 $ 78,690
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. $ 35,901 $ 23,287 $ 29,476
Income taxes (Note 14)...................................... 9,518 5,016 7,675
-------- -------- --------
NET INCOME.................................................. $ 26,383 $ 18,271 $ 21,801
======== ======== ========
EARNINGS PER COMMON SHARE................................... $ 1.86 $ 1.30 $ 1.55
DIVIDENDS PER COMMON SHARE.................................. 0.64 0.58 0.55
AVERAGE COMMON SHARES OUTSTANDING........................... 14,214 14,083 14,023
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL DEFERRED COMP. GAIN (LOSS) TOTAL
COMMON PAID-IN RETAINED NON-EMPLOYEE TREASURY ON SECURITIES STOCKHOLDERS'
STOCK CAPITAL EARNINGS DIRECTORS STOCK AFS(1) EQUITY
------ ---------- -------- -------------- -------- -------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........ $4,970 $56,502 $125,120 $(516) $(8,461) $ -- $177,615
Recognition of unrealized gain on
securities available for sale,
net of tax...................... -- -- -- -- -- 6,408 6,408
Net Income........................ -- -- 21,801 -- -- -- 21,801
Cash dividends on common
stock--$.55 per share........... -- -- (7,678) -- -- -- (7,678)
Proceeds from sale of 17,203
shares of common stock.......... 6 83 -- -- -- -- 89
Reissuance of 4,032 treasury
shares for Non-Employee
Directors stock plan............ -- 36 -- (103) 67 -- --
Non-Employee Directors
compensation expense............ -- -- -- 360 -- -- 360
Reissuance of 22,533 treasury
shares under incentive stock
option plans.................... -- (88) 2 -- 357 -- 271
Net change in unrealized gains
(losses) on securities available
for sale, net of tax............ -- -- -- -- -- (12,707) (12,707)
------ ------- -------- ----- ------- -------- --------
Balance at December 31, 1994........ $4,976 $56,533 $139,245 $(259) $(8,037) $ (6,299) $186,159
------ ------- -------- ----- ------- -------- --------
Net Income........................ -- -- 18,271 -- -- -- 18,271
Cash dividends on common
stock--$.58 per share........... -- -- (8,199) -- -- -- (8,199)
Reissuance of 36,622 treasury
shares for Non-Employee
Directors stock plan............ -- 120 -- (661) 541 -- --
Non-Employee Directors
compensation expense............ -- -- -- 280 -- -- 280
Reissuance of 97,881 treasury
shares under incentive stock
option plans.................... -- (241) (2) -- 1,477 -- 1,234
Net change in unrealized gains
(losses) on securities available
for sale, net of tax............ -- -- -- -- -- 12,117 12,117
------ ------- -------- ----- ------- -------- --------
Balance at December 31, 1995........ $4,976 $56,412 $149,315 $(640) $(6,019) $ 5,818 $209,862
------ ------- -------- ----- ------- -------- --------
Net Income........................ -- -- 26,383 -- -- -- 26,383
Cash dividends on common
stock--$.64 per share........... -- -- (9,096) -- -- -- (9,096)
Reissuance of 26,371 treasury
shares for Non-Employee
Directors stock plan............ -- 205 -- (542) 337 -- --
Non-Employee Directors
compensation expense............ -- -- -- 467 -- -- 467
Reissuance of 65,423 treasury
shares under incentive stock
option plans.................... -- 70 -- -- 774 -- 844
Net change in unrealized gains
(losses) on securities available
for sale, net of tax............ -- -- -- -- -- (7,823) (7,823)
------ ------- -------- ----- ------- -------- --------
Balance at December 31, 1996........ $4,976 $56,687 $166,602 $(715) $(4,908) $ (2,005) $220,637
====== ======= ======== ===== ======= ======== ========
</TABLE>
- ---------------
(1) Net unrealized gain (loss) on AFS (securities available for sale), net of
taxes.
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 26,383 $ 18,271 $ 21,801
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and
equipment........................................... 4,940 4,854 4,474
Amortization and accretion of securities, net.......... 3,180 694 3,762
Provision for loan and lease losses.................... 5,086 2,692 628
Amortization of intangible assets...................... 2,059 2,331 2,585
Gain on sale of securities available for sale.......... (1,978) (2,429) (1,465)
Loss on sale of securities available for sale.......... 108 127 578
Gain on sale of securities held to maturity............ -- -- (100)
Loss on sale of securities held to maturity............ -- -- 40
Gain on sale of trading securities..................... -- (1) (3)
Loss on sale of trading securities..................... -- 5 42
Purchase of trading securities......................... (536) (8,017) (475)
Proceeds from sale of trading securities............... 536 8,013 1,745
Gain on sale of merchant bankcard processing........... (1,400) -- --
Impairment of long-lived assets........................ -- 3,269 --
Write-down of other real estate owned.................. 22 540 --
Non-employee directors compensation expense............ 467 280 360
Deferred income taxes.................................. (58) (1,784) (28)
Originations of mortgage loans held for sale........... (159,149) (163,537) (178,673)
Proceeds from sales of mortgage loans held for sale.... 163,698 157,920 192,302
Other, net............................................. 1,460 (906) (1,319)
--------- --------- ---------
Net cash provided by operating activities...... $ 44,818 $ 22,322 $ 46,254
========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities................... $ 178,223 $ 172,705 $ 163,903
Proceeds from sales of securities available for sale..... 190,398 242,520 81,981
Proceeds from sales of securities held to maturity....... -- -- 9,586
Purchase of securities held to maturity.................. (816) (65,727) (70,561)
Purchase of securities available for sale................ (622,109) (452,597) (250,434)
Net (increase)decrease in federal funds sold and other
short-term investments................................. (3,656) (3,394) 6,226
Net decrease in interest earning deposits in banks....... 104 248 3,850
Proceeds from the sale of merchant bankcard processing... 1,400 -- --
Proceeds from the sale of consumer finance loans and
leases................................................. 5,997 -- --
Net increase in loans and leases......................... (179,882) (129,639) (128,259)
Proceeds from the sale of premises and equipment......... 1,921 300 735
Premises and equipment expenditures...................... (4,861) (7,244) (9,773)
Proceeds from the sale of other real estate owned........ 2,468 1,559 304
--------- --------- ---------
Net cash required for investing activities..... $(430,813) $(241,269) $(192,442)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits and savings
accounts.................................................. $ (6,918) $ 6,189 $ 14,551
Net increase in time deposits............................... 119,229 63,957 49,326
Net increase in short-term borrowings....................... 197,966 83,517 95,179
Proceeds from long-term borrowings.......................... 74,500 88,250 80
Payment of long-term borrowings............................. (3,872) (7,120) (5,765)
Dividends paid.............................................. (9,096) (8,199) (7,678)
Proceeds from sale of common stock.......................... -- -- 89
Proceeds from exercise of incentive stock options........... 844 1,234 271
-------- -------- --------
Net cash provided by financing activities............ $372,653 $227,828 $146,053
-------- -------- --------
Net change in cash and cash equivalents..................... $(13,342) $ 8,881 $ (135)
Cash and cash equivalents:
Beginning of year......................................... 101,082 92,201 92,336
-------- -------- --------
End of period............................................. $ 87,740 $101,082 $ 92,201
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors............................... $ 70,714 $ 65,730 $ 52,642
Interest paid on borrowings............................... 33,040 15,692 7,349
Income taxes paid......................................... 10,244 6,192 8,956
NON-CASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans........... 864 2,615 578
Transfer of short-term investments to securities available
for sale.................................................. -- -- 10,307
Transfer of investment securities to securities available
for sale.................................................. -- -- 198,643
Transfer of investment securities to securities held to
maturity.................................................. -- -- 518,790
Transfer of securities held to maturity to available for
sale...................................................... -- 398,331 --
Transfer of securities available for sale to held to
maturity.................................................. -- -- 66,488
Unamortized unrealized loss on securities transferred from
available for sale to held to maturity, net of tax........ -- -- 1,425
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of AMCORE Financial, Inc. and
subsidiaries (Company) conform to generally accepted accounting principles. The
preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ from those estimates. The following is a
summary of the more significant accounting policies of the Company.
DESCRIPTION OF THE BUSINESS
The Company is a multi-bank holding company located in northern Illinois
and conducts its principal business activities with businesses and individuals
located within this market area. The primary business of the Company is the
extension of credit and the collection of deposits with commercial and
financial, agricultural, real estate and consumer loan customers throughout
northern Illinois. Although the Company has a diversified loan portfolio,
adverse changes in the local economy would have a direct impact on the credit
risk in the portfolio.
The Company also offers a variety of financial services through its
financial services subsidiaries. These include mortgage banking, personal and
employee benefit trust administration for individuals, estates and corporations,
consumer finance, investment management, brokerage, insurance, debt collection
services and the reinsurance of credit life and accident and health insurance in
conjunction with the lending activities of the Company's bank subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash on hand,
amounts due from banks, and cash items in process of clearing to be cash and
cash equivalents. Cash flows for federal funds sold and other short-term
investments, interest earning deposits in banks, demand deposits and savings
accounts, time deposits and short-term borrowings are reported net.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
recorded at the lower of cost or estimated market value in the aggregate. Gains
and losses on the sale of mortgage loans are included in other non-interest
income.
SECURITIES
Securities are classified into three categories: held to maturity,
available for sale and trading. Securities held to maturity are reported at
amortized historical cost using the level yield method for the amortization and
accretion of premiums and discounts. Securities classified as available for sale
are recorded at fair value with unrealized gains and losses recorded as a
component of stockholders' equity, net of the related income tax effect. Trading
securities are recorded at fair value with unrealized gains and losses recorded
in earnings. There were no trading securities outstanding at December 31, 1996
and 1995.
Realized gains and losses on all securities are recognized by the specific
identification method upon sale or when values are deemed to be other than
temporarily impaired.
31
<PAGE> 32
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, approximately $398,331,000 of securities classified as
held to maturity were reclassified into the available for sale category. This
transfer was done in response to the FASB's decision to allow companies a
one-time opportunity to reclassify their security portfolios. This
reclassification will significantly improve the flexibility in managing interest
and liquidity risks. While this may cause additional fluctuations in the
unrealized gain or loss component of total stockholders' equity, it has no
impact on regulatory risk-based capital calculations.
LOANS AND LEASES
Loans and leases are carried at their principal amount outstanding plus any
unamortized net deferred origination costs or less any unamortized net deferred
origination fees less unearned income. Interest on commercial, real estate, and
certain installment and consumer loans is accrued and recognized as income based
upon the outstanding principal amount and the contractual interest rate of each
loan. Unearned interest on discounted installment loans has been recognized as
income using methods which approximate level rates of return over the terms of
the loans. Loan origination fees and certain direct origination costs on loans
retained in the portfolio are deferred and amortized over the expected life of
each loan as an adjustment of the related loan's yield.
Loans measured for impairment as described in FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," include commercial, financial,
agricultural, real estate commercial and real estate construction loans. Loans
are considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Impairment is measured based on the
present value of expected future cash flows, or alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral-dependent, and for which management has
determined foreclosure is probable, the measure of impairment is based on the
fair value of the collateral.
The accrual of interest income for impaired loans is discontinued when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans reduce the principal balance, and
no interest income is recognized until the remaining principal balance is
considered fully collectible. An impaired loan is returned to accrual status
when management determines that the borrower's financial condition has improved
such that both the remaining principal and interest are deemed collectible. In
the event that it is determined that collection of an impaired loan is remote,
the loan is charged-off.
The Company considers consumer loans and residential real estate loans to
be smaller balance, homogeneous loans which are exempt from impairment
measurement per FAS No. 114. These types of loans, except for credit card and
consumer finance receivables, are placed on non-accrual when payment becomes 90
days past due. In most instances, a charge-off is recorded when a consumer or
residential real estate loan becomes 180 days past due. See Note 4 for a
breakdown of impaired and non-accrual loans.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is established through a provision
charged to expense. Loans and leases are charged against the allowance when
management believes the collectibility of principal is unlikely. The allowance
is an amount that management estimates will be adequate to absorb possible
future losses on existing loans and leases. The evaluation of the allowance is
based on past loan loss experience, regular evaluation of the collectiblity by
management, lending officers and corporate loan review staff, overall loan
quality, the nature of and size of the portfolio, review of specific problem
loans, and current and anticipated economic conditions that may affect the
borrower's ability to pay. While management uses the best information available
to make its evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions or other factors.
32
<PAGE> 33
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment including leasehold improvements are stated at cost
less accumulated depreciation and amortization. Depreciation is computed
principally on the straight-line method over the estimated useful life of the
assets. Leasehold improvements are being amortized using the straight-line
method over the terms of the respective leases or their useful lives, whichever
is shorter.
INTANGIBLE ASSETS
Certain intangible assets, such as core deposit intangibles and goodwill,
have arisen from the purchase of subsidiaries. Core deposit intangibles
represent a valuation of acquired deposit relationships and are being amortized
based on the present value of the future net income or cost savings derived from
the related deposits over an original period ranging from six to twelve years.
Goodwill represents the excess of the purchase price over the fair value of the
identifiable net assets acquired and is being amortized over a maximum of
fifteen years using the straight-line method.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of real properties acquired in partial
or full satisfaction of loans. These properties are carried as other assets at
the lower of cost or fair market value less estimated costs to sell the
properties. When the property is acquired through foreclosure, any excess of the
related loan balance over the adjusted fair market value less expected sales
costs, is charged against the allowance for loan and lease losses. Subsequent
write-downs or gains and losses upon sale, if any, are charged to other
operating expense.
MORTGAGE SERVICING RIGHTS
The value of mortgage servicing rights either attained through the
origination of mortgage loans or the purchase of a servicing rights portfolio
are recognized as separate capitalized assets. When the originated mortgage
loans are sold or securitized into the secondary market, the Company allocates
the total cost of the mortgage loans between mortgage servicing rights and the
loans, based on their relative fair values. The cost of mortgage servicing
rights is amortized in proportion to, and over the period of, estimated net
servicing revenues.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, the servicing rights are stratified into pools
based on one or more predominant risk characteristics of the underlying loans
including loan type, interest rate, term and geographic location. Impairment
represents the excess of carrying value of a stratified pool over its fair
value, and is recognized through a valuation allowance. The fair value of each
servicing rights pool is evaluated based on the present value of estimated
future cash flows using a discount rate commensurate with the risk associated
with that pool, given current market conditions. Estimates of fair value include
assumptions about prepayment speeds, interest rates, and other factors which are
subject to change over time. Changes in these underlying assumptions could cause
the fair value of mortgage servicing rights, and the related valuation
allowance, to change significantly in the future.
The Company retains the servicing rights on certain loans sold for which
the stated servicing income exceeds a normal servicing income. Mortgage loans
sales which result in an average contractual interest rate, adjusted for normal
servicing fees, that differs from the agreed yield to the purchaser, gains or
losses are recognized equal to the present value of such differential over the
estimated life of such loans. The resulting difference, or excess servicing, is
capitalized and amortized over the estimated life using a method approximating
the interest method. The unamortized balance is periodically evaluated in
relation to estimated future net servicing revenues, taking into consideration
changes in interest rates, current prepayment speeds and expected future cash
flows.
33
<PAGE> 34
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. A review of these assets in
1995 resulted in an impairment charge of $3,269,000, as explained in Note 7.
TRUST ASSETS
Assets that are held by subsidiaries in a fiduciary or agency capacity are
not included in the consolidated financial statements as they are not assets of
the Company.
INTEREST RATE CONTRACTS
Interest rate swap agreements and other derivative contracts are used to
manage interest rate exposure by hedging certain assets and liabilities. Income
and expense are accrued under the terms of the agreements based on expected
settlement payments, and are recorded as a component of net interest income.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE
Earnings per share is based on dividing net income by the weighted average
number of shares of common stock outstanding during the periods, as adjusted for
common stock equivalents. Common stock equivalents consist of shares issuable
under options granted pursuant to incentive stock option plans. The
fully-dilutive effect of common equivalents on earnings per share was less than
3% for all years presented. Earnings per share amounts have been restated to
give effect to mergers accounted for as a pooling of interests.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued FAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities", which distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. A transfer of financial assets
in which the transferor surrenders control over those assets is accounted for as
a sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. The statement also establishes
standards on the initial recognition and measurement of servicing assets and
other retained interests and servicing liabilities, and their subsequent
measurement.
FAS No. 125 requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. In addition, the statement requires that a liability be
derecognized only if the debtor is relieved of its obligation through payment to
the creditor or by being legally released from being the primary obligor under
the liability either judicially or by the creditor.
This statement clarifies that a debt security may not be classified as held
to maturity if it can be prepaid or otherwise settled in such a way that the
holder of the security would not recover substantially all of its
34
<PAGE> 35
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded investment. In addition, this statement extends to all servicing assets
and liabilities the accounting standards for mortgage servicing rights related
to the recognition, amortization and measurement of impairment previously
issued.
FAS No. 125 is effective for transactions occurring after December 31,
1996, except for transactions relating to secured borrowings and collateral for
which the effective date is December 31, 1997. As a result of this statement,
subsequent to year end, the Company changed its method of evaluating for
impairment of purchase mortgage servicing rights and deferred excess servicing
rights, previously on an undiscounted basis, to a method similar to that used
for originated mortgage servicing rights. Under this method, the fair value is
evaluated based on the present value of estimated future cash flows using a
discount rate commensurate with the associated risk. During January 1997, the
Company reduced the carrying value of deferred excess servicing rights by
$742,000.
NOTE 2--MERGERS AND ACQUISITIONS
Mergers occurred during the reported periods as follows:
On May 24, 1995, NBM Bancorp, Inc. (NBM), a two-bank holding company,
merged into the Company, which issued 6.829 common shares for each of the
240,000 outstanding NBM shares for a total of 1,638,960 shares. At the date of
the merger, NBM had total assets of approximately $166 million.
On December 19, 1994, NBA Holding Company of Aledo, Illinois (NBA), a
one-bank holding company, merged into the Company, which issued 1,020,000 shares
of common stock in exchange for all of the 10,000 outstanding shares of NBA
stock. NBA had total assets of approximately $95 million at the date of the
merger.
On August 1, 1994, First State Bancorp of Princeton, Illinois, Inc. (FSB),
a three-bank holding company, merged into the Company, which issued 1.835 common
shares for each of the 527,422 outstanding FSB shares for a total of 967,819
shares. FSB had total assets of approximately $160 million at the date of the
merger.
Each of these mergers was accounted for as a pooling of interests and,
accordingly, all financial statements and related financial information of the
Company have been restated to include NBM, NBA and FSB.
PENDING MERGERS
On October 30, 1996, the Company signed a definitive agreement to merge
with First National Bancorp, Inc. (FNB), a one-bank holding company with assets
of approximately $215 million. FNB, headquartered in Monroe, Wisconsin, has five
locations in South-Central Wisconsin. The transaction is subject to normal
regulatory approval and was approved by FNB shareholders on February 10, 1997.
The terms of the transaction require the Company to exchange 7.54 shares of
common stock for each of the 249,413 outstanding shares of FNB stock. The
transaction is expected to close in April 1997 and will be accounted for as a
pooling of interests.
On January 30, 1997, the Company signed a definitive agreement to merge
with Country Bank Shares Corporation (CBSC), a six-bank holding company with
assets of approximately $300 million. CBSC, headquartered in Mt. Horeb,
Wisconsin, has nine locations in South-Central Wisconsin. The transaction is
subject to normal regulatory approval and must be approved by CBSC shareholders.
The terms of the transaction require the Company to exchange 4.3267 shares of
common stock in exchange for each of the 439,698 outstanding shares of CBSC
stock. The transaction is expected to close in mid-1997 and will be accounted
for as a pooling of interests.
35
<PAGE> 36
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the pro forma results for each presented period
had the merger occurred in 1996:
<TABLE>
<CAPTION>
AMCORE PRO FORMA PRO
FINANCIAL FNB CBSC ADJUSTMENTS(1) FORMA
--------- --- ---- -------------- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Net interest income............... $86,541 $8,118 $11,114 $ -- $105,773
Provision for loan losses......... 5,086 120 221 -- 5,427
Non-interest income............... 38,443 1,622 2,075 -- 42,140
Operating expense................. 83,997 5,611 8,841 -- 98,449
Income taxes...................... 9,518 1,192 1,451 78 12,239
------- ------ ------- ---- --------
Net income................ $26,383 $2,817 $ 2,676 $(78) $ 31,798
======= ====== ======= ==== ========
Earnings per share................ $ 1.86 $11.43 $ 6.17 -- $ 1.77
Year ended December 31, 1995:
Net interest income............... $79,406 $7,683 $10,622 $ -- $ 97,711
Provision for loan losses......... 2,692 61 412 -- 3,165
Non-interest income............... 34,013 1,318 1,598 -- 36,929
Operating expense................. 87,440 5,558 8,246 -- 101,244
Income taxes...................... 5,016 936 1,254 65 7,271
------- ------ ------- ---- --------
Net income................ $18,271 $2,446 $ 2,308 $(65) $ 22,960
======= ====== ======= ==== ========
Earnings per share................ $ 1.30 $10.07 $ 5.32 $ -- $ 1.28
Year ended December 31, 1994:
Net interest income............... $77,760 $7,560 $10,053 $ -- $ 95,373
Provision for loan losses......... 628 -- 1,134 -- 1,762
Non-interest income............... 31,034 1,380 1,675 -- 34,089
Operating expense................. 78,690 5,893 8,064 -- 92,647
Income taxes...................... 7,675 825 820 48 9,368
------- ------ ------- ---- --------
Net income................ $21,801 $2,222 $ 1,710 $(48) $ 25,685
======= ====== ======= ==== ========
Earnings per share................ $ 1.55 $ 9.04 $ 3.94 $ -- $ 1.44
</TABLE>
- ---------------
(1) Pro forma tax expense adjustments reflect an increase in the marginal
federal tax rate from 34% to 35%.
36
<PAGE> 37
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SECURITIES
A summary of securities at December 31, 1996, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1996
Securities Available for Sale:
U.S. Treasury............................... $ 98,746 $ 494 $ (429) $ 98,811
U.S. Government agencies.................... 133,768 168 (3,676) 130,260
Mortgage-backed securities.................. 547,765 2,494 (5,201) 545,058
State and political subdivisions............ 263,341 4,545 (1,330) 266,556
Corporate obligations and other............. 98,098 223 (655) 97,666
---------- ------- -------- ----------
Total Securities Available for Sale....... $1,141,718 $ 7,924 $(11,291) $1,138,351
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury............................... $ 1,647 $ 5 $ (4) $ 1,648
State and political subdivisions............ 5,504 92 (11) 5,585
Corporate obligations and other............. 3,217 5 -- 3,222
---------- ------- -------- ----------
Total Securities Held to Maturity......... $ 10,368 $ 102 $ (15) $ 10,455
---------- ------- -------- ----------
Total Securities....................... $1,152,086 $ 8,026 $(11,306) $1,148,806
========== ======= ======== ==========
At December 31, 1995:
Securities Available for Sale:
U.S. Treasury............................... $ 110,382 $ 1,342 $ (197) $ 111,527
U.S. Government agencies.................... 54,128 543 (153) 54,518
Mortgage-backed securities.................. 415,125 4,174 (634) 418,665
State and political subdivisions............ 218,273 5,418 (1,064) 222,627
Corporate obligations and other............. 76,546 562 (401) 76,707
---------- ------- -------- ----------
Total Securities Available for Sale....... $ 874,454 $12,039 $ (2,449) $ 884,044
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury............................... $ 7,601 $ 25 $ (6) $ 7,620
State and political subdivisions............ 9,233 318 (20) 9,531
Corporate obligations and other............. 7,791 25 -- 7,816
---------- ------- -------- ----------
Total Securities Held to Maturity......... $ 24,625 $ 368 $ (26) $ 24,967
---------- ------- -------- ----------
Total Securities....................... $ 899,079 $12,407 $ (2,475) $ 909,011
========== ======= ======== ==========
At December 31, 1994:
Securities Available for Sale:
U.S. Treasury............................... $ 98,687 $ 39 $ (2,303) $ 96,423
U.S. Government agencies.................... 13,960 33 (440) 13,553
Mortgage-backed securities.................. 148,811 195 (4,253) 144,753
State and political subdivisions............ 28,110 408 (713) 27,805
Corporate obligations and other............. 36,466 56 (810) 35,712
---------- ------- -------- ----------
Total Securities Available for Sale....... $ 326,034 $ 731 $ (8,519) $ 318,246
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury............................... $ 52,883 $ 85 $ (2,542) $ 50,426
U.S. Government agencies.................... 51,455 21 (2,912) 48,564
Mortgage-backed securities.................. 123,495 2,602 (7,655) 118,442
State and political subdivisions............ 206,972 436 (9,946) 197,462
Corporate obligations and other............. 31,406 7 (1,852) 29,561
---------- ------- -------- ----------
Total Securities Held to Maturity......... $ 466,211 $ 3,151 $(24,907) $ 444,455
---------- ------- -------- ----------
Total Securities....................... $ 792,245 $ 3,882 $(33,426) $ 762,701
========== ======= ======== ==========
</TABLE>
37
<PAGE> 38
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of both securities held to maturity and
securities available for sale as of December 31, 1996, by contractual maturity
are shown below. Mortgage-backed security maturities may differ from contractual
maturities because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................ $ 83,311 $ 83,312 $ 2,064 $ 2,086
Due after one year through five years.............. 158,626 159,646 3,578 3,605
Due after five years through ten years............. 191,778 189,556 1,647 1,685
Due after ten years................................ 117,303 118,181 3,079 3,079
Mortgage-backed securities......................... 590,700 587,656 -- --
---------- ---------- ------- -------
Total Securities......................... $1,141,718 $1,138,351 $10,368 $10,455
========== ========== ======= =======
</TABLE>
At December 31, 1996, 1995, and 1994, securities with a fair value of
approximately $747,566,000, $541,391,000 and $382,455,000, respectively, were
pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes required by law.
NOTE 4--LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of the loan and lease portfolio at December 31, 1996 and
1995, was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 366,826 $ 347,996
Real estate-construction.................................... 42,917 33,797
Real estate-commercial...................................... 356,516 284,069
Real estate-residential..................................... 379,117 367,426
Installment and consumer.................................... 310,143 256,092
Direct lease financing...................................... 1,861 811
---------- ----------
Gross loans and leases.................................... $1,457,380 $1,290,191
Unearned income........................................... (1,163) (4,230)
---------- ----------
Loans and leases, net of unearned income.................. $1,456,217 $1,285,961
Allowance for loan and lease losses....................... (14,996) (13,061)
---------- ----------
NET LOANS AND LEASES.............................. $1,441,221 $1,272,900
========== ==========
</TABLE>
38
<PAGE> 39
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nonperforming loan information as of and for the years ended December 31,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Impaired Loans:
Non-accrual Loans:
Commercial............................................. $ 4,092 $ 3,434
Real estate............................................ 2,843 4,107
Troubled debt restructurings.............................. 283 2,491
Other Nonperforming:
Non-accrual loans(1)...................................... 2,621 2,891
Other real estate owned................................... 595 2,116
------- -------
Total Nonperforming Assets.................................. $10,434 $15,039
======= =======
Loans 90 days or more past due and still accruing......... $ 3,181 $ 1,301
</TABLE>
- ---------------
(1) These loans are not considered impaired since they are part of a small
balance homogeneous portfolio which are exempt from FAS No. 114.
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Allowance provided for impaired loans, included in the
allowance for loan losses................................. $ 944 $ 670
Average recorded investment in impaired loans............... 10,194 9,626
Interest income recognized from impaired loans.............. 344 306
</TABLE>
Non-accrual and restructured loans and leases had the following effect on
interest income for the year ended December 31, 1994:
<TABLE>
<CAPTION>
1994
----
(IN THOUSANDS)
<S> <C>
Income recognized........................................... $ 430
Income that would have been recognized in accordance with
the original terms........................................ 1,066
</TABLE>
An analysis of the allowance for loan and lease losses for the years ended
December 31, 1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................ $13,061 $13,302 $14,482
Provision charged to expense............................ 5,086 2,692 628
Loans charged off....................................... (4,361) (4,041) (2,970)
Recoveries on loans previously charged off.............. 1,210 1,108 1,162
------- ------- -------
BALANCE AT END OF YEAR........................ $14,996 $13,061 $13,302
======= ======= =======
</TABLE>
The Company's subsidiaries have had, and are expected to have in the
future, banking transactions with directors, executive officers, their immediate
families and affiliated companies in which they are a principal stockholder
(commonly referred to as related parties). These transactions were made in the
ordinary course of business on substantially the same terms as comparable
transactions with other borrowers.
39
<PAGE> 40
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Related party loan transactions during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $ 25,987 $ 26,438
New loans................................................... 101,785 21,551
Repayments.................................................. (91,671) (22,002)
-------- --------
BALANCE AT END OF YEAR............................ $ 36,101 $ 25,987
======== ========
</TABLE>
NOTE 5--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been estimated by the Company using
available market information and appropriate valuation methodologies as
discussed below. Considerable judgement was required, however, to interpret
market data to develop the estimates of fair value. Accordingly, the estimates
presented below are not necessarily indicative of the amounts the Company could
realize in a current market exchange.
The following table shows the carrying amounts and estimated fair values of
financial instruments at December 31, 1996 and 1995 that have liquid markets in
which fair value is assumed to be equal to the carrying amount, or have readily
available quoted market prices, or are based on quoted prices for similar
financial instruments:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 87,740 $ 87,740 $101,082 $101,082
Interest earning deposits in banks......... 156 156 260 260
Federal funds sold and other short-term
investments.............................. 12,706 12,706 9,050 9,050
Mortgage loans held for sale............... 11,252 11,547 15,801 16,225
Securities available for sale.............. 1,138,351 1,138,351 844,044 844,044
Securities held to maturity................ 10,368 10,455 24,625 24,967
</TABLE>
The carrying amounts and estimated fair values of accruing loans and leases
at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural.......................... $ 362,734 $ 366,988 $ 344,562 $ 356,853
Real estate............................. 774,209 782,359 679,603 686,322
Installment and consumer, net........... 307,857 306,577 250,553 250,278
Direct lease financing.................. 1,861 1,880 811 816
---------- ---------- ---------- ----------
Total loans................... $1,446,661 $1,457,804 $1,275,529 $1,294,269
========== ========== ========== ==========
</TABLE>
Fair values of loans were estimated for portfolios of loans with similar
characteristics. Loans were segregated by type as shown above and then each
category was further segmented into fixed and floating interest rate terms. The
fair value of fixed-rate loans, excluding residential real-estate loans, was
calculated by discounting contractual cash flows using estimated market discount
rates which reflect the credit and interest rate risk inherent in the loan. The
cash flows were further reduced by estimated prepayment assumptions. Fair
40
<PAGE> 41
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value for residential real-estate loans was estimated by discounting estimated
future cash flows, adjusted for prepayment estimates, using market discount
rates based on secondary market sources. Cash flow assumptions for credit card
loans did not include the value of new receivables generated from existing
cardholders over the remaining estimated life of the portfolio, thus
understating the value of the entire credit card relationship. The fair value of
non-accrual loans with a recorded book value of $9.6 million and $10.4 million
in 1996 and 1995, respectively, was not estimated because it was not practicable
to reasonably assess the credit adjustment that would be applied in the
marketplace for such loans.
The following table shows the carrying amounts and estimated fair values of
financial instrument liabilities and other off-balance sheet financial
instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits and savings...................... $ 851,955 $ 851,955 $858,873 $858,873
Time deposits.................................... 1,038,061 1,051,616 918,832 932,864
Short-term borrowings............................ 544,508 545,746 292,042 292,677
Long-term borrowings............................. 124,095 124,095 107,803 107,803
Commitments to extend credit..................... $ -- $ (372) $ -- $ (297)
Standby letters of credit........................ (234) (568) (44) (201)
Interest rate swap agreements.................... (20) (103) (12) (68)
Interest rate floor agreements................... 147 172 126 829
Forward contracts................................ -- (102) -- (104)
</TABLE>
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, NOW and money market accounts, is equal to the
carrying amount. There is, however, considerable additional value to the core
deposits of the Company, a significant portion of which has not been recognized
in the financial statements. This value results from the cost savings of these
core funding sources versus obtaining higher-rate funding in the market. The
fair value of time deposits was determined by discounting contractual cash flows
using currently offered rates for deposits with similar remaining maturities.
The estimated fair value of both accrued interest receivable and accrued
interest payable was considered to be equal to the carrying value. The fair
value of off-balance sheet instruments was estimated based on the amount the
Company would pay to terminate the contracts or agreements, using current rates
and, when appropriate, the current creditworthiness of the customer. The
off-balance sheet carrying amounts shown above represent accruals or deferred
fees arising from those unrecognized financial instruments.
The above fair value estimates were made at a discrete point in time based
on relevant market information and other assumptions about the financial
instruments. As no active market exists for a significant portion of the
Company's financial instruments, fair value estimates were based on judgements
regarding current economic conditions, future expected cash flows and loss
experience, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and therefore cannot be
calculated with precision. Changes in these assumptions could significantly
affect these estimates. In addition, the fair value estimates are based on
existing on and off-balance sheet financial instruments without attempting to
assess the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
investments in subsidiaries, specifically the trust, mortgage and brokerage
operations, are not considered financial instruments and the franchise values
have not been included in the fair value estimates. Similarly, premises and
equipment and intangible assets have not been considered.
41
<PAGE> 42
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 8,572 $ 8,508
Buildings and improvements............................... 41,433 47,362
Furniture and equipment.................................. 32,227 30,135
Leasehold improvements................................... 5,187 4,261
Construction in progress................................. 285 1,703
-------- --------
Total premises and equipment............................. $ 87,704 $ 91,969
Accumulated depreciation and amortization................ (41,644) (42,299)
-------- --------
PREMISES AND EQUIPMENT, NET.................... $ 46,060 $ 49,670
======== ========
</TABLE>
NOTE 7--IMPAIRMENT OF LONG-LIVED ASSETS
The Company recognized an impairment charge in 1995 totaling $3,269,000 in
conjunction with the adoption of FAS No. 121--"Accounting for the Impairment of
Long-Lived Assets". This charge resulted from changes in circumstances that
indicated the carrying values of assets noted below may not be fully
recoverable. The charge was comprised of the following:
<TABLE>
<CAPTION>
1995
AMOUNT
------
(IN THOUSANDS)
<S> <C>
Customer list intangibles and goodwill......... $1,674
Bank facilities................................ 1,595
------
Total impairment charge...................... $3,269
======
</TABLE>
The write-down of the customer list intangible at the collection agency was
based on an analysis of net revenues from the original acquired customer list.
The fair value of the customer list intangible and related goodwill was
calculated by estimating future cash flows from the original acquired customer
list. This analysis demonstrated a reduction of profitability from the original
customer base, which was caused by a loss of customers and reduced volumes from
other customers. Accordingly, the remaining unamortized balance of the customer
list intangible was considered to be partially impaired and was written-down by
$669,000. The entire unamortized balance of goodwill totaling $865,000 was
written-off, as the goodwill was directly identified with the impaired customer
list. The remaining unamortized customer list intangible acquired from a local
insurance agency, with a balance of $140,000, was written-off. This write-off
was primarily caused by an analysis of the performance since the August 1994
acquisition, which disclosed lower than anticipated renewal rates in comparison
to historical experience prior to the acquisition.
The write-down of bank facilities was based on the results of engineering
studies and appraisals conducted in 1995 that identified concerns regarding the
suitability of the buildings as income producing properties. As a result, the
Company vacated non-banking related tenants and began activities to dispose of
the buildings. The write-down was based on an estimate of future benefits from
the continuing use of the properties as bank facilities.
NOTE 8--MORTGAGE SERVICING RIGHTS
The unpaid principal balance of mortgage loans serviced for others, which
are not included on the consolidated balance sheets, was $921,920,000 and
$874,069,000 at December 31, 1996 and 1995, respectively. Of this amount, the
Company has recorded both originated and purchased capitalized mortgage
42
<PAGE> 43
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
servicing rights, as shown below, on mortgage loans serviced balance of
$480,083,000 as of December 31, 1996. The remaining balance of originated loans
sold and serviced for others also have servicing rights associated with them;
however, these servicing rights arose prior to the adoption of FAS No. 122, and
accordingly, have not been capitalized.
The carrying value and fair value of capitalized mortgage servicing rights
consisted of the following as of December 31, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Unamortized cost of mortgage servicing rights............... $4,910 $4,485
Valuation allowance......................................... -- (147)
------ ------
Carrying value of mortgage servicing rights............... $4,910 $4,338
====== ======
Fair value of mortgage servicing rights................... $5,282 $6,821
====== ======
</TABLE>
The following is an analysis of the activity for mortgage servicing rights
and the related valuation allowance for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year................................ $4,485 $1,022
Additions of purchased mortgage servicing rights............ -- 2,715
Additions of originated mortgage servicing rights........... 1,086 1,088
Amortization................................................ (661) (340)
------ ------
Balance at end of year.................................... $4,910 $4,485
====== ======
VALUATION ALLOWANCE
Balance at beginning of year................................ $ 147 $ --
Impairment allowance charged to expense..................... 76 147
Recoveries on impairments................................... (223)
------ ------
Balance at end of year.................................... $ -- $ 147
====== ======
</TABLE>
NOTE 9--SHORT-TERM BORROWINGS
At December 31, 1996, 1995 and 1994, short-term borrowings consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase......... $440,669 $243,057 $169,032
Federal Home Loan Bank borrowings...................... 70,841 28,341 2,841
Federal funds purchased................................ 14,800 12,759 33,300
U.S. Treasury tax and loan note accounts............... 3,743 4,200 3,115
Commercial paper borrowings............................ 14,455 3,150 --
Other short-term borrowings............................ -- 535 237
-------- -------- --------
TOTAL SHORT-TERM BORROWINGS.......................... $544,508 $292,042 $208,525
======== ======== ========
</TABLE>
43
<PAGE> 44
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional details on securities sold under agreements to repurchase are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Average balance during the year................... $397,296 $201,715 $ 98,660
Maximum month-end balance during the year......... 456,867 283,703 169,032
Weighted average rate during the year............. 5.55% 6.04% 4.40%
Weighted average rate at December 31.............. 5.37% 5.48% 5.65%
======== ======== ========
</TABLE>
The Company has a commercial paper agreement with an unrelated financial
institution that provides for the Company to issue non-rated short-term
unsecured debt obligations at negotiated rates and terms, not to exceed
$25,000,000. In the event the agent is unable to place the Company's commercial
paper on a particular day, the proceeds are provided by overnight borrowings on
a line of credit with the same financial institution. The commercial paper
agreement was primarily established for the purpose of funding consumer finance
receivables and mortgage loans held for sale.
NOTE 10--LONG-TERM BORROWINGS
Long-term borrowings consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Term loan................................................... $ 13,600 $ 17,000
Federal Home Loan Bank borrowings........................... 108,250 88,250
Other long-term borrowings.................................. 2,245 2,553
-------- --------
TOTAL LONG-TERM BORROWINGS........................ $124,095 $107,803
======== ========
</TABLE>
The term loan agreement ("Agreement") provides for semi-annual principal
payments and allows for several interest rate and funding period options. At
December 31, 1996, the interest rate was 7.125%. The term loan was paid in full
on March 25, 1997, with the proceeds of the capital securities discussed in Note
17 Subsequent Events.
The Agreement contained several restrictive covenants, including
restrictions on dividends to stockholders, maintenance of various capital
adequacy levels, and certain restrictions with regard to other indebtedness.
Generally, future dividends are limited to $5,000,000 plus 35% of cumulative
consolidated net income during the period from September 30, 1995 to the end of
the most recent reporting date. As of December 31, 1996, the Company had
$5,214,000 of unrestricted earnings available for additional dividends. All
capital adequacy ratios remained well above the required minimums.
Beginning in December 1995 and continuing throughout 1996, several of the
Company's subsidiary banks periodically borrowed additional funds from the
Federal Home Loan Bank in connection with the purchase of mortgage-backed
securities. The ending balance of the borrowings was $108,250,000 and
$88,250,000 at December 31, 1996 and 1995, respectively. The average maturity of
these borrowings at December 31, 1996 is 2.3 years, with a weighted average
borrowing rate of 5.83%.
Other long-term borrowings principally include a non-interest bearing note
from the January 1993 acquisition of a local collection agency, which had a
balance of $2,231,000 and $2,511,000 at December 31, 1996 and 1995,
respectively. The note requires annual principal payments of $444,000 through
2002. The note was discounted at an interest rate of 8.0%.
44
<PAGE> 45
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled reductions of long-term borrowings are as follows:
<TABLE>
<CAPTION>
TOTAL
-----
(IN THOUSANDS)
<S> <C>
1997........................................... $ 21,716
1998........................................... 38,726
1999........................................... 29,002
2000........................................... 33,780
2001........................................... 428
Thereafter..................................... 443
--------
TOTAL................................ $124,095
========
</TABLE>
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk.
Credit risk is the possibility that the Company will incur a loss due to
the other party's failure to perform under its contractual obligations. The
Company's exposure to credit loss in the event of non-performance by the other
party with regard to commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for actual extensions of credit. The credit risk involved for commitments
to extend credit and in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the customer. Collateral held varies but
may include accounts receivable, securities, inventory, property and equipment
and income-producing commercial properties.
Market risk is the possibility that, due to changes in interest rates or
other economic conditions, the Company's net interest income will be adversely
affected. The financial instruments utilized by the Company to manage this risk
include commitments to extend credit, standby letters of credit, interest rate
swaps and floors, and forward contracts. The contract or notional amounts of
these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments. The contract or notional amount of
interest rate swap and floor agreements and forward contracts do not represent
exposure to credit risk.
A summary of the contract amount of the Company's exposure to off-balance
sheet risk as of December 31, 1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Financial instruments whose contract amount represent credit
risk only:
Commitments to extend credit.............................. $380,642 $335,557
Standby letters of credit................................. 44,140 17,512
Financial instruments whose contract or notional amount
represent market risk only:
Interest rate floor agreements............................ 50,000 75,000
Interest rate swap agreements............................. 145,000 28,127
Forward contracts......................................... 14,267 13,820
</TABLE>
Commitments to extend credit are contractual agreements entered into with
customers as long as there is no violation of any condition established on the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected
45
<PAGE> 46
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The Company has no derivative financial instruments held or issued for
trading purposes. The derivative financial instruments with which the Company is
involved are utilized for purposes of asset/liability management to modify the
existing market risk characteristics of certain hedged assets and liabilities.
An interest rate swap agreement is the most common financial instrument used for
these purposes and involves the exchange of fixed and floating rate interest
payment obligations based on the underlying notional principal amounts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the agreements and not the notional principal amounts
used only to express the volume of the transactions. The Company's credit risk
on a swap agreement is limited to nonperformance of the counterparty's
obligations under the terms of the swap agreement. The Company deals exclusively
with counterparties that have high credit ratings, and based on management's
assessments, all counterparties were expected to meet any outstanding
obligations as of December 31, 1996.
Following is a table outlining the nature and terms of each swap agreement
as of December 31, 1996:
<TABLE>
<CAPTION>
NOTIONAL MATURITY
TYPE OF SWAP AMOUNT PAY RECEIVE DATE
------------ -------- --- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Rate.............................. $ 5,000 Fixed (5.500%) 3 Month LIBOR 06/15/98
Fixed Rate.............................. 15,000 Fixed (5.720%) 3 Month LIBOR 10/11/01
Fixed Rate.............................. 25,000 Fixed (5.255%) 3 Month LIBOR 03/08/99
Fixed Rate.............................. 40,000 Fixed (6.050%) 3 Month LIBOR 09/05/98
Fixed Rate.............................. 15,000 Fixed (5.560%) 3 Month LIBOR 10/18/98
Fixed Rate.............................. 10,000 Fixed (5.835%) 3 Month LIBOR 08/21/97
Fixed Rate.............................. 25,000 Fixed (8.520%) PRIME 12/23/00
Commercial Paper........................ 5,000 Fixed (5.980%) Commercial Paper 05/21/98
Commercial Paper........................ 5,000 Fixed (5.825%) Commercial Paper 10/09/98
</TABLE>
The $5,000 fixed rate swap agreement maturing 06/15/98 is used to hedge
market risk associated with the term loan agreement as discussed in Note 10. The
remaining fixed rate swap agreements of $105,000 where the Company receives 3
month LIBOR, are used to hedge market risk associated with the repurchase
agreements used in the investment leveraging program. The $25,000 fixed rate
swap agreement maturing 12/23/00 is used to hedge market risk associated with
fixed rate loans. The $10,000 of commercial paper swap agreements are used to
hedge market risk associated with the commercial paper borrowings as discussed
in Note 9. No collateral has been pledged by either party to any of these swap
transactions.
The Company is also party to various interest rate floor contracts with a
notional amount totaling $50,000,000. These contracts provide the Company with a
market risk hedge on the mortgage-backed security portfolio in the event of a
significant decline in interest rates.
Each of the interest rate swap agreements require a quarterly cash
settlement of the net difference between the calculated pay and receive amounts
on each transaction. The net difference between the calculated pay and receive
amounts is accrued on a monthly basis and recorded as an adjustment of the
interest income or expense of the asset or liability being hedged. Premiums paid
for the purchase of interest rate floor contracts are amortized over the
respective lives of the contracts. Each floor rate reprices quarterly and a cash
settlement is received from the counterparty and recorded as an adjustment to
interest income, if
46
<PAGE> 47
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the indexed rate falls below the floor rate. Any gains or losses on swap or
floor contracts closed out prior to the maturity date are recognized ratably
over the remaining life of the contract.
Forward contracts provide for future delivery or purchase of securities or
interest rate instruments. The Company's affiliates enter into forward contracts
in connection with specific customer transactions and to minimize the market
risk exposure of mortgage banking activities.
The Company periodically will sell options for the right to purchase
certain securities held in its investment portfolio to a bank or dealer. These
call option transactions are designed to reduce the total return volatility
associated with holding these assets and to yield additional fee income. The
type of risk associated with these transactions is opportunity cost risk. Any
option premium income generated by these transactions is deferred and recorded
upon either the expiration or exercise date of the option. If the option is
exercised by the purchaser, the premium income is recognized as a component of
the gain or loss on the underlying security. If the option expires unexercised,
the premium income is recognized as other non-interest income. There were no
call option agreements outstanding at December 31, 1996.
NOTE 12--RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Under current banking law, the banking subsidiaries of the Company are
limited in the amount of dividends they can pay without obtaining prior approval
from bank regulatory agencies. As of December 31, 1996, approximately
$33,651,000 was available for payment to the Company without prior regulatory
approval.
The subsidiaries are also limited as to the amount they may loan to the
Company unless such loans are collateralized by U.S. Treasury or agency
securities, a segregated deposit with the subsidiary or other specified
obligations. At December 31, 1996, the maximum amount available for transfer
from the subsidiaries to the Company in the form of loans approximated
$23,844,000.
NOTE 13--STOCK INCENTIVE AND EMPLOYEE BENEFIT PLANS
At December 31, 1996, the Company has three stock-based compensation plans
which are described below. Grants under those plans are accounted for following
APB Opinion No. 25 and related interpretations.
STOCK INCENTIVE PLANS. In 1995, stockholders approved the adoption of the
1995 Stock Incentive Plan (Plan). The Plan provides for the ability to grant
stock options, stock appreciation rights, performance units, and stock awards to
key employees. The total number of shares approved and available for issuance
under the Plan in its first year were 2.5% of the total shares of stock
outstanding as of the effective date and 1.5% of outstanding shares in each
subsequent Plan year not to exceed 350,000 in any year. Options to purchase
shares of common stock of the Company and performance units were granted to key
employees pursuant to both the Plan and previous stock incentive plans.
Stock Options. Non-Qualified Stock Options issued generally become
exercisable six months after the date of grant at an option price equal to the
fair market value of the shares on the grant date. The following table presents
certain information with respect to stock options issued pursuant to these
incentive plans. All options outstanding at year end are exercisable.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year........ 737,075 $15.35 674,956 $13.99 524,489 $12.08
Options granted................................. 233,750 20.00 160,000 19.07 173,000 19.50
Options exercised............................... (65,423) 12.90 (97,881) 12.01 (22,533) 11.91
Options lapsed.................................. (5,500) 19.52 -- -- -- --
------- ------ ------- ------ ------- ------
Options outstanding at end of year.............. 899,902 $16.71 737,075 $15.35 674,956 $13.99
======= ====== ======= ====== ======= ======
</TABLE>
47
<PAGE> 48
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Units. Performance Units (Units) granted entitle holders to
cash or stock payments if certain long term performance targets are met. The
payout range on all Units granted is $6.67 to $16.67 per unit. In addition, a
dividend is paid on each Unit at a rate equivalent to the rate of dividends paid
on each share of the Company's common stock. The expense related to these Units
for the years ended December 31, 1996, 1995 and 1994 was approximately $354,000,
$567,000 and $375,000, respectively. The following table presents certain
information with respect to issuances pursuant to these plans.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of year.......... 220,000 -- 210,408 -- 166,865 --
Units granted................................... 69,531 -- 81,442 -- 78,273 --
Units paid...................................... (70,497) $6.67 (64,770) $6.67 -- --
Units forfeited................................. -- -- (7,080) -- (34,730) --
------- ----- ------- ----- ------- -----
Units outstanding at end of year................ 219,034 -- 220,000 -- 210,408 --
======= ===== ======= ===== ======= =====
</TABLE>
The following table presents a summary of issuances pursuant to these
incentive plans.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at end of year.............. 899,902 $16.71 737,075 $15.35 674,956 $13.99
Units outstanding at end of year................ 219,034 -- 220,000 -- 210,408 --
Available to grant under Plan at year end....... 40,297 -- 130,540 -- 14,902 --
</TABLE>
In accordance with APB Opinion No. 25, no compensation cost has been
recognized for stock option grants to employees issued pursuant to the Plan. Had
compensation cost for these grants been determined based on the grant date fair
values of awards (the method described in FAS No. 123, "Accounting for Stock-
Based Compensation"), reported net income and earnings per common share would
have been reduced to the pro forma amounts shown below:
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996 and 1995, respectively: dividend rate of 3.20%
and 3.14%; price volatility of 21.71% and 33.96%; risk-free interest rates of
6.34% and 6.22%; and expected lives of 6.5 years for both years.
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net Income:
As reported............................................. $26,383 $18,271
Pro forma............................................... 25,698 17,671
Primary earnings per share:
As reported............................................. $ 1.86 $ 1.30
Pro forma............................................... 1.81 1.25
</TABLE>
DIRECTORS' STOCK PLANS. During 1989, the Company adopted the Restricted
Stock Plan for Non-Employee Directors (Stock Plan). The Stock Plan provides that
each current eligible non-employee director and each subsequently elected
non-employee director receive, in lieu of a cash retainer, shares of common
stock of the Company, the fair value of which is equal to three times the annual
retainer. The shares vest annually over a three-year period based upon the
anniversary date of the original award. The expense related to the Stock Plan
for the years ended December 31, 1996, 1995 and 1994 was approximately $467,000,
$280,000 and $360,000, respectively.
48
<PAGE> 49
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company pays a lifetime annual retainer to certain retired
directors. Effective January 1, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" to
account for these benefits. This statement requires employers to recognize
postretirement benefits on an accrual basis rather than on a cash basis. The
expense in 1996, 1995 and 1994 related to this statement was $107,000, $86,000
and $81,000, respectively. The transition obligation, representing the present
value of future payments at the adoption of the statement, was approximately
$842,000 and is being amortized over a twenty year period.
In 1994, stockholders approved the 1994 Stock Option Plan for Non-Employee
Directors (Option Plan). The Option Plan provides that each current eligible
non-employee director and each subsequently elected non-employee director
receive options to purchase common stock of the Company. Each option granted
under the Option Plan will have a ten-year term and will generally become
exercisable twelve months after the grant date at an option price equal to the
fair market value of the shares on the grant date. The following table presents
certain information with respect to stock options issued pursuant to the Option
Plan. At December 31, 1996, 42,500 options were exercisable.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................... 42,500 $19.31 9,000 $20.13 -- --
Options granted.......................... 50,000 20.00 34,500 19.13 9,000 $20.13
Options lapsed........................... (5,500) 19.84 (1,000) 20.13 -- --
------- ------ ------- ------ ------- ------
Options outstanding at end of year....... 87,000 $19.67 42,500 $19.31 9,000 $20.13
======= ====== ======= ====== ======= ======
Available to grant under Plan at year
end.................................... 113,000 -- 157,500 -- 191,000 --
======= ====== ======= ====== ======= ======
</TABLE>
OPTIONS SUMMARY. The following table presents certain information with
respect to issuances of stock options pursuant to all plans discussed above:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-------------------------------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ----------- ---------------- ----------------
<C> <S> <C> <C> <C>
$ 7.50 - 11.00 ...................................... 193,523 3.6 years $10.05
15.00 - 18.00 ...................................... 177,129 6.5 15.28
19.00 - 19.50 ...................................... 327,500 7.9 19.31
20.00 - 20.15 ...................................... 288,750 9.3 20.00
</TABLE>
EMPLOYEE BENEFIT PLANS. All subsidiaries of the Company participate in the
AMCORE Financial Security Plan (Security Plan), a qualified profit sharing plan
under Section 401(a) of the Internal Revenue Code. The Security Plan offers
participants a personal retirement account, profit sharing account and personal
savings account [401(k)]. The expense related to the Security Plan and other
similar plans from FSB and NBA for the years ended December 31, 1996, 1995 and
1994 was approximately $3,248,000, $2,374,000 and $2,233,000, respectively.
In addition to the Security Plan, certain health care and life insurance
benefits are made available to active employees. The cost of these benefits is
expensed as incurred.
49
<PAGE> 50
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14--INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Currently paid or payable................................... $9,576 $ 6,800 $7,703
Deferred.................................................... (58) (1,784) (28)
------ ------- ------
TOTAL............................................. $9,518 $ 5,016 $7,675
====== ======= ======
</TABLE>
The effective tax rates on income for 1996, 1995, and 1994 were 26.5 %,
21.5% and 26.0%, respectively. Income tax expense was less than the amounts
computed by applying the federal statutory rate of 35% due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory rate................................ $12,565 $ 8,150 $ 10,317
Increase (decrease) resulting from:
Tax-exempt income......................................... (4,190) (3,781) (4,193)
State income taxes, net of federal benefit................ 946 480 837
Other, net................................................ 197 167 714
------- ------- --------
TOTAL............................................. $ 9,518 $ 5,016 $ 7,675
======= ======= ========
</TABLE>
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred compensation..................................... $ 3,441 $ 3,214
Securities................................................ 1,132 --
Allowance for loan and lease losses....................... 5,829 4,846
Other..................................................... 1,093 2,196
------- -------
Total deferred tax assets.............................. $11,495 $10,256
------- -------
Deferred tax liabilities:
Securities................................................ $ -- $ 4,209
Premises and equipment.................................... 4,582 4,722
Other..................................................... 2,537 2,141
------- -------
Total deferred tax liabilities......................... $ 7,119 $11,072
------- -------
TOTAL DEFERRED TAX ASSET (LIABILITY)................... 4,376 (816)
Less: Tax effect of net unrealized (gain) loss on securities
available for sale reflected in stockholders' equity...... 1,362 (3,772)
------- -------
NET DEFERRED TAX ASSET................................. $ 3,014 $ 2,956
======= =======
</TABLE>
No valuation allowance was considered necessary.
50
<PAGE> 51
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15--CAPITAL REQUIREMENTS
The Company and its banking subsidiaries (Regulated Companies) are subject
to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Regulated Companies must meet
specific capital guidelines that involve quantitative measures of the their
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Their capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Regulated Companies to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital to risk-weighted assets,
and of Tier I capital to average assets. Management believes, as of December 31,
1996, that the Regulated Companies meet all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the OCC
categorized the Regulated Companies as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized a
company must maintain minimum total risk-based, Tier I risk based, Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Regulated
Companies' category.
51
<PAGE> 52
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's and each significant subsidiary's actual capital amounts and
ratios are presented in the table.
<TABLE>
<CAPTION>
FOR CAPITAL ADEQUACY PURPOSES
---------------------------------------
ACTUAL MINIMUM WELL CAPITALIZED
----------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (To Risk Weighted Assets):
CONSOLIDATED............................... $225,381 13.23% $136,305 >8.00% $170,381 >10.00%
- -
AMCORE Bank N.A. Rockford.................. 97,304 10.40 74,822 >8.00 93,527 >10.00
- -
AMCORE Bank N.A. Rock River Valley......... 51,202 14.88 27,526 >8.00 34,407 >10.00
- -
Tier 1 Capital (to Risk Weighted Assets):
CONSOLIDATED............................... $210,384 12.35% $ 68,152 >4.00% $102,228 >6.00%
- -
AMCORE Bank N.A. Rockford.................. 89,966 9.62 37,411 >4.00 56,116 >6.00
- -
AMCORE Bank N.A. Rock River Valley......... 47,968 13.94 13,763 >4.00 20,644 >6.00
- -
Tier 1 Capital (to Average Assets):
CONSOLIDATED............................... $210,384 7.51% $112,059 >4.00% $140,074 >5.00%
- -
AMCORE Bank N.A. Rockford.................. 89,966 6.14 58,649 >4.00 73,311 >5.00
- -
AMCORE Bank N.A. Rock River Valley......... 47,968 8.52 22,519 >4.00 28,149 >5.00
- -
As of December 31, 1995
Total Capital (to Risk Weighted Assets):
CONSOLIDATED............................... $202,790 13.26% $122,375 >8.00% $152,969 >10.00%
- -
AMCORE Bank N.A. Rockford.................. 88,138 10.25 68,800 >8.00 86,000 >10.00
- -
AMCORE Bank N.A. Rock River Valley......... 47,566 15.77 24,135 >8.00 30,169 >10.00
- -
Tier 1 Capital (to Risk Weighted Assets):
CONSOLIDATED............................... $189,730 12.40% $ 61,187 >4.00% $ 91,781 >6.00%
- -
AMCORE Bank N.A. Rockford.................. 81,861 9.52 34,400 >4.00 51,600 >6.00
- -
AMCORE Bank N.A. Rock River Valley......... 44,777 14.84 12,068 >4.00 18,101 >6.00
- -
Tier 1 Capital (to Average Assets):
CONSOLIDATED............................... $189,730 8.14% $ 93,200 >4.00% $116,500 >5.00%
- -
AMCORE Bank N.A. Rockford.................. 81,861 6.85 47,807 >4.00 59,759 >5.00
- -
AMCORE Bank N.A. Rock River Valley......... 44,777 9.02 19,860 >4.00 24,824 >5.00
- -
</TABLE>
52
<PAGE> 53
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16--CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 230 $ 1,293
Securities available for sale............................... 269 --
Securities held to maturity................................. 107 111
Short-term investments...................................... 2,000 --
Due from subsidiaries....................................... 1,188 357
Loans to financial services subsidiaries.................... 26,209 9,188
Investment in bank subsidiaries............................. 209,251 206,308
Investment in financial services subsidiaries............... 8,551 12,043
Premises and equipment, net................................. 2,791 3,801
Other assets................................................ 5,073 5,257
-------- --------
TOTAL ASSETS.............................................. $255,669 $238,358
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings....................................... $ 14,455 $ 3,150
Long-term borrowings........................................ 15,831 19,511
Other liabilities........................................... 4,746 5,835
-------- --------
TOTAL LIABILITIES......................................... $ 35,032 $ 28,496
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock............................................. $ -- $ --
Common stock................................................ 4,976 4,976
Additional paid-in capital.................................. 56,687 56,412
Retained earnings........................................... 166,602 149,315
Treasury stock and other.................................... (5,623) (6,659)
Net unrealized gain (loss) on securities available for sale,
net of taxes.............................................. (2,005) 5,818
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................ $220,637 $209,862
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $255,669 $238,358
======== ========
</TABLE>
53
<PAGE> 54
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries............................... $21,492 $14,740 $14,920
Interest income........................................... 1,260 484 451
Management fees and other................................. 18,833 11,434 10,993
------- ------- -------
TOTAL INCOME........................................... 41,585 26,658 26,364
------- ------- -------
Expenses:
Interest expense.......................................... $ 2,090 $ 1,909 $ 2,102
Compensation expense and employee benefits................ 12,846 10,187 7,649
Professional fees......................................... 1,192 1,058 1,001
Other..................................................... 8,871 6,917 5,664
------- ------- -------
TOTAL EXPENSES......................................... $24,999 $20,071 $16,416
------- ------- -------
Income before income tax benefits and equity in
undistributed net income of subsidiaries.................. $16,586 $ 6,587 $ 9,948
Income tax benefits....................................... (2,195) (3,592) (1,742)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries.............................................. $18,781 $10,179 $11,690
Equity in undistributed net income of subsidiaries.......... 7,602 8,092 10,111
------- ------- -------
NET INCOME............................................. $26,383 $18,271 $21,801
======= ======= =======
</TABLE>
54
<PAGE> 55
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 26,383 $18,271 $ 21,801
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,026 837 677
Non-employee directors compensation expense............ 467 280 360
Equity in undistributed net income of subsidiaries..... (7,602) (8,092) (10,111)
(Increase) decrease in due from subsidiaries........... (831) 247 (179)
(Increase) decrease in other assets.................... 184 (553) (2,218)
Increase (decrease) in other liabilities............... (1,089) 3,269 463
Other, net............................................. 471 393 53
-------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... $ 19,009 $14,652 $ 10,846
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities...................................... (345) (101) --
Proceeds from maturities of securities...................... 101 30 --
Net (increase) decrease in short term investments........... (2,000) 1,000 --
Dissolution of less-active state banking charters........... -- 2,000 --
Net investment made in subsidiaries......................... -- (1,000) (50)
Loans to subsidiaries....................................... (24,364) (5,748) (19,851)
Payments received on loans to subsidiaries.................. 7,343 780 23,631
Proceeds from sale of premises and equipment................ -- -- 53
Transfer of premises and equipment to affiliates............ 1,218 -- --
Premises and equipment expenditures......................... (1,234) (1,819) (1,372)
-------- ------- --------
NET CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES...................................... $(19,281) $(4,858) $ 2,411
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term borrowings....................... 11,305 3,150 --
Payment of long-term borrowings............................. (3,844) (5,444) (5,444)
Dividends paid.............................................. (9,096) (8,199) (7,678)
Proceeds from sale of common stock.......................... -- -- 89
Proceeds from exercise of incentive stock options........... 844 1,234 271
-------- ------- --------
NET CASH REQUIRED FOR FINANCING ACTIVITIES........ $ (791) $(9,259) $(12,762)
-------- ------- --------
Net change in cash and cash equivalents..................... $ (1,063) $ 535 $ 495
Cash and cash equivalents:
Beginning of year......................................... 1,293 758 263
-------- ------- --------
End of period............................................. $ 230 $ 1,293 $ 758
======== ======= ========
</TABLE>
55
<PAGE> 56
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17--SUBSEQUENT EVENTS
On January 17, 1997, the Company sold $13,234,000 of credit card
receivables to an unrelated financial institution. The sale resulted in a pretax
gain of $1,931,000.
On March 25, 1997, AMCORE issued $40 million of capital securities through
AMCORE Capital Trust I (the "Trust"), a statutory business trust, of which all
common securities are owned by AMCORE. The capital securities pay cumulative
cash distributions semiannually at an annual rate of 9.35%. The securities are
redeemable from March 1, 2007 until March 1, 2017 at a declining rate of
104.6750% to 100.0% of the principal amount. After March 1, 2017, they are
redeemable at par until June 15, 2027 when redemption is mandatory. Prior
redemption is permitted under certain circumstances, such as changes in tax or
regulatory capital rules. The proceeds of the capital securities were invested
by the Trust in junior subordinated debentures of AMCORE. AMCORE guarantees the
capital securities through the combined operation of the debentures and other
related documents. AMCORE's obligations under the guarantee are unsecured and
subordinate to senior and subordinated indebtedness of AMCORE.
The capital securities qualify as Tier I capital for regulatory capital
purposes. The proceeds of the issue will be used to repay in full the parent
company term debt, repay in full the long term borrowings of pending
acquisitions, and general corporate purposes.
56
<PAGE> 57
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have the audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years ended December
31, 1996, 1995 and 1994, in conformity with generally accepted accounting
principles.
In 1995, as described in Notes 1, 7 and 8 to the consolidated financial
statements, the Company changed its method of accounting for mortgage servicing
rights and for the impairment of long-lived assets.
MCGLADREY & PULLEN, LLP
Rockford, Illinois
January 20, 1997, except for the pending mergers in Note 2 as to which the date
is February 10, 1997 and for the subsequent event in Note 17 as to which the
date is March 25, 1997.
57
<PAGE> 58
CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income............. $44,637 $48,505 $50,507 $51,285 $38,260 $40,371 $42,432 $42,423
Interest expense............ 24,041 26,979 28,345 29,028 18,925 20,900 22,351 22,904
------- ------- ------- ------- ------- ------- ------- -------
Net interest income......... $20,596 $21,526 $22,162 $22,257 $19,335 $19,471 $20,081 $20,519
Provision for loan losses... 889 967 2,234 996 729 871 320 772
Non-interest income......... 8,954 9,006 11,144 9,339 8,046 8,357 8,453 9,157
Other expense............... 20,988 20,673 21,569 20,767 20,673 26,637 19,950 20,180
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes..................... $ 7,673 $ 8,892 $ 9,503 $ 9,833 $ 5,979 $ 320 $ 8,264 $ 8,724
Income taxes................ 2,043 2,435 2,597 2,443 1,362 (820) 2,024 2,450
------- ------- ------- ------- ------- ------- ------- -------
Net Income.................. $ 5,630 $ 6,457 $ 6,906 $ 7,390 $ 4,617 $ 1,140 $ 6,240 $ 6,274
======= ======= ======= ======= ======= ======= ======= =======
Per share data:
Earnings.................... $ 0.40 $ 0.45 $ 0.49 $ 0.52 $ 0.34 $ 0.08 $ 0.44 $ 0.44
Dividends................... 0.16 0.16 0.16 0.16 0.13 0.15 0.15 0.15
Stock price ranges- high.... 21.75 21.25 21.25 27.25 21.25 19.75 23.25 24.00
-low...... 20.25 19.50 18.88 20.38 18.25 17.00 18.50 19.75
-close.... 20.87 19.75 20.50 26.75 19.25 18.50 22.75 20.25
</TABLE>
- ---------------
Quotes have been obtained from the National Association of Security Dealers.
These quotes do not reflect retail mark-ups, mark-downs or commissions nor are
they necessarily representative of actual transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. The 1997 Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 27, 1997 is incorporated herein by
reference.
(b) Executive Officers of the Registrant. The information is presented in
Item 1 of this document.
ITEM 11. EXECUTIVE COMPENSATION
The 1997 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 27, 1997 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The 1997 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 27, 1997 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 1997 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 27, 1997 is incorporated herein by reference.
58
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of AMCORE are filed as a
part of this document under Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
(a)3. EXHIBITS
<TABLE>
<S> <C>
3. Amended and Restated Articles of Incorporation of AMCORE
Financial, Inc. dated May 1, 1990 (Incorporated by reference
to Exhibit 23 of AMCORE's Annual Report on Form 10-K for the
year ended December 31, 1989).
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990
(Incorporated by reference to Exhibit 3.1 of AMCORE's Annual
Report 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, 1996).
10.3A* Amended and Restated Transitional Compensation Agreement
dated June 1, 1996 between AMCORE Financial, Inc. and Robert
J. Mueleman. (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: F. Taylor Carlin, 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.)
</TABLE>
59
<PAGE> 60
10.3C* Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and the following
individuals: Charles E. Gagnier and Gerald W. Lister.
(Incorporated by reference to Exhibit 10.3C of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
10.3D* Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and the following
individuals: Kenneth E. Edge, William J. Hippensteel, Alan
W. Kennebeck and James F. Warsaw. (Incorporated by reference
to Exhibit 10.3D of AMCORE's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996).
10.4 Loan Agreement for $17,000,000 Term Loan and $25,000,000
Line of Credit Note dated November 10, 1995 with M & I
Marshall & Ilsley Bank (Incorporated by reference to Exhibit
10.5 to AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.5 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).
10.6* Executive Insurance Agreement dated March 1, 1996 between
AFI and the following executives: Robert J. Meuleman, F.
Taylor Carlin 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).
11 Statement Re-Computation of Per Share Earnings
13 1996 Summary Annual Report to Stockholders
21 Subsidiaries of the Registrant
22 1997 Notice of Annual Meeting of Stockholders and Proxy
Statement
24 Powers of Attorney
27 Financial Data Schedule
(b) One report on Form 8-K was filed with the Commission and dated January
31, 1997 announcing the signing of a definitive agreement for AMCORE to acquire
Country Bank Shares Corporation on January 30, 1997. (Incorporated by reference
to AMCORE's Form 8-K as filed with the Commission on January 31, 1997.)
- ---------------
* These exhibits are management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K.
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rockford, State of
Illinois, on this 27th day of March 1997.
AMCORE FINANCIAL, INC.
By: John Hecht
------------------------------------
John R. Hecht
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 27th day of March, 1997 by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
--------- -----
Robert Meuleman
- --------------------------------- President and Chief Executive Officer
Robert J. Meuleman (principal executive officer)
John Hecht
- --------------------------------- Senior Vice President and Chief Financial
John R. Hecht Officer
(principal financial officer and principal
accounting officer)
Directors: Milton R. Brown, Carl J. Dargene, Richard C. Dell, Robert A. Doyle,
Theresa Paulette Gilbert, Lawrence E. Gloyd, Robert A. Henry, Robert
J. Meuleman, Ted Ross, Robert J. Smuland, Jack D. Ward and Gary L.
Watson
Robert Meuleman
- ---------------------------------
Robert J. Meuleman
John Hecht
- ---------------------------------
John R. Hecht
- ------------
* Attorney in Fact*
61
<PAGE> 1
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED,
(in 000's) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
EARNINGS
Income applicable to common stock $26,383 $18,271 $21,801
SHARES
Weighted average number of common shares 14,214 14,083 14,023
Dilutive effect of outstanding options (as
determined by application of the treasury
stock method) 214 224 196
------- ------- -------
Weighted average number of shares, as adjusted 14,428 14,307 14,219
======= ======= =======
PRIMARY EARNINGS PER SHARE* $ 1.829 $ 1.277 $ 1.533
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
EARNINGS
Income applicable to common stock $26,383 $18,271 $21,801
SHARES
Weighted average number of shares, as adjusted
per primary computation above 14,428 14,307 14,219
Additional dilutive effect of outstanding options
(as determined by application of the treasury
stock method) 182 -- --
------- ------- -------
Weighted average number of shares, as adjusted 14,610 14,307 14,219
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE* $ 1.806 $ 1.277 $ 1.533
======= ======= =======
</TABLE>
* This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE> 1
A MID - AMERICAN SUCCESS STORY.
AMOCORE FINANCIAL, INC. SUMMARY ANNUAL REPORT 1996
<PAGE> 2
[MAP]
A MID-AMERICAN SUCCESS STORY.
AMCORE Financial, Inc. Summary Annual Report 1996
<PAGE> 3
IN 1996, AMCORE FINANCIAL ENJOYED A 21% INCREASE IN FINANCIAL PERFORMANCE AND
NEARED OUR GOAL OF 15% RETURN ON EQUITY. HOW HAVE WE DONE THIS? BY
UNDERSTANDING AND CATERING TO OUR UNIQUELY MIDDLE AMERICAN GEOGRAPHIC AND
MARKET NICHES BETTER THAN ANY OF OUR COMPETITORS. BEST OF ALL, THE BEST IS YET
TO COME. WE HIGHLY RECOMMEND YOU STAY TUNED.
<TABLE>
<S> <C>
TABLE OF CONTENTS
YEAR IN REVIEW 2
LETTER TO THE SHAREHOLDERS 4
REVIEW OF OPERATIONS
PERFORMANCE 8
GROWTH 12
MARKET 16
CONSOLIDATED FINANCIAL STATEMENTS 20
NOTICE OF ANNUAL MEETING 29
AMCORE FACILITY LOCATIONS 30
DIRECTORS OF AMCORE FINANCIAL 32
AMCORE EXECUTIVE STAFF 32
</TABLE>
By 1996, AMCORE Bank had grown to 41 strategically placed bank locations within
the state of Illinois.
Late in 1996, AMCORE Bank ventured into the world of inter-state banking with
two new acquisitions in the state of Wisconsin.*
*Expected to be completed mid-1997.
<PAGE> 4
FINANCIAL HIGHLIGHTS
AMCORE Financial, Inc. is a northern Illinois based bank holding company
with assets of over $2.8 billion. Its holdings include five subsidiary banks
operating in 41 locations. The company also has five primary financial services
subsidiaries: AMCORE Investment Group, N.A., which provides trust, broker
dealer and capital management services; AMCORE Mortgage, Inc.; AMCORE Consumer
Finance Company, Inc.; AMCORE Insurance Group, Inc.; and Rockford Mercantile
Agency, Inc., a bill collection service. AMCORE common stock is listed on
NASDAQ under the symbol "AMFI." Additional information is available from the
AMCORE home page: http://www.AMCORE.com on the Internet.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 % Change
--------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS:
--------------------------------------------------------------------------------
Net interest income $86,541 $79,406 8.99%
--------------------------------------------------------------------------------
Provision for loan and lease losses 5,086 2,692 88.93
--------------------------------------------------------------------------------
Non-interest income 38,443 34,013 13.02
--------------------------------------------------------------------------------
Operating expense 83,997 87,440 -3.94
--------------------------------------------------------------------------------
Income taxes 9,518 5,016 89.75
================================================================================
Net Income $26,383 $18,271 44.40
================================================================================
Earnings per share $1.86 $1.30 43.08%
--------------------------------------------------------------------------------
Dividends per share 0.64 0.58 10.34
--------------------------------------------------------------------------------
Average shares outstanding 14,214 14,083 0.93
--------------------------------------------------------------------------------
PERFORMANCE RATIOS:
--------------------------------------------------------------------------------
Return on average equity (1) 12.71% 9.39% 3.32%
--------------------------------------------------------------------------------
Return on average assets (1) 0.98 0.81 0.17
--------------------------------------------------------------------------------
Net interest margin 3.75 4.17 -0.42
--------------------------------------------------------------------------------
Core interest margin 4.27 4.40 -0.13
--------------------------------------------------------------------------------
Total capital ratio 13.23 13.26 -0.03
--------------------------------------------------------------------------------
Leverage ratio 7.51 8.14 -0.63
--------------------------------------------------------------------------------
YEAR END BALANCES:
--------------------------------------------------------------------------------
Total assets $2,814,550 $2,418,532 16.37%
--------------------------------------------------------------------------------
Loans and leases, net of unearned income 1,456,217 1,285,961 13.24
--------------------------------------------------------------------------------
Deposits 1,890,016 1,777,705 6.32
--------------------------------------------------------------------------------
Stockholder's equity 220,637 209,862 5.13
--------------------------------------------------------------------------------
STOCK PRICE INFORMATION AT YEAR END:
--------------------------------------------------------------------------------
Book value per share $15.47 $14.81 4.46%
--------------------------------------------------------------------------------
Market value per share 26.75 20.25 32.10
--------------------------------------------------------------------------------
</TABLE>
(1) The 1995 ratios excluding the impact of the $3.5 million, or $.25 per
share, after-tax impairment and merger-related charges: return on average
equity 11.17%; return on average assets 0.97%
OUR GROWING FOCUS ON THE AGRICULTURAL MARKET RESULTED IN THE BANK BECOMING THE
NATION'S 57TH LARGEST AGRICULTURAL LENDER. THIS, ALONG WITH OTHER MARKET-DRIVEN
OPPORTUNITIES, ASSISTED IN DRAMATICALLY INCREASING OUR RETURN ON EQUITY.
2
<PAGE> 5
Earnings per share in 1996 of $1.86 were a 56 cent increase over 1995
which included a 25 cent charge for the impairment of assets and merger-related
costs. Dividends per share totaled 64 cents, an increase of 10.3% over 1995
and a 16.4% growth rate over the last five years. The dividend payout ratio for
1996 was 34.5%.
Book value per share ended 1996 at $15.47 and has increased 45.9% over the
last five years. Average assets totaled $2.68 billion during 1996, an increase
of 19.4% over 1995, and have grown $1.0 billion in the last five years.
[BAR CHART]
<TABLE>
<CAPTION>
YEAR EARNINGS PER SHARE
<S> <C>
96 $1.86
95 $1.30
94 $1.55
93 $1.53
92 $1.36
</TABLE>
EARNINGS PER SHARE - $1.86 IN 1996.
[BAR CHART]
<TABLE>
<CAPTION>
YEAR DIVIDENDS PER SHARE
<S> <C>
96 $0.64
95 $0.58
94 $0.55
93 $0.41
92 $0.35
</TABLE>
DIVIDENDS PER SHARE - $0.64 IN 1996.
[BAR CHART]
<TABLE>
<CAPTION>
YEAR BOOK VALUE PER SHARE
<S> <C>
96 $15.47
95 $14.81
94 $13.26
93 $12.68
92 $11.59
</TABLE>
BOOK VALUE PER SHARE - $15.47 IN 1996.
[BAR CHART]
<TABLE>
<CAPTION>
YEAR TOTAL AVERAGE ASSETS
<S> <C>
96 $2.683
95 $2.246
94 $2.063
93 $1.977
92 $1.755
</TABLE>
TOTAL AVERAGE ASSETS - $2.68 IN 1996.
($ IN BILLIONS)
OUR GROWING FOCUS ON THE AGRICULTURAL MARKET RESULTED IN THE BANK BECOMING THE
NATION'S 57TH LARGEST AGRICULTURAL LENDER. THIS, ALONG WITH OTHER MARKET-DRIVEN
OPPORTUNITIES, ASSISTED IN DRAMATICALLY INCREASING OUR RETURN ON EQUITY.
3
<PAGE> 6
OUR NEW MISSION STATEMENT, ADOPTED IN 1996, IS WELL-SUITED TO OUR
[PHOTO]
COMPANY; IT AT ONCE LEAVES LITTLE AND MUCH TO THE IMAGINATION.
<PAGE> 7
LETTER TO THE SHAREHOLDERS
Fellow Shareholders:
Your company had an excellent year in 1996 as it made significant progress
toward a number of its goals and enjoyed a record year financially. Net income
was $26.4 million, or $1.86 per share, an increase of 21.4 percent after
adjusting for impairment and merger-related charges in 1995. The company also
continued to execute its long-term strategy of increasing shareholder value
through acquisition, diversification and consolidation. AMCORE's growth and
improvement in financial results in 1996 provided a springboard toward our
objective of ranking among the top performing financial service companies.
During the past five years, the company's total assets have more than
doubled to $2.8 billion while revenues increased 75 percent to $125 million. In
1996, return on average equity was 12.71 percent, up from 11.17 percent
reported in 1995 after adjusting for the above-mentioned charges. This
performance moves us closer to our interim goal of achieving a 15 percent
return on equity.
The company has paid dividends for 53 consecutive quarters, or more than
13 years, and for the last five consecutive years, dividends have increased at
an annualized rate of 16 percent. Since 1991 book value per share has risen 40
percent, and average shareholders' equity has risen 48 percent to $208 million.
AMCORE enjoys a significant or growing share in most of the suburban,
industrial and agricultural markets it serves. Definitive agreements have been
signed for the acquisition of two Wisconsin bank holding companies, and the
mergers are expected to close in the first half of 1997. These are AMCORE's
first ventures into interstate banking, and upon completion will boost our
assets to $3.3 billion. Excluding Wisconsin, we have completed six acquisitions
since 1990, increasing assets by nearly $1 billion and resulting in a 46
percent increase in annual revenues.
During 1996, AMCORE made a number of changes to increase revenue and use
its capital effectively. Four banks were consolidated to
[PHOTO]
Robert J. Meuleman
President and Chief Executive Officer
AMCORE Financial, Inc.
5
<PAGE> 8
form AMCORE Bank N.A., North Central, with assets of $423 million. Management
of the Vintage mutual funds, trust, capital management and brokerage services
was centralized into a new entity, AMCORE Investment Group, N.A. We are very
pleased to report that AMCORE's Vintage Equity Fund received the coveted
Morningstar five-star rating for the last two quarters of 1996.
Asset quality was improved as non-performing assets were reduced by 31
percent to $10.4 million, representing only 0.37 percent of total assets. This
was achieved by a 72 percent decline in other real estate owned and a 24
percent reduction in non-performing loans. As a result, reserve coverage rose
to 152 percent. Standardization and streamlining of our credit operations has
had a positive impact.
The company continued to invest both in the development of its human
resources and in new technology. A company-wide product knowledge training
program increased employees' ability to cross-sell products throughout the
organization. New teller automation hardware and software generated additional
sales opportunities while increasing efficiency.
During the year, we suffered an unexpected loss with the death of Frank A.
Fiorenza. He had made a significant contribution to the growth of AMCORE
Financial in his diligent service as a director over the past six years. Frank
will be remembered as a friend and respected colleague.
Looking forward, AMCORE will seek additional expansion and acquisition
opportunities that complement our strengths and enhance shareholder value.
However, as we grow, we will not lose sight of the special commitment we have
made to the communities we serve. We know what business we are in and
understand our customers, markets, products and services extremely well.
In closing, I would like to thank you, our shareholders, directors,
customers and employees. AMCORE is an exciting and dynamic organization that is
making great progress toward its goal of becoming a high-performance financial
services company. Most importantly, AMCORE remains focused on its values and
its mission of being one company, one culture, serving the financial needs of
customers better than anyone else.
Robert J. Meuleman
Robert J. Meuleman
President and Chief Executive Officer
AMCORE Financial, Inc.
"AMCORE'S CORE STRATEGY OF DIVERSIFICATION, ACQUISITION AND CONSOLIDATION
REMAINS A TOUCHSTONE FOR US AS WE ENTER INTO 1997."
ROBERT J. MEULEMAN,
PRESIDENT & CEO
AS A MANAGEMENT TEAM, WE ARE FOSTERING THE KIND OF DYNAMIC AND AGGRESSIVE, YET
CARING AND COMPASSIONATE CORPORATE CULTURE THAT ALLOWS ALL OF OUR EMPLOYEES TO
THINK.
6
<PAGE> 9
AMCORE FINANCIAL OFFICERS EXECUTIVE COMMITTEE (shown from left to right):
Ronald M. Zarnick, James S. Waddell, James F. Warsaw, Alan W. Kennebeck, Robert
J. Meuleman, Gerald W. Lister, Kenneth E. Edge, William T. Hippensteel, John R.
Hecht, Charles E. Gagnier.
[PHOTO]
OUTSIDE THE BOX. IN OUR BANKING AND NON-BANKING ACTIVITIES, THINKING OUTSIDE
THE BOX WILL BE THE SECRET TO OUR CONTINUED SUCCESS WELL INTO THE TWENTY-FIRST
CENTURY.
7
<PAGE> 10
AT AMCORE FINANCIAL, WE ARE NEVER SATISFIED. WE ARE NEVER AFRAID TO LOOK UNDER
[PHOTO]
THE HOOD TO IMPROVE ON OUR PAST PERFORMANCE THROUGH CHANGE OR DIVESTITURE.
<PAGE> 11
PERFORMANCE
In 1996, AMCORE Financial, Inc. made significant progress toward its goal
of becoming a high-performance financial institution in order to enhance
shareholder value and strengthen its position as the acquirer of choice.
While continuing to seek opportunities for growth, AMCORE made significant
gains toward attaining an interim objective of a 15 percent return on equity by
implementing programs aimed at enhancing revenues and reducing costs. The
company's assets grew 16.4 percent to $2.8 billion, while net income increased
21.4 percent to $26.4 million, up from $21.7 million excluding impairment and
merger-related charges in 1995. As a result, the company posted a record 12.71
percent return on equity for 1996, up from 11.17 percent for 1995 after
adjusting for the above-mentioned charges.
A primary factor contributing to the increase was a 13.2 percent rise in
outstanding loans to $1.46 billion. The additional volume resulted from the use
of new technologies and highly focused marketing techniques in three areas:
indirect loans, where the company provides financing through dealers for retail
purchases; direct loans to retail customers; and a special emphasis on services
for small businesses, which comprise the bulk of AMCORE's commercial customers.
Using new technology and streamlining the approval procedure for indirect
loans allowed the company to maintain high asset quality while reducing the
turnaround time for the customer. A total of $127.0 million in indirect loans
was processed in 1996 from 111 dealers in 13 markets. The indirect loan market
shows promise for additional growth in the future.
Direct loans to consumers grew as a result of new database capabilities
used to target specific customer groups. As a result, nearly $75 million in new
home equity loans were generated.
Clever deployment of new technologies and marketing techniques resulted in a
13.2% increase in outstanding loans to $1.46 billion in 1996.
9
<PAGE> 12
AS PART OF OUR EFFORTS TO IMPROVE ASSET QUALITY, WE REDUCED OTHER REAL ESTATE
OWNED BY A SUBSTANTIAL 72%.
The commercial lending area experienced a solid 16 percent growth,
including strong performance in both commercial and agricultural loans. AMCORE
is now the third largest agricultural bank lender in Illinois and is ranked
57th in the nation. To serve agricultural and small business customers better,
interbank teams have been formed to pool resources and more efficiently use the
expertise of specially trained personnel.
Also contributing to the increase in income was a $1.74 million increase
in trust and asset management income reflecting the favorable market
performance and the continued growth in that area, which provides both
individual trust accounts and the administration of employee benefit programs.
At year-end, the company had $2.3 billion in trust assets under administration.
In response to a continuing review of the company's structure, customer
contact areas have been reorganized to increase their efficiency and
effectiveness. As a result of a study, the marketing of trust services,
brokerage, capital management and the AMCORE Vintage family of mutual funds was
combined into AMCORE Investment Group, N.A. This new structure allows us to
offer customers a broader range of investment opportunities while benefiting
from the consolidation of support functions.
To improve customer service further, banking subsidiaries in Peru,
Mendota, Princeton and Gridley, which served similar markets and customer
bases, were combined to form AMCORE Bank N.A., North Central, with assets of
$423 million. The combination of support functions and the advantages of having
a larger service area will allow the new bank to function more efficiently and
provide improved customer service.
Steps also were taken to redeploy under-performing assets, and diligent
management of our loan portfolio resulted in a 24 percent reduction in
non-performing loans. For example, a portion of the headquarters building was
renovated to make room for the expansion of a major tenant, and a sale and
leaseback agreement was executed for the Rockford bank's South Main Street
facility. Also the sale of several properties reduced other real estate owned
by 72 percent.
Overall, the changes put into effect during 1996 resulted in an increase
in revenue, while operating expenses and non-earning assets were decreased, and
the company moved significantly toward meeting its interim performance goal of
15 percent return on equity.
10
<PAGE> 13
[GRAPHIC]
In 1996, we made excellent progress toward our interim goal of 15% Return on
Equity, by simultaneously increasing our income flow while reducing our
expenses.
11
<PAGE> 14
TO GROW, WE MUST LEARN. WE MUST INVEST. WE MUST DIVERSIFY. AND WE MUST
[PHOTO]
BRING FRESH, NEW IDEAS TO THE COMMUNITIES AND CUSTOMERS WE SERVE.
<PAGE> 15
GROWTH
AMCORE continues to follow its strategy of growth through acquisitions,
expansion of existing operations and the introduction of new products. One of
the most tangible results of the program was the announcement of the
acquisition of two well-managed, profitable bank holding companies in
Wisconsin. The acquisitions, which are expected to be completed by mid-1997,
will take AMCORE into the realm of interstate banking.
Merger agreements have been reached for the acquisition of First National
Bancorp, Inc., based in Monroe, Wisconsin, 50 miles from Rockford, and Country
Bank Shares Corporation, based in Mount Horeb, Wisconsin, 95 miles from
Rockford.
Both companies operate in the southern half of the state where Country
Bank Shares has facilities in nine communities and has assets of approximately
$300 million. First National Bancorp operates in five locations and has assets
of approximately $215 million. When the transactions are completed, AMCORE's
assets will be in excess of $3.3 billion.
Because of its policy of local autonomy for customer-related matters and
strong commitment to community banking, AMCORE has become the acquirer of
choice for many smaller financial institutions that are seeking partners able
to offer the wider variety of products their customers demand.
Expansion and adjustment of existing operations also continued with the
opening of in-store branches in Rockford and Rochelle, and the closing of an
in-store branch in Princeton that did not meet performance expectations. The
new in-store facilities tend to be smaller, require less personnel, and offer
expanded hours and convenient locations to better meet customers' needs.
Among AMCORE's fastest growing products is the Vintage family of mutual
funds. Total investment in the funds increased by $50 million in 1996 to $642
million. Much of the increase is attributable to favorable publicity about
their performance. Based on its low risk and high long-term yields, the Vintage
Equity Fund was awarded Morningstar's coveted five-star rating for the last two
quarters of 1996.
After the acquisition of two banks in southern Wisconsin in early 1997,
AMCORE's assets will total in excess of $3.3 billion.
13
<PAGE> 16
Nelson's Directory of Investment Managers has ranked AMCORE's equity
management among the top 25 in the world on the basis of its long-term
investment style. An article in the December 1996 issue of Fortune magazine
ranked the Vintage Equity Fund as a top mutual fund choice. It was the only
bank-managed fund in the nation to be listed in the article. The Vintage funds
are marketed both by the AMCORE Investment Group and by "expert staff" bank
personnel who have the necessary training to offer the funds to customers.
Adoption of automated loan processing allows AMCORE Mortgage, Inc. to send
applications directly to the Federal Home Loan Mortgage Corporation. Loans that
previously took two weeks or more to process now can be approved in an hour.
AMCORE Insurance Group, Inc. took a major step forward in reaching
customers throughout the AMCORE service area with the introduction of the
AMCORE Agency Alliance program. Independent insurance agencies contract to
represent AMCORE Insurance Group in their communities. The local agencies
benefit from additional products and sales leads developed by the local banks.
The company continues to develop new insurance products, which are
marketed in conjunction with the AMCORE banks. Current credit life insurance
sales were up over 47 percent compared with 1995.
Improved service to banking customers was the goal of two initiatives
undertaken during the year. A company-wide product knowledge program involved
more than 600 employees, who took self-study courses covering the details of
more than 165 products. Also, new compensation programs for employees in
customer service areas recognize superior sales performance by awarding
incentives to those who exceed their sales goals. Having well-trained and
helpful personnel continues to be one of AMCORE's distinctive features.
Investments in programs, such as a teller automation system and data-base
marketing, already are resulting in streamlined paperwork, improved
decision-making and additional sales and service. The adoption of more new
technology, such as a computerized imaging system for documents and platform
automation, will continue in 1997.
NELSON'S DIRECTORY, FORTUNE MAGAZINE AND MORNINGSTAR RECOGNIZED AMCORE'S
VINTAGE EQUITY MUTUAL FUND WITH WORLD-CLASS HONORS IN 1996.
14
<PAGE> 17
[LINE GRAPH]
<TABLE>
<CAPTION>
YEAR ASSETS LOCATIONS STOCK PRICE
<S> <C> <C> <C>
87 958 12 $ 7.42
88 968 12 $ 9.39
89 1,010 12 $ 9.70
90 1,290 16 $ 6.82
91 1,320 18 $ 8.26
92 1,360 20 $14.33
93 1,560 21 $19.38
94 1,980 34 $18.75
95 2,400 36 $20.25
96 2,800 41 $26.75
</TABLE>
This chart illustrates the steady growth of AMCORE Financial's stock value,
locations, and assets. Clearly, ours is a company on the move, one with defined
goals and objectives and the will to reach them. AMCORE Financial truly is a
mid-American success story.
15
<PAGE> 18
WITH OUR IMMINENT FORAY INTO INTERSTATE BANKING, WE WILL BROADEN OUR
[PHOTO]
HORIZONS AND LOCALLY SERVE THE PEOPLE OF ILLINOIS AND WISCONSIN ALIKE.
<PAGE> 19
MARKET
AMCORE Financial is uniquely situated in several respects. The company is
more diversified than many financial services companies with approximately 25
percent of its revenues coming from diversified financial services products and
three-quarters from "traditional" banking. In addition, the geographic areas
the company serves are an unusual combination of metropolitan markets and rural
communities.
The AMCORE service area in Illinois consists of 12 counties, mostly in the
north-central part of the state. The lead bank is headquartered in Rockford,
the second largest city in Illinois and a major manufacturing center. From 1980
to 1995, the population of the service area grew by 15.3 percent, much faster
than the state's 3.52 percent growth rate. The growth in the area accounted for
48.5 percent of the state's population increase.
The economy of the region has generated a high level of wealth, which is
reflected in a relatively high level of household income. The AMCORE service
area has a median family income almost 5 percent greater than that of Illinois
as a whole and over 15 percent higher than the U.S. median average.
This relatively even distribution of income is reflected in the poverty
and education statistics. The incidence of poverty is much lower than the
national average in the AMCORE service area. Adults in the AMCORE service area
are more likely to have completed high school than their statewide or national
counterparts. On the other hand, a smaller proportion has completed college.
The economic forces of the AMCORE service area are somewhat different than
those of the rest of Illinois and of the country as a whole. Because AMCORE's
region is more highly manufacturing oriented than
Relatively high levels of household income and home ownership are just two
reasons why AMCORE is in profitable geographic markets.
17
<PAGE> 20
AMCORE HAS BECOME A BANK "BUYER OF CHOICE" - AS EVIDENCED BY OUR VERY ACTIVE
AND COMMUNITY FOCUSED ACQUISITIONS, PARTICULARLY OVER THE PAST SEVERAL YEARS.
most, the composition of its work force is also different from that of the
state or nation as a whole. For example, a smaller percentage of the region's
work force is engaged in specialties such as wholesale trade and transportation
than is the case for the state or the nation.
Somewhat surprisingly, the area has a strong presence in the area of
retail trade when compared with the rest of Illinois. This is mainly due to
Rockford's status as a retail destination for surrounding counties,
particularly those to the west.
AMCORE is in the process of acquiring bank holding companies in Wisconsin
that serve an area very similar to the Illinois service area. The Wisconsin
service area is composed of six counties in the south-central part of the
state. Collectively, they contain a population of approximately 660,000.
During the 1980 to 1995 period, the Wisconsin service area enjoyed a
population growth of 15.4 percent, considerably greater than that of the rest
of the state, which grew 3.5 percent. The median family income in the Wisconsin
service area is considerably above both the rest of the state and the nation as
a whole. This prosperity is led by Dane County, which includes Madison, the
state capital and the home of the University of Wisconsin. A larger than usual
percentage of households is grouped in the middle-income range, with below
normal percentages at both the high and the low income levels.
While the number of high-income families in the Wisconsin service area is
above the state average, it is below the national average. The number of
low-income families in the service area also is below both the national and
state averages.
Although AMCORE has currently targeted the Illinois and Wisconsin markets
for most of its sales, some services, such as AMCORE Insurance and the AMCORE
Vintage Mutual Funds, are marketed nationwide on the company's Internet home
page and through other channels of distribution.
In order to have the most flexible response to meeting the wide range of
services needed by customers in the markets it serves, AMCORE stresses local
control for all customer related matters while seeking opportunities to
centralize support services whenever possible.
18
<PAGE> 21
ILLINOIS HOME OWNERSHIP
PERCENT OF HOUSEHOLDS OWNING HOMES
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 64.2
ILLINOIS 64.2
AMCORE MARKET 67.9
</TABLE>
ILLINOIS POPULATION GROWTH
PERCENTAGE FOR YEARS 1980-1992
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 12.6
ILLINOIS 1.62
AMCORE MARKET 9.7
</TABLE>
ILLINOIS MEDIAN FAMILY INCOME
FAMILY INCOME IN THE THOUSANDS
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 35.225
ILLINOIS 38.664
AMCORE MARKET 40.084
</TABLE>
ILLINOIS HIGH SCHOOL GRADUATES
PERCENTAGE OF ADULTS 25 AND OLDER
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 75.2
ILLINOIS 76.2
AMCORE MARKET 78.7
</TABLE>
WISCONSIN HOME OWNERSHIP
PERCENT OF HOUSEHOLDS OWNING HOMES
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 64.2
WISCONSIN 66.7
AMCORE MARKET 61
</TABLE>
NOTE: WISCONSIN RATIOS ARE IMPACTED BY THE RELATIVELY
HIGH LEVEL OF RENTERS IN THE UNIVERSITY OF WISCONSIN AREA.
WISCONSIN POPULATION GROWTH
PERCENTAGE FOR YEARS 1980-1992
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 12.6
WISCONSIN 6.1
AMCORE MARKET 11.31
</TABLE>
WISCONSIN MEDIAN FAMILY INCOME
FAMILY INCOME IN THE THOUSANDS
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 35.225
WISCONSIN 35.082
AMCORE MARKET 38.594
</TABLE>
WISCONSIN HIGH SCHOOL GRADUATES
PERCENTAGE OF ADULTS 25 AND OLDER
[BAR CHART]
<TABLE>
<S> <C>
UNITED STATES 75.2
WISCONSIN 78.6
AMCORE MARKET 84.2
</TABLE>
Market demographics are important components effecting the success or failure
of any financial institution. At AMCORE Bank, we look for stable, promising
indices in several categories before entering into any new market, whether
rural or urban.
19
<PAGE> 22
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL REVIEW
AMCORE's 1996 net income was an all-time record with stellar results of $26.4
million.
The economy in the AMCORE market has been vibrant, as reflected in AMCORE's
third consecutive year of double-digit loan growth.
20
<PAGE> 23
CONSOLIDATED FINANCIAL STATEMENTS
AMCORE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
As of December 31,
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalent $ 87,740 $ 101,082
- --------------------------------------------------------------------------------------------------------------------
Federal funds sold and other short-term investments 12,862 9,310
- --------------------------------------------------------------------------------------------------------------------
Mortgage loans held for sale 11,252 15,801
- --------------------------------------------------------------------------------------------------------------------
Securities available for sale 1,138,351 884,044
- --------------------------------------------------------------------------------------------------------------------
Securities held to maturity (fair value of $10,455 in 1996; $24,967 in 1995) 10,368 24,625
====================================================================================================================
TOTAL SECURITIES 1,148,719 908,669
- --------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income 1,456,217 1,285,961
- --------------------------------------------------------------------------------------------------------------------
Allowance for loan and lease losses (14,996) (13,061)
====================================================================================================================
NET LOANS AND LEASES 1,441,221 1,272,900
- --------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 46,060 49,670
- --------------------------------------------------------------------------------------------------------------------
Intangible assets, net 12,255 14,314
- --------------------------------------------------------------------------------------------------------------------
Other real estate owned 595 2,116
- --------------------------------------------------------------------------------------------------------------------
Other assets 53,846 44,670
====================================================================================================================
TOTAL ASSETS $2,814,550 $2,418,532
====================================================================================================================
LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
Deposits:
- --------------------------------------------------------------------------------------------------------------------
Interest bearing $1,625,590 $1,512,473
- --------------------------------------------------------------------------------------------------------------------
Non-interest bearing 264,426 265,232
====================================================================================================================
TOTAL DEPOSITS 1,890,016 1,777,705
- --------------------------------------------------------------------------------------------------------------------
Short-term borrowings 544,508 292,042
- --------------------------------------------------------------------------------------------------------------------
Long-term borrowings 124,095 107,803
- --------------------------------------------------------------------------------------------------------------------
Other liabilities 35,294 31,120
====================================================================================================================
TOTAL LIABILITIES $2,593,913 $2,208,670
====================================================================================================================
STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
Preferred stock, $1 par value: authorized 10,000,000 shares; none issued $ - $ -
- --------------------------------------------------------------------------------------------------------------------
Common stock, $.33 par value: authorized 30,000,000 shares; issued 14,926,695;
- --------------------------------------------------------------------------------------------------------------------
outstanding 14,265,977 in 1996, 14,174,183 in 1995 4,976 4,976
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 56,687 56,412
- --------------------------------------------------------------------------------------------------------------------
Retained earnings 166,602 149,315
- --------------------------------------------------------------------------------------------------------------------
Treasury stock and other (5,623) (6,659)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities available for sale (2,005) 5,818
====================================================================================================================
TOTAL STOCKHOLDERS' EQUITY $ 220,637 $ 209,862
====================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,814,550 $2,418,532
====================================================================================================================
</TABLE>
21
<PAGE> 24
AMCORE FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
INTEREST INCOME 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans and leases $ 120,497 $ 109,488
- --------------------------------------------------------------------------------------------------------------------
Interest on securities 71,024 51,514
- --------------------------------------------------------------------------------------------------------------------
Interest on federal funds sold and other short-term investments 802 513
- --------------------------------------------------------------------------------------------------------------------
Interest and fees on mortgage loans held for sale 2,611 2,971
====================================================================================================================
TOTAL INTEREST INCOME $ 194,934 $ 164,486
====================================================================================================================
INTEREST EXPENSE
- --------------------------------------------------------------------------------------------------------------------
Interest on deposits $ 73,197 $ 68,062
- --------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 25,680 14,574
- --------------------------------------------------------------------------------------------------------------------
Interest on long-term borrowings 9,516 2,444
====================================================================================================================
TOTAL INTEREST EXPENSE $ 108,393 $ 85,080
====================================================================================================================
NET INTEREST INCOME $ 86,541 $ 79,406
- --------------------------------------------------------------------------------------------------------------------
Provision for loan and lease losses 5,086 2,692
====================================================================================================================
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES $ 81,455 $ 76,714
====================================================================================================================
NON-INTEREST INCOME
- --------------------------------------------------------------------------------------------------------------------
Trust and asset management income $ 13,602 $ 11,864
- --------------------------------------------------------------------------------------------------------------------
Service charges on deposits 6,755 6,986
- --------------------------------------------------------------------------------------------------------------------
Mortgage revenues 3,667 3,584
- --------------------------------------------------------------------------------------------------------------------
Insurance revenues 2,038 1,015
- --------------------------------------------------------------------------------------------------------------------
Collection fee income 2,145 1,831
- --------------------------------------------------------------------------------------------------------------------
Other 8,366 6,435
====================================================================================================================
TOTAL NON-INTEREST INCOME, EXCLUDING NET SECURITY GAINS $ 36,573 $ 31,715
====================================================================================================================
Net realized security gains 1,870 2,298
====================================================================================================================
OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------------------
Personnel expense $ 47,067 $ 45,662
- --------------------------------------------------------------------------------------------------------------------
Net occupancy expense 5,285 5,068
- --------------------------------------------------------------------------------------------------------------------
Equipment expense 7,515 8,229
- --------------------------------------------------------------------------------------------------------------------
Professional fees 2,503 2,733
- --------------------------------------------------------------------------------------------------------------------
Amortization of intangible assets 2,059 2,331
- --------------------------------------------------------------------------------------------------------------------
Impairment of long-lived assets - 3,269
- --------------------------------------------------------------------------------------------------------------------
Other 19,568 20,148
====================================================================================================================
TOTAL OPERATING EXPENSES $ 83,997 $ 87,440
====================================================================================================================
INCOME BEFORE INCOME TAXES $ 35,901 $ 23,287
- --------------------------------------------------------------------------------------------------------------------
Income taxes 9,518 5,016
====================================================================================================================
Net Income $ 26,383 $ 18,271
====================================================================================================================
Earnings Per Common Share $ 1.86 $ 1.30
- --------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share 0.64 0.58
- --------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 14,214 14,083
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
AMCORE FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
YEARS ENDED DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $209,862 $186,159
- ---------------------------------------------------------------------------------------------
Net income 26,383 18,271
- ---------------------------------------------------------------------------------------------
Net common stock transactions 844 1,234
- ---------------------------------------------------------------------------------------------
Non-Employee Directors compensation expense 467 280
- ---------------------------------------------------------------------------------------------
Cash dividends (9,096) (8,199)
- ---------------------------------------------------------------------------------------------
Net change in unrealized gain (loss) on securities available for sale (7,823) 12,117
=============================================================================================
BALANCE AT END OF YEAR $220,637 $209,862
=============================================================================================
</TABLE>
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------
% OF % OF
ASSETS: AMOUNT TOTAL AMOUNT TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxable securities $ 848,326 31.6% $ 583,372 26.0%
- -----------------------------------------------------------------------------------------------------------
Tax-exempt securities 260,833 9.7 228,802 10.2
- -----------------------------------------------------------------------------------------------------------
Other earning assets 16,012 0.6 8,656 0.4
- -----------------------------------------------------------------------------------------------------------
Mortgage loans held for sale 9,388 0.4 11,267 0.5
- -----------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income 1,369,030 51.0 1,228,175 54.7
===========================================================================================================
TOTAL EARNING ASSETS 2,503,589 93.3 2,060,272 91.8
- -----------------------------------------------------------------------------------------------------------
Intangible assets, net 13,281 0.5 16,295 0.7
- -----------------------------------------------------------------------------------------------------------
Other non-earning assets 165,721 6.2 169,328 7.5
===========================================================================================================
TOTAL ASSETS $2,682,591 100.0% $2,245,895 100.0%
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -----------------------------------------------------------------------------------------------------------
Interest bearing deposits $1,589,679 59.3% $1,522,344 67.8%
- -----------------------------------------------------------------------------------------------------------
Non-interest bearing deposits 239,241 8.9 242,083 10.8
===========================================================================================================
TOTAL DEPOSITS 1,828,920 68.2 1,764,427 78.6
- -----------------------------------------------------------------------------------------------------------
Short-term borrowings 465,489 17.4 232,997 10.4
- -----------------------------------------------------------------------------------------------------------
Long-term borrowings 150,099 5.6 29,458 1.3
- -----------------------------------------------------------------------------------------------------------
Other liabilities 30,466 1.1 24,467 1.0
===========================================================================================================
TOTAL LIABILITIES $2,474,974 92.3 $2,051,349 91.3
- -----------------------------------------------------------------------------------------------------------
Stockholders' Equity 207,617 7.7 194,546 8.7
===========================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,682,591 100.0% $2,245,895 100.0%
===========================================================================================================
</TABLE>
23
<PAGE> 26
The financial review focuses on key financial trends and results of
operations for years ended December 31, 1996 and 1995. A comprehensive
presentation of the financial statements and management's discussion and
analysis of financial condition and results of operations can be found in the
1996 Annual Report on Form 10-K filed with the Securities Exchange Commission.
All shareholders have been provided the 1997 Notice of Annual Meeting, 1996
Proxy and 1996 Annual Report on Form 10-K along with this Summary Annual
Report.
EARNINGS SUMMARY
For the year ended December 31, 1996, AMCORE Financial, Inc. reported
record net income of $26.4 million compared to $18.3 million for the year ended
December 31, 1995, an increase of $8.1 million. Earnings per share for 1996
were $1.86 compared to $1.30 for 1995. The net income for 1995 included $3.5
million of after tax charges for the impairment of long lived assets and merger
related costs. Excluding these 1995 charges, the increase in 1996 net income
would have been $4.6 million or 21.4%.
This record performance resulted in a return on average equity for 1996 of
12.71% versus 9.39% in 1995. AMCORE's return on average assets for 1996 was
.98% compared to .81% in 1995.
The following table indicates the impact on earnings per share by major
components of the income statement:
<TABLE>
<CAPTION>
CHANGES IN EARNINGS PER SHARE
- ---------------------------------------------------------------------------------------
1996 vs. 1995
<S> <C>
- ---------------------------------------------------------------------------------------
Prior period net income $1.30
- ---------------------------------------------------------------------------------------
Changes due to:
- ---------------------------------------------------------------------------------------
Net interest income 0.45
- ---------------------------------------------------------------------------------------
Provision for loan and lease losses (0.17)
=======================================================================================
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 0.28
=======================================================================================
Trust and asset management income 0.12
- ---------------------------------------------------------------------------------------
Service charges on deposits (0.02)
- ---------------------------------------------------------------------------------------
Mortgage revenues 0.01
- ---------------------------------------------------------------------------------------
Insurance revenues 0.07
- ---------------------------------------------------------------------------------------
Collection fee income 0.02
- ---------------------------------------------------------------------------------------
Other 0.13
=======================================================================================
TOTAL NON-INTEREST INCOME, EXCLUDING NET SECURITY GAINS 0.33
=======================================================================================
Net realized security gains (0.03)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Personnel expense (0.06)
- ---------------------------------------------------------------------------------------
Net occupancy expense (0.01)
- ---------------------------------------------------------------------------------------
Equipment expense 0.05
- ---------------------------------------------------------------------------------------
Professional fees 0.01
- ---------------------------------------------------------------------------------------
Amortization of intangible assets 0.03
- ---------------------------------------------------------------------------------------
Impairment of long-lived assets 0.23
- ---------------------------------------------------------------------------------------
Other 0.04
=======================================================================================
TOTAL OPERATING EXPENSES 0.29
=======================================================================================
Income taxes (0.31)
=======================================================================================
CURRENT PERIOD NET INCOME $1.86
=======================================================================================
</TABLE>
24
<PAGE> 27
NET INTEREST INCOME
Net interest income, AMCORE's primary source of revenue, is the difference
between interest earned on earning assets and interest expense on interest
bearing liabilities. The interest income on certain loans and investment
securities is not subject to Federal income tax. For analytical purposes, net
interest income is adjusted to a fully taxable equivalent basis. Net interest
income on a fully taxable equivalent basis (FTE) increased $8.0 million, to
$94.1 million, an increase of 9.3%, from the $86.1 million reported in 1995.
The improvement in net interest income results primarily from a 21.5% 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 a $140.9 million
or 11.5% growth in average loans and an approximately $295.0 million increase
in the investment leveraging program which began in 1994.
The investment leveraging program, which is designed to better utilize
equity capital, contributed approximately $6.2 million to net interest income,
an increase of $4.0 million over 1995. The program is funded through the use
of repurchase agreements and Federal Home Loan Bank borrowings. The proceeds
of these borrowings are invested principally in mortgage-backed and agency
securities.
<TABLE>
<CAPTION>
NET INTEREST
YEAR INCOME -FTE
<S> <C>
1996 $94.10
1995 $86.10
1994 $84.80
1993 $83.50
1992 $78.40
</TABLE>
$94.1 in 1996 ($ IN MILLIONS)
The interest rate spread is the difference between the average rate earned
on earning assets less the average rate paid on interest bearing deposits and
borrowings. AMCORE's interest rate spread declined 38 basis points to 3.17% in
1996. Additionally, the interest rate margin, net interest income divided by
average earning assets, declined 42 basis points during 1996 to 3.75%. Both of
these declines can be attributed to the increase in the investment leveraging
program and a change in the mix of interest bearing deposits.
The interest rate spread on the investment securities in the leveraging
program was approximately 1.37%. The interest rate spread on all other earning
assets was approximately 3.58%. As a result, the effect of this program
accounts for 23 and 29 basis points of the decline in the net interest spread
and net interest margin, respectively. The core interest rate margin, which
excludes the effect of the investment leveraging program, was 4.27% in 1996, a
decline of 13 basis points from the core interest margin in 1995 of 4.40%.
The mix of average interest bearing deposits changed in 1996 as higher
rate time deposits increased while lower rate saving deposits decreased. Time
deposits, mainly wholesale certificate of deposits, increased $74.6 million on
average and represent 62.9% of interest bearing deposits in 1996 compared to
60.7% in 1995. Savings deposits decreased $20.5 million on average and
represent 9.2% of interest bearing deposits in 1996 compared to 11.0% in 1995.
PROVISION FOR LOAN LOSSES AND LEASE LOSSES
The provision for loan and lease losses was $5.1 million for 1996, an
increase of $2.4 million or 88.9% from the $2.7 million in 1995. The increase
is primarily attributable to the growth in loans during 1996 as both
25
<PAGE> 28
non-performing loans and net charge-offs as a percent of total loans declined
during 1996.
NON-INTEREST INCOME
Total non-interest income is comprised primarily of fee based revenues
from mortgage banking, trust and asset management, brokerage, insurance and
collection agency services. Also included in this category are fees from bank
services primarily relating to deposits and credit cards. Total non-interest
income excluding net security gains increased $4.9 million or 15.3% to $36.6
million in 1996. The increase included a $1.4 million gain on the sale of
merchant bankcard processing.
<TABLE>
<CAPTION>
YEAR NON-INTEREST INCOME
<S> <C>
1996 $36.60
1995 $34.00
1994 $31.00
1993 $29.60
1992 $25.70
</TABLE>
$36.6 in 1996 ($ IN MILLIONS)
Trust and asset management income, the largest source of the fee based
revenues, totaled $13.6 million, an increase of $1.7 million or 14.6%. This
increase is attributable to favorable market performance of trust accounts,
growth in our proprietary Vintage Mutual Funds and new trust accounts. As of
December 31, 1996, the AMCORE family of Vintage Mutual Funds totaled $642
million and trust assets under administration totaled $2.3 billion.
Service charges on deposits were $6.8 million, a $231,000 or 3.3% decrease
from 1995. This decrease is attributable to commercial customers increasing
balances to pay for services. Mortgage revenues remained relatively flat as an
increase in mortgage servicing income was offset by a slight decline in
mortgages originated.
The $1.0 million increase in insurance revenue was the result of a combination
of a 47% increase in sales of credit life insurance and a change to record
insurance revenue on a gross basis prior to deductions for related expenses.
Collection agency commissions increased $314,000 or 17.1% as a result of
increased volume. Other non-interest income increased due to the previously
mentioned gain on the sale of merchant bankcard processing.
OPERATING EXPENSES
Total operating expenses declined $3.4 million to $84.0 million due to the
$5.6 million in impairment and merger related charges recorded in 1995.
Excluding these charges, operating expenses would have increased $2.1 million or
2.6%. The efficiency ratio which measures the level of operating expense to
total tax equivalent net revenues was 63.4% for 1996, an improvement of 4.8%
from 1995 after adjusting for the previously mentioned charges.
<TABLE>
<CAPTION>
YEAR EFFICIENCY RATIO
<S> <C>
1996 63.40%
1995 68.20%
1994 68.00%
1993 67.20%
1992 64.50%
</TABLE>
63.4% IN 1996
26
<PAGE> 29
Personnel expense, which includes compensation expense and employee
benefits, are the largest component of operating expenses. Personnel expense
increased $1.4 million to $47.1 million in 1996, an increase of 3.1%. Excluding
the merger related costs in 1995, the increase would have been $2.2 million or
4.9%. The higher costs in 1996 were primarily caused by increased levels of
performance driven expenses, including incentive pay and profit sharing, as well
as higher medical insurance costs.
Net occupancy and equipment expenses were $12.8 million for 1996, a
decrease of $497,000 from 1995. If the $1.2 million of merger related charges
in 1995 are excluded, net occupancy and equipment related expenses would have
increased $664,000 or 5.5%. This increase is attributable to the full year
effect of the teller automation product delivery system and the opening of
in-store branches during 1995 and 1996.
Professional fees declined $230,000 or 8.4% primarily due to merger related
expenses in 1995.
Amortization of intangible assets decreased $272,000 or 11.7% due to a
reduction of core deposit intangibles and the ongoing impact of the $1.7
million impairment charge related to intangible assets in 1995.
INCOME TAXES
Income taxes were $9.5 million in 1996 compared to $5.0 million in 1995, an
increase of $4.5 million or 89.8%. The effective tax rate increased from 21.5%
in 1995 to 26.5% in 1996. Both the actual dollar increase and the increase in
effective tax rate are due to the higher level of income before income taxes and
the proportion of tax-exempt income thereto.
BALANCE SHEET SUMMARY
Total assets at the end of 1996 were $2.81 billion, an increase of $396.0
million or 16.4% over 1995. Average total assets increased $436.7 million or
19.4% to $2.68 billion. The primary contributors to asset growth during 1996
were increased loan demand and the growth of the investment leveraging program.
Total loans, net of unearned income, were $1.46 billion at year-end 1996, an
increase of $170.3 million or 13.2% over 1995. Average loans increased $140.9
million during 1996, or 11.5%, mostly due to growth in consumer and commercial
real estate. Total securities were $1.15 billion at the end of 1996, a $240.1
million or 26.4% increase over 1995, and average securities totaled $1.11
billion, a $297.0 million or 36.6% increase. This growth was primarily in
government agency and mortgage-backed securities as a result of the investment
leveraging program.
<TABLE>
<CAPTION>
YEAR AVERAGE LOANS
<S> <C>
1996 $1,369
1995 $1,228
1994 $1,088
1993 $1,001
1992 $ 927
</TABLE>
$1,369 IN 1996 ($ IN MILLIONS)
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits, are considered by management to be the primary and most
stable source of funding. Total core deposits were $1.49 billion at the end of
1996, a $16.1 million or 1.1%
27
<PAGE> 30
increase over the prior year-end. These core deposits are supplemented by
large certificates of deposit, brokered deposits, time deposits from
governmental entities, repurchase agreements and Federal Home Loan Bank
borrowings.
Brokered deposits which now total $120.5 million, increased approximately
$80.0 million to partially fund the growth in loans. Federal Home Loan Bank
borrowings were increased $62.5 million to $179.1 million to fund the remaining
loan growth and a portion of the investment leveraging program. Repurchase
agreements were increased $197.6 million to $440.7 million to fund the
remaining growth in the investment leveraging program.
ASSET QUALITY
Total non-performing assets decreased $4.6 million or 30.6% to end the
year at $10.4 million. Total non-performing assets represent only 0.37% of
total assets at December 31, 1996 compared to 0.62% in 1995. The decline in
non-performing assets was the result of a $1.5 million or 71.9% decline in
other real estate owned to $595,000 and a $3.1 million or 23.9% decrease in
non-performing loans to $9.8 million.
The allowance for loan and lease losses increased $1.9 million or 14.8% to
$15.0 million. This increase is attributable to the growth in loans as both
net charge-offs and non-performing assets decreased as a percent of total loans
during 1996. As of December 31, 1996, the allowance for loan and lease losses
represents 1.03% of total loans and 152.4% of non-performing assets.
CAPITAL
Total stockholders' equity at December 31, 1996 was $220.6 million, an
increase of $10.8 million or 5.1%. Stockholders' equity includes an adjustment
to fair market value for securities classified as available for sale. The fair
market value of these securities declined $7.8 million during 1996. Without
the impact of this decline, stockholders' equity increased $18.6 million or
9.1%.
AMCORE paid $9.1 million of cash dividends which represents $.64 per share
or a dividend payout ratio of 34.5%. This compares to $.58 per share paid in
1995 which represented a payout ratio of 37.4% after excluding the impairment
and merger related charges. The book value per share increased $.66 per share
to $15.47 at December 31, 1996.
AMCORE is considered a well capitalized institution based on regulatory
guidelines. AMCORE's leverage ratio of 7.51% at December 31, 1996 exceeds the
regulatory guideline of 5% for well capitalized institutions. AMCORE's ratio
of tier 1 capital at 12.35% and total risk based capital at 13.23%
significantly exceed the regulatory minimums as the table below indicates.
<TABLE>
<CAPTION>
(Dollar in thousands) DECEMBER 31, 1996
AMOUNT RATIO
- ---------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital 210,384 12.35%
- ---------------------------------------------------------------------
Tier 1 Capital Minimum 68,152 4.00%
- ---------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $142,232 8.35%
=====================================================================
<CAPTION>
AMOUNT RATIO
- ---------------------------------------------------------------------
<S> <C> <C>
Total Capital 225,381 13.23%
- ---------------------------------------------------------------------
Total Capital Minimum 136,305 8.00%
- ---------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $ 89,076 5.23%
=====================================================================
</TABLE>
28
<PAGE> 31
NOTICE OF ANNUAL MEETING AND STOCKHOLDER INFORMATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of AMCORE Financial, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1996,
1995, and 1994 (not presented herein); and in our report dated January 20,
1997, we expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, the information set forth in the consolidated balance sheets,
consolidated statements of income and the condensed consolidated statements of
stockholders' equity appearing on pages 21 to 23 is fairly presented, in all
material respects, in relation to the consolidated financial statements from
which it has been derived.
McGladrey & Pullen, LLP
Rockford, Illinois
January 20, 1997
ANNUAL MEETING
The annual meeting of the stockholders will be held at 5:30 p.m. on Tuesday,
May 6, 1997 at Michaels at Perryville, located at 601 North Perryville Road,
Rockford, Illinois.
STOCK LISTING AND STOCK PRICE
Common stock of AMCORE Financial, Inc. is traded on the National Market System
of NASDAQ under the symbol "AMFI." The principal market makers as of December
31, 1996 were:
Robert W. Baird & Co., Inc.
The Chicago Corporation
Everen Securities
Herzog, Heine, Geduld, Inc.
Howe Barnes Investments, Inc.
Principal Financial Securities, Inc.
The stock of AMCORE has been traded on NASDAQ since May 29, 1986. Prior to that
time, AMCORE was traded in the over-the-counter market.
FORM 10-K
A copy of the Annual Report to the Securities and Exchange Commission on Form
10-K will be furnished free of charge upon written request to John R. Hecht,
Senior Vice President and Chief Executive Officer, AMCORE Financial, Inc., 501
Seventh Street, Rockford, Illinois 61104, (815) 961-7003.
The number of stockholders of record as of February 28, 1997 was approximately
5,200. Dividends are declared and paid quarterly, the amount of which is
dependent on a number of factors. Earnings, regulatory constraints, restrictive
covenants with lenders, equity requirements of subsidiaries as well as the debt
service requirements of AMCORE will determine, in large part, the amounts
AMCORE will pay as dividends. (See the Form 10-K Annual Report for more
information.)
Safeguard your AMCORE Financial, Inc. stock. If lost, the cost to the
shareholder for replacement is approximately 2 percent of the current market
value of the shares.
The stock transfer agent for AMCORE Financial, Inc. is:
Firstar Trust Company
615 E. Michigan Street
4th Floor
Milwaukee, Wisconsin 53202
1-800-637-7549
29
<PAGE> 32
AMCORE LOCATIONS
AMCORE BANK N.A., ROCKFORD
Seventh Street Corporate Office
501 Seventh Street
Rockford, Illinois 61104
Alpine Village Office and Drive-Up
2510 S. Alpine Road
Rockford, Illinois 61108
Belvidere Pacemaker Office and Drive-Up
401 Southtowne Drive
Belvidere, Illinois 61008
Brynwood Office and Drive-Up
2705 N. Mulford Road
Rockford, Illinois 61114
Brynwood Hilander Office
2601 N. Mulford Road
Rockford, Illinois 61114
Carpentersville Office and Drive-Up
94 Kennedy Memorial Drive
Carpentersville, Illinois 60110
Colonial Village Office and Drive-Up
1480 S. Alpine Road
Rockford, Illinois 61108
East State Drive-Up
1201 E. State Street
Rockford, Illinois 61108
Elgin Office and Drive-Up
1950 Big Timber Road
Elgin, Illinois 60123
Freeport Cub Foods Office
1512 S. West Avenue
Freeport, Illinois 61032
North Alpine Cub Foods Office
6550 N. Alpine Road
Loves Park, Illinois 61111
North Main Hilander Office
3710 N. Main Street
Rockford, Illinois 61103
Rochelle Eagle Office
320 Eagle Drive
Rochelle, Illinois 61068
Rochelle Office and Drive-Up
1010 Highway 251 South
Rochelle, Illinois 61068
Roscoe Hilander Office and Drive-Up
4844 Hononegah Road
Roscoe, Illinois 61073
Rural Hilander Office
1715 Rural Street
Rockford, Illinois 61107
Sixth Street Drive-Up
920 Fourth Avenue
Rockford, Illinois 61104
South Beloit Office and Drive-Up
640 Blackhawk Boulevard
South Beloit, Illinois 61080
South Main Office and Drive-Up
228 S. Main Street
Rockford, Illinois 61101
AMCORE BANK, ALEDO
Aledo Office and Drive-Up
201 W. Main Street
Aledo, Illinois 61231
AMCORE BANK N.A.,
NORTH CENTRAL
Ashton Office and Drive-Up
803 Main Street
Ashton, Illinois 61006
Gridley Office and Drive-Up
325 Center Street
Gridley, Illinois 61744
Mendota Office and Drive-Up
801 Washington Street
Mendota, Illinois 61342
Mendota Data Center and Drive-Up
609 Eighth Avenue
Mendota, Illinois 61342
Peru Office
1810 Fourth Street
Peru, Illinois 61354
Peru Drive-Up
2022 Fourth Street
Peru, Illinois 61354
Peru EconoFoods Office
1351 38th Street
Peru, Illinois 61354
Princeton Office and Drive-Up
815 S. Main Street
Princeton, Illinois 61356
30
<PAGE> 33
Princeton North Office and Drive-Up
1407 N. Main Street
Princeton, Illinois 61356
Sheffield Office
113 S. Main Street
Sheffield, Illinois 61361
Wyanet Office and Drive-Up
135 E. Main Street
Wyanet, Illinois 61379
AMCORE BANK N.A., NORTHWEST
Crystal Lake Office and Drive-Up
5100 Northwest Highway
Crystal Lake, Illinois 60014
Northwood Drive-Up
2100 N. Seminary Avenue
Woodstock, Illinois 60098
Woodstock Office and Drive-Up
225 W. Jackson
Woodstock, Illinois 60098
AMCORE BANK N.A.,
ROCK RIVER VALLEY
Dixon Office and Drive-Up
101 W. First Street
Dixon, Illinois 61021
Hennepin and Boyd Drive-Up
123 W. Boyd Street
Dixon, Illinois 61021
Independence Court Office and Drive-Up
1400 N. Galena
Dixon, Illinois 61021
Sterling Office and Drive-Up
302 First Avenue
Sterling, Illinois 61081
Rock Falls Office and Auto Bank
941 First Avenue
Rock Falls, Illinois 61071
Mt. Morris Office and Drive-Up
2 W. Main Street
Mt. Morris, Illinois 61054
Leaf River Office
104 W. Second Street
Leaf River, Illinois 61047
AMCORE DIVERSIFIED
FINANCIAL SERVICES GROUP
AMCORE Capital Management, Inc.
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 961-7779
AMCORE Consumer Finance Company, Inc.
262 N. Phelps Avenue
Rockford, Illinois 61108
(815) 961-4941
AMCORE Financial Life Insurance Company
AMCORE Financial Plaza
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 968-2241
AMCORE Insurance Group, Inc.
640 Blackhawk Boulevard
South Beloit, Illinois 61080
(815) 389-3451
AMCORE Investment Group, N.A.
AMCORE Financial Plaza
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 961-7119
AMCORE Investment Services, Inc.
AMCORE Financial Plaza
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 961-7049
AMCORE Mortgage, Inc.
1021 N. Mulford Road
P.O. Box 1687
Rockford, Illinois 61110-0187
(815) 961-7200
Rockford Mercantile Agency, Inc.
2502 S. Alpine Road
Rockford, Illinois 61108
(815) 229-3328
31
<PAGE> 34
DIRECTORS OF AMCORE FINANCIAL AND AMCORE CORPORATE EXECUTIVE STAFF
DIRECTORS OF AMCORE FINANCIAL, INC.
Milton R. Brown
Chairman of the Board, President
& Chief Executive Officer
Suntec Industries Incorporated
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Richard C. Dell
Group President
Newell Co.
Robert A. Doyle
President
Yenom Development Company
Theresa Paulette Gilbert
Assistant Professor
Rock Valley College
Lawrence E. Gloyd
Chairman & Chief Executive Officer
CLARCOR
Robert A. Henry, M.D.
President
The Visioneering Group
Robert J. Meuleman
President & Chief Executive Officer
AMCORE Financial, Inc.
Ted Ross
President
TRoss, Inc.
Robert J. Smuland
Retired
Sundstrand Corporation
Jack D. Ward, Esq.
Reno, Zahm, Folgate, Lindberg & Powell, Attorneys
Gary L. Watson
President/Newspaper Division
Gannett Co., Inc.
DIRECTORS EMERITI OF AMCORE FINANCIAL, INC.
David A. Carlson
Retired Chairman
Carlson Roofing Company
Thomas L. Clinton, Sr.
Chairman
Clinton Electronics Corporation
C. Roger Greene
Retired Chairman
Rockford Clutch Division
Borg-Warner Corporation
Roger Reno, Esq.
Chairman Emeritus
AMCORE Financial, Inc.
CORPORATE EXECUTIVE STAFF
R. David Bitting
Chairman of the Board
President & Chief Executive Officer
AMCORE Bank, Aledo
Richard L. Brown
President & Chief Operating Officer
Rockford Mercantile Agency, Inc.
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Kenneth E. Edge
Group Vice President, Banking
AMCORE Financial, Inc.
Jay H. Evans
President & Chief Investment Officer
AMCORE Capital Management, Inc.
Charles E. Gagnier
Executive Vice President,
Bank Mergers & Acquisitions
AMCORE Financial, Inc.
Chairman
AMCORE Bank N.A., Rockford
John R. Hecht
Senior Vice President & Chief Financial Officer
AMCORE Financial, Inc.
Dwight G. Heckert
Chairman of the Board
President & Chief Executive Officer
AMCORE Bank N.A., North Central
William T. Hippensteel
Senior Vice President & Manager
Corporate Marketing
AMCORE Financial, Inc.
Alan W. Kennebeck
Group Vice President,
Diversified Financial Services Group
AMCORE Financial, Inc.
President & Chief Executive Officer
AMCORE Investment Group, N.A.
Jerry A. Lecklider
President & Chief Executive Officer
AMCORE Bank N.A., Rock River Valley
Gerald W. Lister
Group Vice President,
Diversified Financial Services Group
AMCORE Financial, Inc.
Joseph B. McGougan
President & Chief Operating Officer
AMCORE Mortgage, Inc.
Robert J. Meuleman
President & Chief Executive Officer
AMCORE Financial, Inc.
Donald L. Miller
President
AMCORE Consumer Finance Company, Inc.
James S. Waddell
Executive Vice President &
Chief Administrative Officer
Corporate Secretary
AMCORE Financial, Inc.
James F. Warsaw
President & Chief Executive Officer
AMCORE Bank N.A., Rockford
Jack A. Wolfe
President
AMCORE Insurance Group, Inc.
Charie A. Zanck
President & Chief Executive Officer
AMCORE Bank N.A., Northwest
32
<PAGE> 35
[STARS]
<PAGE> 36
AMCORE
FINANCIAL, INC.
501 Seventh Street, Rockford, Illinois 61104 815-968-2241
http://www.AMCORE.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Percent of Capital
Name of Subsidiary Organization Stock Owned
- ------------------ --------------- ------------------
AMCORE Bank N.A., Rockford United States 100%
AMCORE Bank N.A., Rock River Valley United States 100%
AMCORE Bank N.A., Northwest United States 100%
AMCORE Bank N.A., North Central United States 100%
NBA Holding Company Delaware 100%
AMCORE Bank Aledo Illinois 100%
AMCORE Investment Group, N.A. United States 100%
AMCORE Mortgage, Inc. Nevada 100%
AMCORE Consumer Finance Company, Inc. Nevada 100%
AMCORE Financial Life Arizona 100%
Insurance Company
AMCORE Capital Management, Inc. Illinois 100%
AMCORE Insurance Group, Inc. Illinois 100%
AMCORE Investment Banking, Inc. Illinois 100%
Rockford Mercantile Agency, Inc. Illinois 100%
AMCORE Investment Services, Inc. Illinois 100%
<PAGE> 1
Amcore Logo
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1997
TO THE STOCKHOLDERS OF AMCORE FINANCIAL, INC.:
The Annual Meeting of Stockholders of AMCORE Financial, Inc., a Nevada
corporation, will be held at Michael's at Perryville, 601 North Perryville Road,
Rockford, Illinois on May 6, 1997, at 5:30 p.m., Rockford time, for the
following purposes:
1. To elect four directors;
2. To ratify the appointment of McGladrey & Pullen, LLP as auditors;
and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 17, 1997 are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting.
Stockholders are cordially invited to attend the Annual Meeting. However,
whether or not you expect to be present in person at the Annual Meeting, you are
requested to SIGN, DATE AND RETURN THE ENCLOSED PROXY in the enclosed addressed
envelope. The proxy may be revoked at any time before it is voted, provided that
written notice thereof has been given to the Secretary of the Company. If you
are present at the meeting, you may vote your shares in person and the proxy
will not be used.
For further information concerning individuals nominated as directors, the
appointment of McGladrey & Pullen, LLP as auditors and the use of the proxy, you
are respectfully urged to read the Proxy Statement on the following pages.
By order of the Board of Directors,
JAMES WADDELL
James S. Waddell
Secretary
March 27, 1997
Rockford, Illinois
<PAGE> 2
AMCORE FINANCIAL, INC.
501 SEVENTH STREET
ROCKFORD, ILLINOIS 61104
March 27, 1997
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of AMCORE Financial,
Inc. (Company), a Nevada corporation, to be held on May 6, 1997 at 5:30 p.m.,
Rockford time, at Michael's at Perryville, 601 North Perryville Road, Rockford,
Illinois and any adjournment thereof, and further to inform the stockholders
concerning the use of the proxy and the business to be transacted at the
meeting.
The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy may be revoked at any time before it is voted. Proxies may be revoked
by filing written notice of revocation with the Secretary of the Company before
the meeting or by attending the meeting and voting in person. The items
enumerated herein constitute the only business which the Board of Directors
intends to present or is informed that others will present at the meeting. The
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Stockholders are entitled to one vote for each
share. Only stockholders of record at the close of business on March 17, 1997
are entitled to notice of and to vote at the meeting.
Pursuant to the Bylaws of the Company, a majority of the outstanding shares
of the Company entitled to vote, represented in person or by proxy, shall
constitute a quorum at the meeting. Directors shall be elected by a plurality of
the votes cast in the election of directors. Any action to be taken by a vote of
the stockholders, other than the election of directors, must be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Under applicable Nevada law, in tabulating the vote,
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may in some cases also be
made by telephone or personal call by officers, directors or regular employees
of the Company who will not be specially compensated for such solicitation. This
proxy statement and the accompanying proxy are first being mailed or delivered
to stockholders on or about March 27, 1997.
ITEM 1 -- ELECTION OF DIRECTORS
In the election of the Board of Directors, stockholders are entitled to one
vote for each common share owned by them for each of the four nominees. They may
not cumulate their votes. As of March 17, 1997, the Company had outstanding
14,316,757 shares of common stock.
There are four Class II directors to be elected at the 1997 Annual Meeting.
Proxy votes not limited to the contrary will be cast for the election of
the nominees named below, but should any of such individuals unexpectedly become
unavailable for election, the proxies reserve the right to nominate and vote for
such other person or persons as they shall designate.
<PAGE> 3
The following sets forth the names, ages, principal occupations and other
information regarding the director nominees and those directors whose terms
continue after the meeting.
Nominees for Class II directors whose terms will expire in 2000 are:
Milton R. Brown--Director since 1989
Mr. Brown, age 65, is Chairman, President and Chief Executive Officer of Suntec
Industries Incorporated (manufacturer of fuel unit components), is a Director of
Suntec Industries Incorporated, and a Director of Suntec Industries France. He
is a Director of CLARCOR (diversified manufacturer).
Carl J. Dargene--Director since 1982
Mr. Dargene, age 66, is Chairman of the Board of Directors of the Company. He
retired in December 1995 as President and Chief Executive Officer of the
Company. He is Vice Chairman and Director of AMCORE Investment Group, N.A. He is
a Director of Woodward Governor Company (manufacturer of controls for various
types of engines) and of CLARCOR (diversified manufacturer). He was previously
Chairman of the Board of Directors for AMCORE Bank N.A., Rockford until December
1996, a director of AMCORE Bank Dixon until 1993 and AMCORE Bank N.A., Northwest
until 1993.
Richard C. Dell--Director since 1994
Mr. Dell, age 51, has been Group President of Newell Company (diversified
manufacturer) since June 1992. He was previously President of Amerock
Corporation.
William R. McManaman
Mr. McManaman, age 49, has been Vice President--Finance and Chief Financial
Officer of Dean Foods Company since October 1995. He was previously Vice
President--Finance of Brunswick Corporation.
Those directors whose terms do not expire this year are:
CLASS III (TERMS EXPIRE 1998)
Robert A. Doyle--Director since 1982
Mr. Doyle, age 70, is President of Yenom, Inc. (real estate investment).
Ted Ross--Director since 1982
Mr. Ross, age 65, is President of Ross Consulting, Inc., previously TRoss, Inc.,
(financial consultants). He has been a Director of Precision Products Group,
Inc. (manufacturer of tubes and springs) since December 1992.
Robert J. Smuland--Director since 1992
Mr. Smuland, age 61, was previously Executive Vice President and Chief Operating
Officer of Sundstrand Corporation, Aerospace (manufacturer of industrial and
aerospace products) until June 1996, a Director of Sundstrand Corporation until
June 1996 and a Director of AMCORE Bank, Rockford, N.A., until May 1992.
Jack D. Ward--Director since 1995
Mr. Ward, age 44, is an Attorney at Law and Partner with the law firm of Reno,
Zahm, Folgate, Lindberg & Powell, and was previously a Director of AMCORE
Mortgage, Inc. until May 1995.
Gary L. Watson--Director since 1987
Mr. Watson, age 51, is President of Newspaper Division, Gannett Co., Inc.
CLASS I (TERMS EXPIRE 1999)
Theresa Paulette Gilbert--Director since 1993
Mrs. Gilbert, age 47, is a Professor at Rock Valley College. She has been Chair
of the Personnel Committee of the Discovery Center, Riverfront Museum Park since
January 1994 and Secretary of Discovery Center Board of Directors since 1997.
2
<PAGE> 4
Lawrence E. Gloyd--Director since 1987
Mr. Gloyd, age 64, has been Chairman and Chief Executive Officer of CLARCOR
(diversified manufacturer) since March 1995 and is a Director of CLARCOR. He was
previously the Chairman, President and Chief Executive Officer of CLARCOR. He is
a Director of Thomas Industries, Inc. (manufacturer of lighting fixtures, pumps
and compressors), a Director of G.U.D. Holdings LTD (diversified manufacturer)
and a Director of Woodward Governor Company (manufacturer of controls for
various types of engines).
Robert J. Meuleman--Director since 1995
Mr. Meuleman, age 57, has been President and Chief Executive Officer of the
Company since January 1996. He was previously Executive Vice President and Chief
Operating Officer, Banking Subsidiaries. He is a director of AMCORE Bank N.A.,
Rockford and a director of AMCORE Financial Life Insurance Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company has an Executive Committee whose members are Messrs. Dargene,
Doyle, Gloyd, Meuleman and Ross. The Executive Committee exercises those powers
of the Board of Directors in the management of the Company which have been
delegated to it by the Board of Directors. The Executive Committee met three
times during 1996.
The Company has an Audit Committee whose members are Mrs. Gilbert and
Messrs. Brown, Ward and Watson. Mr. Dargene serves as an ex-officio member of
this Committee. The late Mr. Frank A. Fiorenza served on this committee through
July 1996. The duties of the Audit Committee are to review the proposed scope of
the annual audit and the results and recommendations of the independent auditors
upon completion of the annual audit; nominate a firm of independent auditors to
be submitted to the Board of Directors for approval and subsequent ratification
by stockholders at the annual meeting; recommend the compensation of the
independent auditors; review the Company's system of internal controls and the
performance of its internal auditors; and monitor compliance by management with
certain Company policies. The Audit Committee met quarterly during 1996.
The Company has an Investment Committee whose members are Messrs. Doyle,
Henry, Meuleman and Ross. Messrs. Dargene, Paul Donovan, AMCORE Bank N.A.,
Rockford Director, Jay H. Evans, AMCORE Capital Management, Inc. President, and
Charles E. Gagnier serve as ex-officio members of the committee. The Investment
Committee establishes the investment policies of the Company and its
subsidiaries. The Investment Committee meets as necessary. During 1996, the
Investment Committee met four times.
The Company has a Compensation Committee to advise the Company concerning
its employee compensation and benefit policies and to administer the Company's
Long-Term Incentive Plan, 1992 Stock Incentive Plan and 1995 Stock Incentive
Plan. The Compensation Committee also administers the Restricted Stock Plan for
Non-Employee Directors of the Company and its Participating Subsidiaries and the
1994 Stock Option Plan for Non-Employee Directors. The members of the
Compensation Committee are Messrs. Dell, Gloyd, and Smuland. Messrs. Dargene and
Meuleman serve as ex-officio members. Mr. Fiorenza served on this committee
through July 1996. During 1996, the Compensation Committee held four meetings. A
report of the Compensation Committee is set forth on page eleven of this Proxy
Statement.
The Company has an Advisory Committee which is a subcommittee of the
Compensation Committee and designated as the advisor for the AMCORE Financial
Security Plan. Messrs. Dell, Gloyd, Ross, Smuland, Ward and Watson served on
this subcommittee. Mr. Fiorenza served on this committee in 1996. During 1996,
the Advisory Committee met two times and then was dissolved on April 2, 1996.
The Company has a Directors Affairs Committee whose members are Mrs.
Gilbert and Messrs. Brown, Dell, Henry, and Smuland. Messrs. Dargene and
Meuleman serve as ex-officio members of this Committee. The primary duties of
the Directors Affairs Committee are to provide nominations to the Board of
Directors, make recommendations regarding directors' remuneration, recommend
policies for the retirement of directors and fulfill other responsibilities as
may be delegated to it by the Board of Directors. The Directors Affairs
Committee meets as necessary. During 1996, the Directors Affairs Committee met
three times.
3
<PAGE> 5
As of December 31, 1996, the Company had no other committees of the Board
of Directors.
The Board of Directors met six times during 1996. All directors, except
Messrs. Dell and Watson, attended at least 75% of the Board meetings and
meetings held by all committees of the Board on which they served during the
period they were directors in 1996.
Directors of the Company, other than Messrs. Dargene and Meuleman, earned
an annual retainer of $10,000 of the Company's common stock, pursuant to the
Non-Employee Director's Stock Plan, for services rendered to the Company as a
member of its Board of Directors. All non-employee directors earned a fee of
$600 for each Board and committee meeting attended during 1996. All non-employee
committee chairmen earned a one time fee of $1,000. Mr. Dargene was paid
$200,000 for services rendered as Chairman of the Board of Directors of the
Company in 1996. Messrs. David A. Carlson, Thomas L. Clinton, and C. Roger
Greene, as Director Emeriti, receive a lifetime retainer of $7,000 per year. Dr.
Henry will retire on May 6, 1997, and, as a Director Emeritus, will receive a
lifetime retainer of $10,000 per year. All non-employee directors were granted
1,000 common stock options on May 3, 1994 at $20.125, 1,000 options on May 9,
1995 at $19.125 and 1,000 options on May 15, 1996 at $20.00 pursuant to the 1994
Stock Option Plan for Non-Employee Directors.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following tabulation sets forth the number of shares of common stock of
the Company beneficially owned by each of the directors and nominees for
election to the Board of Directors, by each named executive officer, and by all
directors and officers as a group as of March 17, 1997 and the percentage that
these shares bear to the total common stock outstanding on that date.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
------------------------ --------------------- ----------
<S> <C> <C>
Milton R. Brown..................................... 15,405(2)(3) *
Carl J. Dargene..................................... 180,109(2)(3)(4) 1.26%
Richard C. Dell..................................... 2,000(3) *
Robert A. Doyle..................................... 31,012(2)(3) *
Charles E. Gagnier.................................. 85,358(2)(3)(4) *
Theresa Paulette Gilbert............................ 4,911(3) *
Lawrence E. Gloyd................................... 16,957(3) *
Robert A. Henry..................................... 10,914(3) *
Alan W. Kennebeck................................... 11,600(3) *
William R. McManaman................................ 100 *
Robert J. Meuleman.................................. 100,701(3)(4)(5) *
Ted Ross............................................ 23,186(3) *
Robert J. Smuland................................... 18,075(3) *
James S. Waddell.................................... 54,452(3)(4)(5) *
Jack D. Ward........................................ 4,635(3) *
Gary L. Watson...................................... 11,161(3)(5)(6) *
All executive officers and directors (21 persons)... 713,651(2)(3)(4)(5)(6) 4.98%
</TABLE>
- ---------------
* The amount shown is less than 1% of the outstanding shares of such class.
(1) The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company. The nature of beneficial ownership for shares shown in this column
is sole voting and investment power unless otherwise indicated herein.
(2) Includes shares held individually by certain family members of the directors
and officers as follows: Milton R. Brown--913 shares, Carl J.
Dargene--15,247 shares, Robert A. Doyle--3,465, Charles E. Gagnier--1,324
shares, and all executive officers and directors--20,949 shares.
(3) Includes shares which such person has a right to acquire within sixty days
through the exercise of stock options as follows: Milton R. Brown--2,000
shares, Carl J. Dargene--96,465 shares, Richard C. Dell--1,000 shares Robert
A. Doyle--2,000 shares, Charles E. Gagnier--68,979 shares, Theresa Paulette
Gilbert--2,000 shares, Lawrence E. Gloyd--2,000 shares, Robert A.
Henry--2,000 shares, Alan W.
4
<PAGE> 6
Kennebeck--11,500 shares, Robert J. Meuleman--68,020 shares, Ted Ross--2,000
shares, Robert J. Smuland--2,000 shares, James S. Waddell--30,000 shares, Jack
D. Ward--1,000 shares, Gary L. Watson--2,000 shares and all executive officers
and directors--404,874 shares.
(4) Includes shares held in trust with power to vote but without investment
authority as follows: Carl J. Dargene--6,002 shares, Charles E.
Gagnier--3,202 shares, Robert J. Meuleman--6,347 shares, James S.
Waddell--778 shares and all executive officers and directors--29,527 shares.
(5) Includes shares held in joint tenancy with the spouses of certain of the
directors and executive officers as to which voting and investment power is
shared as follows: Robert J. Meuleman--330 shares, James S. Waddell--55
shares, Gary L. Watson--24 shares, and all executive officers and
directors--10,210 shares.
(6) Includes shares held in trusts of which such persons are trustees having
sole voting and investment power as follows: Gary L. Watson--469 shares and
all executive officers and directors--469 shares.
Pursuant to Section 16 of the Exchange Act, the Company's officers,
directors and holders of more than ten percent of the Company's Capital Stock
are required to file reports of their trading in equity securities of the
Company with the Commission, the Company and the NASDAQ Stock Market. Based
solely on its review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports on Form 5 were
required for those persons, the Company believes that during 1996 all filing
requirements applicable to its officers, directors and more than ten percent
shareholders were complied with.
BENEFICIAL OWNERSHIP BY CERTAIN PERSONS
The following table lists the beneficial ownership of the Company's common
stock with respect to all persons, other than those listed above, known to the
Company as of March 1, 1997 to be the beneficial owner of more than five percent
of such common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL INTEREST(1) OF CLASS
------------------- ---------------------- --------
<S> <C> <C>
AMCORE Investment Group, N.A. .............................. 1,730,615(2)(3) 12.10%
501 Seventh Street, Rockford, IL 61104
Roger Reno.................................................. 1,108,888(4) 7.74%
2515 Chickadee Trail, Rockford, IL 61107
</TABLE>
- ---------------
(1) The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company.
(2) Includes 1,730,615 shares held by nominees acting on behalf of AMCORE
Investment Group, N.A. Excludes 564,146 shares held as trustee of various
trusts over which AMCORE Investment Group, N.A. has neither voting nor
investment power, and as to which beneficial ownership is disclaimed on
these shares. The nature of beneficial ownership for the shares shown in
this column is as follows: sole voting power--1,721,915 shares, shared
voting power--3,700 shares, no voting power--5,000 shares, sole investment
power--1,383,919 shares, shared investment power--292,284 shares and no
investment power--54,412 shares.
(3) Although there is no affirmative duty or obligation to do so, it is the
general practice of AMCORE Investment Group, N.A. to solicit the direction
of trust beneficiaries or grantors with regard to the voting of shares held
in trust on all issues which are subject to vote by proxy. The shares are
then voted as directed by the trust beneficiary or grantor.
(4) Includes 150,150 shares held in trusts for which trustee has sole voting and
investment power, 1,338 shares held in trust with power to vote but without
investment authority and 80,558 shares held individually by certain family
members.
5
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
chief executive officer and each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the year
ended December 31, 1996:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS OTHER
------------------------------------------ ---------- ---------- ---------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- UNDERLYING LTIP COMPEN-
POSITION(1) YEAR SALARY(2) BONUS(2)(3) SATION(4) OPTIONS PAYOUTS(5) SATION(6)
------------------ ---- --------- ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman........................ 1996 $275,000 $143,340 $7,101 17,000 $93,468 $400,173
President & Chief 1995 250,000 42,044 7,091 13,000 84,999 48,679
Executive Officer 1994 218,000 36,416 2,940 12,000 82,423 31,471
F. Taylor Carlin.......................... 1996 231,600 79,106 1,514 12,000 84,420 305,013
Executive Vice President & 1995 219,500 38,364 5,083 8,000 81,776 38,108
Chief Operating Officer 1994 207,100 33,226 3,060 12,000 80,002 27,615
Diversified Financial Services Group
Charles E. Gagnier........................ 1996 181,100 58,492 2,116 9,000 44,964 40,024
Executive Vice President 1995 171,600 21,937 5,928 8,000 44,715 29,966
Bank Mergers & Acquisitions 1994 159,600 39,217 3,849 10,000 43,884 20,120
Chairman of the Board of
AMCORE Bank N.A., Rockford
James S. Waddell.......................... 1996 170,000 65,896 1,211 12,000 13,248 88,461
Executive Vice President & 1995 159,000 35,015 6,136 8,000 7,320 19,031
Chief Administrative Officer 1994 125,000 24,567 2,982 10,000 2,423 12,772
Alan W. Kennebeck......................... 1996 135,200 52,206 1,195 7,000 2,942 10,970
President & Chief Executive 1995 59,167 10,473 24,462 4,500 -- 335
Officer, AMCORE Investment 1994 N/A -- -- -- -- --
Group, N.A.
</TABLE>
- ---------------
(1) As of February 3, 1997, Mr. Carlin left the employ of the Company. Mr.
Kennebeck's 1995 reported amounts are for a partial year beginning in July.
(2) Compensation deferred pursuant to the Company's deferred compensation plan
is included in Salary and Bonus totals.
(3) Reflects bonus earned during the year, all or a portion of which was paid
during the next year.
(4) These amounts represent reimbursements during the year for taxes, except for
Mr. Kennebeck, for whom the amount reported for 1995 includes $558 for
reimbursement of taxes and $23,904 for reimbursement of relocation expenses.
(5) Reflects long term incentive plan payouts in 1996 and payouts in the form of
dividend equivalent payments on all outstanding Performance Units.
(6) Amounts shown for 1996 consist of the following:
<TABLE>
<CAPTION>
MEULEMAN CARLIN GAGNIER WADDELL KENNEBECK
-------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Value of life insurance premiums........ $316,707 $238,905 $ -- $56,816 $ --
Value of disability insurance
premiums.............................. 14,030 9,883 -- -- 5,338
Imputed income-group term life
insurance............................. 4,506 4,330 4,411 2,153 1,272
Above market interest on deferred
compensation.......................... 4,686 -- 2,363 388 180
AMCORE Financial Security Plan.......... 16,500 16,500 16,500 16,500 3,657
Company's contributions to supplemental
retirement plan....................... 43,744 35,394 16,750 12,604 523
-------- -------- ------- ------- --------
Total other compensation.............. $400,173 $305,013 $40,024 $88,461 $ 10,970
======== ======== ======= ======= ========
</TABLE>
The value of life insurance premiums for Messrs. Meuleman, Carlin and
Waddell include the value of premiums advanced by the Company under a
split-dollar life insurance agreement with the Company. For further
discussion of these agreements, see "Employee Agreements" on page 10. Prior
year reported amounts include contributions to the Financial Security Plan,
supplemental retirement plan, above market interest on deferred
compensation and group term life imputed income.
6
<PAGE> 8
OPTION GRANTS
The following table provides information related to options granted to the
named executive officers during 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL NET REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM(1)
OPTIONS GRANTED TO PRICE PER EXPIRATION ------------------------
NAME GRANTED(2)(3) EMPLOYEES SHARE(2)(3) DATE 5% 10%
---- ------------- ------------- ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman........ 17,000 7.3% $20.00 5/15/06 $213,824 $541,872
F. Taylor Carlin.......... 12,000 5.1 20.00 5/15/06 150,935 382,498
Charles E. Gagnier........ 9,000 3.9 20.00 5/15/06 113,201 286,874
James S. Waddell.......... 12,000 5.1 20.00 5/15/06 150,935 382,498
Alan W. Kennebeck......... 7,000 3.0 20.00 5/15/06 88,045 223,124
</TABLE>
- ---------------
(1) Values are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
conditions and the optionholders' continued employment.
(2) Reflects options granted on May 15, 1996 to acquire shares of Common Stock
pursuant to the 1995 Stock Incentive Plan.
(3) Options granted pursuant to the 1995 Stock Incentive Plan have an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of the grant. Options generally become exercisable in their
entirety six months following the date of grant and remain exercisable for
ten years after the date of the grant unless the optionee ceases to be an
employee of the Company or its subsidiaries. The option exercise price may
be paid in cash, shares of Common Stock having a fair market value equal to
the exercise price, stock withholding or any combination of the above.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last year and
unexercised options held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES YEAR END(1) YEAR END(2)
ACQUIRED ON VALUE ----------- ---------------
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
---- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Robert J. Meuleman........................... 15,799 $246,380 68,020 $665,905
F. Taylor Carlin............................. 5,000 83,330 59,282 630,606
Charles E. Gagnier........................... -- -- 68,979 866,882
James S. Waddell............................. 4,440 20,349 30,000 214,500
Alan W. Kennebeck............................ -- -- 11,500 81,563
</TABLE>
- ---------------
(1) Options granted to acquire shares of Common Stock pursuant to various stock
incentive plans.
(2) The amounts shown reflect the value of unexercised options calculated by
determining the difference between the closing bid price of the Company's
Common Stock on the last day of the year ($26.75) and the applicable
exercise price of such options.
7
<PAGE> 9
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth information with respect to the named
executives concerning Performance Unit Awards granted during 1996 pursuant to
the Company's 1995 Stock Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF ------------------------------------
PERFORMANCE PERFORMANCE THRESHOLD TARGET OUTSTANDING
NAME UNITS(1) PERIOD 13% 14% 15%
---- ----------- ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Robert J. Meuleman..................... 18,425 3 years $122,895 $184,250 $307,145
F. Taylor Carlin....................... 11,580 3 years 77,239 115,800 193,039
Charles E. Gagnier..................... 6,157 3 years 41,067 61,570 102,637
James S. Waddell....................... 8,500 3 years 56,695 85,000 141,695
Alan W. Kennebeck...................... 4,597 3 years 30,662 45,970 76,632
</TABLE>
- ---------------
(1) Performance units were granted to certain executive officers on January 2,
1996 pursuant to the 1995 Stock Incentive Plan. The holders of these
performance units will be entitled to cash or stock payments, or a
combination thereof, if certain performance targets are met during the three
year period ending December 31, 1998. The holders are also entitled to
dividend equivalent payments on these Performance Units. The target levels
applicable to the Performance Units as shown in the table above are achieved
if the average consolidated return on shareholders' equity (ROE) for the
performance period is as shown above for each of the performance levels.
Each Performance Unit shall be of no value unless at least the minimum level
is achieved. If the Company achieves an average ROE in excess of the minimum
performance level set forth above, each Performance Unit shall have the
following values: $6.67 per unit for threshold performance, $10.00 per unit
for target performance and $16.67 per unit for outstanding performance. It
is the Company's intention to make incremental payments to executive
officers for performance levels which are between these specified target
levels.
EMPLOYEE AGREEMENTS
On March 1, 1996, the Company entered into individual Executive Insurance
Agreements (each an "Agreement" and collectively the "Agreements") with the
following executives: Robert J. Meuleman, F. Taylor Carlin and James S. Waddell.
The Company purchased split-dollar life insurance policies for the named
executives pursuant to each Agreement. The Company may terminate any such
Agreement and receive its interest in the life insurance policy under certain
conditions, including termination of employment (other than due to death,
disability or retirement, unless such terminated employee becomes affiliated
with a competitor following any such termination due to disability or
retirement), provided the Company may not terminate any of the Agreements if
such termination of employment or affiliation occurs after a "change in control"
of the Company.
The Company has entered into individual Transitional Compensation
Agreements with current executive officers and certain other key employees,
including Messrs. Robert J. Meuleman, F. Taylor Carlin, James S. Waddell, and
one other executive. If, during the three-year period following a change of
control of the Company (as defined in the agreements), the executive officer's
employment is ended through (1) termination by the Company without cause (as
defined in the agreements) or (2) termination by the executive officer for good
reason (as defined in the agreements) based upon a breach of the agreement by
the Company or a significant adverse change in the executive officer's
responsibilities, compensation or benefits, then a termination payment will be
made to the executive. The agreements provide that such payment will equal three
times the sum of the executive's then current annual salary and annual bonus. In
addition, Mr. Meuleman's agreement provides that, if any portion of the
termination payment is subject to an excise tax as an excess parachute payment,
as defined in the Internal Revenue Code Section 4999, the Company shall pay the
executive the amount necessary to offset the excise tax and any applicable taxes
on this additional payment. The agreements, other than Mr. Meuleman's, provide
that the total severance benefits are limited to the amount that can be received
without incurring any excise tax under the Internal Revenue Code
8
<PAGE> 10
Section 4999. Additional provisions provide for the continuation, for three
years after termination, of welfare and other benefits to the executive and his
family unless termination is for cause. Upon a change of control of the Company,
the executive is entitled to a lump sum cash payment equivalent to the present
value of the projected benefits under certain supplemental retirement plans.
The Company also entered into Transitional Compensation Agreements with
Charles E. Gagnier, Alan W. Kennebeck and four other executive officers. These
agreements provide that if such executive's employment is terminated within one
year after a change in control of the Company either (i) by the Company other
than for "cause" or other than as a consequence of disability or retirement (all
as defined in such agreements) or (ii) by such executive for reasons relating to
a diminution of responsibilities, compensation or benefits or relocation
requiring a change in residence or a significant increase in travel, he will
receive: (a) lump sum payment equal to his monthly salary in effect at the date
of termination for a period of time determined pursuant to each agreement based
upon his salary, years of service and age at the time of his termination, and a
prorata portion of his annual bonus; (b) life, disability, accident and health
insurance as provided in the Company's insurance programs for a period of 24
months after termination of employment; and (c) certain perquisites and
outplacement services. The agreements provide for a commensurate reduction in
the amount of cash payments to be made to an executive under the agreement in
the event that (i) the payments fail to be deductible by the Company as a result
of Section 280G of the Internal Revenue Code of 1986, as amended or (ii) such
executive procures new employment during the period he is receiving severance
payments under the agreement. If these agreements had become operative in
December 1996, the maximum number of monthly payments payable to the following
individuals (subject to reduction as described in the previous sentence) would
have been approximately: Charles E. Gagnier, 40 months and Alan W. Kennebeck,
17.5 months.
The Company provides a supplemental retirement plan (entitled "AMCORE
Non-Qualified Retirement Plan") for senior executive officers to maintain
certain levels of retirement benefits and maximize the effectiveness and
flexibility of compensation arrangements for participants in the AMCORE
Financial Security Plan (Security Plan). This is accomplished by crediting each
participating executive with contributions that would be made to the Security
Plan, but for certain limitations imposed by the Internal Revenue Code.
In May 1990, the Company adopted a termination policy (Policy) to provide
severance pay and the continuation of health and life insurance benefits for
substantially all of the Company's employees whose employment is terminated
within one year following a change in control (as defined in the Policy). The
Policy provides for weekly or monthly payments, depending on employment status,
equal to such employee's current weekly or monthly salary for a period of time
determined pursuant to the Policy based upon his or her salary, years of service
and age. In addition, employees would receive health and life insurance
benefits, substantially similar to those received by the employee prior to the
employee's termination, during the period in which an employee receives payments
under the Policy, for up to a maximum of 24 months. The Policy provides for a
commensurate reduction in the amount of payments to be received by an employee
in the event an employee procures new employment during the period he or she is
receiving severance payments under the Policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carl J. Dargene serves as an ex-officio member of the Compensation
Committee and is the Company's Chairman of the Board. Mr. Dargene also serves on
the board of CLARCOR and its Compensation Committee. Lawrence E. Gloyd, Chairman
and Chief Executive Officer of CLARCOR, also serves on the Company's
Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews and approves
the Company's compensation and benefit policies, including individual salaries
of the executive officers, and reports to the Board of Directors.
9
<PAGE> 11
The Company engages an internationally recognized compensation consulting
firm on a regular basis to assist the Compensation Committee and the Board of
Directors in formulating compensation policies and determining appropriate
compensation levels. This firm provides reports directly to the Compensation
Committee.
Compensation received is one measure of the accomplishments and potential
of the employee, relative to peers. AMCORE believes that base compensation
should be competitive in the marketplace, but that incentive opportunities
should increase the amount of compensation available to key personnel. Incentive
opportunities should be tied to both quantitative and qualitative objectives
designed to enhance both short and long term shareholder value.
Toward that end, it is the philosophy of management, supported by the
Compensation Committee, that senior management base pay should be at or near the
median for similar positions in the industry and that incentives for meeting
objectives should provide the opportunity for total compensation to reach the
75th percentile and beyond based on performance relative to industry and peer
applicable comparisons.
It is felt that incentives should not be disincentives. In the short term,
there should be achievable, but challenging, goals. When these goals are
achieved, they will increase compensation and set the basis for higher standards
as the next step.
Executive Officer Compensation
Consistent with this philosophy, the Compensation Committee has established
a compensation program consisting of an annual base salary and the opportunity
to earn incentive compensation tied directly to the performance of the Company,
personal performance and increases in stockholder value. The Company's executive
compensation program in 1996 consisted of the following components:
- Base Salary
- Short-Term Incentive Plan
- Intermediate-Term Incentive Plan
- Long-Term Incentive Plan
The Compensation Committee, working with the compensation consulting firm,
determines a range for the executive officers' base salaries in order to be
competitive and consistent with amounts paid to executives performing similar
functions in comparable companies. The objective is to determine the salary
ranges at a level within the third quartile of trailing twelve month activity of
the comparable companies. The amount of each executive's base salary is set
within the range based upon the performance of the Company, performance of
particular business units, the personal performance of such executive officers,
cost of living increases and such other factors as the Compensation Committee
and the Board of Directors deem appropriate.
The short-term incentive component of each executive officer's compensation
is based upon participation in the Company's profit sharing plan, generally
available to all of the Company's employees, and a cash bonus, based upon a
maximum target amount assigned at the beginning of each year. Amounts payable
under the Company's profit sharing plan range between 0% and 6% of the executive
officer's total cash compensation, and are based upon the profitability of the
Company. The annual cash bonus targets for the senior management of the Company
range from 25% to 50% of the midpoint of the base salaries of such officers. The
amount of targeted cash bonuses payable to the executive officers are contingent
upon the attainment of financial targets such as consolidated or affiliate
earnings which are established at the beginning of the year, personal
performance of the executive and, where appropriate, attainment of earnings
goals of the operating unit or units for which the executive has responsibility.
The targets may be adjusted from time to time to take into account unforeseen or
extraordinary events. Generally, if certain minimum target financial results are
not achieved, no annual incentive will be paid.
Generally, 10% of a targeted cash bonus will be paid upon the achievement
of at least 90% of such goals increasing to 100% of such targeted cash bonus
upon the achievement of 110% or more of such goals (which
10
<PAGE> 12
include objectives that are, in the judgment of the Compensation Committee,
difficult to attain). In 1996, the total short-term incentive payouts to
executive officers were approximately 85% of the maximum targets established
under the plan.
The intermediate-term incentive component of each executive officer's
compensation is based upon the award of performance units which provide for cash
or stock payouts, or a combination thereof, based upon the achievement by the
Company of targeted average consolidated returns on stockholders' equity over a
three year performance period. The holders are also entitled to dividend
equivalent payments on these performance units. The three target levels
applicable to the performance units granted are: Threshold 13% ROE, Target 14%
ROE and Outstanding 15% ROE. Each performance unit shall be of no value unless
at least the minimum performance level is achieved. If the Company achieves an
average ROE in excess of the minimum performance level set forth above, each
performance unit shall have the following values: $6.67 per unit for Threshold
performance, $10.00 per unit for Target performance and $16.67 per unit for
Outstanding performance. The minimum targeted average returns on equity of 11%
were attained for the 1994 performance units expiring December 1996 and a payout
of $7.22 per unit was made to each executive officer in January 1997.
The long-term incentive component of each executive officer's compensation
involves the award of stock options or stock awards pursuant to the AMCORE
Long-Term Incentive Plan and 1992 and 1995 Stock Incentive Plans. Long-term
incentives are provided to reward executives for achieving long-term strategic
goals and to provide a balance against overemphasis on short-term results.
Through stock ownership, executives' long-term incentives are tied to
stockholder value. The Compensation Committee recommends grants of annual awards
of stock options to executive officers at levels determined with reference to
fixed percentages up to 35% of base compensation subject to increases and
decreases based on individual performance.
Chief Executive Officer Compensation
The compensation package for Mr. Robert J. Meuleman, who was the Chief
Executive Officer of the Company during 1996, was determined in the same manner
as for all other executive officers, except that Mr. Meuleman's short-term
incentive was based 100% on the Company's total performance without reference to
any particular business unit of the Company or personal objectives. For this
purpose, Company performance was measured by comparing the consolidated earnings
of the Company to earnings goals established by the Compensation Committee.
Mr. Meuleman's base salary in 1996 was $275,000, which was in the upper
first quartile of his salary range, and his short-term bonus was $143,340, a
payout of 85% of the maximum, for a combined total of $418,340. During 1995, Mr.
Meuleman served as Executive Vice President and Chief Operating Officer, Banking
Subsidiaries of the company and earned a base salary of $250,000 and short-term
bonus of $42,044, for a total of $292,044.
The Compensation Committee believes that the executive team of the Company
will receive appropriate rewards under this program of corporate incentives, but
only if they achieve the performance goals established for them and the Company
and if they succeed in increasing stockholder value.
Richard C. Dell
Lawrence E. Gloyd
Robert J. Smuland
Carl J. Dargene, Ex-officio member
Robert J. Meuleman, Ex-officio member
11
<PAGE> 13
COMPANY PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the cumulative total
returns on the NASDAQ Stock Market Index and NASDAQ Bank Stocks Peer Index.
Cumulative total returns have been measured by dividing the sum of the
cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and the difference between the share price at the end and the
beginning of the measurement period by the share price at the beginning of the
measurement period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(AMCORE FINANCIAL, INC., NASDAQ STOCK MARKET INDEX, NASDAQ BANK STOCK INDEX)
[GRAPH]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
NASDAQ BANK STOCK INDEX 100 145.551 165.989 170.945 246.319 325.600
AMCORE FINANCIAL, INC. 100 179.172 249.040 251.590 276.132 376.084
NASDAQ STOCK MARKET INDEX 100 116.378 133.595 131.318 184.674 227.164
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The index level for all series was set to 100.0 as of December 31, 1991.
12
<PAGE> 14
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Company and their associates were
customers of, and had transactions with, the Company's subsidiaries in the
ordinary course of business during 1996. Comparable transactions may be expected
to take place in the future. All outstanding loans, commitments to loan,
transactions in repurchase agreements and certificates of deposit, and
depository relationships in the ordinary course of business, were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for transactions with other persons, and, in the opinion
of management of the Company, did not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 1996,
various directors and officers of the Company were indebted to the Company's
subsidiaries in the amount of approximately $2,397,000. This amount represents
0.16 percent of the Company's subsidiaries' outstanding loans and 1.09 percent
of the Company's stockholders' equity as of that date. The maximum aggregate
amount of their indebtedness to the Company's subsidiaries during 1996 was
$2,424,000. As of December 31, 1996, associates of directors and officers of the
Company were indebted to the Company's subsidiaries in the amount of
approximately $768,000. This amount represents 0.05 percent of the Company's
subsidiaries' outstanding loans and 0.35 percent of the Company's stockholders'
equity as of that date. Further, the Company's subsidiaries have additional
committed, but unfunded, lines of credit of $10,000,000 to associates of
directors and officers of the Company. The maximum aggregate amount of such
associates' indebtedness to the Company's subsidiaries during 1996 was
$5,152,000.
The Board of Directors, on February 22, 1984, authorized the Executive
Committee to negotiate such agreements as may be necessary to accomplish stock
redemptions pursuant to Section 303 of the Internal Revenue Code to pay death
taxes of certain stockholders. Such redemptions will be conditioned upon any
requisite bank regulatory agency or debt covenant approvals. Bank holding
companies, such as the Company, are required to notify the Federal Reserve Board
prior to paying 10% or more of consolidated net worth to redeem shares over a
twelve-month period.
ITEM 2--APPOINTMENT OF INDEPENDENT AUDITORS
McGladrey & Pullen, LLP have been appointed to serve as the independent
auditors for the Company and subsidiaries for the fiscal year ending December
31, 1997. This appointment is being submitted to the stockholders for
ratification. Representatives of the firm are expected to be present at the
Annual Meeting to respond to appropriate questions from stockholders and to have
the opportunity to make any statements they consider appropriate. In the event
the stockholders do not ratify the appointment of McGladrey & Pullen, LLP, the
selection of independent auditors will be determined by the Audit Committee and
the Board of Directors after careful consideration of all information submitted
by the stockholders.
Accounting services rendered by McGladrey & Pullen, LLP during 1996
included the examination of the annual consolidated financial statements, review
of unaudited quarterly statements, assistance with Securities and Exchange
Commission filings, legally required special audits of subsidiaries, and
consultations in connection with various tax and accounting-related matters.
During 1996, the Board of Directors reviewed and approved in advance or
ratified the scope of all of McGladrey & Pullen, LLP's professional services
rendered to the Company and related entities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
MCGLADREY & PULLEN, LLP AS AUDITORS FOR THE YEAR 1997.
13
<PAGE> 15
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
NOMINATIONS FOR THE BOARD OF DIRECTORS
The Company's Bylaws provide that the notice of proposed stockholder
nominations for the election of directors must be timely and given to the
Secretary of the Company prior to the meeting at which directors are to be
elected. To be timely, notice must be received by the Company not less than 50
days nor more than 75 days prior to the meeting. The date of an annual meeting
of stockholders may be obtained from the Secretary of the Company when
determined by the Board of Directors.
Notice to the Company from a stockholder who proposes to nominate a person
at the meeting for election as a director must contain certain information about
that person, including age, business and residence addresses and principal
occupation, the class and number of shares of the Company's stock beneficially
owned and such other information as would be required to be included in a proxy
statement soliciting proxies to nominate that person. The Company may also
require any proposed nominee to furnish other information reasonably required by
the Company to determine the proposed nominee's eligibility to serve as
director. If the chairman of the meeting of stockholders determines that a
person was not nominated in accordance with the foregoing procedures, such
person shall not be eligible for election as a director.
OTHER PROPOSALS
Stockholders may submit proposals appropriate for stockholder action at the
Company's Annual Meeting consistent with the regulations of the Securities and
Exchange Commission. For proposals to be considered for inclusion in the Proxy
Statement for the 1998 Annual Meeting, they must be received by the Company no
later than December 1, 1997. Such proposals should be directed to AMCORE
Financial, Inc., Attention: Corporate Secretary, 501 Seventh Street, Rockford,
Illinois 61104.
By order of the Board of Directors,
James S. Waddell
James S. Waddell
Secretary
14
<PAGE> 16
AMCORE FINANCIAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMCORE FINANCIAL, INC.
FOR THE ANNUAL MEETING ON MAY 6, 1997
The undersigned holder of Common Stock of AMCORE Financial, Inc. hereby
appoints Robert J. Meuleman and James S. Waddell or each of them, with full
power of substitution, to act as proxy for and to vote the stock of the
undersigned at the Annual Meeting of Stockholders of AMCORE Financial, Inc. to
be held at Michael's at Perryville, 601 North Perryville Road, Rockford,
Illinois, at 5:30 p.m., Rockford time, on May 6, 1997 or any adjournment
thereof.
In their discretion, the proxies are authorized to vote upon other
business as may properly come before the meeting. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
________________________________________________________________________________
AMCORE FINANCIAL, INC. ANNUAL MEETING
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS: 1 - MILTON R. BROWN, 2 - CARL J. DARGENE,
3 - RICHARD C. DELL, 4 - WILLIAM R. MCMANAMAN / / FOR all / / WITHHOLD AUTHORITY
nominees listed to vote for all
to the left nominees listed
(except as to the left.
specified below)
(Instructions: To withhold authority to vote for any indicated nominee, __________________________________________
write the number(s) of the nominee(s) in the box provided to the right.) |__________________________________________|
2. Ratification of the appointment of McGladrey & Pullen, LLP as
independent auditors. / / FOR / / AGAINST / / ABSTAIN
ADDRESS CHANGE? Date ___________________________________________ NO. OF SHARES
MARK BOX / /
INDICATE CHANGES BELOW:
__________________________________________
| |
| |
|__________________________________________|
SIGNATURE(S) IN BOX
Please sign exactly as your name appears
hereon. When shares are held by joint tenants,
both should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
an authorized person.
</TABLE>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of AMCORE Financial, Inc., a Nevada corporation, which is about to
file an annual report for the year ended December 31, 1996 pursuant to Section
13 of 15(d) of the Securities Act of 1934 on Form 10-K with the Securities and
Exchange Commission, Washington, D.C., 20549 hereby constitutes and appoints
ROBERT J. MEULEMAN and JOHN R. HECHT, and each of them, his true and lawful
attorney-in-fact and agents with power of substitution and resubstitution, from
them and in their name, place and stead, in any and all capacities, to sign the
Company's Form 10-K and other documents in connection therewith with the
Securities and Exchange Commission, granting unto the attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, know that the undersigned as a director or officer has
hereunto set their hand as of this ________________ day of March, 1997.
___________________________
Signature
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 87,740
<INT-BEARING-DEPOSITS> 156
<FED-FUNDS-SOLD> 12,706
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,138,351
<INVESTMENTS-CARRYING> 10,368
<INVESTMENTS-MARKET> 10,455
<LOANS> 1,456,217
<ALLOWANCE> 14,996
<TOTAL-ASSETS> 2,814,550
<DEPOSITS> 1,890,016
<SHORT-TERM> 544,508
<LIABILITIES-OTHER> 35,294
<LONG-TERM> 124,095
0
0
<COMMON> 4,976
<OTHER-SE> 215,661
<TOTAL-LIABILITIES-AND-EQUITY> 2,814,550
<INTEREST-LOAN> 120,497
<INTEREST-INVEST> 71,024
<INTEREST-OTHER> 3,413
<INTEREST-TOTAL> 194,934
<INTEREST-DEPOSIT> 73,197
<INTEREST-EXPENSE> 108,393
<INTEREST-INCOME-NET> 86,541
<LOAN-LOSSES> 5,086
<SECURITIES-GAINS> 1,870
<EXPENSE-OTHER> 83,997
<INCOME-PRETAX> 35,901
<INCOME-PRE-EXTRAORDINARY> 26,383
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,383
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
<YIELD-ACTUAL> 3.75
<LOANS-NON> 9,556
<LOANS-PAST> 3,181
<LOANS-TROUBLED> 283
<LOANS-PROBLEM> 18,086
<ALLOWANCE-OPEN> 13,061
<CHARGE-OFFS> 4,361
<RECOVERIES> 1,210
<ALLOWANCE-CLOSE> 14,996
<ALLOWANCE-DOMESTIC> 10,623
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,373
</TABLE>
