UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 1998 was 29,045,799 shares.
Index of Exhibits on Page 20 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 March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity as of
March 31, 1998 and December 31, 1997 . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 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 . . .. . . . 20
ITEM 6 Exhibits and Reports on Form 10-Q . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(in thousands, except per share data) 1998 1997
================================================================================================================================
<S> <C> <C>
ASSETS Cash and cash equivalents.......................................................... $ 123,414 $ 105,218
Interest earning deposits in banks................................................. 2,047 2,206
Federal funds sold and other short-term investments................................ 2,833 633
Loans held for sale................................................................ 37,698 29,869
Securities available for sale...................................................... 1,569,255 1,441,593
Securities held to maturity (fair value of $ 15,838 in 1998; $ 15,611 in 1997)..... 15,634 15,423
---------------------------------
Total securities ............................................................. $1,584,889 $1,457,016
Loans and leases, net of unearned income........................................... 2,161,510 1,962,674
Allowance for loan and lease losses................................................ (23,745) (19,908)
---------------------------------
Net loans and leases.......................................................... $2,137,765 $1,942,766
Premises and equipment, net ....................................................... 58,163 54,774
Intangible assets, net............................................................. 19,378 12,168
Other real estate owned............................................................ 1,655 1,668
Other assets....................................................................... 63,921 61,372
---------------------------------
TOTAL ASSETS.................................................................. $4,031,763 $3,667,690
=================================
LIABILITIES LIABILITIES
AND Deposits:
STOCKHOLDERS' Demand deposits.................................................................. $993,686 $915,954
EQUITY Savings deposits................................................................. 194,713 170,882
Other time deposits.............................................................. 1,546,212 1,440,207
---------------------------------
Total deposits................................................................ $2,734,611 $2,527,043
Short-term borrowings.............................................................. 662,300 647,509
Long-term borrowings .............................................................. 263,494 159,125
Other liabilities.................................................................. 56,909 46,537
---------------------------------
TOTAL LIABILITIES............................................................. $3,717,314 $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;
March 31, December 31,
1998 1997
---- ----
Issued 29,593,495 27,681,138
Outstanding 29,043,171 26,922,604 6,572 6,152
Additional paid-in capital......................................................... 77,628 73,262
Retained earnings ................................................................. 226,157 206,235
Deferred compensation non-employee directors....................................... (1,520) (1,478)
Treasury stock .................................................................... (2,858) (5,069)
Net unrealized gain (loss) on securities available for sale, net of taxes.......... 8,470 8,374
---------------------------------
TOTAL STOCKHOLDERS' EQUITY.................................................... $ 314,449 $ 287,476
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $4,031,763 $3,667,690
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
(in thousands, except per share data) 1998 1997
==================================================================================================================
<S> <C> <C>
INTEREST Interest and fees on loans and leases.................................. $42,989 $39,097
INCOME Interest on securities:
Taxable.............................................................. 20,133 17,620
Tax-exempt........................................................... 4,308 3,858
--------------------------
TOTAL INCOME FROM SECURITIES...................................... $24,441 $21,478
--------------------------
Interest on federal funds sold and other short-term investments........ $ 104 $ 189
Interest and fees on loans held for sale............................... 751 261
Interest on deposits in banks.......................................... 30 10
--------------------------
TOTAL INTEREST INCOME............................................. $68,315 $61,035
--------------------------
INTEREST Interest on deposits................................................... $27,100 $23,557
EXPENSE Interest on short-term borrowings...................................... 9,092 8,586
Interest on long-term borrowings....................................... 3,170 1,783
--------------------------
TOTAL INTEREST EXPENSE............................................ $39,362 $33,926
--------------------------
NET INTEREST INCOME............................................... $28,953 $27,109
Provision for loan and lease losses.................................... 2,145 1,915
--------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES..... $26,808 $25,194
--------------------------
Trust and asset management income...................................... $ 5,261 $ 3,858
NON-INTEREST Service charges on deposits............................................ 1,864 1,912
INCOME Mortgage revenues...................................................... 2,759 666
Insurance revenues..................................................... 455 420
Other.................................................................. 2,058 4,444
--------------------------
NON-INTEREST INCOME, EXCLUDING NET REALIZED SECURITY GAINS........ $12,397 $11,300
Net realized security gains............................................ 542 860
--------------------------
TOTAL NON-INTEREST INCOME......................................... $12,939 $12,160
Compensation expense................................................... $12,555 $11,781
OPERATING Employee benefits...................................................... 3,544 3,550
EXPENSES Net occupancy expense.................................................. 1,713 1,688
Equipment expense...................................................... 2,146 2,048
Professional fees...................................................... 2,679 1,057
Advertising and business development................................... 882 672
Amortization of intangible assets...................................... 586 550
Other.................................................................. 7,801 4,620
--------------------------
TOTAL OPERATING EXPENSES.......................................... $31,906 $25,966
--------------------------
INCOME BEFORE INCOME TAXES............................................. $ 7,841 $11,388
Income taxes........................................................... 1,742 3,149
--------------------------
NET INCOME........................................................ $ 6,099 $ 8,239
--------------------------
BASIC EARNINGS PER COMMON SHARE........................................ $ 0.23 $ 0.31
DILUTED EARNINGS PER COMMON SHARE...................................... 0.22 0.30
DIVIDENDS PER COMMON SHARE............................................. 0.12 0.10
AVERAGE COMMON SHARES OUTSTANDING...................................... 27,099 26,791
AVERAGE DILUTED SHARES OUTSTANDING..................................... 27,533 27,293
</TABLE>
See accompanying notes to consolidated financial statements.
4
<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 incentive 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 $(1,478)
--------------------------------------------------
Comprehensive Income.......................................................
Net Income.............................................................. - - 6,099 -
Net change in unrealized gains (losses) on securities available
for sale, net of tax................................................... - - - -
--------------------------------------------------
Comprehensive Income....................................................... - - 6,099 -
--------------------------------------------------
Cash dividends on common stock-$.12 per share.............................. - - (3,251) -
Purchase of 190,000 shares for the treasury................................ - - - -
Reissuance of 6,934 treasury shares for Non-Employee
Directors stock plan...................................................... - 139 - (175)
Deferred compensation expense.............................................. - - - 133
Reissuance of 121,137 treasury shares under incentive stock
option plans ............................................................. - 1,233 - -
Insuance of 1,912,357 common shares for Midwest Federal Financial Corp..... 420 2,314 17,074 -
Insuance of 270,139 treasury shares for Investors Management Group Ltd..... - 680 - -
--------------------------------------------------
Balance at March 31, 1998................................................... $6,572 $77,628 $226,157 $(1,520)
==================================================
Accumulated
Other Total
Treasury Comprehensive Stockholders'
Stock Income 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 incentive 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 $287,476
------------------------------------------
Comprehensive Income.......................................................
Net Income.............................................................. - - 6,099
Net change in unrealized gains (losses) on securities available
for sale, net of tax................................................... - (82) (82)
------------------------------------------
Comprehensive Income....................................................... - (82) 6,017
------------------------------------------
Cash dividends on common stock-$.12 per share.............................. - - (3,251)
Purchase of 190,000 shares for the treasury................................ (4,758) - (4,758)
Reissuance of 6,934 treasury shares for Non-Employee
Directors stock plan...................................................... 36 - -
Deferred compensation expense.............................................. - - 133
Reissuance of 121,137 treasury shares under incentive stock
option plans ............................................................. 691 - 1,924
Insuance of 1,912,357 common shares for Midwest Federal Financial Corp..... - 178 19,986
Insuance of 270,139 treasury shares for Investors Management Group Ltd..... 6,242 - 6,922
------------------------------------------
Balance at March 31, 1998................................................... $(2,858) $ 8,470 $314,449
==========================================
</TABLE>
(1) Net unrealized gain (loss) on Securities available for sale, net of taxes.
See accompanying notes to consolidated financial statements.
5
<PAGE>
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands) 1998 1997
======================================================================================================================
<S> <C> <C>
CASH FLOWS Net income........................................................... $ 6,099 $ 8,239
FROM Adjustments to reconcile net income to net
OPERATING cash provided by operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment......... 1,763 1,608
Amortization and accretion of securities, net................... 1,673 557
Provision for loan and lease losses............................. 2,145 1,915
Amortization of intangible assets............................... 586 550
Net gain on sale of securities available for sale............... (542) (860)
Deferred income taxes........................................... 1,288 (1,135)
Originations of loans held for sale............................. (104,805) (37,241)
Proceeds from sales of loans held for sale...................... 98,833 38,195
Other, net...................................................... 9,086 (2,623)
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... $ 16,126 $ 9,205
--------------------------------
CASH FLOWS Proceeds from maturities of securities available for sale............ $ 83,551 $ 46,557
FROM Proceeds from maturities of securities held to maturity.............. 700 2,678
INVESTING Proceeds from sales of securities available for sale................. 92,809 62,083
ACTIVITIES Purchase of securities held to maturity.............................. - (12,609)
Purchase of securities available for sale............................ (280,731) (137,030)
Net (increase) decrease in federal funds sold
and other short-term investments.................................. (2,200) 6,880
Proceeds from the sale of credit card receivables.................... - 15,457
Proceeds from the sale of consumer finance loans and leases.......... 1,573 663
Net decrease in interest earning deposits in banks................... 164 350
Loans made to customers and principal collection of loans, net....... (29,522) (11,982)
Premises and equipment expenditures, net............................. (978) (1,265)
Proceeds from the sale of other real estate.......................... 429 193
Net cash and cash equivalents acquired through acquisitions.......... 5,763 -
--------------------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES................... $(128,442) $ (28,025)
--------------------------------
CASH FLOWS Net increase (decrease) in demand deposits and savings accounts...... $ 27,417 $ (5,652)
FROM Net increase (decrease) in time deposits............................. 16,550 (4,055)
FINANCING Net increase in short-term borrowings................................ 13,291 7,735
ACTIVITIES Proceeds from long-term borrowings................................... 79,800 44,000
Payment of long-term borrowings...................................... (461) (14,269)
Dividends paid....................................................... (3,251) (2,771)
Issuance of common stock for employee incentive plans................ - 430
Issuance of treasury stock for employee incentive plans.............. 1,924 840
Purchase of treasury stock........................................... (4,758) -
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................... $ 130,512 $ 26,258
--------------------------------
Net change in cash and cash equivalents.............................. $ 18,196 $ 7,438
Cash and cash equivalents:
Beginning of year.................................................. 105,218 105,347
--------------------------------
End of period...................................................... $ 123,414 $ 112,785
================================
SUPPLEMENTAL Cash payments for:
DISCLOSURES OF Interest paid to depositors........................................ $ 26,781 $ 23,853
CASH FLOW Interest paid on borrowings........................................ 12,054 9,925
INFORMATION Income taxes paid.................................................. 951 2,334
NON-CASH Other real estate acquired in settlement of loans.................... 248 306
ACTIVITIES Common stock issued for Midwest Federal Financial Corp............... 19,986 -
Treasury stock issued for Investors Management Group, Ltd............ 6,922 -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<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 month period
ended March 31, 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 of 27,099,000 and
26,791,000 for the three months ended March 31 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 27,533,000 and 27,293,000
for the three months ended March 31, 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.
7
<PAGE>
NOTE 3 - SECURITIES
A summary of securities at March 31, 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 March 31, 1998
Securities Available for Sale:
U.S. Treasury $ 91,026 $ 706 $ (34) $ 91,698
U.S. Government agencies 243,463 630 (759) 243,334
Agency mortgage-backed securities 734,786 6,939 (2,321) 739,404
State and political subdivisions 327,666 9,712 (345) 337,033
Corporate obligations and other 158,237 498 (949) 157,786
----------------------------------------------------------------
Total Securities Available for Sale $1,555,178 $18,485 $(4,408) $1,569,255
================================================================
Securities Held to Maturity:
U.S. Treasury $ 1,554 $ 5 $ - $ 1,559
U.S. Government agencies 27 - - 27
State and political subdivisions 14,052 217 (18) 14,251
Corporate obligations and other 1 - - 1
----------------------------------------------------------------
Total Securities Held to Maturity $ 15,634 $ 222 $ (18) $ 15,838
----------------------------------------------------------------
Total Securities $1,570,812 $18,707 $(4,426) $1,585,093
================================================================
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>
8
<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
$257,579,000 with an average maturity of 6.0 years, and a weighted average
borrowing rate of 5.39%.
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%
<TABLE>
<CAPTION>
Scheduled reductions of long-term borrowings are as follows:
====================================================================================
(in thousands) Total
- ------------------------------------------------------------------------------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,161
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,969
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,598
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,763
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,105
- ------------------------------------------------------------------------------------
SUB-TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $299,094
Less current portion of FHLB borrowings . . . . . . . . . . . . . . (35,600)
- ------------------------------------------------------------------------------------
TOTAL LONG-TERM BORROWINGS . . . . . . . . . . . . . . . . . . $263,494
====================================================================================
</TABLE>
9
<PAGE>
AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the significant factors which
affected AMCORE Financial, Inc. and subsidiaries ("AMCORE") Consolidated
Balance Sheet as of March 31, 1998 as compared to December 31, 1997 and the
results of operations for the three months ended March 31, 1998 as compared to
the same period 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 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.
OVERVIEW OF OPERATIONS
AMCORE's net income for the three months ended March 31, 1998 was $6.1
million, a decline of $2.1 million from the $8.2 million reported in the 1997
comparable period. The decline was caused by a $3.3 million after-tax
merger-related charge. Excluding this charge, first quarter net income would
have been $9.4 million, an increase of 14.2%. Diluted earnings per share were
$0.22 for the three months ended March 31, 1998. Excluding the charge, the
first quarter diluted earnings per share would have been $0.34, an increase of
$0.04 from the $0.30 reported during the same period in 1997. AMCORE's return
on average equity, excluding the charge, increased to 13.09% in 1998 when
compared to the 12.90% recorded in the first quarter of 1997. The return on
average assets also increased to 1.03% in 1998 versus 1.00% in 1997.
The primary factors contributing to the improved operating earnings
performance included increases in net interest income resulting from double
digit earning asset growth and non-interest income mainly from trust and asset
management and mortgage revenues.
10
<PAGE>
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
award winning 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 continues to be "well capitalized" as defined by regulatory guidelines.
At March 31, 1998, the company's total capital to risk weighted assets was
14.02%.
EARNINGS ANALYSIS
The analysis below discusses by major components the changes in net income
when comparing the three months ended March 31, 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):
11
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Interest Income Book Basis $ 68,315 $ 61,035
Taxable Equivalent Adjustment 2,458 2,187
-------- --------
Interest Income Taxable
Equivalent Basis 70,773 63,222
Interest Expense 39,362 33,926
-------- --------
Net Interest Income Taxable
Equivalent Basis $ 31,411 $ 29,296
======== ========
</TABLE>
Net interest income on a fully taxable equivalent basis increased $2.1 million
or 7.2% during the first quarter of 1998 over the same period in 1997. The
improvement in net interest income results mainly from a 10.7% 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 $175.7 million or 9.8% when
comparing the first quarters of 1998 and 1997. The investment leveraging
program, which is designed to better utilize capital, increased approximately
$141.8 million on average. This program contributed approximately $2.8 million
to net interest income during the first quarter of 1998, an increase of
$356,000 when compared to the same period in 1997. The program is funded
primarily through the use of repurchase agreements and 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 stockholders' equity, the
effective rate paid for all funding sources is lower than the rate paid on
interest-bearing liabilities alone.
As the table below indicates, the interest rate spread decreased 15 basis
points to 2.89% in the first quarter of 1998 when compared to the 3.04% during
the same period in 1997. The net interest margin was 3.55% during the first
quarter of 1998, a decrease of 13 basis points from the comparable period in
1997. The interest rate spread on the investment securities included in the
investment leveraging program was 138 and 146 basis points for the quarter
ended March 31, 1998 and 1997, respectively. The interest rate spread on all
other earning assets was 3.38% and 3.49% during the comparable periods. As a
result, the effect of the
12
<PAGE>
leveraging program accounted for 3 basis points of the decline in the interest
rate spread. The net interest margin was also negatively impacted by the
investment leveraging program and represented 22 basis points of the decline
in the net interest margin. The core interest margin was 4.20% and 4.27% for
the quarter ended March 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------ ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
- -------
Interest-Earning Assets:
Taxable securities $1,162,478 $20,133 6.93% $1,046,123 $17,620 6.75%
Tax-exempt securities (1) 328,712 6,628 8.07% 294,380 5,937 8.07%
--------------------------------------------------------------------------------
Total Securities (2) 1,491,190 26,761 7.18% 1,340,503 23,557 7.04%
Mortgage loans held for sale (3) 28,552 540 7.57% 9,236 143 6.19%
Loans (1) (4) 1,971,572 43,127 8.77% 1,795,846 39,205 8.76%
Other earning assets 10,209 134 5.25% 16,928 199 4.70%
Fees on mortgage loans held for sale (3) - 211 - - 118 -
------------ ---------- --------- ------------ ---------- ---------
Total Interest-Earning Assets $3,501,523 $70,773 8.10% $3,162,513 $63,222 8.02%
Noninterest-Earning Assets:
Cash and due from banks 95,337 89,367
Other assets 142,206 121,825
Allowance for loan losses (20,827) (19,777)
------------ -----------
Total Assets $3,718,239 $3,353,928
============ ===========
Liabilities and Stockholders' Equity
-----------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $ 763,928 $ 5,699 3.03% 706,251 $ 4,502 2.59%
Time deposits 1,457,188 21,401 5.96% 1,319,301 19,055 5.86%
------------ ---------- --------- ------------ ---------- ---------
Total interest-bearing deposits 2,221,116 27,100 4.95% 2,025,552 23557 4.72%
Short-term borrowings 632,941 9,092 5.76% 614,833 8586 5.60%
Long-term debt 204,490 3,170 6.29% 115,666 1,783 6.25%
------------ ---------- --------- ------------ ---------- ---------
Total Interest-Bearing Liabilities $3,058,547 $39,362 5.21% 2,756,051 $33,926 4.98%
Noninterest-Bearing Liabilities:
Demand deposits 316,274 296,975
Other liabilities (3) 51,918 41,898
------------ -----------
Total Liabilities $3,426,739 $3,094,924
Stockholders' Equity (3) 291,500 259,004
------------ -----------
Total Liabilities and
Stockholders' Equity $3,718,239 $3,353,928
============ ===========
Net Interest Income $31,411 $29,296
========== ==========
Net Interest Spread 2.89% 3.04%
========= =========
Interest Rate Margin 3.55% 3.68%
========= =========
</TABLE>
Notes:
(1) The interest on tax-exempt investment securities and tax-exempt loans
is calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) The average balance has been adjusted to exclude the effect of
Statement of Financial Accounting Standards No. 115.
(3) The yield-related fees recognized from the origination of mortgage
loans held for sale are in addition to the interest earned on the
loans during the period in which they are warehoused for sale as
shown above.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
13
<PAGE>
The level of net interest income is the result of the relationship between
total volume and mix of interest-earning assets and the rates earned, and the
total volume and mix of interest-bearing liabilities and the rates paid. The
rate and volume components associated with interest-earning assets and
interest-bearing liabilities are segregated in the table above to analyze the
changes in net interest income. Because of changes in the mix of the
components of interest-earning assets and interest-bearing liabilities, the
computations for each of the components do not equal the calculation for
interest-earning assets as a total and interest-bearing liabilities as a
total. The table below presents an analysis of the changes in net interest
income.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 / March 31, 1997
(in thousands)
----------------------------------------------------
Total Net
Increase (Decrease) Due to Change In Increase
Average Volume Average Rate (Decrease)
----------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable securities $2,134 $ 379 $2,513
Tax-exempt securities (1) 692 (1) 691
----------------------------------------------------
Total Securities (2) 2,826 378 3,204
Mortgage loans held for sale 359 38 397
Loans (1) (4) 3,457 465 3,922
Other earning assets (86) 21 (65)
Fees on mortgage loans held for sale (3) 69 24 93
----------------------------------------------------
Total Interest-Earning Assets $6,859 $ 692 $7,551
----------------------------------------------------
Interest Expense:
Interest-bearing demand and savings deposits $ 388 $ 809 $1,197
Time deposits 2,021 325 2,346
----------------------------------------------------
Total interest-bearing deposits 2,381 1,162 3,543
Short-term Borrowings 252 254 506
Long-term Debt 1,377 10 1,387
----------------------------------------------------
Total Interest-Bearing Liabilities $4,010 $1,426 $5,436
----------------------------------------------------
Net Interest Margin / Net Interest Income (FTE) $2,849 $ (734) $2,115
====================================================
</TABLE>
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
(1) The interest on tax-exempt investment securities and tax-exempt loans
is calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) The average balance has been adjusted to exclude the effect of
Statement of Financial Accounting Standards No. 115.
(3) The yield-related fees recognized from the origination of mortgage
loans held for sale are in addition to the interest earned on the
loans during the period in which they are warehoused for sale as
shown above.
(4) The balances of nonaccrual loans are included in average loans
outstanding. Interest on loans includes yield related loan fees.
The change in net interest income due to change in average volume
results from a 9.8% increase in average loans and 11.2% growth in
average investment securities. The positive effects of these
increases were partially offset by the 14.6% increase in average
borrowings and 9.7% increase in average interest bearing deposits.
14
<PAGE>
The decrease in net interest income due to changes in average rates resulted
as the rate paid on average total interest-bearing liabilities increased 23
basis points in 1998 versus 8 basis points on average earning assets. Average
total borrowings, which had a higher cost than other average total
interest-bearing liabilities, increased to represent 27.4% of average total
interest-bearing liabilities in 1998 versus 26.5% in 1997. Also, a 44 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.
PROVISION FOR LOAN AND LEASE LOSSES
Management determines an appropriate provision for loan losses based upon
historical loss experience, regular evaluation of collectibility by
management, lending officers and the corporate loan review staff, and the size
and nature of the loan portfolios. Other factors include economic and industry
outlooks, concentration characteristics of the loan portfolio and the
composition of problem loans.
The provision for loan and lease losses was $2.1 million during the first
quarter of 1998 an increase of $230,000 from the same period in 1997. The
increase in provisions relates to a growth in total loans and general
strengthening of the allowance for loan and lease losses. The allowance for
loan losses as a percent of total loans was 1.10% and 1.01% at March 31, 1998
and December 31, 1997, respectively.
Annualized net charge-offs to average loans were .09% in the first quarter of
1998 and .26% during the same period of 1997. The decrease in net charge-offs
relate to the sales of the satellite dish and credit card receivables
completed in the first quarter of 1998 and 1997, respectively.
NON-INTEREST INCOME
Total non-interest income was $12.9 million in the first quarter of 1998, an
increase of $779,000 or 6.4% from the same period in 1997. 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 increased 17.6% over the same period in
1997.
Trust and asset management income increased 36.4% or $1.4 million to total
$5.3 million for the first three months of 1998 versus the same period in
1997. The previously mentioned acquisition of IMG accounted for $820,000 of
the increase. The remaining $583,000 or 15.1% 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 $1.1 billion in the
15
<PAGE>
Vintage family of funds, an increase of 55% from March 31, 1997. A portion of
the increase reflects the addition of $146 million of IMG funds to the Vintage
family.
Mortgage revenues, excluding the previously mentioned charge for the adoption
of FAS No. 125 in 1997, increased $1.4 million or 96.0%. The increase relates
mainly to a record level of originations of $104 million related to the rise
in refinancings caused by the decline in mortgage rates. This trend is
expected to continue for at least the next quarter.
Insurance revenues rose 8.3% to $455,000 when compared to the first quarter of
1997. The increase results from an increase in sales of credit life insurance.
Other income decreased $2.4 million due to the previously mentioned $1.9
million gain on the sale of most of the company's credit card receivables in
the first quarter of 1997 and 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 expenses totaled $31.9 million for the first quarter of 1998, an
increase of $5.9 million over the first quarter of 1997. The increase is
attributable to the $4.5 million pre-tax merger charge previously mentioned.
Excluding this charge, operating expenses increased $1.4 million or 5.6%,
approximately half of which are attributable to the operations of IMG after
acquisition. The efficiency ratio, excluding the merger charge improved by
0.5% to 61.8%. This occurred as revenues growth outpaced expense growth.
Compensation expenses increased $774,000 when compared to the first quarter of
1997 to total $12.6 million for the first quarter of 1998. The increase is
attributable to $427,000 of severance and contract payments included in the
merger charge. Excluding this charge compensation expenses increased $347,000
or 2.9%. The increase relates primarily to annual merit increases and the IMG
acquisition.
Professional fees totaled $2.7 million for the first quarter of 1998, an
increase of $1.6 million over the same period as last year. The increase
relates to $1.8 million of legal and investment banking fees included in the
merger charge.
Other operating expenses were $7.8 million during the quarter ended March
31,1998, an increase of $3.2 million from the same quarter in 1997. The
increase includes $1.8 million related to integration and data processing
conversion expenses included in the merger charge. The remaining increase of
$1.4 million was primarily attributable to $338,000 of additional expenses
related to the sale of the satellite dish receivables and a $750,000 increase
in mortgage processing expenses including amortization and impairment of
mortgage servicing rights.
16
<PAGE>
INCOME TAXES
Income tax expense decreased $1.4 million to $1.7 million for the first
quarter of 1998. The decrease is due primarily to the decrease in income
before taxes. The effective tax rate for the first quarter of 1998 was 22.2%
compared to 27.7% for the same period in 1997.
BALANCE SHEET REVIEW
Total assets were $4.0 billion at March 31, 1998, an increase of $364.1
million or 9.9% from December 31, 1997. The acquisition of Midwest accounted
for $211.0 million of the increase. Total loans and total deposits increased
$25.3 million and $43.2 million, respectively, from December 31, 1997
excluding the impact of the Midwest acquisition. Total investments and total
borrowings increased $102.9 million and $92.6 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 $23.7 million at March 31,1998, an
increase of $3.8 million from December 31, 1997. This includes $2.1 million
acquired with Midwest. The allowance represented 1.10% of total loans and
124.1% of non-performing loans at March 31, 1998. The comparable ratios were
1.01% and 100.2% at December 31, 1997.
Net charge-offs were $454,000 during the first quarter of 1998 versus $1.2
million for the same quarter of 1997. The decrease relates primarily to
charge-offs of satellite receivables at the consumer finance subsidiary in
1997.
17
<PAGE>
An analysis of the allowance for loan losses as of March 31, 1998 and 1997 is
presented below:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Balance at beginning of period $19,908 $19,295
Charge Offs:
Commercial loans & leases 160 113
Real estate loans 17 67
Installment loans 641 1,103
Credit card loans 91 202
-------- --------
909 1,485
Recoveries:
Commercial loans & leases 249 140
Real estate loans 10 8
Installment loans 180 165
Credit card loans 16 22
-------- --------
455 335
Net Charge-Offs 454 1,150
Provision charged to expense 2,145 1,915
Allowance acquired through merger 2,146
-------- --------
Balance at end of period $23,745 $20,060
======== ========
Ratio of net-charge-offs during the
period to average loans outstanding
during the period (1) 0.09% 0.26%
======== ========
</TABLE>
(1) On an annualized basis
NON-PERFORMING ASSETS
Non-performing assets decreased $743,000 from December 31, 1997 to $20.8
million at March 31, 1998. Non-performing assets as of March 31, 1998 and
December 31, 1997 are presented below.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Non-accrual loans and leases $19,138 $19,491
Restructured loans and leases -- 377
------- -------
Total non-performing loans and leases $19,138 $19,868
======= =======
Other real estate owned 1,655 1,668
------- -------
Total non-performing assets $20,793 $21,536
======= =======
Loans 90 days or more past due and still accruing $ 3,430 $ 3,386
</TABLE>
18
<PAGE>
CAPITAL MANAGEMENT
Total stockholder's equity was $314.4 million at March 31, 1998, an increase
of $27.0 million from December 31, 1997. This includes $17.4 million acquired
with Midwest. The book value per share of AMCORE common stock was $10.83 at
March 31, 1998. AMCORE paid a $.12 per share dividend during the first quarter
of 1998.
AMCORE is considered "well capitalized" based on regulatory guidelines.
AMCORE's leverage ratio was 8.81% at March 31, 1998. AMCORE's ratio of Tier I
capital at 13.07% and total risk based capital of 14.02% significantly exceed
the regulatory minimums as indicated in the table below.
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tier I Capital $ 325,869 13.07% $ 292,744 14.29%
Tier I Capital Minimum 99,751 4.00% 81,944 4.00%
---------- ------ ---------- ------
Amount in Excess of Minimum $ 226,118 9.07% $ 210,800 10.29%
========== ====== ========== ======
Total Capital $ 349,614 14.02% $ 312,713 15.26%
Total Capital Minimum 199,502 8.00% 163,939 8.00%
---------- ------ ---------- ------
Amount in Excess of Minimum $ 150,112 6.02% $ 148,774 7.26%
========== ====== ========== ======
Risk adjusted assets $2,493,777 $2,049,246
========== ==========
</TABLE>
19
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) AMCORE Financial, Inc. 1998 Annual Meeting of Stockholders was held
on May 5, 1998.
(b) Proxies were solicited by AMCORE Financial, Inc. management for the
purpose of electing four Class III directors whose term will expire
in 2001. The following individuals were elected as Class III
directors:
Name Votes For Votes Withheld
---- --------- --------------
Ted Ross 22,217,887 58,567
Robert J. Smuland 22,214,323 62,131
Jack D. Ward 22,215,267 61,187
Gary L. Watson 22,204,185 72,269
(c) Proxies were solicited by AMCORE Financial, Inc. management to ratify
the appointment of McGladrey & Pullen, LLP as independent auditors.
The appointment of McGladrey & Pullen, LLP was ratified, via
22,134,668 votes for, 34,008 votes against and 107,778 votes
abstaining the ratification of the appointment.
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.)
20
<PAGE>
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.)
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.)
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 April 23, 1998.
21
<PAGE>
(b) One report on Form 8-K was filed with the Commission on March 4,
1998 announcing the consummation of the acquisition of Investors
Management Group on February 17, 1998 (Incorporated by reference to
AMCORE's Form 8-K as filed with the Commission on March 4, 1998).
One report on Form 8-K was filed with the Commission on April 10,
1998 announcing the consummation of the merger with Midwest Federal
Financial Corp. on March 27, 1998. (Incorporated by reference to
AMCORE's Form 8-K as filed with the Commission on April 10, 1998).
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCORE Financial, Inc.
(Registrant)
Date: May 15, 1998
By: /s/ John R. Hecht
----------------------------------------
John R. Hecht
Executive Vice President and Chief
Financial Officer (Duly authorized
officer of the registrant and principal
financial officer)
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 123,414
<INT-BEARING-DEPOSITS> 2,047
<FED-FUNDS-SOLD> 2,833
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,569,255
<INVESTMENTS-CARRYING> 15,634
<INVESTMENTS-MARKET> 15,838
<LOANS> 2,199,208
<ALLOWANCE> 23,745
<TOTAL-ASSETS> 4,031,763
<DEPOSITS> 2,734,611
<SHORT-TERM> 662,300
<LIABILITIES-OTHER> 56,909
<LONG-TERM> 263,494
0
0
<COMMON> 6,572
<OTHER-SE> 307,877
<TOTAL-LIABILITIES-AND-EQUITY> 4,031,763
<INTEREST-LOAN> 42,989
<INTEREST-INVEST> 24,441
<INTEREST-OTHER> 885
<INTEREST-TOTAL> 68,315
<INTEREST-DEPOSIT> 27,100
<INTEREST-EXPENSE> 39,362
<INTEREST-INCOME-NET> 28,953
<LOAN-LOSSES> 2,145
<SECURITIES-GAINS> 542
<EXPENSE-OTHER> 31,906
<INCOME-PRETAX> 7,841
<INCOME-PRE-EXTRAORDINARY> 6,099
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,099
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
<YIELD-ACTUAL> 3.55
<LOANS-NON> 19,138
<LOANS-PAST> 3,430
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 19,153
<ALLOWANCE-OPEN> 19,908
<CHARGE-OFFS> 909
<RECOVERIES> 455
<ALLOWANCE-CLOSE> 23,745<F1>
<ALLOWANCE-DOMESTIC> 15,242
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,503
<FN>
<F1>THE ALLOWANCE FOR LOAN LOSS-CLOSE INCLUDES $2,146 RELATED TO THE MARCH 27, 1998
MERGER WITH MIDWEST FEDERAL FINANCIAL CORP. THE MERGER WAS ACCOUNTED FOR AS A
POOLING OF INTERESTS, HOWEVER THE SIZE OF THE TRANSACTION DOES NOT REQUIRE
RESTATEMENT FOR PRIOR PERIOD AMOUNTS.
</FN>
</TABLE>
NEWS RELEASE
April 23, 1998
Katherine Taylor
Investor Relations Manager AMCORE
815-961-7164 FINANCIAL, INC.
John Hecht
Chief Financial Officer
815-961-2787
AMCORE FINANCIAL, INC. REPORTS FIRST QUARTER EARNINGS
OPERATING EARNINGS UP 14 PERCENT
ROCKFORD - Solid growth in core businesses resulted in record operating
earnings for the first quarter ending March 31, 1998. Significant increases in
mortgage revenues and trust and asset management income, along with continued
loan growth, were primary factors contributing to the increase.
"This is a great start for 1998 and reflects the strength of our core
businesses and the recent sales of non-strategic business lines," said Robert
J. Meuleman, president and chief executive officer.
HIGHLIGHTS
* First quarter operating earnings were $9.4 million, an increase of 14
percent over the same period last year. This represents a $0.04 per share
increase in diluted earnings per share to $0.34.
* Net interest income, on a fully taxable equivalent basis, rose 7
percent or $2.1 million from the first quarter of 1997 and was driven by an 11
percent increase in average earning assets including $175 million in average
loans.
* AMCORE bolstered loan loss reserves during first quarter 1998 in
response to strong loan growth. Since year-end 1997, nonperforming loans
decreased nearly 4 percent. As a result, the ratio of loan loss reserves to
non-performing loans is now 124 percent.
* Lower mortgage interest rates has led to a refinancing boom, resulting
in record originations. This resulted in a 96 percent or $1.4 million
increase in mortgage revenues.
<PAGE>
* Strong sales efforts, robust stock market performance and the
acquisition of Investors Management Group (IMG) in February contributed to a
36 percent or $1.4 million increase in trust and asset management income.
* AMCORE completed the acquisition of Midwest Federal Financial Corp.,
Baraboo, Wisconsin on March 27, 1998 and recorded a $3.3 million after tax
merger charge at the time of the acquisition. AMCORE now has $4 billion in
assets.
EARNINGS FROM OPERATIONS
Net income from operations for the first quarter was $9.4 million, an
increase of 14 percent from $8.2 million in the first quarter of 1997.
Earnings per share on a diluted basis were $0.22 and included a $0.12 per
share merger charge. The diluted earnings per share from operations was $0.34,
an increase of 13 percent from $0.30 in first quarter 1997.
Return on equity from operations was 13.09 percent for the first quarter,
an increase of 19 basis points compared to the first quarter of 1997. "Our
goal is to achieve a 15 percent ROE by year-end," said Meuleman.
Continued growth in earning assets resulted in a 7 percent or $2.1
million increase in net interest income on a fully taxable equivalent basis.
Earning assets increased 11 percent in the first quarter when compared to the
first quarter of 1997. This is attributed to a $175 million or 10 percent
increase in average loans and approximately $140 million increase on average
in the investment leveraging program. This program, which earns a narrower
spread, utilizes excess capital to improve return on equity. As a result, the
net interest margin decreased 13 basis points to 3.55 percent when compared to
the first quarter of 1997. The core interest margin, without the investment
leveraging program, is 4.20 percent for the first quarter 1998 compared to
4.27 percent in the first quarter 1997.
Mortgage revenues were $2.8 million compared to $666,000 in the same
quarter last year. The increase is due to increased refinancing activity and
the adoption of a new accounting rule, which reduced mortgage revenues by
$742,000 in the first quarter 1997. Excluding the accounting charge in 1997,
mortgage revenues rose 96 percent. Loan originations reached a record high of
$104 million for the first quarter 1998.
Trust and asset management revenues increased 36 percent to $5.3 million
in the first quarter of 1998 from $3.9 million in the first quarter of 1997.
The large increase was due to strong sales efforts, the acquisition of IMG in
February and continued strength in investment markets.
The Vintage Equity Fund has sustained a four or five-star rating from
Morningstar for nine consecutive quarters. Assets in the Vintage Equity Fund
increased 51 percent to $468 million and total Vintage Fund assets increased
55 percent to $1.1 billion compared to the previous year. A portion of the
increase reflects the addition of IMG funds to the Vintage Funds.
Page 2
<PAGE>
Other income decreased $2.4 million, primarily from the sale of the
credit card portfolio for $1.9 million and $625,000 in collection fee revenue
during the first quarter 1997. The bill collection company, Rockford
Mercantile Agency, was sold at year-end 1997.
Total operating expenses for the first quarter of 1998 increased $1.4
million or 6 percent when compared to the first quarter of 1997. Most of the
increase of noninterest expense is the result of the acquisition of IMG and
expenses related to the mortgage refinancing activity, including amortization
and impairment of mortgage servicing rights. The efficiency ratio was 61.8
percent, a change of .48 percent from the same period last year.
REPORT ON ASSET QUALITY
The allowance for loan losses to total loans was 1.10 percent at March
31, 1998, compared to 1.01 percent at year-end of 1997. The allowance for loan
losses to non- performing loans increased to 124 percent from 100 percent at
year-end 1997. Total non-performing assets at March 31, 1998 were $20.8
million, or .52 percent of total assets. This was a decrease of $743,000 from
year-end 1997.
During January 1998, AMCORE completed the sale of the satellite dish
portfolio at the Consumer Finance Company and recognized approximately
$300,000 of additional discount at the time of sale.
As a result of this sale, AMCORE anticipates its net charge-offs will
decrease during 1998. Net charge-offs for first quarter 1998 were $454,000, a
61 percent decrease from the same period last year, which represents only .09
percent of average loans.
"We have focused our attention on building a stronger balance sheet in
1998, including higher reserve levels," said Meuleman. "At the same time, we
have reduced our overall credit risk exposure with the sale of the satellite
dish."
AMCORE Financial, Inc., headquartered in northern Illinois, is a
financial services company with banking assets of $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, offers capital management and 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.
Page 3
<PAGE>
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; and (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
website at http://www.AMCORE.com.
(##)
Page 4
<PAGE>
AMCORE FINANCIAL, INC.
CONSOLIDATED KEY FINANCIAL DATA SUMMARY
NOTE: All prior year amounts have been restated to reflect the mergers with
First National Bancorp, Inc. on April 18, 1997 and Country Bank Shares
Corporation on July 16, 1997, and the three-for-two stock split
effective September 17, 1997. These mergers were accounted for under
the pooling of interests method. 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 MARCH 31, TRAILING TWELVE MONTHS ENDED MARCH 31,
---------------------------------- --------------------------------------
PERCENT PERCENT
FINANCIAL HIGHLIGHTS 1998 1997 CHANGE 1998 1997 CHANGE
- ------------------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues, including security gains............ $41,892 $39,269 6.7% $162,810 $152,522 6.7%
Net interest income - FTE......................... 31,411 29,296 7.2% 123,657 117,098 5.6%
Operating expenses................................ 27,409 25,966 5.6% 114,303 100,280 14.0%
Net income from operations........................ 9,406 8,239 14.2% 36,275 33,217 9.2%
Net income........................................ 6,099 8,239 -26.0% 26,524 33,217 -20.1%
Basic earnings per share from operations.......... 0.35 0.31 12.9% 1.35 1.25 8.0%
Basic earnings per share.......................... 0.23 0.31 -25.8% 0.99 1.25 -20.8%
Diluted earnings per share from operations........ 0.34 0.30 13.3% 1.32 1.22 8.2%
Diluted earnings per share........................ 0.22 0.30 -26.7% 0.96 1.22 -21.3%
Cash dividends per share.......................... 0.12 0.10 20.0% 0.47 0.39 20.5%
Book value per share.............................. 10.83 9.53 13.6%
QUARTER ENDED MARCH 31,
----------------------------------
PERCENT
KEY FINANCIAL RATIOS (A) 1998 1997 CHANGE
- ------------------------------------------------------------------------------------------
Return on average assets....................... 1.03% 1.00% 0.03%
Return on average equity....................... 13.09% 12.90% 0.19%
Net interest margin (FTE)...................... 3.55% 3.68% -0.13%
Core interest margin (FTE)..................... 4.20% 4.27% -0.07%
Efficiency Ratio (FTE) ........................ 61.80% 62.28% -0.48%
(A) All 1998 ratios have been adjusted to exclude merger-related charges
recorded in the first quarter.
INCOME STATEMENT
- ------------------------------------------------------------------------------------------
Interest income................................... $68,315 $61,035 11.9%
Interest expense.................................. 39,362 33,926 16.0%
----------------------------------
Net interest income............................ 28,953 27,109 6.8%
Provision for loan losses......................... 2,145 1,915 12.0%
Non-interest income:
Trust and asset management income.............. 5,261 3,858 36.4%
Service charges on deposits.................... 1,864 1,912 -2.5%
Mortgage revenues.............................. 2,759 666 314.3%
Insurance revenues............................. 455 420 8.3%
Other.......................................... 2,058 4,444 -53.7%
----------------------------------
Total non-interest income................... 12,397 11,300 9.7%
Net security gains................................ 542 860 -37.0%
Operating expenses:
Personnel costs................................ 15,670 15,331 2.2%
Net occupancy expense.......................... 1,713 1,688 1.5%
Equipment expense.............................. 1,821 2,048 -11.1%
Professional fees.............................. 895 1,057 -15.3%
Amortization of intangible assets.............. 586 550 6.5%
Other.......................................... 6,724 5,292 27.1%
----------------------------------
Total operating expenses.................... 27,409 25,966 5.6%
----------------------------------
Income before income taxes........................ 12,338 11,388 8.3%
Income taxes...................................... 2,932 3,149 -6.9%
----------------------------------
NET INCOME FROM OPERATIONS........................ $ 9,406 $ 8,239 14.2%
Merger related charges, net of tax ............ 3,307 0 0.0%
----------------------------------
NET INCOME........................................ $ 6,099 $ 8,239 -26.0%
==================================
Average shares outstanding - basic (000).......... 27,099 26,791 1.1%
Average shares outstanding - diluted (000)........ 27,533 27,293 0.9%
Ending shares outstanding (000)................... 29,043 26,811 8.3%
</TABLE>
<PAGE>
AMCORE FINANCIAL, INC.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------- ----------------------------------------------
ENDING AVERAGE YIELD/ AVERAGE YIELD/
BALANCE BALANCE RATE BALANCE RATE
- ----------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities......................... $1,247,857 $1,162,478 6.93% $1,046,123 6.75%
Tax-exempt securities (FTE)................ 337,032 328,712 8.07% 294,380 8.07%
Other earning assets....................... 4,880 10,209 5.25% 16,928 4.70%
Loans held for sale........................ 37,698 28,552 7.57% 9,236 6.19%
Loans, net of unearned income (FTE)........ 2,161,510 1,971,572 8.77% 1,795,846 8.76%
----------- ---------------------------------------------
Total Earning Assets (FTE).............. $3,788,977 $3,501,523 8.10% $3,162,513 8.05%
Intangible assets....................... 19,378 15,247 13,640
Other non-earning assets................ 223,408 201,460 177,775
----------- ---------------------------------------------
TOTAL ASSETS............................ $4,031,763 $3,718,230 $3,353,928
=========== =============================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing deposits.................. $2,397,758 $2,221,116 4.95% $2,025,552 4.72%
Non-interest bearing deposits.............. 336,853 316,274 296,975
----------- ---------------------------------------------
Total Deposits.......................... $2,734,611 $2,537,390 $2,322,527
----------- ---------------------------------------------
Short-term borrowings...................... 662,300 632,941 5.76% 614,833 5.60%
Long-term borrowings....................... 263,494 204,490 6.29% 115,666 6.25%
----------- ---------------------------------------------
Total Interest Bearing Liabilities...... 3,323,552 3,058,547 5.21% 2,756,051 4.98%
Other liabilities....................... 56,909 51,901 41,898
----------- ---------------------------------------------
Total Liabilities....................... $3,717,314 $3,426,722 $3,094,924
Stockholders' Equity.................... 314,449 291,508 259,004
----------- ---------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.................... $4,031,763 $3,718,230 $3,353,928
=========== =============================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------------
MARCH 31, MARCH 31, PERCENT DECEMBER 31, PERCENT
ASSET QUALITY (IN THOUSANDS) 1998 1997 CHANGE 1997 CHANGE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ending allowance for loan losses............. $23,745 $20,060 18.4% $19,908 19.3%
Net charge-offs.............................. 454 1,150 -60.5% 2,030 -77.6%
Net charge-offs to average loans (B)......... 0.09% 0.26% -0.17% 0.42% -0.3%
Non-performing assets:
Nonaccrual................................ $19,138 $18,241 4.9% $19,491 -1.8%
Restructured.............................. 0 381 N/M 377 N/M
----------------------------------------------------------------
Non-performing loans................... 19,138 18,622 2.8% 19,868 -3.7%
Other real estate owned (OREO)............ 1,655 933 77.4% 1,668 -0.8%
----------------------------------------------------------------
Total non-performing assets............ $20,793 $19,555 6.3% $21,536 -3.5%
----------------------------------------------------------------
Loans 90 days past due and still accruing.... $ 3,430 $4,676 -26.6% $3,386 1.3%
(B) On an annualized basis.
KEY ASSET QUALITY RATIOS
- ----------------------------------------------------------------------------------------------------------------
Allowance to ending loans................. 1.10% 1.11% -0.01% 1.01% 0.09%
Allowance to non-performing loans........... 124.07% 107.72% 16.35% 100.20% 23.87%
Non-performing loans to loans............. 0.89% 1.03% -0.14% 1.01% -0.12%
Non-performing assets to loans & OREO....... 0.96% 1.08% -0.12% 1.10% -0.14%
Non-performing assets to total assets...... 0.52% 0.58% -0.06% 0.59% -0.07%
CAPITAL ADEQUACY
- ----------------------------------------------------------------------------------------------------------------
Total risk-based capital................... 14.05% 15.26% -1.21% 14.38% -0.33%
Tier 1 risk-based capital.................. 13.09% 14.29% -1.20% 13.50% -0.41%
Leverage ratio............................. 8.81% 8.73% 0.08% 8.31% 0.50%
</TABLE>
