UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0-13393
AMCORE FINANCIAL, INC.
NEVADA 36-3183870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Seventh Street, Rockford, Illinois 61104
Telephone number (815) 968-2241
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common stock, par value
$.22 per share, at July 31, 1998 was 29,019,198 shares.
Index of Exhibits on Page 23 Page 1
<PAGE>
AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART I Page Number
- ------ -----------
ITEM 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997 . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity as of
June 30, 1998 and December 31, 1997 . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . 7
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 10
PART II
- -------
ITEM 4 Submission of Matters to a Vote of Security Holders. . . . . . 23
ITEM 6 Exhibits and Reports on Form 10-Q. . . . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION> June 30, December 31,
(in thousands, except per share data) 1998 1997
==================================================================================================================================
<S> <C> <C> <C>
ASSETS Cash and cash equivalents.......................................................... $138,384 $105,218
Interest earning deposits in banks................................................. 7,845 2,206
Federal funds sold and other short-term investments................................ 1,600 633
Loans held for sale................................................................ 27,583 29,869
Securities available for sale...................................................... 1,577,583 1,441,593
Securities held to maturity (fair value of $ 14,351 in 1998; $ 15,611 in 1997)..... 14,175 15,423
--------------------------------
Total securities .............................................................. $1,591,758 $1,457,016
Loans and leases, net of unearned income........................................... 2,251,823 1,962,674
Allowance for loan and lease losses................................................ (24,588) (19,908)
--------------------------------
Net loans and leases........................................................... $2,227,235 $1,942,766
Premises and equipment, net ....................................................... 58,105 54,774
Intangible assets, net............................................................. 18,694 12,168
Other real estate owned............................................................ 1,879 1,668
Other assets....................................................................... 65,688 61,372
--------------------------------
TOTAL ASSETS................................................................... $4,138,771 $3,667,690
================================
LIABILITIES LIABILITIES
AND Deposits:
STOCKHOLDERS' Demand deposits.................................................................. $1,012,344 $915,954
EQUITY Savings deposits................................................................. 191,560 170,882
Other time deposits.............................................................. 1,550,985 1,440,207
--------------------------------
Total deposits................................................................. $2,754,889 $2,527,043
Short-term borrowings.............................................................. 745,288 647,509
Long-term borrowings .............................................................. 267,007 159,125
Other liabilities.................................................................. 53,776 46,537
--------------------------------
TOTAL LIABILITIES.............................................................. $3,820,960 $3,380,214
--------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares; issued none......... $ - $ -
Common stock, $.22 par value: authorized 45,000,000 shares;
June 30, December 31,
1998 1997
---------- ----------
Issued 29,593,495 27,681,138
Outstanding 29,050,024 26,922,604 6,572 6,152
Additional paid-in capital......................................................... 77,625 73,262
Retained earnings ................................................................. 233,327 206,235
Deferred compensation non-employee directors....................................... (1,786) (1,478)
Treasury stock .................................................................... (2,844) (5,069)
Net unrealized gain (loss) on securities available for sale, net of taxes.......... 4,917 8,374
--------------------------------
TOTAL STOCKHOLDERS' EQUITY.................................................... $317,811 $287,476
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $4,138,771 $3,667,690
================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(in thousands, except per share data) 1998 1997 1998 1997
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
INTEREST Interest and fees on loans and leases.............................. $48,318 $40,505 $91,307 $79,602
INCOME Interest on securities:
Taxable.......................................................... 20,678 18,056 40,811 35,675
Tax-exempt....................................................... 4,458 3,952 8,766 7,811
----------------------- -----------------------
TOTAL INCOME FROM SECURITIES.................................. $25,136 $22,008 $49,577 $43,486
----------------------- -----------------------
Interest on federal funds sold and other short-term investments.... $28 $106 $132 $295
Interest and fees on loans held for sale........................... 923 364 1,674 625
Interest on deposits in banks...................................... 115 21 145 31
----------------------- -----------------------
TOTAL INTEREST INCOME......................................... $74,520 $63,004 $142,835 $124,039
----------------------- -----------------------
INTEREST Interest on deposits............................................... $29,385 $24,396 $56,485 $47,953
EXPENSE Interest on short-term borrowings.................................. 9,867 8,790 18,959 17,376
Interest on long-term borrowings................................... 4,050 2,337 7,220 4,120
----------------------- -----------------------
TOTAL INTEREST EXPENSE........................................ $43,302 $35,523 $82,664 $69,449
----------------------- -----------------------
NET INTEREST INCOME........................................... $31,218 $27,481 $60,171 $54,590
Provision for loan and lease losses................................ 1,642 1,936 3,787 3,851
----------------------- -----------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES. $29,576 $25,545 $56,384 $50,739
----------------------- -----------------------
Trust and asset management income.................................. $5,993 $3,863 $11,254 $7,721
NON-INTEREST Service charges on deposits........................................ 2,185 2,019 4,049 3,931
INCOME Mortgage revenues.................................................. 2,563 1,615 5,322 2,281
Insurance revenues................................................. 429 380 884 800
Other.............................................................. 2,187 2,544 4,245 6,988
----------------------- -----------------------
NON-INTEREST INCOME, EXCLUDING NET REALIZED SECURITY GAINS.... $13,357 $10,421 $25,754 $21,721
Net realized security gains........................................ 541 154 1,083 1,014
----------------------- -----------------------
TOTAL NON-INTEREST INCOME..................................... $13,898 $10,575 $26,837 $22,735
Compensation expense............................................... $12,848 $12,161 $25,403 $23,942
OPERATING Employee benefits.................................................. 3,258 3,040 6,802 6,590
EXPENSES Net occupancy expense.............................................. 1,644 1,930 3,357 3,618
Equipment expense.................................................. 1,978 5,132 4,124 7,180
Professional fees.................................................. 740 3,273 3,419 4,330
Advertising and business development............................... 912 961 1,794 1,633
Amortization of intangible assets.................................. 685 549 1,271 1,099
Other.............................................................. 5,867 6,701 13,668 11,321
----------------------- -----------------------
TOTAL OPERATING EXPENSES...................................... $27,932 $33,747 $59,838 $59,713
----------------------- -----------------------
Income Before Income Taxes......................................... $15,542 $2,373 $23,383 $13,761
Income taxes....................................................... 4,306 341 6,048 3,490
----------------------- -----------------------
NET INCOME.................................................... $11,236 $2,032 $17,335 $10,271
----------------------- -----------------------
BASIC EARNINGS PER COMMON SHARE.................................... $0.39 $0.07 $0.62 $0.38
DILUTED EARNINGS PER COMMON SHARE.................................. 0.38 0.07 0.61 0.38
DIVIDENDS PER COMMON SHARE......................................... 0.14 0.11 0.26 0.21
AVERAGE COMMON SHARES OUTSTANDING.................................. 29,047 26,833 28,078 26,812
AVERAGE DILUTED SHARES OUTSTANDING................................. 29,635 27,378 28,608 27,342
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
Additional Compensation
Common Paid-in Retained Non-Employee
(in thousands, except share data) Stock Capital Earnings Directors
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................................................. $6,134 $68,047 $191,485 ($1,382)
--------------------------------------------------
Comprehensive Income.......................................................
Net Income......................................................... - - 28,664 -
Net change in unrealized gains (losses) on securities available
for sale, net of tax............................................. - - - -
--------------------------------------------------
Comprehensive Income....................................................... - - 28,664 -
--------------------------------------------------
Cash dividends on common stock-$.45 per share.............................. - - (12,130) -
Purchase of AMCORE Bank Belleville minority interest....................... - 1,768 (1,784)
Purchase of 53,000 shares for the treasury................................. - - - -
Three-for-two stock split fractional share payments ....................... - (18) - -
Reissuance of 18,486 treasury shares for Non-Employee
Directors stock plan..................................................... - 244 - (356)
Issuance of 16,377 common shares for directors stock plan.................. 4 106 - (110)
Deferred compensation expense.............................................. - - - 370
Reissuance of 264,600 treasury shares under stock option plans............. - 2,678 - -
Reissuance of 2,457 treasury shares for employee incentive plans........... - 21 - -
Issuance of 63,743 common shares for employee incentive plan............... 14 416 - -
--------------------------------------------------
Balance at December 31, 1997................................................. $6,152 $73,262 $206,235 ($1,478)
--------------------------------------------------
Comprehensive Income.......................................................
Net Income......................................................... - - 17,335 -
Net change in unrealized gains (losses) on securities available
for sale, net of tax............................................. - - - -
--------------------------------------------------
Comprehensive Income....................................................... - - 17,335 -
--------------------------------------------------
Cash dividends on common stock-$.26 per share.............................. - - (7,317) -
Purchase of 221,000 shares for the treasury................................ - - - -
Reissuance of 22,479 treasury shares for Non-Employee
Directors stock plan..................................................... - 282 - (573)
Deferred compensation expense.............................................. - - - 265
Reissuance of 143,482 treasury shares under stock option plans............. - 1,057 - -
Issuance of 1,912,357 common shares for Midwest Federal Financial Corp..... 420 2,314 17,074 -
Issuance of 270,139 treasury shares for Investors Management Group Ltd..... - 680 - -
Repayment of ESOP loan..................................................... - 30 - -
--------------------------------------------------
Balance at June 30, 1998..................................................... $6,572 $77,625 $233,327 ($1,786)
==================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Stockholders'
(in thousands, except share data) Stock Income (1) Equity
---------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996................................................. ($4,908) ($1,956) $257,420
---------------------------------------
Comprehensive Income.......................................................
Net Income......................................................... - - 28,664
Net change in unrealized gains (losses) on securities available
for sale, net of tax............................................. - 10,330 10,330
---------------------------------------
Comprehensive Income....................................................... - 10,330 38,994
---------------------------------------
Cash dividends on common stock-$.45 per share.............................. - - (12,130)
Purchase of AMCORE Bank Belleville minority interest....................... (16)
Purchase of 53,000 shares for the treasury................................. (1,327) - (1,327)
Three-for-two stock split fractional share payments ....................... - - (18)
Reissuance of 18,486 treasury shares for Non-Employee
Directors stock plan..................................................... 112 - -
Issuance of 16,377 common shares for directors stock plan.................. - - -
Deferred compensation expense.............................................. - - 370
Reissuance of 264,600 treasury shares under stock option plans............. 1,035 - 3,713
Reissuance of 2,457 treasury shares for employee incentive plans........... 19 - 40
Issuance of 63,743 common shares for employee incentive plan............... - - 430
---------------------------------------
Balance at December 31, 1997................................................. ($5,069) $8,374 $287,476
---------------------------------------
Comprehensive Income.......................................................
Net Income......................................................... - - 17,335
Net change in unrealized gains (losses) on securities available
for sale, net of tax............................................. - (3,635) (3,635)
---------------------------------------
Comprehensive Income....................................................... - (3,635) 13,700
---------------------------------------
Cash dividends on common stock-$.26 per share.............................. - - (7,317)
Purchase of 221,000 shares for the treasury................................ (5,513) - (5,513)
Reissuance of 22,479 treasury shares for Non-Employee
Directors stock plan..................................................... 291 - -
Deferred compensation expense.............................................. - - 265
Reissuance of 143,482 treasury shares under stock option plans............. 1,205 - 2,262
Issuance of 1,912,357 common shares for Midwest Federal Financial Corp..... - 178 19,986
Issuance of 270,139 treasury shares for Investors Management Group Ltd..... 6,242 - 6,922
Repayment of ESOP loan..................................................... - - 30
---------------------------------------
Balance at June 30, 1998..................................................... ($2,844) $4,917 317,811
=======================================
</TABLE>
(1) Net unrealized gain (loss) on securities available for sale, net of taxes.
See accompanying notes to consolidated financial statements.
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(in thousands) 1998 1997
===================================================================================================================
<S> <C> <C> <C>
CASH FLOWS Net income.......................................................... $17,335 $10,271
FROM Adjustments to reconcile net income to net
OPERATING cash provided by operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment........ 3,447 3,919
Amortization and accretion of securities, net.................. 4,341 1,047
Provision for loan and lease losses............................ 3,787 3,851
Amortization of intangible assets.............................. 1,271 1,099
Net gain on sale of securities available for sale.............. (1,083) (1,014)
Deferred income taxes.......................................... 3,130 (3,124)
Originations of loans held for sale............................ (212,717) (85,755)
Proceeds from sales of loans held for sale..................... 216,860 83,303
Other, net..................................................... 4,474 (3,084)
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $40,845 $10,513
-----------------------------
CASH FLOWS Proceeds from maturities of securities available for sale........... $192,732 $88,599
FROM Proceeds from maturities of securities held to maturity............. 1,255 6,212
INVESTING Proceeds from sales of securities available for sale................ 173,444 96,081
ACTIVITIES Purchase of securities held to maturity............................. - (13,898)
Purchase of securities available for sale........................... (485,972) (385,706)
Net (increase) decrease in federal funds sold
and other short-term investments................................. (967) 16,568
Proceeds from the sale of credit card receivables................... 5,756 15,457
Proceeds from the sale of consumer finance loans and leases......... 3,056 663
Net (increase) decrease in interest earning deposits in banks....... (5,634) (1,074)
Loans made to customers and principal collection of loans, net...... (128,150) (83,590)
Premises and equipment expenditures, net............................ (2,532) (2,538)
Proceeds from the sale of other real estate......................... 792 477
Net cash and cash equivalents acquired through acquisitions......... 5,763 -
-----------------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES.................. ($240,457) ($262,749)
-----------------------------
CASH FLOWS Net increase (decrease) in demand deposits and savings accounts..... $42,922 ($1,100)
FROM Net increase in time deposits....................................... 21,323 48,432
FINANCING Net increase in short-term borrowings............................... 94,779 182,442
ACTIVITIES Proceeds from long-term borrowings.................................. 84,800 51,500
Payment of long-term borrowings..................................... (478) (14,693)
Dividends paid...................................................... (7,317) (5,629)
Issuance of common stock for employee incentive plans............... - 430
Issuance of treasury stock for employee incentive plans............. 2,262 1,659
Purchase of treasury stock.......................................... (5,513) -
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... $232,778 $263,041
-----------------------------
Net change in cash and cash equivalents............................. $33,166 $10,805
Cash and cash equivalents:
Beginning of year................................................. 105,218 105,347
-----------------------------
End of period..................................................... $138,384 $116,152
=============================
SUPPLEMENTAL Cash payments for:
DISCLOSURES OF Interest paid to depositors....................................... $55,781 $48,201
CASH FLOW Interest paid on borrowings....................................... 27,001 20,129
INFORMATION Income taxes paid................................................. 2,885 6,448
NON-CASH Other real estate acquired in settlement of loans................... 893 723
ACTIVITIES Common stock issued for Midwest Federal Financial Corp.............. 19,986 -
Treasury stock issued for Investors Management Group, Ltd........... 6,922 -
Transfer of held to maturity securities to available for sale....... - 31,018
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
AMCORE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, these financial statements do not include all the
information and footnotes required by generally accepted accounting principles.
These financial statements include, however, all adjustments (consisting of
normal recurring accruals), which in the opinion of management, are considered
necessary for the fair presentation of the results of operations for the periods
shown.
The consolidated financial statements and the financial information have not
been restated to reflect the merger with Midwest Federal Financial Corp.
("Midwest") on March 27, 1998, which was accounted for using the pooling of
interests method. Prior period restatement is not required for Midwest because
of its size relative to AMCORE. Operating results for the three and six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Form 10-K Annual Report of AMCORE Financial, Inc. and
Subsidiaries (the "Company") for the year ended December 31, 1997.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is based on dividing net income by the weighted average
number of shares of common stock outstanding. The weighted average common shares
outstanding were 29,047,000 and 26,833,000 for the three months ended June 30
1998 and 1997, respectively, and 28,078,000 and 26,812,000 for the six months
ended June 30, 1998 and 1997, respectively. Diluted earnings per share reflects
the potential dilution that could occur if stock options granted pursuant to
incentive stock plans were exercised or converted into common stock that then
shared in the earnings of the Company. The weighted average diluted shares
outstanding were 29,635,000 and 27,378,000 for the three months ended June 30,
1998 and 1997 respectively, and 28,608,000 and 27,342,000 for the six months
ended June 30 1998 and 1997, respectively. Earnings per share amounts have been
restated to give effect to the 1997 mergers accounted for as a pooling of
interests requiring restatement, and the three-for-two stock split on September
17, 1997.
<PAGE>
NOTE 3 - SECURITIES
A summary of securities at June 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
At June 30, 1998
Securities Available for Sale:
U.S. Treasury $80,933 $674 ($15) $81,592
U.S. Government agencies 229,444 1,019 (51) 230,412
Agency mortgage-backed securities 791,860 6,074 (8,643) 789,291
State and political subdivisions 336,392 10,172 (564) 346,000
Corporate obligations and other 130,784 479 (975) 130,288
------------------------------------------------------------
Total Securities Available for Sale $1,569,413 $18,418 ($10,248) $1,577,583
============================================================
Securities Held to Maturity:
U.S. Treasury $1,555 $5 $ - $1,560
U.S. Government agencies 27 - - 27
State and political subdivisions 12,592 189 (18) 12,763
Corporate obligations and other 1 - - 1
------------------------------------------------------------
Total Securities Held to Maturity $14,175 $194 ($18) $14,351
------------------------------------------------------------
Total Securities $1,583,588 $18,612 ($10,266) $1,591,934
============================================================
At December 31, 1997
Securities Available for Sale:
U.S. Treasury $104,132 $836 ($84) $104,884
U.S. Government agencies 267,696 938 (833) 267,801
Agency mortgage-backed securities 586,285 5,651 (1,948) 589,988
State and political subdivisions 316,028 10,069 (189) 325,908
Corporate obligations and other 153,501 458 (947) 153,012
------------------------------------------------------------
Total Securities Available for Sale $1,427,642 $17,952 ($4,001) $1,441,593
============================================================
Securities Held to Maturity:
U.S. Treasury $1,554 $7 $ - $1,561
State and political subdivisions 13,866 207 (26) 14,047
Corporate obligations and other 3 - - 3
------------------------------------------------------------
Total Securities Held to Maturity $15,423 $214 ($26) $15,611
------------------------------------------------------------
Total Securities $1,443,065 $18,166 ($4,027) $1,457,204
============================================================
</TABLE>
<PAGE>
NOTE 4 - LONG-TERM BORROWINGS
On March 25, 1997, the Company issued $40 million of capital securities through
AMCORE Capital Trust I ("Trust"), a statutory business trust. All of the common
securities of the Trust are owned by the Company. The capital securities pay
cumulative cash distributions semiannually at an annual rate of 9.35%. The
securities are redeemable from March 25, 2007 until March 25, 2017 at a
declining rate of 104.6750% to 100.0% of the principal amount. After March 25,
2017, they are redeemable at par until June 15, 2027 when redemption is
mandatory. Prior redemption is permitted under certain circumstances, such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities were invested by the Trust in junior subordinated debentures which
represents all of the assets of the Trust. The Company fully and unconditionally
guarantees the capital securities through the combined operation of the
debentures and other related documents. The Company's obligations under the
guarantee are unsecured and subordinate to senior and subordinated indebtedness
of the Company.
Several of the Company's subsidiary banks borrow from the Federal Home Loan Bank
(FHLB) in connection with the purchase of mortgage-backed securities for the
investment leveraging program. The current balance of these borrowings is
$261,563,000 with an average maturity of 5.9 years, and a weighted average
borrowing rate of 5.38%.
Other long-term borrowings include a non-interest bearing note requiring annual
payments of $444,000 through 2002. The note was discounted at an interest rate
of 8.0%
Scheduled reductions of long-term borrowings are as follows:
=======================================================================
(in thousands) Total
- ------------------------------------------------------------------------
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,174
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,969
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,598
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,763
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 138,105
- ------------------------------------------------------------------------
SUB-TOTAL . . . . . . . . . . . . . . . . . . . . . . $303,107
Less current portion of FHLB borrowings . . . . . . . . . . (36,100)
- ------------------------------------------------------------------------
TOTAL LONG-TERM BORROWINGS . . . . . . . . . . . . . . $267,007
========================================================================
<PAGE>
AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the significant factors which
affected AMCORE Financial, Inc. and subsidiaries ("AMCORE") Consolidated Balance
Sheet as of June 30, 1998 as compared to December 31, 1997 and the results of
operations for the three and six months ended June 30, 1998 as compared to the
same periods in 1997. This discussion is intended to be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this report.
This review contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the results
of operations and businesses of AMCORE. Contemplated or projected, forecasted or
estimated results in such forward-looking statements involve certain risks and
uncertainties including, among others, the following possibilities: (I)
heightened competition, including specifically the intensification of price
competition, the entry of new competitors and the formation of new products by
new and existing competitors; (II) adverse state and federal legislation and
regulation; (III) failure to obtain new customers and retain existing customers;
(IV) inability to carry out marketing and/or expansion plans; (V) loss of key
executives; (VI) changes in interest rates including the effect of prepayment;
(VII) general economic and business conditions which are less favorable than
expected; (VIII) unanticipated changes in industry trends; (IX) changes in
Federal Reserve Board monetary policies; (X) inability to realize cost savings
anticipated with mergers or data processing outsourcing; and (XI) higher than
expected costs or other difficulties associated with merger integration, data
processing conversion or year 2000 compliance solutions.
OVERVIEW OF OPERATIONS
AMCORE's net income for the three months ended June 30, 1998 was $11.2 million,
an increase of 453.0% from the $2.0 million in the 1997 comparable period. The
increase was caused primarily by the $6.4 million of after-tax charges related
to the Wisconsin bank mergers and the outsourcing of core bank data processing
in 1997. Excluding these charges, second quarter, 1997 net income would have
been $8.5 million, an increase of 32.6%. The earnings for the six months ended
June 30, 1998 were $17.3 million, an increase of $7.1 million or 68.8% from the
$10.3 million reported in 1997. Net income from operations, which excludes the
$3.3 million after-tax merger related charge in the first quarter of 1998 and
the previously mentioned second quarter of 1997 charges, was $20.6 million and
$16.7 million for six months ended June 30, 1998 and 1997, respectively. This
represents an increase of $3.9 million or 23.5% in net income from operations,
when comparing the first six months of 1998 and 1997.
Diluted earnings per share were $0.38 and $0.61 for the three and six month
periods ended June 30, 1998. Diluted earnings per share from operations
increased $0.07 or 22.6% when comparing the second quarter of 1998 and 1997,
respectively. Diluted earnings per share
<PAGE>
from operations for the six months ended June 30, 1998 and 1997 were $0.72 and
$0.61, respectively, an increase of $0.11 or 18.0%.
AMCORE's return on equity increased to 14.21% in the second quarter of 1998 when
compared to 13.09% for the same period in 1997. The second quarter return on
assets also increased to 1.11% in 1998 versus 1.00% in 1997.
The primary factors contributing to the improved operating earnings performance
in the second quarter included increases in net interest income resulting from a
9.4% earning asset growth and non-interest income growth mainly from trust and
asset management and mortgage revenues.
On January 28, 1998 AMCORE completed the sale of the satellite dish receivables
(approximately $14.0 million) which were transferred to held for sale at
year-end 1997.
On February 17, 1998, AMCORE completed its merger with Investors Management
Group, LTD ("IMG") of Des Moines, Iowa. AMCORE issued 270,139 shares at closing
with additional shares to be issued contingent upon IMG's future performance.
IMG is Iowa's largest independent asset management firm with more than $1.6
billion of assets under management. IMG's expertise in fixed income securities
will complement AMCORE's equity management skills, including the Vintage family
of mutual funds to bring total assets under management to over $3.7 billion. The
transaction was accounted for using the purchase method of accounting.
On March 27, 1998, AMCORE completed its acquisition of Midwest Federal Financial
Corp. ("Midwest") of Baraboo, Wisconsin. AMCORE issued 1,912,357 shares of
common stock to the Midwest shareholders to effect the merger. Midwest has
approximately $211 million of assets and nine locations. The transaction was
accounted for as a pooling of interests, however, the size of the transaction
does not require restatement of prior period amounts.
AMCORE has established a project team to prepare for the year 2000. The
outsourcing of the core mainframe system to ALLTEL during 1998 addresses the
primary operating systems of AMCORE. AMCORE has taken an active approach
toward addressing this issue, and is currently in the process of assessing its
information systems, testing and validating in-house systems, and obtaining
validation and certification of outside systems in an effort to identify and
correct potential problems in advance of the year 2000. At this point, the
internal costs associated with the year 2000, during 1998 and 1999 are
estimated at approximately $2 million of which $1.4 million is for replacement
hardware and software. These items are not anticipated to have a material
impact on future performance. Uncertainties related to customers ability to
repay loans as a result of year 2000 compliance issues may have the potential
to have a material impact on AMCORE, however, it is too early to estimate the
financial consequences.
AMCORE continues to be "well capitalized" as defined by regulatory guidelines.
At June 30, 1998, the company's total capital to risk weighted assets was
14.08%.
<PAGE>
EARNINGS ANALYSIS
The analysis below discusses by major components the changes in net income when
comparing the six months ended June 30, 1998 and 1997.
NET INTEREST INCOME
Net interest income is the difference between income earned on interest earning
assets and the interest expense incurred on interest bearing liabilities. The
interest income on certain loans and municipal securities is not subject to
federal income tax. For analytical purposes, the interest income and rates on
these types of assets are adjusted to a "fully taxable equivalent" basis. The
fully taxable equivalent adjustment was calculated using the statutory federal
income tax rate of 35%. Adjusted interest income is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
--------------------------------------------------------------
1998 1997 1998 1997
==============================================================
<S> <C> <C> <C> <C>
Interest Income Book Basis $74,520 $63,004 $142,835 $124,039
Taxable Equivalent Adjustment 2,499 2,229 4,957 4,416
--------------------------------------------------------------
Interest Income Taxable Equivalent Basis 77,019 65,233 147,792 128,455
Interest Expense 43,302 35,523 82,664 69,449
--------------------------------------------------------------
Net Interest Income Taxable Equivalent
Basis $33,717 $29,710 65,128 $59,006
==============================================================
</TABLE>
Net interest income on a fully taxable equivalent basis increased $4.0 million
or 13.5% during the second quarter of 1998 over the same period in 1997. The
improvement in net interest income results mainly from a 19.0% increase in
average earning assets which was partially offset by a narrowing of the interest
rate spread.
The growth in average earning assets can be attributed to strong loan growth and
increased levels of investment securities related to the investment leveraging
program. Average loans increased $374.0 million or 20.4% when comparing the
second quarters of 1998 and 1997. The Midwest acquisition accounted for $178.8
of the growth in average loans. Excluding this acquisition, average loans
increased 10.6%. The investment leveraging program, which is designed to better
utilize capital, increased approximately $240 million on average. This program
contributed approximately $2.7 million to net interest income during the second
quarter of 1998, an increase of $400,000 when compared to the same period in
1997. The program is funded primarily through the use of repurchase agreements,
Federal Home Loan Bank borrowings and wholesale deposits. 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,
<PAGE>
the effective rate paid for all funding sources is lower than the rate paid on
interest-bearing liabilities alone.
As the table below indicates, the interest rate spread decreased 15 basis points
to 2.86% in the second quarter of 1998 when compared to the 3.01% during the
same period in 1997. The net interest margin was 3.49% during the second quarter
of 1998, a decrease of 18 basis points from the comparable period in 1997. The
interest rate spread on the investment securities included in the investment
leveraging program was 118 and 137 basis points for the quarters ended June 30,
1998 and 1997, respectively. The interest rate spread on all other earning
assets was 3.40% and 3.47% during the comparable periods. As a result, the
effect of the leveraging program accounted for 8 basis points of the decline in
the interest rate spread. The decline in the interest rate spread on the
investment leveraging program is caused primarily by prepayments on
mortgage-backed securities included in the program.
The net interest margin spread and interest rate margin were 2.88% and 3.52% for
the first six months of 1998, respectively. These represent a decrease of 14 and
15 basis points when compared to the same period in 1997.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1998
------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------ ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-Earning Assets:
Taxable securities $1,242,205 $20,760 6.69% $1,080,217 $18,055 6.69%
Tax-exempt securities (1) 341,110 6,730 7.89% 281,929 6,080 8.63%
---------------------------------------------------------------------------
Total Securities (2) 1,583,314 27,490 6.95% 1,362,146 24,135 7.09%
Loans held for sale (3) 27,996 672 9.60% 10,668 205 7.69%
Loans (1) (4) 2,209,606 48,462 8.73% 1,835,624 40,606 8.80%
Other earning assets 9,429 144 6.04% 10,347 127 4.86%
Fees on mortgage loans held for sale (3) - 251 - - 160 -
------------ ---------- ----- ---------- -------- -----
Total Interest-Earning Assets $3,830,346 $77,019 8.02% $3,218,785 $65,233 8.08%
Noninterest-Earning Assets:
Cash and due from banks 92,277 85,660
Other assets 151,942 115,379
Allowance for loan losses (24,271) (19,730)
------------ ----------
Total Assets $4,050,294 $3,400,094
============ ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $854,010 $6,645 3.12% 727,914 $5,005 2.76%
Time deposits 1,544,482 22,740 5.91% 1,328,736 19,391 5.85%
------------ ---------- ----- ---------- -------- -----
Total interest-bearing deposits 2,398,492 29,385 4.91% 2,056,650 24,396 4.76%
Short-term borrowings 688,135 9,867 5.68% 603,966 8,790 5.77%
Long-term debt 267,211 4,050 6.08% 139,766 2,337 6.71%
------------ ---------- ----- ---------- -------- -----
Total Interest-Bearing Liabilities $3,353,838 $43,302 5.16% 2,800,382 $35,523 5.07%
Noninterest-Bearing Liabilities:
Demand deposits 325,671 297,487
Other liabilities (3) 53,529 42,516
----------- ----------
Total Liabilities $3,733,038 $3,140,385
Stockholders' Equity (3) 317,256 259,709
----------- ----------
Total Liabilities and
Stockholders' Equity $4,050,294 $3,400,094
=========== ==========
Net Interest Income $33,717 $29,710
========== ========
Net Interest Spread 2.86% 3.01%
===== =====
Interest Rate Margin 3.49% 3.67%
===== =====
</TABLE>
Notes:
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The average balance has been adjusted to exclude the effect of Statement
of Financial Accounting Standards No. 115.
(3) The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during
the period in which they are warehoused for sale as shown above.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------ ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-Earning Assets:
Taxable Securities $1,203,739 $40,893 6.80% $1,078,017 $35,675 6.62%
Tax-exempt securities (1) 333,767 13,358 8.00% 273,368 12,017 8.79%
----------------------------------------------------------------------------
Total Securities (2) 1,537,506 54,251 7.06% 1,351,385 47,692 7.06%
Loans held for sale (3) 28,272 1,212 8.57% 9,898 347 7.01%
Loans (1) (4) 2,091,246 91,589 8.75% 1,815,902 79,812 8.78%
Other earning assets 9,817 278 5.63% 13,521 326 4.80%
Fees on mortgage loans held for sale (3) - 462 - - 278 -
----------- ---------- ----- ----------- -------- -----
Total Interest-Earning Assets $3,666,841 $147,792 8.06% $3,190,706 $128,455 8.05%
Noninterest-Earning Assets:
Cash and Due from Banks 93,799 87,429
Other Assets 147,097 115,825
Allowance for Loan Losses (22,558) (19,753)
----------- -----------
Total Assets $3,885,179 $3,374,207
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $809,221 $12,344 3.08% 717,142 $9,506 2.67%
Time Deposits 1,501,076 44,141 5.93% 1,324,045 38,447 5.86%
----------- ---------- ----- ----------- -------- -----
Total interest-bearing deposits 2,310,297 56,485 4.93% 2,041,187 47,953 4.74%
Short-Term Borrowings 660,690 18,959 5.72% 609,271 17,376 5.69%
Long-Term Debt 236,024 7,220 6.17% 127,783 4,120 6.50%
----------- ---------- ----- ----------- -------- -----
Total Interest-Bearing Liabilities $3,207,011 $82,664 5.18% 2,778,241 $69,449 5.03%
Noninterest-Bearing Liabilities:
Demand Deposits 320,996 297,158
Other Liabilities (3) 52,704 39,753
----------- -----------
Total Liabilities $3,580,711 $3,115,152
Stockholders' Equity (3) 304,468 259,055
----------- -----------
Total Liabilities and
Stockholders' Equity $3,885,179 $3,374,207
=========== ===========
Net Interest Income $65,128 $59,006
========== ========
Net Interest Spread 2.88% 3.02%
===== =====
Interest Rate Margin 3.52% 3.67%
===== =====
</TABLE>
Notes:
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The average balance has been adjusted to exclude the effect of Statement
of Financial Accounting Standards No. 115.
(3) The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during
the period in which they are warehoused for sale as shown above.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
<PAGE>
The level of net interest income is the result of the relationship between total
volume and mix of interest-earning assets and the rates earned, and the total
volume and mix of interest-bearing liabilities and the rates paid. The rate and
volume components associated with interest-earning assets and interest-bearing
liabilities are segregated in the table above to analyze the changes in net
interest income. Because of changes in the mix of the components of
interest-earning assets and interest-bearing liabilities, the computations for
each of the components do not equal the calculation for interest-earning assets
as a total and interest-bearing liabilities as a total. The table below presents
an analysis of the changes in net interest income.
<TABLE>
<CAPTION>
For Three Months Ended
June 30, 1998 / June 30, 1997
(in thousands)
------------------------------------------------------
Increase (Decrease) Due to Change in Total Net
Average Volume Average Rate Increase
------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable Securities $2,822 ($117) $2,705
Tax-Exempt Securities (1) 1,198 (548) 650
------------------------------------------------------
Total Securities (2) 4,020 (665) 3,355
Mortgage Loans Held for Sale 405 62 467
Loans (1) (4) 7,897 (41) 7,856
Other Earning Assets (12) 29 17
Fees on Mortgage Loans Held for Sale (3) 88 3 91
------------------------------------------------------
Total Interest-Earning Assets $12,396 ($610) $11,786
------------------------------------------------------
Interest Expense:
Interest-Bearing Demand & Savings Deposits $932 $708 $1,640
Time Deposits 3,176 173 3,349
------------------------------------------------------
Total Interest-Bearing Deposits 4,224 765 4,989
Short-Term Borrowings 1,213 (136) 1,077
Long-Term Debt 1,951 (238) 1,713
------------------------------------------------------
Total Interest-Bearing Liabilities $7,388 $391 $7,779
------------------------------------------------------
Net Interest Margin / Net Interest Income (FTE) $5,008 ($1,001) $4,007
======================================================
</TABLE>
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
1. The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
2. The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
3. The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during
the period in which they are warehoused for sale as shown above.
4. The balances of non-accrual loans are included in average loans
outstanding. Interest on loans includes yield-related loan fees.
The change in net interest income due to change in average volume when comparing
the second quarter of 1998 and 1997 results as average loans increased 20.4% and
average investment securities increased 16.2%. The positive effect of the growth
in higher rate earning assets was offset by a 16.6% increase in average interest
bearing deposits and 28.5% increase in average borrowings.
The decrease in net interest income attributable to rate between the second
quarter of 1998 and 1997 is due to the rate on interest bearing liabilities
increasing 9 basis points while the
<PAGE>
yield on earning assets declined 6 basis points. Average total borrowings,
which had a higher cost than other average total interest-bearing liabilities,
increased to represent 28.5% of average total interest-bearing liabilities in
1998 versus 26.6% in 1997. Also, a 36 basis point increase in the rate paid on
interest bearing demand and savings deposits contributed to the increase in
the rate paid on average total interest-bearing liabilities. This increase is
related to promotional pricing on the new AMDEX money market account which is
attracting CD customers desiring liquidity and others looking for FDIC-insured
mutual fund alternatives.
<TABLE>
<CAPTION>
For Six Months Ended
June 30, 1998 / June 30, 1997
(in thousands)
--------------------------------------------------------------
Increase (Decrease) Due to Change in Total Net
Average Volume Average Rate Increase (Decrease)
--------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable Securities $4,482 $736 $5,218
Tax-Exempt Securities (1) 2,486 (1,145) 1,341
------------------------------------------------------------
Total Securities (2) 6,968 (409) 6,559
Mortgage Loans Held for Sale 773 92 865
Loans (1) (4) 11,375 402 11,777
Other Earning Assets (99) 51 (48)
Fees on Mortgage Loans Held for Sale (3) 5 179 184
------------------------------------------------------------
Total Interest-Earning Assets $19,284 $53 $19,337
------------------------------------------------------------
Interest Expense:
Interest-Bearing Demand & Savings Deposits $1,306 $1,532 $2,838
Time Deposits 5,200 494 5,694
------------------------------------------------------------
Total Interest-Bearing Deposits 6,609 1,923 8,532
Short-Term Borrowings 1,479 104 1,583
Long-Term Debt 3,321 (221) 3,100
------------------------------------------------------------
Total Interest-Bearing Liabilities $11,409 $1,806 $13,215
------------------------------------------------------------
Net Interest Margin / Net Interest Income (FTE) $7,875 ($1,753) $6,122
============================================================
</TABLE>
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
1. The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
2. The average balance has been adjusted to exclude the effect of Statement of
Financial Accounting Standards No. 115.
3. The yield-related fees recognized from the origination of mortgage loans
held for sale are in addition to the interest earned on the loans during
the period in which they are warehoused for sale as shown above.
4. The balances of non-accrual loans are included in average loans
outstanding. Interest on loans includes yield-related loan fees.
The change in net interest income due to change in average volume during the
first six months of 1998 is due to average earning assets increasing 14.9%. The
growth in earning assets is due to a $186.1 million increase in average
investment securities and a $275.3 million increase in average loans. This
growth was funded primarily by a $159.7 million increase in average borrowed
funds and $269.1 million in average interest bearing deposits.
The decrease in net interest income attributable to rate during the first six
months of 1998 due to changes in average rate is a result of yield on earning
assets increasing 1 basis point while the rate paid on interest bearing
liabilities increased 15 basis points. The increase in rates paid on interest
bearing liabilities included the previously mentioned effect of
<PAGE>
promotional pricing on the new AMDEX products.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $1.6 million during the second
quarter of 1998 a decrease of $294,000 or 15.2% from the same period in 1997.
The decrease is a result of lower net charge-offs as a percentage of average
loans, due primarily to charge-offs of satellite receivables in 1997. Annualized
net charge-offs represented 0.14% of average loans in 1998 versus 0.39% in 1997.
The provision for loan losses for the first six months of 1998 was relatively
flat at $3.8 million when compared to the same period in 1997. This level of
provision was maintained despite a decreased level of net charge-offs to provide
for loan growth and general strengthening of the allowance for loan losses.
The allowance for loan losses as a percent of total loans was 1.09%, 1.08% and
1.01% of June 30, 1998 and 1997 and December 31, 1997, respectively.
NON-INTEREST INCOME
Total non-interest income was $13.9 million in the second quarter of 1998, an
increase of $3.3 million or 31.4% from the same period in 1997. Adjusting for
the previously mentioned first quarter of 1998 acquisitions of IMG and Midwest,
non-interest income would have increased $1.3 million or 12.4%. On a
year-to-date basis, the increase in non-interest income is $4.1 million or
18.0%. The first quarter of 1997 included a $1.9 million gain on the sale of
most of the company's credit card receivables and a $742,000 reduction in
mortgage revenue resulting from the write down of mortgage servicing rights as
required by FAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments in Liabilities" which was effective January 1, 1997.
Excluding these two items, non-interest income for the first six months of 1998
increased 33.6% over the same period in 1997.
Trust and asset management income increased 55.1% or $2.1 million to total $6.0
million for the second quarter of 1998 versus the same period in 1997. The
previously mentioned acquisition of IMG accounted for $1.3 million of the
increase. The remaining $850,000 or 22.0% of the increase is attributable to
strong sales efforts and the continued strength in the investment markets. The
market value of mutual fund assets increased to $1.2 billion in the Vintage
family of funds, an increase of 47% from June 30, 1997. A portion of the
increase reflects the addition of $146 million of IMG funds to the Vintage
family.
Service charges on deposits increased $166,000 or 8.2% to $2.2 million during
the second quarter of 1998. This increase is attributable to the previously
mentioned Midwest acquisition.
Mortgage revenues continued to benefit from the lower level of long term rates
which resulted in increased refinancing activity. The second quarter of 1998
included a $948,000 or 58.7% increase in mortgage revenues as originations
remained at the $100 million level.
<PAGE>
Insurance revenues rose 12.9% to $429,000 when compared to the second quarter
of 1997. The increase results from higher sales of credit life insurance.
Other income decreased $357,000 due to the sale of the collection agency at
year end 1997. The collection agency had revenues of $625,000 during the first
quarter of 1997.
OPERATING EXPENSES
Operating expense totaled $27.9 million during the second quarter of 1998, a
decrease of $5.8 million or 17.2% from the same period in 1997. The second
quarter of 1998 included $2.5 million of expenses for the acquired companies,
Midwest and IMG, while the second quarter of 1997 included $8.9 million of
merger and data processing outsourcing charges. After adjusting for both of
these items second quarter of 1998 operating expenses increased 2.6% over the
comparable period in 1997.
The second quarter of 1998 efficiency ratio of 58.7% was the result of core
operating expenses increasing 12.6% while revenues increased 18.6%.
Year-to-date operating expenses increased 0.2% or $125,000 as the additional
expenses of Midwest and IMG were offset by the decrease in merger and data
processing outsourcing charges.
Compensation expenses increased $687,000 or 5.6% when comparing the second
quarter of 1998 to the same period in 1997. The increase in compensation
expense related to the previously mentioned 1998 acquisitions of Midwest and
IMG offset the portion of the 1997 merger and data processing charges
allocated to compensation expense. The remaining increase represents increased
staff levels and merit increases.
Equipment expenses were $2.0 million in the second quarter of 1998 and
represent a decrease of $3.2 million or 61.5% from the same period in 1997
primarily due to charges related to the core bank data processing outsourcing
charge in 1997.
The decrease in professional fees of $2.5 million or 77.3% is primarily
attributable to the 1997 merger charges.
Other expenses were $5.9 million in the second quarter of 1998, a decrease
of $834,000 or 12.4% primarily due to the merger and data processing charges
in 1997.
<PAGE>
INCOME TAXES
Income tax expense for the second quarter of 1998 increased $4.0 million to
$4.3 million primarily as a result of the increased income before taxes
including the effect of the 1997 merger and core bank data processing
outsourcing charges. The second quarter of 1998 effective tax rate of 27.7%
compares to a 26.7% effective tax rate for the same period in 1997 after
adjusting of the 1997 merger and core bank data processing outsourcing
charges. This increase in effective tax rate is the result of increased
non-deductible expenses including intangibles from the IMG acquisition.
BALANCE SHEET REVIEW
Total assets were $4.1 billion at June 30, 1998, an increase of $471.1 million
or 12.8% from December 31, 1997. The acquisition of Midwest accounted for
$211.0 million of the increase. Total loans and total deposits increased
$115.6 million or 11.8% annualized and $63.5 million or 5.8% annualized,
respectively, from December 31, 1997 excluding the impact of the Midwest
acquisition. Total investments and total borrowings increased $109.8 million
and $179.1 million, respectively, from December 31, 1997 excluding the impact
of the Midwest acquisition. These increases were related to the replacement of
securities sold in the fourth quarter of 1997.
ASSET QUALITY REVIEW
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses was $24.6 million at June 30,1998, an
increase of $4.7 million from December 31, 1997. This includes $2.1 million
acquired with Midwest. The allowance represented 1.09% of total loans and
118.07% of non-performing loans at June 30, 1998. The comparable ratios were
1.01% and 100.2% at December 31, 1997.
Net charge-offs were $800,000 during the second quarter of 1998 versus $1.8
million for the same quarter of 1997. For the six months ended June 30, 1998
and 1997 net charge-offs were $1.3 million and $3.0 million, respectively. The
decrease of $1.0 million for the second quarter and $1.7 million for the six
month period relate primarily to charge-offs of satellite receivables at the
consumer finance subsidiary in 1997.
<PAGE>
An analysis of the allowance for loan losses as of June 30, 1998 and 1997 is
presented below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
=================================
1998 1997
=================================
<S> <C> <C>
Balance at beginning of period $19,908 $19,295
Charge-Offs:
Commercial loans & leases 333 188
Real estate loans 198 294
Installment loans 1,196 2,734
Credit card loans 240 390
---------------------------------
1,967 3,606
Recoveries:
Commercial loans & leases 324 213
Real estate loans 27 14
Installment loans 323 365
Credit card loans 40 41
---------------------------------
714 633
Net Charge-Offs 1,253 2,973
Provision charged to expense 3,787 3,851
Allowance for loan & lease losses acquired through merger
2,146 0
---------------------------------
Balance at end of period $24,588 $20,173
=================================
Ratio of net charge-offs during the period to average
loans outstanding during the period (1)
0.12% 0.33%
=================================
</TABLE>
(1) On an annualized basis
<PAGE>
NON-PERFORMING ASSETS
Non-performing assets increased $1.2 million or 5.4% from December 31, 1997 to
$22.7 million at June 30, 1998. Non-performing assets as of June 30, 1998 and
December 31, 1997 are presented below.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------------------------------
<S> <C> <C>
Non-accrual loans and leases $20,825 $19,491
Restructured loans and leases 0 377
========================================
Total non-performing loans and leases $20,825 $19,868
========================================
Other real estate owned 1,880 1,668
========================================
Total non-performing assets $22,705 $21,536
========================================
Loans 90 days or more past due and still accruing $5,751 $3,386
</TABLE>
CAPITAL MANAGEMENT
Total stockholder's equity was $317.8 million at June 30, 1998, an increase of
$30.3 million from December 31, 1997. This includes $17.4 million acquired with
Midwest. The book value per share of AMCORE common stock was $10.94 at June 30,
1998. AMCORE increased its dividend per share to $.14 in the second quarter of
1998 from $.12 in the prior quarter.
AMCORE is considered "well capitalized" based on regulatory guidelines. AMCORE's
leverage ratio was 8.28% at June 30, 1998. AMCORE's ratio of Tier I capital at
13.12% and total risk based capital of 14.08% significantly exceed the
regulatory minimums as indicated in the table below.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Amount Ratio Amount Ratio
============================================================================
<S> <C> <C> <C> <C>
Tier 1 Capital $333,689 13.12% $292,768 13.60%
Tier 1 Capital Minimum 101,705 4.00% 86,084 4.00%
----------------------------------------------------------------------------
Amount in Excess of Minimum $231,934 9.12% $206,684 9.60%
----------------------------------------------------------------------------
Total Capital $358,277 14.08% $312,702 14.53%
Total Capital Minimum 203,510 8.00% 172,168 8.00%
----------------------------------------------------------------------------
Amount in Excess of Minimum $154,767 6.08% $140,534 6.53%
----------------------------------------------------------------------------
Risk Adjusted Assets $2,543,870 $2,152,103
================== ==================
</TABLE>
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) - (c) Incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (File No. 0-13393).
ITEM 6. Exhibits and Reports on Form 10-Q
(a) 3 Amended and Restated Articles of Incorporation of AMCORE
Financial, Inc. dated May 1, 1990 (Incorporated by reference to
Exhibit 23 of AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1989).
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990
(Incorporated by reference to Exhibit 3.1 of AMCORE's Annual Report
of Form 10-K for the year ended December 31, 1994).
4 Rights Agreement dated February 21, 1996, between AMCORE Financial,
Inc. and Firstar Trust Company (Incorporated by reference to
AMCORE's Form 8-K as filed with the Commission on February 28,
1996).
10.1 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 22
of AMCORE's Annual Report on Form 10-K for the year ended December
31, 1994).
10.2 AMCORE Financial, Inc. 1994 Stock Option Plan for Non-Employee
Directors (Incorporated by reference to Exhibit 23 of AMCORE's
Annual Report on Form 10-K for the year ended December 31, 1993).
10.3A Amended and Restated Transitional Compensation Agreement dated June
1, 1996 between AMCORE Financial, Inc. and Robert J. Meuleman.
(Incorporated by reference to Exhibit 10.3A of AMCORE's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.)
10.3B Amended and Restated Transitional Compensation Agreement dated June
1, 1996 between AMCORE Financial, Inc. and the following
individuals: John R. Hecht, and James S. Waddell. (Incorporated by
reference to Exhibit 10.3B of AMCORE's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.)
10.3C Transitional Compensation Agreement dated June 1, 1996 between
AMCORE Financial, Inc. and Charles E. Gagnier. (Incorporated by
reference to Exhibit 10.3C of AMCORE's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.)
10.3D Transitional Compensation Agreement dated June 1, 1996 between
AMCORE Financial, Inc. and the following individuals: William J.
Hippensteel, Alan W. Kennebeck and James F. Warsaw. (Incorporated
by reference to Exhibit 10.3D of AMCORE's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.)
10.3E Transitional Compensation Agreement dated May 21, 1997 between
AMCORE Financial, Inc. and Kenneth E. Edge. (Incorporated by
reference to Exhibit 10.3E of AMCORE's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.)
10.3F Transitional compensation Agreement dated May 21, 1997 between
AMCORE Financial, Inc. and Charie A. Zanck. (Incorporated by
reference to Exhibit 10.3F of AMCORE's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.)
<PAGE>
10.4 Commercial Paper Placement Agreement dated November 10, 1995 with
M&I Marshall and Ilsley Bank (Incorporated by reference to Exhibit
10.6 to AMCORE's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.5A Executive Insurance Agreement dated March 1, 1996 between AFI and
the following executives: Robert J. Meuleman and James S. Waddell
(Incorporated by reference to Exhibit 10.6 of the Company's Form
10-Q for the quarter ended March 31, 1996).
10.5B Executive Insurance Agreement dated May 21, 1991 between AFI and
Kenneth E. Edge. (Incorporated by reference to Exhibit 10.5B of
AMCORE's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.)
10.6 Indenture, dated as of March 25, 1997, between the Company and The
First National Bank of Chicago (incorporated herein by reference to
Exhibit 4.1 of the Company's registration statement on Form S-4,
Registration No. 333-25375).
10.7 Form of New Guarantee between the Company and The First National
Bank of Chicago (incorporated herein by reference to Exhibit 4.7 of
the Company's registration statement on Form S-4, Registration No.
333-25375).
10.8 First Amendment to Loan Agreement with M & I Marshall and Ilsley
Bank dated November 9, 1996. (Incorporated by reference to Exhibit
10.8 of AMCORE's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997.)
10.9 Second Amendment to Loan Agreement with M & I Marshall and Ilsley
Bank dated September 29, 1997. (Incorporated by reference to
Exhibit 10.3F of AMCORE's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.)
10.10 Third Amendment to Loan Agreement with M & I Marshall and Ilsley
Bank dated April 30, 1998
22 1998 Notice of Annual Meeting of Stockholders and Proxy Statement
(Incorporated by reference to Exhibit 22 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
27 Financial Data Schedule
99 Additional exhibits - Press release dated July 21, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCORE Financial, Inc.
(Registrant)
Date: August 14, 1998
/s/ John R. Hecht
John R. Hecht
Executive Vice President and Chief
Financial Officer
(Duly authorized officer of the
registrant and principal financial officer)
Exhibit 10.10
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT is made as of April 30,1998 by and
between AMCORE FINANCIAL, INC. and M&I MARSHALL & ILSLEY BANK.
NOW, THEREFORE, IN CONSIDERATION of the recitals and the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, it is hereby agreed that:
ARTICLE - DEFINITIONS
1.1 Amendment. "Amendment" shall mean this Third Amendment to Loan
Agreement.
1.2 Loan Agreement. "Loan Agreement" shall mean the Loan Agreement
between M&I and Borrower, dated as of November 10, 1995, as amended by a First
Amendment to Loan Agreement dated as of November 9, 1996 and by a Second
Amendment to Loan Agreement dated as of September 29, 1997, together with the
Exhibits and Schedules attached thereto.
1.3 Other Terms. Unless otherwise defined herein , the other
capitalized terms used in this Amendment shall have the definitions in the
Loan Agreement.
ARTICLE 11 - AMENDMENTS
The Loan Agreement is deemed amended as of the date hereof follows:
2.1 Article I - Definitions. The definition of "Line Termination Date"
contained in Article I of the Loan Agreement is hereby amended by deleting
"April 30, 1998" and inserting "April 30, 1999" in its place.
2.2 Section 5.17 - Consolidated Net Worth. Section 5.17 of the Loan
Agreement is hereby amended by deleting"$175,000,000" and inserting
"$250,000,000" in its place.
2.3 Section 5.18 - Borrower Tangible Net Worth. Section 5.18 of the
Loan Agreement is hereby amended by deleting "$150,000,000" and inserting
"$225,000,000" in its place.
2.4 Line of Credit Note. Borrower shall execute and deliver to M&I a
substitute Line of Credit Note in the original principal amount of $25,000,000
dated as of the date hereof, maturing on April 30, 1999 and otherwise in
substantially the form of Exhibit B to the Loan Agreement. Such Line of
Credit Note shall evidence the Line of Credit Loans and shall constitute the
Line of Credit Note issued pursuant to the Loan Agreement.
2.5 Miscellaneous Amendments. The Loan Agreement and all other
documents, instruments and materials executed and delivered heretofore or
hereafter pursuant to the Loan Agreement are deemed hereby to be amended so
that any reference therein to the Loan Agreement shall be a reference to such
documents as amended by or pursuant to this Amendment.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to M&I that:
3.1 Loan Agreement. All of the representations and warranties made by
Borrower in the Loan Agreement are true and correct on the date of this
Amendment. No Default or event which w old constitute a Default but for the
requirement that notice be given or time elapse or both under the Loan
Agreement has occurred and is continuing as of the date of this
Amendment.
<PAGE>
3.2 Authorization; Enforceability. The making, execution, delivery and
performance of this Amendment and the Line of Credit Note and compliance with
the terms of the Loan Agreement as amended and the Line of Credit Note have
been duly authorized by all necessary corporate action by Borrower. This
Amendment and the Line of Credit Note constitute the valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
3.3 Absence of Conflicting Obligations. The making, execution, and
delivery of this Amendment and the Line of Credit Note, and compliance with
the terms of the Loan Agreement as amended and the Line of Credit Note, do not
violate any presently existing provision of law or the certificate of
incorporation or bylaws of Borrower or any Subsidiary or any agreement to
which Borrower or any Subsidiary is a party or by which any of them are bound.
ARTICLE IV - MISCELLANEOUS
4.1 Continuance of Loan Agreement. Except as specifically amended by
this Amendment, the Loan Agreement and all other documents, instruments and
materials executed and delivered pursuant to the Loan Agreement shall remain
in full force and effect.
4.2 References. Whenever the Loan Agreement is referred to in the Loan
Agreement, the Line of Credit Note or any of the other documents, instruments
or materials executed and delivered heretofore or hereafter pursuant to the
Loan Agreement, it shall be deemed to be referred to as amended by this
Amendment
4.3 Expenses and Attorney's Fees. Borrower shall pay all fees and
expenses incurred by M&I, including the reasonable fees of counsel, in
connection with the preparation of this Amendment and the consummation of the
transactions contemplated by this Amendment, and the protection or enforcement
of the rights of M&I under this Amendment
4.4 Survival. All agreements, representations and warranties made in
this Amendment or in any documents delivered pursuant to this Amendment shall
survive the execution of this Amendment and the delivery of any such document.
4.5 Governing Law. This Amendment and the other documents issued
pursuant to this Amendment shall be governed by, and construed and interpreted
accordance with, the laws of the State of Wisconsin applicable to contracts
made and wholly performed within such state.
4.6 Counterparts. This Amendment may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement.
4.7 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or affecting the
validity or enforceability of such provision in any other jurisdiction.
4.8 Effectiveness. This Amendment shall be effective as of the date
first written above upon receipt by M&I of the following:
(a) this Amendment executed by Borrower and M&I;
(b) the substitute Line of Credit Note referenced above executed
by Borrower;
(c) a certificate of the secretary of Borrower dated the date
hereof as to: (I) the incumbency and signature of the officers of
Borrower who have signed or will sign this Amendment and the Line of
Credit Note; and (ii) the adoption and continuing effect of
-2-
<PAGE>
resolutions of the Board of Directors of Borrower authorizing the
execution, delivery and performance of this Amendment and the Line of Credit
Note as amended and restated; and
(d) such additional supporting documents and materials as M&I may
reasonably request.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
to Loan Agreement as of the date first written above.
AMCORE FINANCIAL, INC.
By: /s/ John R. Hecht
-----------------------------
Name: John R. Hecht
Title: Executive Vice President and
Chief Financial Officer
M&I MARSHALL & ILSLEY BANK
By: /s/ John A. Leonard
-------------------------------
John A. Leonard, Vice President
Attest: /s/ Thomas R. Johnson
----------------------------
Title: Senior Vice President
-3-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 138,834
<INT-BEARING-DEPOSITS> 7,845
<FED-FUNDS-SOLD> 1,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,577,583
<INVESTMENTS-CARRYING> 14,175
<INVESTMENTS-MARKET> 14,351
<LOANS> 2,279,406
<ALLOWANCE> 24,588
<TOTAL-ASSETS> 4,138,771
<DEPOSITS> 2,754,889
<SHORT-TERM> 745,288
<LIABILITIES-OTHER> 53,776
<LONG-TERM> 267,007
0
0
<COMMON> 6,572
<OTHER-SE> 311,239
<TOTAL-LIABILITIES-AND-EQUITY> 4,138,771
<INTEREST-LOAN> 48,318
<INTEREST-INVEST> 25,136
<INTEREST-OTHER> 1,066
<INTEREST-TOTAL> 74,520
<INTEREST-DEPOSIT> 29,385
<INTEREST-EXPENSE> 43,302
<INTEREST-INCOME-NET> 31,218
<LOAN-LOSSES> 1,642
<SECURITIES-GAINS> 541
<EXPENSE-OTHER> 27,932
<INCOME-PRETAX> 15,542
<INCOME-PRE-EXTRAORDINARY> 11,236
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,236
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
<YIELD-ACTUAL> 3.49
<LOANS-NON> 20,825
<LOANS-PAST> 5,751
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 20,971
<ALLOWANCE-OPEN> 23,745
<CHARGE-OFFS> 1,058
<RECOVERIES> 259
<ALLOWANCE-CLOSE> 24,588
<ALLOWANCE-DOMESTIC> 17,860
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,728
</TABLE>
NEWS RELEASE
July 21, 1998
Katherine Taylor
Investor Relations Manager AMCORE
815-961-7164 FINANCIAL, INC.
AMCORE FINANCIAL, INC. REPORTS RECORD EARNINGS
ROCKFORD - AMCORE Financial, Inc., a $4 billion regional financial
services company, reported a 33 percent increase in net income from operations
from the same period last year to $11.2 million for the second quarter ending
June 30, 1998. The record earnings were the result of solid growth in core
businesses and positive contributions from recent acquisitions.
"We are very pleased with our earnings performance," said Robert J.
Meuleman, president and chief executive officer. "This shows we are committed
to enhancing shareholder value and are making progress in reaching our
financial goals."
HIGHLIGHTS
----------
- The record earnings represent a 23 percent increase from the same
period last year in diluted earnings per share from operations to $0.38.
- Return on equity was 14.21 percent for the second quarter, up from
13.09 percent in the second quarter of 1997. Return on average assets was
1.11 percent, up 11 basis points from the same period last year.
- Net interest income, on a fully taxable equivalent basis, rose nearly
14 percent to $33.7 million when compared to the same quarter last year and
was the result of a 19 percent increase in average earning assets including
$374 million in average loans.
- Non-performing loans represented .92 percent of total loans, a
decrease of five basis points from the same period last year. Asset quality
remains strong with annualized net charge-offs representing 14 basis points of
average loans.
- Trust and asset management fees rose 55 percent or $2.1 million
resulting from revenue contributions from the acquisition of Investors
Management Group (IMG), Des Moines, Iowa, strong sales efforts and favorable
investment performance.
- Mortgage revenues increased 59 percent, or $948,000, due to a 133
percent increase in loan originations compared to the same quarter last year.
- Operating expenses rose 12.6 percent over the same period last year,
however, revenues increased 18.6 percent causing the efficiency ratio to
improve to 58.7 percent.
Page 1
<PAGE>
EARNINGS FROM OPERATIONS
------------------------
Net income for the second quarter was $11.2 million, a 33 percent
increase from $8.5 million in the second quarter of 1997, excluding merger and
information system charges of $6.4 million. On a year-to-date basis, net
income from operations was $20.6 million, an increase of 24 percent from the
second quarter 1997. Earnings per share on a diluted basis were $0.38, an
increase of 23 percent from $0.31 in the second quarter of 1997. On a
year-to-date basis, earnings per share on a diluted basis were $0.72, up 18
percent from $0.61 a year ago.
"Our two most recent acquisitions of Midwest Federal Financial, Baraboo,
WI, and IMG have made meaningful contributions in their first full quarter.
The two combined added $1 million in net income in the second quarter," said
Meuleman.
Continued growth in earning assets resulted in a 14 percent or $4.0
million increase in net interest income on a fully taxable equivalent basis.
Earning assets increased 19 percent in the second quarter 1998 when compared
to the second quarter 1997. This is attributed to a $374 million or 20
percent increase in average loans and a $221 million increase in investment
securities. Mortgage prepayments reduced earnings by $600,000 pre-tax during
the quarter, mostly in the investment leveraging portfolio. As a result, the
net interest margin decreased 18 basis points to 3.49 percent when compared to
the second quarter 1997. The core interest margin, excluding the investment
leveraging program, was 4.21 percent for the second quarter 1998 compared to
4.26 percent in the second quarter of 1997.
"Mortgage revenues were $2.6 million compared to $1.6 million in the same
quarter last year. The increase is due to a 133% increase in mortgage
originations resulting from favorable interest rates and the expansion of
mortgage activities into Wisconsin. Loan originations were $100 million in
the second quarter 1998 compared to $43 million in the second quarter of 1997.
Trust and asset management revenues increased 55 percent to $6.0 million
in the second quarter of 1998 compared to $3.9 million in the second quarter
of 1997. Approximately half of the increase was due to the acquisition of IMG
in February, which brought mutual fund administration revenues in-house.
The Vintage Equity Fund received a five-star rating from Morningstar for
the second quarter 1998. The Vintage Equity Fund has sustained a four or
five-star rating from Morningstar for 10 consecutive quarters and was recently
added to Charles Schwab's Mutual Fund OneSource, a no-load, no-transaction fee
mutual fund distribution service.
As of July 15, assets in the Vintage Equity Fund had increased 37 percent
to $513 million and total Vintage Fund assets had increased 47 percent to
nearly $1.2 billion compared to June 30, 1997.
Page 2
<PAGE>
Total operating expenses for the second quarter of 1998 increased 12.6
percent to $27.9 million when compared to the second quarter of 1997. Most of
the increase in non-interest expense is due to the acquisitions. Excluding
the two acquisitions, non-interest expense would have increased only 2.6%.
Although expenses increased, the 18.6 percent increase in revenues resulted in
the efficiency ratio improving to 58.7 percent.
REPORT ON ASSET QUALITY
-----------------------
The allowance for loan losses to total loans was 1.09 percent at June 30,
1998, compared to 1.08 percent at June 30, 1997. The allowance for loan
losses to non-performing loans increased to 118 percent from 112 percent at
June 30, 1997. Total non-performing assets at June 30, 1998 were $22.7
million, or .55 percent of total assets.
Net charge-offs represented 14 basis points of average loans during the
second quarter 1998 compared to 40 basis points in the second quarter 1997.
This reflects the lower risk profile of the loan portfolio after the sale of
the satellite dish receivables in January.
AMCORE Financial, Inc., headquartered in northern Illinois, is a
financial services company with banking assets of over $4 billion and 11 banks
operating in 68 locations in Illinois and Wisconsin. The company also has four
financial services companies: AMCORE Investment Group, which provides trust
and brokerage services, and through its wholly owned subsidiary, Investors
Management Group, provides capital management, mutual fund administrative
services, and is the investment advisor for the Vintage family of mutual
funds; AMCORE Mortgage, Inc.; AMCORE Consumer Finance Company, Inc. and AMCORE
Insurance Group, Inc.
This news release may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect
to the results of operations and businesses of AMCORE. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated, projected,
forecasted or estimated in such forward-looking statements include, among
others, the following possibilities: (i) heightened competition, including the
intensification of price competition, the entry of new competitors and the
formation of new products by new and existing competitors; (ii) adverse state
and federal legislation and regulation; (iii) failure to obtain new customers
or retain existing customers; (iv) inability to carry out marketing and/or
expansion plans; (v) loss of key executives; (vi) changes in interest rates,
including effect of prepayment; (vii) general economic and business conditions
which are less favorable than expected; (viii) unanticipated changes in
industry trends; (ix) changes in Federal Reserve Board Monetary policies, (x)
inability to realize cost savings anticipated with mergers or data processing
outsourcing; and (xi) higher than expected costs or other difficulties
associated with merger integration or data processing conversion.
AMCORE common stock is listed on The NASDAQ Stock Market under the symbol
"AMFI." Further information about AMCORE Financial Inc. can be found at our
newly redesigned website at http://www.AMCORE.com.
Page 3
<PAGE>
AMCORE FINANCIAL, INC.
CONSOLIDATED KEY FINANCIAL DATA SUMMARY
NOTE: All prior year amounts have been restated to reflect the mergers with
First National Bancorp, Inc. on April 18, 1997 and Country Bank Shares
Corporation on July 16, 1997, and the three-for-two stock split
effective September 17, 1997. These mergers were accounted for under
the pooling of interests method. AMCORE Financial, Inc. (AFI)
acquired Investors Management Group, Ltd. on February 17, 1998. AFI
merged with Midwest Federal Financial Corp. on March 27, 1998. This
transaction was accounted for as a pooling of interests, however, the
size of the transaction does not require restatement of prior year
amounts.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ------------------------------------
PERCENT PERCENT
FINANCIAL HIGHLIGHTS 1998 1997 CHANGE 1998 1997 CHANGE
- ------------------------------------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues, including security gains............ $45,116 $38,056 18.6% $ 87,008 $ 77,325 12.5%
Net interest income - FTE......................... 33,717 29,710 13.5% 65,128 59,006 10.4%
Operating expenses................................ 27,932 24,806 12.6% 55,341 50,772 9.0%
Net income from operations........................ 11,236 8,476 32.6% 20,642 16,715 23.5%
Net income........................................ 11,236 2,032 453.0% 17,335 10,271 68.8%
Basic earnings per share from operations.......... 0.39 0.32 21.9% 0.74 0.62 19.4%
Basic earnings per share.......................... 0.39 0.07 457.1% 0.62 0.38 63.2%
Diluted earnings per share from operations........ 0.38 0.31 22.6% 0.72 0.61 18.0%
Diluted earnings per share........................ 0.38 0.07 442.9% 0.61 0.38 60.5%
Cash dividends per share.......................... 0.14 0.11 27.3% 0.26 0.21 23.8%
Book value per share.............................. 10.94 10.00 9.4%
TRAILING TWELVE MONTHS ENDED JUNE 30,
-------------------------------------
PERCENT
FINANCIAL HIGHLIGHTS 1998 1997 CHANGE
- -------------------------------------------------------------------------------------------
Net revenues, including security gains............ $169,826 $154,372 10.0%
Net interest income - FTE......................... 123,657 117,098 5.6%
Operating expenses................................ 111,143 100,700 10.4%
Net income from operations........................ 39,035 33,933 15.0%
Net income........................................ 35,728 27,489 30.0%
Basic earnings per share from operations.......... 1.46 1.23 18.7%
Basic earnings per share.......................... 1.34 1.00 34.0%
Diluted earnings per share from operations........ 1.36 1.22 11.5%
Diluted earnings per share........................ 1.25 1.22 2.5%
Cash dividends per share.......................... 0.50 0.40 25.0%
Book value per share..............................
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ------------------------------------
PERCENT PERCENT
KEY FINANCIAL RATIOS (A) 1998 1997 CHANGE 1998 1997 CHANGE
- ------------------------------------------------------------------------------------------ ------------------------------------
Return on average assets....................... 1.11% 1.00% 0.11% 1.07% 1.00% 0.07%
Return on average equity....................... 14.21% 13.09% 1.12% 13.67% 13.01% 0.66%
Net interest margin (FTE)...................... 3.49% 3.67% -0.18% 3.52% 3.67% -0.15%
Core interest margin (FTE)..................... 4.21% 4.26% -0.05% 4.20% 4.27% -0.07%
Efficiency Ratio (FTE) ........................ 58.66% 61.58% -2.92% 60.18% 61.93% -1.75%
(A) All 1998 ratios have been adjusted to exclude merger-related charges recorded in the first quarter.
INCOME STATEMENT
- ------------------------------------------------------------------------------------------ ------------------------------------
Interest income................................... $74,520 $63,004 18.3% $142,835 $124,039 15.2%
Interest expense.................................. 43,302 35,523 21.9% 82,664 69,449 19.0%
---------------------------------- ------------------------------------
Net interest income............................ 31,218 27,481 13.6% 60,171 54,590 10.2%
Provision for loan losses......................... 1,642 1,686 -2.6% 3,787 3,601 5.2%
Non-interest income:
Trust and asset management income.............. 5,993 3,863 55.1% 11,254 7,721 45.8%
Service charges on deposits.................... 2,185 2,019 8.2% 4,049 3,931 3.0%
Mortgage revenues.............................. 2,563 1,615 58.7% 5,322 2,281 133.3%
Insurance revenues............................. 429 380 12.9% 884 800 10.5%
Other.......................................... 2,187 2,544 -14.0% 4,245 6,988 -39.3%
---------------------------------- ------------------------------------
Total non-interest income................... 13,357 10,421 28.2% 25,754 21,721 18.6%
Net security gains................................ 541 154 251.3% 1,083 1,014 6.8%
Operating expenses:
Personnel costs................................ 16,106 14,000 15.0% 31,776 29,331 8.3%
Net occupancy expense.......................... 1,644 1,624 1.2% 3,357 3,312 1.4%
Equipment expense.............................. 1,978 2,093 -5.5% 3,799 4,141 -8.3%
Professional fees.............................. 740 790 -6.3% 1,635 1,847 -11.5%
Amortization of intangible assets.............. 685 549 24.8% 1,271 1,099 15.7%
Other.......................................... 6,779 5,750 17.9% 13,503 11,042 22.3%
---------------------------------- ------------------------------------
Total operating expenses.................... 27,932 24,806 12.6% 55,341 50,772 9.0%
---------------------------------- ------------------------------------
Income before income taxes........................ 15,542 11,564 34.4% 27,880 22,952 21.5%
Income taxes...................................... 4,306 3,088 39.4% 7,238 6,237 16.0%
---------------------------------- ------------------------------------
NET INCOME FROM OPERATIONS........................ $11,236 $ 8,476 32.6% $ 20,642 $ 16,715 23.5%
Merger related charges, net of tax ............ 0 3,845 N/M 3,307 3,845 N/M
Information systems charge, net of tax ........ 0 2,599 N/M 0 2,599 N/M
---------------------------------- ------------------------------------
NET INCOME........................................ $11,236 $ 2,032 453.0% $ 17,335 $ 10,271 68.8%
================================== ====================================
Average shares outstanding - basic (000).......... 29,047 26,833 8.3% 28,078 26,812 4.7%
Average shares outstanding - diluted (000)........ 29,635 27,378 8.2% 28,608 27,342 4.6%
</TABLE>
<PAGE>
AMCORE FINANCIAL, INC.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------- ----------------------------------------------
ENDING AVERAGE YIELD/ AVERAGE YIELD/
BALANCE BALANCE RATE BALANCE RATE
- ----------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities......................... $1,245,758 $1,242,205 6.69% $1,080,217 6.69%
Tax-exempt securities (FTE)................ 346,000 341,110 7.89% 281,929 8.63%
Other earning assets....................... 9,445 9,429 6.04% 10,347 4.86%
Loans held for sale........................ 27,583 27,996 9.60% 10,668 7.69%
Loans, net of unearned income (FTE)........ 2,251,823 2,209,606 8.73% 1,835,624 8.80%
----------- ---------------------------------------------
Total Earning Assets (FTE).............. $3,880,609 $3,830,346 8.02% $3,218,785 8.08%
Intangible assets....................... 18,694 19,061 13,052
Other non-earning assets................ 239,468 200,887 168,257
----------- ---------------------------------------------
TOTAL ASSETS............................ $4,138,771 $4,050,294 $3,400,094
=========== =============================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing deposits.................. $2,410,024 $2,398,492 4.91% $2,056,650 4.76%
Non-interest bearing deposits.............. 344,865 325,671 297,487
----------- ---------------------------------------------
Total Deposits.......................... $2,754,889 $2,724,163 $2,354,137
----------- ---------------------------------------------
Short-term borrowings...................... 745,288 688,135 5.68% 603,966 5.77%
Long-term borrowings....................... 267,007 267,211 6.08% 139,766 6.71%
----------- ---------------------------------------------
Total Interest Bearing Liabilities...... 3,422,319 3,353,838 5.16% 2,800,382 5.07%
Other liabilities....................... 53,776 53,529 42,516
----------- ---------------------------------------------
Total Liabilities....................... $3,820,960 $3,733,038 $3,140,385
Stockholders' Equity.................... 317,811 317,256 259,709
----------- ---------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.................... $4,138,771 $4,050,294 $3,400,094
=========== =============================================
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------- ----------------------------------------------
ENDING AVERAGE YIELD/ AVERAGE YIELD/
BALANCE BALANCE RATE BALANCE RATE
- ----------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities......................... $1,245,758 $1,203,739 6.80% $1,078,017 6.62%
Tax-exempt securities (FTE)................ 346,000 333,767 8.00% 273,368 8.79%
Other earning assets....................... 9,445 9,817 5.63% 13,521 4.80%
Loans held for sale........................ 27,583 28,272 8.57% 9,898 7.01%
Loans, net of unearned income (FTE)........ 2,251,823 2,091,246 8.75% 1,815,902 8.78%
----------- ---------------------------------------------
Total Earning Assets (FTE).............. $3,880,609 $3,666,841 8.06% $3,190,706 8.05%
Intangible assets....................... 18,694 17,174 13,344
Other non-earning assets................ 239,468 201,164 170,157
----------- ---------------------------------------------
TOTAL ASSETS............................ $4,138,771 $3,885,179 $3,374,207
=========== =============================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing deposits.................. $2,410,024 $2,310,297 4.93% $2,041,187 4.74%
Non-interest bearing deposits.............. 344,865 320,996 297,158
----------- ---------------------------------------------
Total Deposits.......................... $2,754,889 $2,631,293 $2,338,345
----------- ---------------------------------------------
Short-term borrowings...................... 745,288 660,690 5.72% 609,271 5.69%
Long-term borrowings....................... 267,007 236,024 6.17% 127,783 6.50%
----------- ---------------------------------------------
Total Interest Bearing Liabilities...... 3,422,319 3,207,011 5.18% 2,778,241 5.03%
Other liabilities....................... 53,776 52,704 39,753
----------- ---------------------------------------------
Total Liabilities....................... $3,820,960 $3,580,711 $3,115,152
Stockholders' Equity.................... 317,811 304,468 259,055
----------- ---------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.................... $4,138,771 $3,885,179 $3,374,207
=========== =============================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------------
JUNE 30, JUNE 30, PERCENT DECEMBER 31, PERCENT
ASSET QUALITY (IN THOUSANDS) 1998 1997 CHANGE 1997 CHANGE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ending allowance for loan losses............. $24,588 $20,173 21.9% $19,908 23.5%
Net charge-offs.............................. 800 1,823 -56.1% 2,030 -60.6%
Net charge-offs to average loans (B)......... 0.14% 0.40% -0.26% 0.42% -0.3%
Non-performing assets:
Nonaccrual................................ $20,825 $17,678 17.8% $19,491 6.8%
Restructured.............................. 0 413 N/M 377 N/M
----------------------------------------------------------------
Non-performing loans................... 20,825 18,091 15.1% 19,868 4.8%
Other real estate owned (OREO)............ 1,880 1,192 57.7% 1,668 12.7%
----------------------------------------------------------------
Total non-performing assets............ $22,705 $19,283 17.7% $21,536 5.4%
----------------------------------------------------------------
Loans 90 days past due and still accruing.... $ 5,751 $6,033 -4.7% $3,386 69.8%
(B) On an annualized basis.
KEY ASSET QUALITY RATIOS
- ----------------------------------------------------------------------------------------------------------------
Allowance to ending loans................. 1.09% 1.08% 0.01% 1.01% 0.08%
Allowance to non-performing loans........... 118.07% 111.51% 6.56% 100.20% 17.87%
Non-performing loans to loans............. 0.92% 0.97% -0.05% 1.01% -0.09%
Non-performing assets to loans & OREO....... 1.01% 1.03% -0.02% 1.10% -0.09%
Non-performing assets to total assets...... 0.55% 0.53% 0.02% 0.59% -0.04%
CAPITAL ADEQUACY
- ----------------------------------------------------------------------------------------------------------------
Total risk-based capital................... 14.08% 14.53% -0.45% 14.38% -0.30%
Tier 1 risk-based capital.................. 13.12% 13.60% -0.48% 13.50% -0.38%
Leverage ratio............................. 8.28% 8.73% -0.45% 8.31% -0.03%
-------------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------------------
PERCENT
ASSET QUALITY (IN THOUSANDS) 1998 1997 CHANGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ending allowance for loan losses............. $ $
Net charge-offs.............................. 1,254 2,973 -57.8%
Net charge-offs to average loans (B)......... 0.12% 0.33% -0.2%
Non-performing assets:
Nonaccrual................................
Restructured..............................
Non-performing loans...................
Other real estate owned (OREO)............
Total non-performing assets............
Loans 90 days past due and still accruing....
(B) On an annualized basis.
KEY ASSET QUALITY RATIOS
- -------------------------------------------------------------------------------------
Allowance to ending loans.................
Allowance to non-performing loans...........
Non-performing loans to loans.............
Non-performing assets to loans & OREO.......
Non-performing assets to total assets......
CAPITAL ADEQUACY
- -------------------------------------------------------------------------------------
Total risk-based capital...................
Tier 1 risk-based capital..................
Leverage ratio.............................
</TABLE>
