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UNITED STATES SECURITIES
AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-13393
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AMCORE FINANCIAL, INC.
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NEVADA 36-3183870
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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501 Seventh Street, Rockford, Illinois 61104 Telephone Number (815) 968-2241
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.22 par value
Common Stock Purchase Rights
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 1999, 28,262,466 shares of common stock were outstanding and
the aggregate market value of the shares based upon the average of the bid and
asked price held by non-affiliates was approximately $593,726,000.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1999 Notice of Annual Meeting and Proxy Statement are
incorporated by reference into Part III of the Form 10-K.
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AMCORE FINANCIAL, INC.
FORM 10-K TABLE OF CONTENTS
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PAGE
NUMBER
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PART 1
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 8
Item 3 Legal Proceedings........................................... 8
Item 4 Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 9
Item 6 Selected Financial Data..................................... 9
Item 7 Management's Discussion and Analysis of the Results of
Operations and Financial Condition.......................... 10
Item 8 Financial Statements and Supplementary Data................. 30
Item 9 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 63
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 63
Item 11 Executive Compensation...................................... 63
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 63
Item 13 Certain Relationships and Related Transactions.............. 63
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 64
SIGNATURES........................................................... 66
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PART I
ITEM 1. BUSINESS
GENERAL
AMCORE Financial, Inc. (AMCORE) is a registered multi-bank holding company
incorporated under the laws of the State of Nevada in 1982. The corporate
headquarters are located at 501 Seventh Street in Rockford, Illinois. The
operations are divided into three business segments: Banking, Trust and Asset
Management, and Mortgage Banking. AMCORE owns directly or indirectly all of the
outstanding common stock of each of its subsidiaries. AMCORE provides the
subsidiaries with advice and counsel on policies and operating matters among
other things.
BANKING SEGMENT
AMCORE directly owns two second tier bank holding companies. Country Bank
Shares Corporation (Country) is a three-bank holding company and owns AMCORE
Bank N.A., South Central, a nationally chartered bank, AMCORE Bank Clinton, and
AMCORE Bank Montello, both state-chartered banks. Midwest Federal Financial
Corp. (Midwest) is a one-bank holding company and owns AMCORE Bank Central
Wisconsin, a federal stock savings bank. AMCORE also directly owns AMCORE Bank
N.A., Rockford (ROCKFORD), AMCORE Bank N.A., Rock River Valley, AMCORE Bank
N.A., North Central, AMCORE Bank N.A., Northwest, all nationally chartered
banks, and AMCORE Bank Aledo (ALEDO), a state chartered bank. AMCORE also
directly owns AMCORE Consumer Finance Company, Inc. (FINANCE), a consumer
finance company. The Illinois affiliate banks conduct business at 41 locations
throughout northern Illinois, excluding Cook county and the far northwestern
counties. The primary service region includes the Illinois cities of Rockford,
Elgin, Woodstock, McHenry, Carpentersville, Crystal Lake, Sterling, Dixon,
Princeton, Aledo, Rochelle, Ashton, South Beloit, Gridley, Mt. Morris, Mendota,
Peru and the surrounding communities. The Wisconsin affiliate banks conduct
business at 25 locations throughout south-central Wisconsin. The primary service
region includes the Wisconsin cities of Madison, Monroe, Clinton, Argyle,
Baraboo, Mt. Horeb, Montello and the surrounding communities.
Through its bank affiliates, AMCORE provides various personal banking,
commercial banking and related financial services. AMCORE also conducts banking
business through ten supermarket branches, which gives the customer convenient
access to bank services seven days a week.
Personal Banking - Personal banking services to individuals include demand,
savings and time deposit accounts. Loan services include installment loans,
mortgage loans, overdraft protection, personal credit lines and credit card
programs. AMCORE Vintage Funds, a proprietary family of mutual funds, are also
marketed through each affiliate location. The Pinnacle private banking division
also markets Vintage Funds and meets other special needs of high net worth
individuals. Automated teller machines located throughout AMCORE's market area
make banking transactions available to customers when the bank facilities and
hours are not convenient. FINANCE provides installment and real estate loans to
a segment of the market not served by AMCORE's affiliate banks. FINANCE has also
focused its efforts with a "second chance" lending program for loan applicants
that have been rejected by the mortgage and banking affiliates, as well as
offering small ticket lease financing and other direct financing programs.
Commercial Banking - A wide range of financial services are provided to
commercial and governmental organizations. These services include, among others,
lending, deposits, letters of credit and cash management services.
Other Financial Services - The bank affiliates provide various services to
consumers, commercial customers and correspondent banks. Services available
include safe deposit box rental, securities safekeeping, foreign currency
exchange, lock box and other services.
AMCORE also offers three electronic banking services to commercial and
retail customers. AMCORE Data Bank facilitates access to commercial customers'
accounts via personal computers. It also permits the transfer of funds between
accounts and the initiation of wire transfers and ACH activity to accounts at
other
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financial institutions. AMCORE Direct is a point-of-sale system for credit card
and debit transactions. The AMCORE TeleBank service gives retail customers the
opportunity to use their telephone 24 hours a day to get balance and other
information on their checking and savings accounts, certificates of deposit, or
mortgage loan, all from a completely automated system.
TRUST AND ASSET MANAGEMENT SEGMENT
AMCORE Investment Group, N.A. (AIG) was converted from a trust company
charter to a nationally chartered non-depository bank in 1996 and owns AMCORE
Investment Services, Inc. (AIS), Investors Management Group-Rockford (IMGR)
previously known as AMCORE Capital Management, Inc., and Investors Management
Group-Des Moines (IMG). AIG provides trust services, employee benefit plan and
estate administration and various other services to corporations and
individuals.
AIS, a wholly-owned subsidiary of AIG, was incorporated under the laws of
the State of Illinois in October 1990 and in July 1991 became a member of the
National Association of Security Dealers (NASD). AIS is a full-service brokerage
company that offers a full range of investment alternatives including annuities,
mutual funds, stocks, bonds and AMCORE's Vintage Mutual Fund family.
IMGR was incorporated under the laws of the State of Illinois in December
1992 and is a wholly-owned subsidiary of AIG. IMGR manages the assets of
AMCORE's Vintage Mutual Fund family, which were introduced in December 1992, as
well as trust and other private investor assets.
IMG was incorporated under the laws of the State of Iowa in June 1992 and
became a wholly-owned subsidiary of AIG on February 17, 1998. IMG is an asset
management company whose primary clients include mutual funds, insurance
companies, banks, retirement plans, foundations, endowments, and individuals.
IMG also provides the mutual fund administration for the AMCORE Vintage Mutual
Funds.
AMCORE Insurance Group, Inc. (AIGI) was incorporated under the laws of the
State of Illinois in March 1994 and is a wholly-owned subsidiary of ALEDO.
AIGI's main office is in South Beloit, Illinois. AIGI obtained approval from the
State of Illinois Office of Banks and Real Estate to engage in the insurance
agency business, and offers a complete line of commercial and individual
insurance products including life, homeowners and automobile insurance.
MORTGAGE SEGMENT
AMCORE Mortgage, Inc. (AMI), a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada in 1987. Through AMI, AMCORE provides each
bank affiliate with a variety of mortgage lending products to meet their
customer needs. All fixed rate long-term loans originated by AMI are sold in the
secondary market. AMI also originates adjustable rate and balloon loans for sale
to affiliate banks and other investors. AMI continues to service most of the
loans that are sold.
INACTIVE
AMCORE Financial Life Insurance Company (AFLIC), a wholly-owned subsidiary,
was incorporated under the laws of the State of Arizona in 1984. Prior to 1998,
through AFLIC, AMCORE engaged in reinsuring credit life and accident and health
insurance in conjunction with the lending activities of the affiliate banks. In
January 1998, AFLIC ceded most of its re-insurance risk to an unaffiliated
company. Since January 1998, all new credit life and accidental and health
insurance has been written directly with the same unaffiliated company. As such,
AFLIC is currently an inactive subsidiary of AMCORE.
AMCORE Investment Banking, Inc. (AIB) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary in November 1993. AIB
obtained approval in July 1993 from the Board of Governors of the Federal
Reserve System (FRB) to perform financial advisory and private placement
services. In 1995, AIB withdrew its brokerage membership with the NASD and, as
such, is currently an inactive subsidiary of AMCORE.
See Note 15 for AMCORE's segment financial information.
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COMPETITION
Active competition exists for all services offered by AMCORE's bank and
non-bank affiliates with other national and state banks, savings and loan
associations, credit unions, finance companies, personal loan companies,
brokerage and mutual fund companies, mortgage bankers, insurance agencies,
financial advisory services, and other financial institutions serving the
affiliates' respective market areas. The principal competitive factors in the
banking and financial services industry are quality of services to customers,
ease of access to services and pricing of services, including interest rates
paid on deposits, interest rates charged on loans, and fees charged for
fiduciary and other professional services.
Since 1982, when Illinois multi-bank holding company legislation became
effective, there have been many bank mergers and acquisitions in Illinois. These
combinations have had the effect of increasing the assets and deposits of bank
holding companies involved in such activities. Illinois legislation, effective
December 1, 1990, permitted bank acquisitions in Illinois by institutions
headquartered in any other state which has reciprocal legislation, further
increasing competition. See "Supervision and Regulation".
On September 29, 1994, Congress passed laws allowing interstate banking and
interstate branching. A year later, nationwide interstate banking became
effective allowing institutions to make acquisitions in any state. Beginning
July 1, 1997, interstate branching became effective, and banks can merge with
affiliate banks or establish de novo branches in any state. Individual states,
however, have the right to opt out of interstate branching.
EMPLOYMENT
AMCORE had 1,503 full-time equivalent employees as of March 1, 1999. AMCORE
provides a variety of benefit plans to its employees including health, dental,
group term life and disability insurance, childcare reimbursement, retirement,
profit sharing, 401(k) and flexible spending accounts, stock option, stock
purchase and dividend reinvestment plans. AMCORE believes that its relationship
with its employees is good.
SUPERVISION AND REGULATION
AMCORE is subject to regulations under the Bank Holding Company Act of
1956, as amended (the Act), and is registered with the FRB under the Act. AMCORE
is required by the Act to file quarterly and annual reports of its operations
and such additional information as the FRB may require and is subject, along
with its subsidiaries, to examination by the FRB.
The acquisition of five percent or more of the voting shares or all or
substantially all of the assets of any bank by a bank holding company requires
the prior approval of the FRB and is subject to certain other federal and state
law limitations. The Act also prohibits, with certain exceptions, a holding
company from acquiring direct or indirect ownership or control of more than five
percent of the voting shares of any company which is not a bank and from
engaging in any business other than banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the FRB to be "so closely related to banking as to be a
proper incident thereto". On August 31, 1993, the FRB approved an amendment to
add certain activities and to reduce the burden on bank holding companies that
desire to conduct these activities by simplifying the regulatory review process.
Under current regulations of the FRB, a holding company and its non-bank
subsidiaries are permitted, among other activities, to engage in such
banking-related businesses as sales and consumer finance, equipment leasing,
computer service bureau and software operations, mortgage banking, brokerage and
financial advisory services. The Act does not place territorial restrictions on
the activities of non-bank subsidiaries of bank holding companies. In addition,
federal legislation prohibits acquisition of "control" of a bank or bank holding
company without prior notice to certain federal bank regulators. "Control" is
defined in certain cases as acquisition of ten percent or more of the
outstanding shares of a bank or bank holding company.
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Federal and state laws and regulations of general application to banks
regulate, among other things, the scope of business, investments, reserves
against deposits, capital levels relative to assets and risk, the nature and
amount of collateral for loans, the establishment of branches, mergers,
consolidations and the payment of dividends.
In late 1992, Congress passed the Federal Deposit Insurance Corporation
Improvement Act of 1992 which included many provisions that have had significant
effects on the cost structure and operational and managerial standards of
commercial banks. In addition to provisions for recapitalization of the Bank
Insurance Fund, the Act contains provisions that revise bank supervision and
regulation, including, among many other things, the monitoring of capital
levels, outline additional management reporting and external audit requirements,
and add consumer provisions that include Truth-in-Savings disclosures.
The foregoing references to applicable statutes and regulations are brief
summaries thereof and do not purport to be complete and are qualified in their
entirety to be referenced to such statutes and regulations.
AMCORE, Country and Midwest are supervised and examined by the FRB.
Nationally-chartered affiliate banks are supervised and regularly examined by
the Office of the Comptroller of the Currency (OCC) and are subject to
examination by the FRB. The state-chartered affiliate banks are supervised and
regularly examined by their state's respective Commissioner of Banks. The
federal stock savings bank is supervised and regularly examined by the Office of
Thrift Supervision (OTS). In addition, all affiliate banks are subject to
periodic examination by the Federal Deposit Insurance Corporation (FDIC).
AMI is supervised and examined by the FRB and is also licensed and
regulated by the State of Illinois Office of Banks and Real Estate (OBR).
FINANCE is regulated by the Illinois Department of Financial Institutions. AFLIC
is supervised and examined by the Department of Insurance of the State of
Arizona. Under Arizona law, investments, capital levels and the level of claim
reserves, among other things, are subject to regulation. AIS, IMGR and IMG are
supervised and examined by the NASD and are regulated by the Securities and
Exchange Commission (SEC). AIGI is supervised and examined by the Department of
Insurance of the State of Illinois and is regulated by the OBR.
SUBSIDIARY DIVIDENDS AND CAPITAL
Legal limitations exist as to the extent to which the bank subsidiaries can
lend or pay dividends to AMCORE. The payment of dividends by national banks
without prior regulatory approval is limited to the current year's net income
plus the adjusted retained net income for the two preceding years. The payment
of dividends by any bank or bank holding company is affected by the requirement
to maintain adequate capital pursuant to the capital adequacy guidelines issued
by the FRB and regulations issued by the FDIC and the OCC (collectively
"Agencies"). As of December 31, 1998, approximately $44.9 million was available
for payment to AMCORE in the form of dividends without prior regulatory
approval. The bank subsidiaries are also limited as to the amount they may lend
to AMCORE. At December 31, 1998, the maximum amount available to AMCORE in the
form of loans approximated $20.3 million.
In 1990, the FRB established risk-based capital guidelines for bank holding
companies. These capital rules require minimum capital levels as a percent of
risk-weighted assets. Banking organizations must have minimum capital ratios of
4% and 8% for Tier 1 capital and total capital, respectively. The FRB also
established leverage capital requirements intended primarily to establish
minimum capital requirements for those banking organizations that have
historically invested a significant portion of their funds in low risk assets.
Federally supervised banks are required to maintain a minimum leverage ratio of
not less than 4%. Refer to the Capital section of Item 7 for a summary of
AMCORE's capital ratios as of December 31, 1998 and 1997.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The earnings of all subsidiaries are affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the FRB influences general economic conditions and interest rates
through various monetary policies and tools. It does so primarily through
open-market operations in U.S. Government securities, varying the discount rate
on member and non-member bank
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borrowings, and setting reserve requirements against bank deposits. FRB monetary
policies have had a significant effect on the operating results of banks in the
past and will continue to do so in the future. The general effect of such
policies upon the future business and earnings of each of the subsidiary banks
cannot accurately be predicted.
Interest rate sensitivity has a major impact on the earnings of bank
affiliates. As market rates change, yields earned on assets may not necessarily
move to the same degree as rates paid on liabilities. For this reason, AMCORE
attempts to minimize earnings volatility related to fluctuations in interest
rates through the use of a formal asset/liability management program and certain
off-balance sheet derivative activities. See Item 7 and Note 10 included under
Item 8 for additional discussion of interest rate sensitivity and related
derivative activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information about the executive
officers of AMCORE. There are no family relationships between any director or
executive officer of AMCORE.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Robert J. Meuleman.............................. 59 President and Chief Executive Officer of AMCORE
since January 1996. Previously Executive Vice
President and Chief Operating Officer - Banking
Subsidiaries of AMCORE from December 1991 to
December 1995.
Kenneth E. Edge................................. 53 Executive Vice President and Chief Operating
Officer of AMCORE since April 1997. Previously
Group Vice President, Banking Subsidiaries from
June 1995 to April 1997 and Executive Vice
President of ROCKFORD from July 1992 to June
1995.
Charles E. Gagnier.............................. 64 Executive Vice President, Bank Mergers and
Acquisitions of AMCORE and Chairman of the
Board of Directors of ROCKFORD since January
1997. Previously President and Chief Executive
Officer of ROCKFORD from January 1992 to
December 1996.
John R. Hecht................................... 40 Executive Vice President and Chief Financial
Officer of AMCORE since December 1997.
Previously Senior Vice President and Chief
Financial Officer of AMCORE from July 1992 to
December 1997.
James S. Waddell................................ 53 Executive Vice President, Chief Administrative
Officer and Corporate Secretary of AMCORE since
January 1994. Previously Senior Vice President
of Administration of AMCORE from July 1992 to
January 1994.
Alan W. Kennebeck............................... 52 Group Vice President, AMCORE; President and
Chief Executive Officer of AIG; and Chief
Executive Officer of AIS since July 1995. Also
President of AIS from July 1995 to December,
1997; and Chief Operating Officer of Piper
Trust Co. from 1993 to July 1995.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Charie A. Zanck................................. 46 Group Vice President, AMCORE since May 1997.
Previously President and Chief Executive
Officer of Northwest from June 1993 to May
1997.
Lewis R. Jones.................................. 54 Senior Vice President, AMCORE since May 1997.
Previously Vice President and Manager of Bank
Investments from 1995 to May 1997, and Vice
President of IMGR from July 1994 to December
1994. Prior to July, 1994, Vice President and
Funds Manager at Georgia Federal Bank, FSB, in
Atlanta, Georgia.
William T. Hippensteel.......................... 42 Senior Vice President and Corporate Marketing
Director of AMCORE.
Joseph McGougan................................. 38 President and Chief Executive Officer of AMCORE
Mortgage, Inc.
James F. Warsaw................................. 48 President and Chief Executive Officer of
ROCKFORD since January 1997. Previously
Executive Vice President and Chief Operating
Officer of ROCKFORD from June 1995 to December
1996, and Executive Vice President and Senior
Credit Officer of ROCKFORD from December 1992
to May 1995.
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ITEM 2. PROPERTIES
On December 31, 1998, AMCORE had 73 locations, of which 53 were owned and
20 were leased. The Banking segment had 71 locations, of which 53 were owned and
18 were leased. The Trust and Asset Management segment and the Mortgage segment
each had one leased facility. All of these offices are considered by management
to be well maintained and adequate for the purpose intended. See Note 6 of the
Notes to Consolidated Financial Statements included under Item 8 of this
document for further information on properties.
ITEM 3. LEGAL PROCEEDINGS
Management believes that no litigation is threatened or pending in which
AMCORE faces potential loss or exposure which will materially affect AMCORE's
financial position or results of operations. Since AMCORE's subsidiaries act as
depositories of funds, trustee and escrow agents, they are named as defendants
in lawsuits involving claims to the ownership of funds in particular accounts.
This and other litigation is incidental to AMCORE's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
See Item 6 and 8 of this document for information on stock price ranges and
dividends. The principal market for the quotations of stock prices is the NASDAQ
National Market System. There are approximately 8,200 holders of record of
AMCORE's common stock as of March 1, 1999.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
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1998 1997 1996 1995 1994
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FOR THE YEAR:
Interest income............................................. $ 290,861 $ 259,959 $ 233,679 $ 202,268 $ 172,279
Interest expense............................................ 168,127 148,960 128,902 104,017 76,761
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Net interest income......................................... 122,734 110,999 104,777 98,251 95,518
Provision for loan and lease losses......................... 7,993 7,045 5,428 3,165 1,751
Non-interest income......................................... 58,748 48,601 43,428 36,874 33,891
Operating expense........................................... 119,594 114,973 98,740 101,730 92,604
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Income before income taxes.................................. 53,895 37,582 44,037 30,230 35,054
Income taxes................................................ 14,314 8,918 12,161 7,205 9,321
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Net income.................................................. $ 39,581 $ 28,664 $ 31,876 $ 23,025 $ 25,733
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Return on average assets(1)(2)(3)........................... 0.99% 0.81% 1.00% 0.85% 1.03%
Return on average equity (1)(2)(3).......................... 12.64 10.66 13.14 10.27 12.30
Net interest margin......................................... 3.51 3.59 3.81 4.12 4.48
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AVERAGE BALANCE SHEET:
Total assets................................................ $3,983,600 $3,520,229 $3,181,646 $2,715,520 $2,504,516
Loans and leases, net of unearned income.................... 2,218,972 1,867,355 1,711,850 1,557,375 1,391,037
Earning assets.............................................. 3,768,197 3,325,778 2,967,054 2,501,973 2,294,262
Deposits.................................................... 2,730,173 2,399,423 2,274,191 2,182,327 2,102,098
Long-term borrowings........................................ 278,603 132,533 159,504 34,367 29,004
Stockholders' equity........................................ 313,056 268,996 242,657 224,219 209,161
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ENDING BALANCE SHEET:
Total assets................................................ $4,147,833 $3,667,690 $3,331,995 $2,903,282 $2,607,626
Loans and leases, net of unearned income.................... 2,451,518 1,962,674 1,807,121 1,620,365 1,481,497
Earning assets.............................................. 3,864,852 3,452,398 3,114,450 2,635,111 2,366,480
Deposits.................................................... 2,947,724 2,527,043 2,351,490 2,208,838 2,119,063
Long-term borrowings........................................ 330,361 159,125 131,612 115,752 30,157
Stockholders' equity........................................ 316,083 287,476 257,420 242,096 212,571
---------- ---------- ---------- ---------- ----------
FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end loans................. 1.08% 1.01% 1.07% 1.06% 1.16%
Allowance to non-performing loans........................... 145.24 100.20 156.84 123.06 127.20
Net charge-offs to average loans............................ 0.16 0.34 0.19 0.21 0.17
Non-performing loans to net loans........................... 0.74 1.01 0.68 0.86 0.92
Average long-term borrowings to average equity.............. 88.99 49.27 65.73 15.33 13.87
Average equity to average assets............................ 7.86 7.64 7.63 8.26 8.35
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' DATA:
Basic earnings per share.................................... $ 1.39 $ 1.07 $ 1.20 $ 0.87 $ 0.97
Diluted earnings per share.................................. 1.36 1.05 1.18 0.86 0.96
Book value per share........................................ 10.96 10.68 9.64 9.10 8.03
Dividends per share......................................... 0.54 0.45 0.38 0.33 0.31
Dividend payout ratio....................................... 38.85% 42.06% 31.67% 37.93% 31.96%
Average common shares outstanding........................... 28,515 26,862 26,649 26,504 26,443
Average diluted shares outstanding.......................... 29,098 27,405 26,970 26,858 26,737
========== ========== ========== ========== ==========
</TABLE>
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(1) The 1998 ratios excluding the impact of the $3.3 million, or $.11 per share,
after-tax merger related charges: return on average assets 1.08%; return on
average equity 13.70%
(2) The 1997 ratios excluding the impact of the $6.4 million, or $.23 per share,
after-tax merger related and information systems charges: return on average
assets 1.00%; return on average equity 13.05%
(3) The 1995 ratios excluding the impact of the $3.5 million, or $.13 per share,
after-tax impairment and merger-related charges: return on average assets
0.98%; return on average equity 11.81%
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ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATION AND
FINANCIAL CONDITION
The following discussion highlights the significant factors affecting the
results of operations and financial condition of AMCORE for the three years
ended December 31, 1998. The discussion should be read in conjunction with the
consolidated financial statements, accompanying notes, and selected financial
data appearing elsewhere within this report.
This review contains 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 reported net income of $39.6 million for the year ended December 31,
1998. This compares to $28.7 million and $31.9 million reported for the years
ended 1997 and 1996, respectively. Net income from operations, which excludes
$3.3 million of after-tax merger related charges in the first quarter of 1998
and $6.4 million of after-tax charges related to the Wisconsin bank mergers and
the outsourcing of core bank data processing in the second quarter of 1997, was
$42.9 million and $35.1 million for the years ending December 31, 1998 and 1997,
respectively. This represents an increase of $7.8 million or 22.2% in net income
from operations, when comparing 1998 and 1997. Excluding the 1997 charges, net
income from operations increased $3.2 million or 10.1% when comparing 1997 and
1996. The primary factors contributing to the improved operating earnings
performance when comparing 1998 and 1997 included increases in net interest
income resulting from average earning asset growth of 13.0% and non-interest
income growth mainly from mortgage revenues and trust and asset management
income.
Diluted earnings per share for 1998 were $1.36 compared to $1.05 in 1997
and $1.18 in 1996. Excluding the above mentioned charges of $0.11 per share in
1998 and $0.23 per share in 1997, diluted earnings per share from operations
were $1.47 and $1.28 in 1998 and 1997, respectively. This represents an increase
of $0.19 per share or 14.8% in diluted earnings per share from operations, when
comparing 1998 and 1997.
This level of net income resulted in a return on average equity for 1998 of
12.64% versus 10.66% in 1997 and 13.14% in 1996. AMCORE's return on average
assets for 1998 was 0.99% compared to 0.81% in 1997 and 1.00% in 1996. If the
above mentioned merger and core bank data processing charge are excluded in 1998
and 1997, the return on average equity and return on average assets would be
13.70% and 1.08% in 1998 and 13.05% and 1.00% in 1997.
AMCORE continues to be "well capitalized" as defined by regulatory
guidelines. At December 31, 1998, AMCORE's total capital to risk weighted assets
was 13.43%.
On February 17, 1998, AMCORE acquired Investors Management Group, LTD (IMG)
of Des Moines, Iowa. AMCORE issued 270,139 shares at closing for an approximate
value of $6.0 million. Additional shares valued at $4.8 million may be issued
contingent upon IMG's performance from 1998 through 2000. At December 31, 1998,
additional shares of 70,332 were earned and issued. 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 complements AMCORE's
equity management skills, including the Vintage family of
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mutual funds to bring total assets under management to $4.2 billion at December
31, 1998. The transaction was accounted for using the purchase method of
accounting.
On March 27, 1998, AMCORE completed its merger with 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 had
approximately $211 million of assets and nine locations. The transaction was
accounted for as a pooling of interests, however, the size of the transaction
was not material to AMCORE's consolidated financial statements. Therefore,
results previous to the date of acquisition were not restated.
On October 21, 1998, AMCORE announced a stock repurchase program for up to
five percent of its common stock or 1.4 million shares. The repurchased shares
will become treasury shares and will be used for general corporate purposes,
including the issuance of shares in connection with AMCORE's stock option and
other employee benefit plans. Through March 1, 1999, 1.1 million shares have
been repurchased at an average price of $23.32.
YEAR 2000
A critical issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs, operating systems
and other systems can accommodate the date value for the Year 2000. The Year
2000 issue is pervasive, as almost all date-sensitive systems will be affected
to some degree by the rollover of the two-digit year from 99 to 00. Potential
risks of not addressing this issue include business interruption, financial
loss, reputation loss and/or legal liability.
AMCORE has undertaken an enterprise-wide initiative to address the Year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer and other systems to recognize the date change on January 1, 2000.
An assessment of the readiness of third parties that AMCORE interfaces with,
such as vendors, counterparties, customers, payment systems, and others, is
ongoing to mitigate the potential risks that Year 2000 poses. In addition,
AMCORE is assessing the readiness of companies that have borrowed from AMCORE's
subsidiaries to insure that incremental Year 2000-related credit risks are
addressed as part of the existing credit risk management framework. AMCORE's
objective is to try to insure that all aspects of the Year 2000 issue, including
those related to the efforts of third parties, will be fully resolved in time.
However, it is not possible to be sure that all aspects of the Year 2000 issue
which may affect AMCORE, including those related to the effects of customers,
suppliers, or other third parties with whom we conduct business, will not have a
material impact on AMCORE's results of operations or financial condition. AMCORE
has consistently maintained contingency plans for mission critical systems and
business processes to protect assets against unplanned events that would prevent
normal operations. The millennium changeover presents unique risks, some of
which would not be effectively addressed by the existing plans. AMCORE is
examining these risks and developing additional plans to mitigate the effect of
potential impacts and insure continuity of operation throughout the Year 2000
and beyond. The use of the existing contingency planning infrastructure will
assist in providing optimum coverage and re-usability of existing arrangements
and responsibility assignments. AMCORE expects all Year 2000-specific
contingency plans to be completed by June 30, 1999 and related testing to
continue throughout the year.
AMCORE has established a project team to prepare for the Year 2000, which
reports regularly to executive management, the Crisis Management Committee and
the Board of Directors. 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. The outsourcing of the core mainframe
system to ALLTEL during 1998 addresses the primary operating systems of AMCORE.
The testing of all mission critical systems is in process and is scheduled to be
substantially completed by March 31, 1999. At this point, the internal costs
associated with the Year 2000 during 1998 and 1999 are estimated at
approximately $2.3 million, of which $1.5 million is for replacement hardware
and software. These items are not anticipated to have a material impact on
future performance. A total of $786,000 has been expensed during 1998.
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EARNINGS REVIEW BY BUSINESS SEGMENT
AMCORE's internal reporting and planning process has identified three
business segments: Banking, Trust and Asset Management, and Mortgage Banking.
Footnote 15 presents a condensed income statement for each segment.
The financial results of each segment are presented as if operated on a
stand-alone basis. There are no comprehensive authorities for management
accounting equivalent to generally accepted accounting principles. Therefore,
the information provided is not necessarily comparable with similar information
from other financial institutions. Additionally, methodologies may change from
time to time as the process is enhanced.
The financial results reflect direct revenue, expenses, assets and
liabilities. The accounting policies used are similar to those described in Note
1 Summary of Significant Accounting Policies. In addition, inter-segment revenue
and expenses are allocated based on an internal cost basis or market price when
available.
BANKING SEGMENT
The Banking segment provides commercial and personal banking services
through its 66 banking locations in northern Illinois and south-central
Wisconsin, and the Consumer Finance subsidiary. The services provided by this
segment include lending, deposits, cash management, automated teller machines,
and other traditional banking services.
The Banking segment's operating profit before merger related charges for
1998 was $40.8 million, an increase of $5.5 million or 15.7% from 1997 levels.
This followed an increase in 1997 of $3.6 million or 11.3% from 1996. The 1998
increase in Banking segment operating profit is the result of net interest
income and non-interest income increasing at a 10.6% and 7.7% respective rate,
while operating expenses increased 3.0%. The growth in average loans and the
acquisition of Midwest were the primary contributors to these categories.
The Banking segment represented 87.1%, 91.3% and 92.6% of total segment
profit before charges in 1998, 1997, and 1996, respectively.
TRUST AND ASSET MANAGEMENT
The Trust and Asset Management segment provides trust, investment
management and brokerage services. It also acts as an advisor and provides fund
administration to the Vintage Mutual Fund and offers a complete line of
commercial and individual insurance products. These products are distributed
nationally (i.e. Vintage Equity Fund is available through Charles Schwab
OneSource(])), regionally to institutional investors and corporations, and
locally through AMCORE's 66 banking locations.
The Trust and Asset Management segment's profit increased $1.6 million or
55.2% to $4.5 million in 1998. This segment also increased $985,000 or 52.0% in
1997. The growth in 1998 was due to the acquisition of IMG, favorable investment
performance, growth in proprietary Vintage Mutual Funds and sales of new trust
and asset management accounts.
As of December 31, 1998, trust assets under administration total $4.2
billion including $1.2 billion in the AMCORE family of Vintage Mutual Funds.
The Trust and Asset Management segment represented 9.6%, 7.5%, and 5.5% of
total segment profit before charges in 1998, 1997, and 1996 respectively.
MORTGAGE BANKING
The Mortgage Banking segment originates residential mortgage loans for sale
to AMCORE's banking affiliates and the secondary market, and provides servicing
of these mortgage loans.
The Mortgage Banking segment's profit was $1.6 million in 1998, an increase
of $1.1 million or 231.2%. This segment's profits declined $167,000 or 26.0% in
1997. The increase in 1998 was the result of the 120.6% increase in mortgage
origination to a record level of $478.9 million.
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The increased originations were a result of expansion of markets and
refinancings related to the low level of mortgage rates during 1998. Refinancing
activity accounted for 74.3% and 48.5% of originations in 1998 and 1997,
respectively. As of December 31, 1998, the Mortgage segment serviced $736
million of residential mortgages.
The Mortgage Banking segment represented 3.4%, 1.2%, and 1.9% of total
segment profit before charges in 1998, 1997, and 1996, respectively.
EARNINGS REVIEW OF CONSOLIDATED INCOME STATEMENT
The following highlights a comparative discussion of the major components
of net income and their impact for the last two years.
NET INTEREST INCOME
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The interest income on certain loans and investment securities is
not subject to Federal income tax. For analytical purposes, at December 31,
1998, 1997 and 1996, 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 AMCORE's statutory Federal income tax rate of
35%. Adjusted interest income is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest Income Book Basis.............. $290,861 $259,959 $233,679
Taxable Equivalent Adjustment........... 10,010 9,234 8,456
-------- -------- --------
Interest Income Taxable Equivalent
Basis................................. 300,871 269,193 242,135
Interest Expense........................ 168,127 148,960 128,902
-------- -------- --------
Net Interest Income Taxable Equivalent
Basis................................. $132,744 $120,233 $113,233
======== ======== ========
</TABLE>
Net interest income on a fully taxable equivalent basis increased $12.5
million or 10.4% in 1998 and $7.0 million or 6.2% in 1997. The improvement in
net interest income during both 1998 and 1997 results mainly from an increase in
average earning assets which was partially offset by a narrowing in the interest
rate spread.
The growth in average earning assets was 13.0% and 11.5% in 1998 and 1997,
respectively. This growth can be attributed to strong loan growth and increased
levels of investment securities related to the investment leveraging program.
Average loans increased $351.6 million or 18.8% in 1998 and $155.5 million or
9.1% in 1997. The Midwest acquisition accounted for $133.1 million of the growth
in average loans. Excluding this acquisition, average loans increased 11.7%.
The investment leveraging program, which is designed to better utilize
capital, is funded through the use of repurchase agreements, Federal Home Loan
Bank (FHLB) borrowings and, to a lesser extent, brokered CDs. The proceeds of
these borrowings are invested principally in mortgage-backed and U.S. government
agency securities. This program averaged approximately $846 million in 1998, an
increase of approximately $94 million in 1998 following a $302 million increase
in 1997. This program contributed approximately $10.1 million in 1998, $11.2
million in 1997 and $6.2 million in 1996 to net interest income. The income from
this program declined $1.1 million in 1998 as the spread decreased due to
prepayments on mortgage-backed securities and a flat yield curve.
As Table 1 indicates, the interest rate spread declined 7 basis points to
2.89% in 1998 from 2.96% in 1997 which was a decline of 22 basis points from the
1996 level of 3.18%. The interest rate margin was 3.51% in 1998, a decline of 8
basis points from 3.59% in 1997. The 1997 level was a decline of 18 basis points
from 3.77% in 1996.
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The interest rate spread on the investment securities in the leveraging
program was 120 basis points in 1998, 149 basis points in 1997, and 137 basis
points in 1996. The interest rate spread on all other earning assets was 3.41%
in 1998, 3.42% in 1997, and 3.52% in 1996. As a result, the effect of this
program accounted for 6 basis points of the decline in the 1998 interest rate
spread and 12 basis points in 1997. The investment-leveraging program also
negatively impacted the interest rate margin. This program accounted for 5 basis
points of the decline in the 1998 interest rate margin and 16 basis points in
1997. The core interest rate margin, which excludes the effect of the
investment-leveraging program, was 4.18%, 4.21%, and 4.19% for 1998, 1997, and
1996, respectively.
The level of net interest income is the result of the relationship between
total volume and mix of interest-earning assets and the rates earned and the
total volume and mix of interest-bearing liabilities and the rates paid. The
rate and volume components associated with interest earning assets and
interest-bearing liabilities can be segregated to analyze the year-to-year
changes in net interest income. Changes due to rate/volume variances have been
allocated between changes due to average volume and changes due to average rate
based on the percentage of each to the total change of both categories. Because
of changes in the mix of the components of interest-earning assets and
interest-bearing liabilities, the computations for each of the components do not
equal the calculation for interest-earning assets as a total and
interest-bearing liabilities as a total. Table 1 analyzes the changes
attributable to the rate and volume components of net interest income.
CHANGES DUE TO VOLUME
The change in net interest income due to average volume in 1998 relates to
the 18.8% growth in average loans and a 3.9% growth in average investment
securities which was partially offset by 14.9% growth in total interest-bearing
deposits and 9.3% growth in borrowed funds. The 1997 increase in net interest
income due to the change in average volume is attributable to a 9.1% growth in
average loans and a 15.5% growth in average investment securities which was
partially offset by 7.8% growth in time deposits and 44.4% growth in short-term
borrowings.
CHANGES DUE TO RATE
The yield on earning assets declined 9 basis points in 1998 as market rates
declined in general. The decline was less than the decline in the individual
components of investment securities and loans whose yields declined 16 and 11
basis points, respectively, as higher yielding loans represented a larger
proportion of earning assets in 1998. The rate paid on interest bearing
liabilities decreased 2 basis points. The rate paid on interest bearing demand
deposits increased due to growth in the AMDEX money market account, which is
indexed to Treasury yields. The rate on long-term debt decreased 73 basis points
as maturing FHLB borrowings were renewed for a longer term and made up a larger
proportion of the category.
The yield on earning assets declined 1 basis point in 1997, as a 20 basis
point increase in the yield on investment securities offset most of the decline
in yields on other earning assets. The rate paid on interest bearing liabilities
increased 21 basis points. The rate paid on interest bearing deposits increased
due to the new AMDEX money market account. The rate on short-term borrowings
increased as the current portion of longer term FHLB borrowings rolled into this
category. The rate on long term debt increased 65 basis points as the 9.35%
capital trust securities, which qualify as Tier 1 capital, replaced lower rate
FHLB borrowings and bank lines.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is an amount added to the allowance
against which loan and lease losses are charged. Management determines an
appropriate provision for loan losses based upon historical loss experience,
regular evaluation of collectibility by 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 $8.0 million for 1998, an
increase of $948,000 or 13.5% from the $7.0 million in 1997. The 1998 increase
in provision is due to a 24.9% growth in loans, decreased
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charge-offs, and relatively stable non-performing assets. During 1997, the
provision increased $1.6 million or 29.8% from the $5.4 million in 1996. The
increase in the 1997 provision is due to an 8.6% growth in loans and the
charge-off of $2.7 million in satellite dish receivables.
AMCORE recorded net charge-offs of $3.6 million, $6.4 million and $3.2
million in 1998, 1997 and 1996, respectively. Future growth in the loan
portfolio or weakening economic conditions could result in continued increases
in the provision for loan and lease losses. Net charge-offs represented only 16
basis points of average loans in 1998 versus 34 basis points in 1997 and 19
basis points in 1996. The improvement in net charge-offs in 1998 is the direct
result of the sale of satellite receivables in January 1998, as well as the sale
of credit card receivables in 1998 and 1997. Both of these portfolios had higher
net charge-off expenses than historical averages. The allowance for loan and
lease losses as a percent of total loans was 1.08%, 1.01%, and 1.07% in 1998,
1997, and 1996, respectively. The allowance for loan and lease losses to
non-performing loans was 145.2% at year-end 1998, 100.2% at year-end 1997, and
156.8% at year-end 1996.
NON-INTEREST INCOME
Total non-interest income is comprised primarily of fee based revenues from
mortgage, trust, brokerage, asset management, insurance and collection agency
services. Fees from bank-related services, mainly on deposits and electronic
banking, along with net security gains or losses are also included in this
category. Non-interest income totaled $58.7 million in 1998, an increase of
$10.1 million or 20.9%. This increase occurred despite the revenue lost due to
the sale of the collection agency and a $1.9 million gain on the sale of credit
card receivables in 1997. Non-interest income also increased 11.9% or $5.2
million in 1997.
Trust and asset management income, the largest source of fee based
revenues, totaled $23.7 million, an increase of $7.3 million or 44.2%. The
previously mentioned acquisition of IMG accounted for $5.0 million of this
increase. Excluding the increase related to IMG, trust and asset management fees
grew $2.3 million or 14.1%. The 1997 growth of trust and asset management fees
was $2.4 million or 16.7%. The growth not related to IMG in both years is
attributable to favorable market performance of trust assets, growth in
proprietary Vintage Mutual Funds and new trust accounts. As of December 31,
1998, the AMCORE family of Vintage Mutual Funds totaled $1.2 billion and trust
assets under administration totaled $4.2 billion. AMCORE anticipates continued
growth in trust and asset management revenues. However, trust and asset
management revenues are dependent on market performance, plan terminations,
corporate profit sharing contributions, and other economic factors.
Service charges on deposits totaled $8.8 million in 1998, an increase of
$994,000 or 12.7% from the $7.8 million in 1997. During 1997, service charges on
deposits increased $151,000 or 2.0%. The 1998 acquisition of Midwest accounted
for $610,000 of the 1998 increase. The remaining increase in both years resulted
from increased deposits and revised fee schedules.
Mortgage revenues includes fees generated from underwriting, originating
and servicing of mortgage loans along with gains realized from the sale of these
loans. Mortgage revenues increased $4.7 million or 81.2% in 1998. This was
primarily the result of strong production volume related to the expansion of
markets and refinancing volume related to the low level of mortgage rates in
1998. Mortgage originations were a record $478.9 million in 1998 versus $217.0
million in 1997. Refinancings accounted for 74.3% and 48.5% of the originations
in 1998 and 1997, respectively. In 1997, mortgage revenues declined $179,000 or
3.0% to total $5.8 million in 1997. This decline resulted from a charge of
$742,000 related to the valuation of purchased and excess mortgage servicing
rights in accordance with adoption of FAS 125.
Accounting standards require separate recognition of servicing rights on
originated mortgage loans at the time such loans are sold. This asset is
amortized over the remaining estimated lives of the serviced loans. While this
has a favorable impact on earnings at the time of sale, additional earnings
volatility may occur with changes in market conditions, particularly with
fluctuations in interest rates. For example, a decline in interest rates could
result in accelerated mortgage prepayments, which may reduce the value of this
asset and require a charge to earnings through a valuation reserve. If
subsequent valuations result in an increase of value, recoveries can be recorded
through the valuation allowance, to the extent of the previous charge. As of
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December 31, 1998, AMCORE had $5.0 million of capitalized mortgage servicing
rights and a servicing portfolio of $736.0 million (see Note 7).
Insurance revenues totaled $1.9 million in 1998, an increase of $291,000 or
18.3% from the $1.6 million in 1997. Increased sales of credit life insurance
resulting from product specific sales training is the primary reason for this
increase. Insurance revenues declined $441,000 or 21.8% from 1996 levels due to
reduced commissions on both commercial and credit life products.
The sale of the collection agency on December 31, 1997, resulted in no
collection fee income being recognized in 1998. Collection fee income remained
level at $2.1 million in 1997 and 1996.
Other non-interest income, mainly customer service fees and brokerage
commissions were $9.3 million in 1998, a decrease of $1.3 million or 11.9% from
1997 levels after a $1.0 million increase from 1996 levels. The 1997 amount
included a $1.9 million gain on the sale of credit card receivables and 1996
included a $1.4 million gain on the sale of merchant bankcard processing.
Net securities gains totaled $4.4 million in 1998 as compared to $4.2
million in 1997 and $1.9 million in 1996. The level of security gains or losses
is dependent on the size of the available for sale portfolio, interest rate
levels, AMCORE's liquidity needs, and balance sheet risk objectives.
OPERATING EXPENSES
Total operating expense was $119.6 million in 1998, an increase of $4.6
million from $115.0 million in 1997, a $16.2 million increase from the $98.7
million in 1996. Operating expenses in 1998 included $4.5 million of charges
related to the Midwest merger. Operating expenses in 1997 included a $5.0
million impairment of satellite receivables portfolio transferred to held for
sale, $4.6 million of merger-related expenses and $4.3 million of expenses
related to outsourcing core bank data processing. Excluding these charges,
operating expenses from normal operations would have increased $14.0 million or
13.9% in 1998 and 2.3 million or 2.4% in 1997. The 1998 increase includes $8.4
million of normal operating expenses of IMG and Midwest. The efficiency ratio,
excluding the above-mentioned charges, was 60% in 1998 and 1997 versus 63% in
1996.
Personnel costs, which include compensation expense and employee benefits,
are the largest component of operating expenses. Personnel costs totaled $64.4
million in 1998, an increase of $5.6 million or 9.5%. Excluding the merger
related and outsourcing costs in 1998 and 1997 and $4.8 million of normal
compensation expense of IMG and Midwest, the increase would have been $2.0
million or 3.5%. The higher costs in 1998 were primarily caused by increased
levels of performance driven compensation and normal merit increases. Personnel
costs increased $2.8 million in 1997, an increase of 5.0%. Excluding the
outsourcing and merger related costs in 1997, the increase would have been $1.6
million or 2.8%. The higher costs in 1997 were primarily caused by normal merit
increases.
Net occupancy expense was $6.8 million in 1998, an increase of $260,000 or
4.0% from 1997, after a decline of $106,000 from 1996 levels. A 1997 property
tax refund for prior years and an increase in the number of facilities were the
primary cause of the increase in 1998.
Equipment expense declined $2.9 million or 27.0% to $7.9 million in 1998.
This followed a $2.4 million or 27.9% increase in 1997. The 1998 decrease is due
to a $2.4 million charge related to equipment and software written off as part
of the 1997 outsourcing of core bank data processing.
Data processing expenses include expenses related to core bank data
processing, trust and other external processing systems. This category increased
$2.7 million or 101.2 % in 1998 as a result of outsourcing of core bank data
processing in the third quarter of 1998, the additional processing expenses of
Midwest and IMG, and contract termination costs for Midwest, which were included
as a merger-related charge. This category will increase in 1999 due to a full
year's expense related to core bank data processing. Data processing expenses
increased $1.5 million or 132.2% in 1997 as a result of merger-related charges
for conversion of 1997 acquisitions.
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Professional fees totaled $5.7 million in 1998 a decrease of $643,000 or
10.1%. This category included merger-related expenses of $1.8 million in 1998
and $2.5 million in 1997. Professional fees increased $3.2 million or 102.1% in
1997 primarily due to merger-related expenses.
Advertising and business development expenses were $3.8 million in 1998, an
increase of $944,000 or 33.4%, primarily due to the increase in the number of
markets served by AMCORE as a result of the 1997 and 1998 acquisitions. This
category increased $165,000 or 6.2% in 1997.
Intangibles amortization expense totaled $2.5 million in 1998, an increase
of $324,000 or 14.6% as a result of the IMG acquisition. Intangibles
amortization expense remained flat at $2.2 million in 1997 and 1996.
Other expenses were $23.1 million in 1998, an increase of $3.4 million or
16.9%, following an increase of $1.3 million or 7.3% in 1997. The 1998 increase
is primarily the result of increased mortgage servicing and impairment expenses
of $2.1 million. The increased impairment expenses were the result of a
declining interest rate environment. The remaining increase relates to increased
travel and training expenses. The 1997 increase is primarily related to
communications and amortization of mortgage servicing rights.
INCOME TAXES
Income tax expense totaled $14.3 million in 1998, compared with $8.9
million and $12.2 million in 1997 and 1996, respectively. The effective tax
rates were 26.6%, 23.7%, and 27.6% in 1998, 1997, and 1996, respectively. The
effective tax rate was less than the statutory tax rates due primarily to
investments in tax-exempt municipal bonds and loans. The increase in both the
actual expense and effective tax rate in 1998 are a result of higher income
before income taxes. Both the actual dollar decrease and the decline in
effective tax rate in 1997 are a result of lower income before tax and higher
levels of tax exempt income at both the federal and state levels.
BALANCE SHEET REVIEW AND LIQUIDITY RISK MANAGEMENT
Liquidity represents the availability of funding to meet the obligations to
depositors, borrowers, and creditors at a reasonable cost without adverse
consequences. Accordingly, the funding base and asset mix influences the
liquidity position.
The parent company requires adequate liquidity to pay its expenses, repay
debt when due and pay stockholder dividends. Liquidity is provided to the parent
through subsidiaries in the form of dividends and fees for services. In 1998,
dividends and fees from subsidiaries amounted to $51.0 million, compared to
$38.5 million in 1997. Other liquidity is provided by access to the capital
markets, cash balances in banks, liquidating short-term investments, commercial
paper borrowings and lines of credit with correspondent banks. While subsidiary
banks are limited in the amount of dividends they can pay, as of December 31,
1998, approximately $44.9 million was available for payment to the parent in the
form of dividends, which do not require prior regulatory approval.
Cash and cash equivalents increased $39.0 million from December 31, 1997 to
December 31, 1998, as the net cash provided from operating activities of $54.2
million plus the net cash provided by financing activities of $224.1 million
exceeded the net cash used for investing activities of $239.3 million in 1998.
The net increase in cash provided by operating activities of $18.3 million
from December 31, 1997 to December 31, 1998 was primarily attributable to the
$8.1 million net increase in amortization and accretion of securities and
amortization and impairment of mortgage servicing rights.
The net decrease in cash used for investing activities of $88.8 million
from December 31, 1997 to December 31, 1998 is the result of the increase in net
cash provided by available for sale securities of $279.2 million. This increase
results from the net increase in proceeds from maturities and sales of $199.5
million and the net decrease in cash used for purchases of $79.7 million from
year to year. This increase was partially offset by the net increase in cash
used for loans made to customers of $141.0 million from 1997 to 1998.
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The net cash provided by financing activities decreased by $68.0 million
from December 31, 1997 to December 31, 1998. The decrease results mainly from a
reduction in net cash provided by short-term borrowings of $208.1 million from
1997 to 1998. The decrease from 1997 to 1998 in net cash provided by short-term
borrowings was partially offset by the increase in net cash provided by demand
deposits and savings accounts of $138.0 million and proceeds from long-term
borrowings of $62.9 million.
SECURITIES
Total securities as of December 31, 1998 were $1.34 billion, a decrease of
$113.3 million or 7.8% over the prior year-end. At December 31, 1998 and 1997,
the total securities portfolio comprised 34.8% and 42.2%, respectively, of total
earning assets.
Substantially all securities are classified available for sale. This
improves AMCORE's ability to manage interest rate and liquidity risk.
Fluctuations in the unrealized gain or loss component of total stockholders'
equity may result; however, federal banking regulations generally exclude this
component from regulatory risk-based capital calculations.
The securities portfolio serves a primary role in the overall context of
balance sheet management. The decision to purchase or sell securities is based
upon the current assessment of economic and financial conditions, including the
interest rate environment. The portfolio's scheduled maturities and the
prepayment of mortgage-backed securities represent a significant source of
liquidity. Approximately $65.0 million, or 4.8%, of the securities portfolio
will mature in 1999.
Mortgage-backed securities as of December 31, 1998 totaled $805.9 million
and represent 60.0% of total securities. The distribution of mortgage-backed
securities includes $397.4 million of U.S. government agency mortgage-backed
pass through securities, $312.4 million of agency collateralized mortgage
obligations and $96.0 million of private issue collateral mortgage obligations,
all of which are rated AAA except for $24.8 million of securities rated between
Aa1 and Baa1.
At December 31, 1998, securities held to maturity total $16.1 million,
while securities available for sale were $1.33 billion. There were no trading
securities at the end of 1998 or 1997. At December 31, 1998, the held to
maturity securities portfolio included $276,000 of gross unrealized gains and
$47,000 of gross unrealized losses. The securities available for sale portfolio
at the end of 1998 included gross unrealized gains of $18.5 million and gross
unrealized losses of $23.9 million, of which the combined effect, net of tax, is
included as accumulated other comprehensive income in stockholders' equity. For
comparative purposes, at December 31, 1997, gross unrealized gains of $18.0
million and gross unrealized losses of $4.0 million were included in the
securities available for sale portfolio. For further analysis of the securities
portfolio see Table 4 and Note 3 of the Notes to Consolidated Financial
Statements.
LOANS AND LEASES
Loans represent the largest component of AMCORE's earning asset base. At
year-end 1998, total loans and leases, net of unearned discount, were $2.45
billion, an increase of $488.8 million or 24.9% as compared to 1997. Average
loans increased $351.6 million or 18.8% during 1998. Growth in loans, due in
part to the Midwest merger, was mainly in the real estate and commercial loan
categories. (See Table 2)
Commercial, financial and agricultural loan balances totaled $659.9
million, an increase of $121.7 million or 22.6% when compared to 1997. This
increase was primarily in commercial and industrial in the Rockford, south
central Wisconsin and northwestern Chicago suburban markets.
Total real estate loans were $1.39 billion at year-end 1998, an increase of
$269.9 million, or 24.1%, over 1997. The growth from 1997 occurred mainly in the
commercial real estate and residential mortgage loan categories. The growth is
attributable primarily to the Rockford and northwestern Chicago suburban
markets.
Residential mortgage loans are originated by AMCORE's mortgage affiliate,
of which conforming adjustable rate, 15-year fixed-rate and balloon residential
mortgages are normally sold to affiliate banks. The 30-year fixed-rate
residential mortgage loans are sold in the secondary market to eliminate
interest rate risk,
18
<PAGE> 19
generate gains on the sale of these loans, as well as servicing income. All
loans of the mortgage affiliate are considered held for sale and are recorded at
the lower of cost or market value.
Installment and consumer loans increased $97.2 million or 32.3% to end the
year at $398.3 million. The growth is primarily related to indirect automobile
loans.
The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 3 shows selected loan maturity data as of December
31, 1998.
DEPOSITS
Total deposits at December 31, 1998, were $2.95 billion, an increase of
$420.7 million or 16.6% when compared to 1997. The increase includes $165.6
million of core deposits from Midwest. Average total deposits increased $330.8
million or 13.1%.
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits are considered by management to be the primary and most stable
source of funding. Total core deposits were $2.44 billion at the end of 1998, an
$302.8 million or 14.1% increase over the prior year-end. This increase is
attributable to continued growth in the AMDEX money market account introduced in
1997. Core deposits represent 82.9% and 84.8% of total deposits at December 31,
1998 and 1997, respectively. Large certificates of deposit, brokered deposits,
and time deposits from governmental entities supplement these core deposits.
Brokered deposits were $311.1 million at year-end 1998, an increase of $88.7
million over the prior year-end. Table 5 shows the maturity distribution of time
deposits $100,000 and over.
BORROWINGS
Short-term and long-term borrowings have provided the financing for the
investment leveraging program. Borrowings totaled $828.6 million at year-end
1998 and were comprised of $498.2 million of short-term and $330.4 million of
long-term borrowings. The increase in borrowings of $21.9 million was primarily
used to fund the growth in loans. Long-term borrowings were increased as
short-term borrowings matured to better align the term of the borrowing with
assets in the investment-leveraging program.
Securities sold under agreements to repurchase of $434.1 million and
Federal Home Loan Bank borrowings of $321.4 million are used primarily to fund
the investment leveraging program. These two types of borrowing represent 91.2%
of total borrowings at December 31, 1998 versus 88.8% at December 31, 1997.
In 1997, AMCORE issued $40 million of capital securities through AMCORE
Capital Trust I (Trust), a statutory business trust, of which all common
securities are owned by AMCORE. The capital securities pay cumulative cash
distributions semiannually at an annual rate of 9.35%. The securities are
redeemable from March 25, 2007 until March 25, 2017, at a declining rate of
104.6750% to 100.0% of the principal amount. After March 25, 2017, they are
redeemable at par until June 15, 2027, when redemption is mandatory. The capital
securities qualify as Tier 1 capital for regulatory purposes. The proceeds of
these securities were used to repay the parent company term loan, debt of
acquired companies, and other general corporate purposes.
The parent company has a commercial paper placement agreement with an
unrelated financial institution that provides for the issuance of non-rated
short-term unsecured debt obligations at negotiated rates and terms, not to
exceed $50.0 million. In the event the agent is unable to place the parent
company's commercial paper on a particular day, the proceeds are provided by
overnight borrowings on a reciprocal line of credit with the same financial
institution.
ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT
AMCORE's credit risk is centered in the loan and lease portfolio which on
December 31, 1998, totaled $2.45 billion, or 63.4%, of earning assets. The
objective in managing loan portfolio risk is to quantify and manage credit risk
on a portfolio basis as well as reduce the risk of a loss resulting from a
customer's failure to perform according to the terms of a transaction. To
achieve this objective, AMCORE strives to maintain a loan portfolio that is
diverse in terms of loan type, industry concentration, and borrower
concentration.
19
<PAGE> 20
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's estimate of
identified and unidentified losses in the existing loan portfolio. In making
this determination, management analyzes the ultimate collectibility of the loan
portfolio, incorporating feedback provided by lending officers, the corporate
loan review staff and examinations performed by regulatory agencies. Management
makes an ongoing evaluation as to the adequacy of the allowance for loan losses.
To establish the appropriate level of the allowance, all loans, commitments to
extend credit, and standby letters of credit, are reviewed and classified as to
potential loss exposure. An additional allowance is maintained based upon the
size, quality, and concentration characteristics of the remaining loan
portfolio, using both historical quantitative trends and management's evaluation
of qualitative factors including economic and industry outlooks.
The determination by management of the appropriate level of the allowance
amounted to $26.4 million at December 31, 1998. However, since the allowance for
loan losses is based on estimates, ultimate losses may vary from the current
estimates. These estimates are reviewed regularly, and as adjustments become
necessary, they are reported in earnings of that period. A detailed analysis of
the allowance for loan losses and the allocation of the allowance for loan
losses by category for the past five years is shown in Table 2.
As of December 31, 1998, the allowance for loan losses as a percent of
total loans and non-performing loans was 1.08% and 145.24%, respectively. These
compare to the same ratios for the prior year of 1.01% and 100.20%. Net
charge-offs as a percent of average loans decreased to 0.16 % for 1998 versus
0.34% in 1997. Net charge-offs on satellite receivables represented 41.1% of
total net charge-offs in 1997, thus net charge-offs on all other loans
represented 0.20% of average loans in 1997.
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans with restructured
terms and other real estate owned. Non-performing assets totaled $20.5 million
as of year-end 1998, a decrease of $1.0 million or 4.8% from the $21.5 million
at year-end 1997. Total non-performing assets represent 0.49% of total assets at
December 31, 1998, compared to 0.59% at December 31, 1997.
Loans are generally classified as non-accrual when there are reasonable
doubts as to the collectibility of principal and interest or when payment
becomes 90 days past due, except loans which are well secured and in the process
of payment. Any loans classified for regulatory purposes that have not been
included in non-performing loans are not expected to materially impact future
operating results, liquidity or capital. Interest collections on non-accrual
loans, for which the ultimate collectibility of principal is uncertain, are
applied as principal reductions. Otherwise, such collections are applied to
interest income when received.
Non-performing loans decreased $1.7 million or 8.5% to total $18.2 million
at December 31, 1998, when compared to the prior year-end. Non-performing loans
include one grain elevator credit which represents 19.6% of total non-performing
loans, whose collectibility is dependent solely on its guarantors. As of
December 31, 1998, non-performing loans to total loans were 0.74% compared to
1.01% at year-end 1997. Table 2 presents non-performing loans for each of the
past five years.
Loans 90 days or more past due were $7.3 million at December 31, 1998, an
increase of $3.9 million from the prior year-end. This increase is concentrated
at the Wisconsin subsidiaries and is primarily attributable to the
implementation of the AMCORE loan policy.
Foreclosed real estate increased $653,000, or 39.1%, to $2.3 million at
December 31, 1998, when compared to year-end 1997. This increase consists of
multiple residential units primarily in the Rockford market.
CONCENTRATION OF CREDIT RISKS
As previously discussed, AMCORE strives to maintain a diverse loan and
lease portfolio in an effort to minimize the effect of credit risk. Summarized
below are the characteristics of classifications that exceed 10% of total loans.
20
<PAGE> 21
Commercial, financial, and agricultural loans were $659.9 million at
December 31, 1998, and comprised approximately 26.9% of gross loans, of which
1.69% were non-performing. Net charge-offs of commercial loans represent 0.11%
during 1998, and 0.16% during 1997 of the year-end balance of the category.
Construction, commercial real estate loans, and loans for farmland were
$731.9 million at December 31, 1998, comprising 29.9% of gross loans, of which
0.27% were classified as non-performing. Net charge-offs of this category of
loans represents 0.02% during 1998 and 0.04% during 1997 of the year-end balance
of the category.
Residential real estate loans, which includes home equity and permanent
residential financing, totaled $658.4 million at December 31, 1998, and
represent 26.9% of gross loans of which 0.50% are non-performing. Net
charge-offs of residential real estate loans represent 0.05% of the category
total in 1998 and 0.07% of the year-end balance in 1997.
Installment and consumer loans were $398.3 million at December 31, 1998,
and comprised 16.2% of gross loans, of which 0.45% were non-performing. Net
charge-offs of consumer loans represented 0.63% and 1.67% of the year-end
category total for 1998 and 1997, respectively. Consumer loans are comprised of
direct loans, credit card loans, indirect auto loans, and consumer finance
company loans. Indirect auto loans total $241.1 million at December 31, 1998.
Both direct loans and indirect auto loans are approved and funded through a
centralized department utilizing the same credit scoring system to provide a
standard methodology for the extension of credit.
MARKET AND INTEREST RATE RISK MANAGEMENT
AMCORE's asset and liability management process is utilized to manage
market and interest rate risk through structuring the balance sheet and
off-balance sheet portfolios to maximize net interest income while maintaining
acceptable levels of risk to changes in market interest rates. While achievement
of this goal requires a balance between profitability, liquidity and interest
rate risk, there are opportunities to enhance revenues through controlled risk.
Interest rate sensitivity analysis is performed monthly using various
simulations with an asset/liability modeling system. These analyses, as well as
re-pricing gap reports, are reviewed by Asset and Liability Committees (ALCO) at
affiliate banks and at the corporate level, whose actions attempt to minimize
any negative impact interest rate movements may have on net interest income.
Each ALCO committee reviews the impact of liquidity, loan and deposit pricing
compared to its competition, capital adequacy and rate sensitivity, among other
things, and determines appropriate policy direction to maintain or meet
established ALCO guidelines.
In periods of changing interest rates, net interest income is not only
impacted by the amounts of re-pricing assets and liabilities, but also impacted
by the rate at which re-pricings occur. Net interest income may also be impacted
by variances in prepayment of loans and securities. Table 6 and Footnote 5
summarize AMCORE's market risk and interest sensitivity position as of December
31, 1998.
Management uses off-balance sheet derivative contracts to manage its
exposure to interest rate risk by modifying the existing interest rate risk
characteristics of on-balance sheet assets and liabilities. AMCORE does not have
any derivatives that are held or issued for trading purposes. The derivatives
utilized in the asset/liability management program predominately comprise
interest rate swap and floor contracts. The swap contracts are primarily
utilized to hedge the spread between deposit rates and earning assets with
floating rate characteristics. The floor contracts are utilized to provide
protection in the event of a decline in interest rates.
The swap contracts involve the exchange of fixed and floating interest rate
payments and are based on the notional amount of the contract. The floor
contracts are also based on the notional amount of the contract. These floor
contracts are purchased at a premium, which is amortized over the lives of the
contracts. The notional amount of the swap and floor contracts only identify the
size of the contracts and are used to calculate the interest payment amounts.
The only credit risk exposure AMCORE has is in relation to the counterparties
21
<PAGE> 22
which all have investment grade credit ratings. All counterparties were expected
to meet any outstanding interest payment obligations.
The total notional amount of swap contracts outstanding was $220.0 million
and $270.0 million as of December 31, 1998 and 1997, respectively. As of the end
of 1998, these contracts had an aggregate negative carrying value of $666,000
and a negative fair value of $2.5 million. The total notional amount of floor
contracts outstanding was $150.0 million at December 31,1998, with $145.0
million outstanding floor contracts as of the end of 1997. These contracts had a
net aggregate carrying value of $637,000 and negative fair value of $1.5 million
as of the end of 1998. The total notional amount of cap contracts outstanding
was $145.0 million and $75.0 million as of December 31, 1998 and 1997,
respectively. As of the end of 1998, these contracts had an aggregate carrying
value of $635,000 and a positive fair value of $247,000. For further discussion
of derivative contracts, see Notes 5 and 11 to the Consolidated Financial
Statements.
CAPITAL MANAGEMENT
Total stockholders' equity at December 31, 1998, was $316.1 million, an
increase of $28.6 million or 10.0%. The growth in stockholders' equity is due
principally to retained net earnings and stock issued in conjunction with
business combinations and stock option plans offset by the acquisition of
treasury shares and unrealized losses on available for sale securities.
Stockholders' equity includes accumulated other comprehensive income which is
comprised primarily of an adjustment to fair market value for securities
classified as available for sale. The fair market value of securities with this
classification declined $11.6 million during 1998, to end the year at a net loss
of $3.3 million.
AMCORE paid $15.4 million of cash dividends, which represent $0.54 per
share, or a dividend payout ratio of 38.9%. This compares to $0.45 per share
paid in 1997, which represented a payout ratio of 42.1%. The book value per
share increased $0.28 per share to $10.96 at December 31, 1998, from $10.68 at
December 31, 1997.
On October 21, 1998, AMCORE announced a stock repurchase program for up to
five percent of its common stock or 1.4 million shares. The repurchased shares
will become treasury shares and will be used for general corporate purposes,
including the issuance of shares in connection with AMCORE's stock option and
other employee benefit plans. Through March 1, 1999, 1.1 million shares have
been repurchased at an average price of $23.32.
AMCORE has outstanding $40 million of capital securities through AMCORE
Capital Trust I (Trust), a statutory business trust, of which all common
securities are owned by AMCORE. The capital securities qualify as Tier 1 capital
for regulatory capital purposes.
AMCORE is considered a "well-capitalized" institution based on regulatory
guidelines. AMCORE's leverage ratio of 8.31% at December 31, 1998 exceeds the
regulatory guidelines of 5% for well-capitalized institutions. AMCORE's ratio of
Tier 1 capital at 12.46% and total risk based capital at 13.43% significantly
exceed the regulatory minimums (as the following table indicates), as of
December 31, 1998.
22
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tier 1 Capital.................................... $339,718 12.46% $306,364 13.50%
Tier 1 Capital Minimum............................ 109,039 4.00% 90,775 4.00%
-------- ----- -------- -----
Amount in Excess of Regulatory Minimum............ $230,679 8.46% $215,589 9.50%
======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Total Capital.................................... $ 366,121 13.43% $ 326,271 14.38%
Total Capital Minimum............................ 218,078 8.00% 181,574 8.00%
---------- ----- ---------- -----
Amount in Excess of Regulatory Minimum........... $ 148,043 5.43% $ 144,697 6.38%
========== ===== ========== =====
Risk Adjusted Assets............................. $2,725,981 $2,269,380
========== ==========
</TABLE>
23
<PAGE> 24
TABLE 1
ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Taxable securities......... $1,152,198 $ 76,786 6.66% $1,123,535 $ 77,076 6.86%
Tax-exempt securities(1)... 339,965 26,845 7.90% 312,429 25,071 8.02%
---------- -------- ----- ---------- -------- ------
Total Securities(2)...... $1,492,163 $103,631 6.95% $1,435,964 $102,147 7.11%
Mortgage loans held for
sale(3).................. 30,837 1,886 6.12% 12,871 890 6.91%
Loans(1)(4)................ 2,218,972 193,588 8.66% 1,867,355 164,979 8.77%
Other earnings assets...... 15,210 729 4.73% 10,156 538 5.22%
Fees on mortgage loans held
for sale(3).............. -- 1,037 -- -- 639 --
---------- -------- ----- ---------- -------- ------
Total Interest-Earning
Assets................. $3,757,182 $300,871 7.97% $3,326,346 $269,193 8.06%
Non Interest-Earning
Assets................... 226,418 193,883
---------- ----------
Total Assets........... $3,983,600 $3,520,229
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-Bearing Liabilities:
Interest-bearing demand and
savings deposits......... $ 872,063 $ 25,940 2.97% $ 727,184 $ 20,170 2.77%
Time deposits.............. 1,543,158 90,664 5.88% 1,374,796 80,905 5.88%
---------- -------- ----- ---------- -------- ------
Total interest-bearing
deposits............... $2,415,221 $116,604 4.83% $2,101,980 $101,075 4.81%
Short-term borrowings...... 606,768 34,855 5.68% 677,205 38,998 5.69%
Long-term borrowings....... 278,603 16,668 5.98% 132,533 8,887 6.71%
---------- -------- ----- ---------- -------- ------
Total Interest-Bearing
Liabilities............ $3,300,592 $168,127 5.08% $2,911,718 $148,960 5.10%
Non Interest-Bearing
Liabilities:
Demand deposits............ 314,952 297,443
Other liabilities.......... 55,000 42,072
---------- ----------
Total Liabilities...... $3,670,544 $3,251,233
Stockholders' Equity......... 313,056 268,996
---------- ----------
Total Liabilities and
Stockholders'
Equity............... $3,983,600 $3,520,229
========== ==========
Net Interest Income (FTE).... $132,744 $120,233
======== ========
Net Interest Spread (FTE).... 2.89% 2.96%
===== ======
Interest Rate Margin (FTE)... 3.51% 3.59%
===== ======
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
---------- -------- -------
<S> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Taxable securities......... $ 961,721 $ 62,780 6.53%
Tax-exempt securities(1)... 281,798 23,166 8.22%
---------- -------- -----
Total Securities(2)...... $1,243,519 $ 85,946 6.91%
Mortgage loans held for
sale(3).................. 9,830 809 8.23%
Loans(1)(4)................ 1,711,850 153,322 8.88%
Other earnings assets...... 19,332 1,545 7.86%
Fees on mortgage loans held
for sale(3).............. -- 513 --
---------- -------- -----
Total Interest-Earning
Assets................. $2,984,531 $242,135 8.07%
Non Interest-Earning
Assets................... 197,115
----------
Total Assets........... $3,181,646
==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-Bearing Liabilities:
Interest-bearing demand and
savings deposits......... $ 717,878 $ 18,407 2.56%
Time deposits.............. 1,275,457 74,790 5.86%
---------- -------- -----
Total interest-bearing
deposits............... $1,993,335 $ 93,197 4.66%
Short-term borrowings...... 468,894 26,044 5.47%
Long-term borrowings....... 159,504 9,661 6.06%
---------- -------- -----
Total Interest-Bearing
Liabilities............ $2,621,733 $128,902 4.89%
Non Interest-Bearing
Liabilities:
Demand deposits............ 280,856
Other liabilities.......... 36,400
----------
Total Liabilities...... $2,938,989
Stockholders' Equity......... 242,657
----------
Total Liabilities and
Stockholders'
Equity............... $3,181,646
==========
Net Interest Income (FTE).... $113,233
========
Net Interest Spread (FTE).... 3.18%
=====
Interest Rate Margin (FTE)... 3.77%
=====
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1998/ DECEMBER 31, 1997/
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------- -----------------------------------
INCREASE DUE TO INCREASE DUE TO
(DECREASE) CHANGE IN TOTAL NET (DECREASE) CHANGE IN TOTAL NET
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
---------- --------- ---------- ---------- --------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable securities............. $ 1,075 $(1,365) $ (290) $11,542 $ 2,754 $14,296
Tax-exempt securities(1)....... 3,609 (1,835) 1,774 2,478 (573) 1,905
------- ------- ------- ------- ------- -------
Total Securities(2)......... 4,684 (3,200) 1,484 14,020 2,181 16,201
Mortgage loans held for sale... 1,109 (113) 996 224 (143) 81
Loans(1)(4).................... 30,168 (1,558) 28,610 13,587 (1,930) 11,657
Other earning assets........... 246 (56) 190 (587) (420) (1,007)
Fees on mortgage loans held for
sale(3)..................... 11 387 398 9 117 126
------- ------- ------- ------- ------- -------
Total Interest-Earning
Assets...................... $34,844 $(3,166) $31,678 $27,925 $ (867) $27,058
======= ======= ======= ======= ======= =======
Interest Expense:
Interest-bearing demand and
savings deposits............ $ 4,232 $ 1,538 $ 5,770 $ 242 $ 1,521 $ 1,763
Time deposits.................. 9,892 (133) 9,759 5,845 270 6,115
------- ------- ------- ------- ------- -------
Total interest-bearing
deposits.................. 15,331 198 15,529 5,238 2,640 7,878
Short-term borrowings.......... (4,081) (62) (4,143) 11,968 986 12,954
Long-term borrowings........... 8,833 (1,052) 7,781 (1,741) 967 (774)
------- ------- ------- ------- ------- -------
Total Interest-Bearing
Liabilities................. $20,083 $ (916) $19,167 $15,465 $ 4,593 $20,058
======= ======= ======= ======= ======= =======
Net Interest Margin/Net
Interest Income (FTE)....... $14,761 $(2,250) $12,511 $12,460 $(5,460) $ 7,000
======= ======= ======= ======= ======= =======
</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 balances of the investments are based on amortized historical
cost.
(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.
25
<PAGE> 26
TABLE 2
ANALYSIS OF LOAN AND LEASE PORTFOLIO AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural...................... $ 659,946 $ 538,259 $ 483,300 $ 462,453 $ 418,718
Real estate................................................. 1,284,764 1,059,830 930,602 833,544 749,169
Real estate-construction.................................... 105,574 60,624 53,039 44,134 34,265
Installment and consumer.................................... 398,318 301,163 339,319 283,426 288,016
Direct lease financing...................................... 3,127 3,172 2,066 1,117 760
---------- ---------- ---------- ---------- ----------
Gross Loans................................................ $2,451,729 $1,963,048 $1,808,326 $1,624,674 $1,490,928
Unearned income............................................ (211) (374) (1,205) (4,309) (9,431)
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income.............................. $2,451,518 $1,962,674 $1,807,121 $1,620,365 $1,481,497
Allowance for loan and lease losses........................ (26,403) (19,908) (19,295) (17,107) (17,246)
---------- ---------- ---------- ---------- ----------
NET LOANS................................................... $2,425,115 $1,942,766 $1,787,826 $1,603,258 $1,464,251
========== ========== ========== ========== ==========
SUMMARY OF LOAN LOSS EXPERIENCE:
Allowance for loan and lease losses, beginning.............. $ 19,908 $ 19,295 $ 17,107 $ 17,246 $ 17,870
Allowance for loan and lease losses acquired through
merger..................................................... 2,146 -- -- -- --
Amounts charged-off:
Commercial, financial and agricultural..................... 1,395 1,202 537 1,204 1,231
Real estate................................................ 480 555 273 1,030 283
Installment and consumer................................... 3,189 6,020 3,831 2,329 2,146
Direct lease financing..................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Charge-offs........................................ $ 5,064 $ 7,777 $ 4,641 $ 4,563 $ 3,660
---------- ---------- ---------- ---------- ----------
Recoveries on amounts previously charged off:
Commercial, financial and agricultural..................... 678 356 301 533 543
Real estate................................................ 47 63 281 15 60
Installment and consumer................................... 695 926 819 711 682
Direct lease financing..................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Recoveries......................................... $ 1,420 $ 1,345 $ 1,401 $ 1,259 $ 1,285
========== ========== ========== ========== ==========
Net Charge-offs............................................. $ 3,644 $ 6,432 $ 3,240 $ 3,304 $ 2,375
Provision charged to expense................................ 7,993 7,045 5,428 3,165 1,751
---------- ---------- ---------- ---------- ----------
ALLOWANCE FOR LOAN AND LEASE LOSSES, ENDING.............. $ 26,403 $ 19,908 $ 19,295 $ 17,107 $ 17,246
========== ========== ========== ========== ==========
NON-PERFORMING LOANS AT YEAR-END:
Non-accrual................................................. $ 18,179 $ 19,491 $ 12,019 $ 11,410 $ 11,262
Restructured................................................ -- 377 283 2,491 2,296
---------- ---------- ---------- ---------- ----------
TOTAL NON-PERFORMING LOANS............................... $ 18,179 $ 19,868 $ 12,302 $ 13,901 $ 13,558
========== ========== ========== ========== ==========
Past due 90 days or more not included above................. $ 7,272 $ 3,386 $ 3,692 $ 1,534 $ 1,088
========== ========== ========== ========== ==========
RATIOS:
Allowance for loan and lease losses to year-end loans....... 1.08% 1.01% 1.07% 1.06% 1.16%
Allowance to non-performing loans........................... 145.24% 100.20% 156.84% 123.06% 127.20%
Net charge-offs to average loans............................ 0.16% 0.34% 0.19% 0.21% 0.17%
Recoveries to charge-offs................................... 28.04% 17.29% 30.19% 27.59% 35.11%
Non-performing loans to loans, net of unearned income....... 0.74% 1.01% 0.68% 0.86% 0.92%
</TABLE>
The allocation of the allowance for loan and lease losses at December 31,
1998, 1997, 1996, 1995, and 1994 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
-------------------- -------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
------- ---------- ------- ---------- ------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural..... $ 6,845 27.1 $ 5,617 27.6 $ 5,293 26.9 $ 5,888 28.6
Real estate............ 1,884 56.7 1,697 57.1 2,307 54.4 2,079 54.2
Installment and
consumer............. 4,512 16.2 4,207 15.3 4,019 18.7 3,075 17.2
Impaired loans......... 3,854 * 2,311 * 1,496 * 1,185 *
Unallocated............ 9,308 * 6,076 * 6,180 * 4,880 *
------- ----- ------- ----- ------- ----- ------- -----
TOTAL................ $26,403 100.0 $19,908 100.0 $19,295 100.0 $17,107 100.0
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
1994
--------------------
PERCENT OF
LOANS IN
AMOUNT CATEGORY
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial
and agricultural..... $ 4,912 28.3
Real estate............ 2,214 52.9
Installment and
consumer............. 3,275 18.8
Impaired loans......... * *
Unallocated............ 6,845 *
------- -----
TOTAL................ $17,246 100.0
======= =====
</TABLE>
- ------------------
* Not applicable
26
<PAGE> 27
TABLE 3
MATURITY AND INTEREST SENSITIVITY OF LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
LOANS DUE AFTER
TIME REMAINING TO MATURITY ONE YEAR
-------------------------------- -------------------
ONE AFTER FIXED FLOATING
DUE WITHIN TO FIVE FIVE INTEREST INTEREST
ONE YEAR YEARS YEARS TOTAL RATE RATE
---------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.................. $364,170 $248,542 $ 47,234 $659,946 $220,080 $ 75,696
Real estate-construction................................ 54,950 48,478 2,146 105,574 44,691 5,933
-------- -------- -------- -------- -------- --------
TOTAL................................................. $419,120 $297,020 $ 49,380 $765,520 $264,771 $ 81,629
======== ======== ======== ======== ======== ========
</TABLE>
TABLE 4
MATURITY OF SECURITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. STATES AND CORPORATE
GOVERNMENT POLITICAL OBLIGATIONS
U.S. TREASURY AGENCIES SUBDIVISIONS(1) AND OTHER TOTAL
--------------- ---------------- ---------------- ---------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available for
Sale(3):
One year or less.......... $19,114 6.01% $ 7,982 6.17% $ 16,573 8.50% $ 18,812 5.58% $ 62,481 6.55%
After one through five
years................... 48,345 5.94% 42,755 6.38% 76,403 7.59% 458 6.33% 167,961 6.80%
After five through ten
years................... -- -- 9,929 7.52% 86,283 7.82% -- -- 96,212 7.78%
After ten years........... -- -- 22,847 7.27% 143,972 8.07% 28,173 5.81% 194,992 7.64%
Mortgage-backed securities
(2)..................... -- -- 709,843 6.39% -- -- 96,043 7.04% 805,886 6.47%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES
AVAILABLE FOR SALE.... $67,459 5.96% $793,356 6.43% $323,231 7.91% $143,486 6.61% $1,327,532 6.77%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
Securities Held to
Maturity:
One year or less.......... $ 549 5.88% $ -- -- $ 1,951 7.48% $ -- -- $ 2,500 7.13%
After one through five
years................... 504 5.87% -- -- 9,306 7.34% 1 7.38% 9,811 7.26%
After five through ten
years................... -- -- -- -- 1,954 7.85% -- -- 1,954 7.85%
After ten years........... -- -- 27 8.25% 1,850 7.58% -- -- 1,877 7.59%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES HELD TO
MATURITY.............. $ 1,053 5.88% $ 27 8.25% $ 15,061 7.45% $ 1 7.38% $ 16,142 7.35%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES........ $68,512 5.96% $793,383 6.43% $338,292 7.89% $143,487 6.61% $1,343,674 6.78%
======= ==== ======== ==== ======== ==== ======== ==== ========== ====
</TABLE>
- ------------------
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) Mortgage-backed security maturities may differ from contractual maturities
because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included within the maturity
categories above.
(3) Yields were calculated excluding the effects of FAS No. 115.
TABLE 5
MATURITY OF TIME DEPOSITS $100,000 OR MORE
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TIME REMAINING TO MATURITY
--------------------------------------------------------------------
DUE WITHIN THREE TO SIX TO TWELVE AFTER TWELVE
THREE MONTHS SIX MONTHS MONTHS MONTHS TOTAL
------------ ---------- ------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit.......................... $145,015 $140,301 $110,777 $220,449 $616,542
Other time deposits.............................. 551 3,381 5,400 7,318 16,650
-------- -------- -------- -------- --------
TOTAL.......................................... $145,566 $143,682 $116,177 $227,767 $633,192
======== ======== ======== ======== ========
</TABLE>
27
<PAGE> 28
TABLE 6
INTEREST RATE SENSITIVITY
The following table provides information about the Company's derivative
financial instruments and other financial instruments used for purposes other
than trading that are sensitive to changes in interest rates. For loans,
securities, and liabilities with contractual maturities, the table presents
principal cash flows and related weighted-average interest rates by contractual
maturities as well as the Company's historical experience of the impact of
interest-rate fluctuations on the pre-payment of residential and home equity
loans and mortgage-backed securities.
For core deposits (DDA, interest checking, savings, and money market
deposits) that have no contractual maturity, the table presents principal cash
flows and, as applicable, related weighted-average interest rates based on the
Company's historical experience, management's judgment, and statistical
analysis, as applicable, concerning their most likely withdrawal behaviors.
For interest rate swaps, caps and floors, the table presents notional
amounts and, if applicable, weighted-average interest rates by contractual
maturity date or call date. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts.
Weighted-average variable rates are based on the implied forward rates in
the yield curve at the reporting date. See Note 5 for the fair value of the
financial instruments.
<TABLE>
<CAPTION>
THERE-
AT DECEMBER 31, 1998: 1999 2000 2001 2002 2003 AFTER TOTAL
- --------------------- ---------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed Interest Rate Loans............. $ 588,990 $365,262 $342,241 $168,894 $181,485 $104,457 $1,751,329
Average Interest Rate............... 8.49% 8.42% 8.42% 8.33% 8.02% 8.18% 8.38%
Variable Interest Rate Loans.......... 331,862 72,287 41,460 26,780 16,979 210,821 700,189
Average Interest Rate............... 8.44% 7.80% 7.99% 7.98% 8.38% 7.95% 8.18%
Fixed Interest Rate Securities........ 284,444 197,999 141,469 105,791 91,873 386,091 1,207,668
Average Interest Rate............... 6.05% 6.03% 6.06% 5.96% 5.96% 5.57% 5.88%
Variable Interest Rate Securities..... 14,802 14,467 12,727 11,586 10,517 71,907 136,006
Average Interest Rate............... 6.48% 6.55% 6.58% 6.57% 6.63% 6.61% 6.59%
Other Interest-Bearing Assets......... 22,824 -- -- -- -- -- 22,824
Average Interest Rate............... 4.37% -- -- -- -- -- 4.37%
RATE SENSITIVE LIABILITIES:
Non-Interest-bearing checking......... $ 34,600 $ -- $181,866 $ -- $ 96,103 $ 25,141 $ 337,710
Average Interest Rate............... -- -- -- -- -- -- --
Savings & Interest-bearing checking... 354,023 -- 484,616 -- 87,908 87,908 1,014,455
Average Interest Rate............... 3.65% -- 2.69% -- 1.73% 1.73% 2.86%
Time-deposits......................... 1,024,813 325,310 124,243 34,470 45,963 40,760 1,595,559
Average Interest Rate............... 5.57% 5.75% 5.44% 5.87% 5.53% 7.37% 5.65%
Fixed Interest Rate Borrowings........ 276,628 177,057 835 58,817 7,083 137,494 657,914
Average Interest Rate............... 5.43% 5.45% 7.26% 5.32% 5.20% 6.34% 5.61%
Variable Interest Rate Borrowings..... 123,657 -- 5,000 -- -- 42,000 170,658
Average Interest Rate............... 4.93% -- 5.24% -- -- 5.13% 4.99%
RATE SENSITIVE DERIVATIVES:
Pay variable/received fixed swap...... $ 40,000 $ -- $ -- $ -- $ -- $ -- $ 40,000
Average pay rate.................... 5.15% -- -- -- -- -- 5.15%
Average receive rate................ 6.97% -- -- -- -- -- 6.97%
Pay fixed/received variable........... 25,000 25,000 130,000 -- -- -- 180,000
Average pay rate.................... 5.25% 8.52% 7.88% -- -- -- 7.60%
Average receive rate................ 5.59% 7.75% 7.11% -- -- -- 6.99%
Interest rate caps.................... 25,000 15,000 72,000 33,000 -- -- 145,000
Average strike rate................. 6.31% 6.31% 6.02% 5.93% -- -- 6.08%
Forward rate........................ 5.10% 5.09% 5.16% 5.21% -- -- 5.15%
Interest rate floors.................. 50,000 15,000 75,000 10,000 -- -- 150,000
Average strike rate................. 5.31% 5.61% 5.54% 5.61% -- -- 5.47%
Forward rate........................ 5.10% 5.09% 5.16% 5.20% -- -- 5.14%
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
THERE-
AT DECEMBER 31, 1997: 1998 1999 2000 2001 2002 AFTER TOTAL
- --------------------- ---------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed Interest Rate Loans............. $ 434,967 $307,976 $255,384 $114,198 $121,098 $ 92,702 $1,326,324
Average Interest Rate............... 8.76% 8.60% 8.68% 8.54% 8.61% 8.08% 8.63%
Variable Interest Rate Loans.......... 338,456 76,069 64,133 46,503 55,429 55,762 636,350
Average Interest Rate............... 9.02% 8.48% 8.45% 8.53% 8.26% 8.79% 8.77%
Fixed Interest Rate Securities........ 319,217 165,616 150,868 118,303 92,543 531,512 1,378,060
Average Interest Rate............... 6.75% 6.92% 6.78% 6.72% 6.65% 6.47% 6.66%
Variable Interest Rate Securities..... 28,564 3,488 3,934 3,824 4,341 34,805 78,956
Average Interest Rate............... 7.21% 7.80% 7.64% 7.58% 7.46% 7.44% 7.39%
Other Interest-Bearing Assets......... 2,839 -- -- -- -- -- 2,839
Average Interest Rate............... 5.73% -- -- -- -- -- 5.73%
RATE SENSITIVE LIABILITIES:
Non-Interest-bearing checking......... $ 111,194 $ -- $140,039 $ -- $ 74,561 $ 18,800 $ 344,594
Average Interest Rate............... -- -- -- -- -- -- --
Savings & Interest-bearing checking... 216,095 -- 374,513 -- 75,817 75,817 742,242
Average Interest Rate............... 3.66% -- 2.78% -- 1.93% 1.93% 2.84%
Time-deposits......................... 809,088 422,164 138,527 13,321 17,021 40,087 1,440,207
Average Interest Rate............... 5.70% 6.05% 6.33% 6.01% 6.11% 6.96% 5.91%
Fixed Interest Rate Borrowings........ 356,830 91,272 87,501 530 55,003 43,145 634,281
Average Interest Rate............... 5.89% 6.01% 5.83% 7.78% 5.26% 9.15% 6.07%
Variable Interest Rate Borrowings..... 124,352 48,000 -- -- -- -- 172,353
Average Interest Rate............... 5.87% 5.86% -- -- -- -- 5.86%
RATE SENSITIVE DERIVATIVES:
Pay variable/received fixed swap...... $ -- $ 40,000 $ -- $ -- $ -- $ -- $ 40,000
Average pay rate.................... -- 5.64% -- -- -- -- 5.64%
Average receive rate................ -- 6.97% -- -- -- -- 6.97%
Pay fixed/received variable........... 50,000 30,000 25,000 125,000 -- -- 230,000
Average pay rate.................... 5.96% 5.80% 8.52% 7.51% -- -- 7.06%
Average receive rate................ 5.74% 6.18% 8.50% 7.72% -- -- 7.17%
Interest rate caps.................... -- 25,000 15,000 25,000 10,000 -- 75,000
Average strike rate................. -- 6.31% 6.31% 6.31% 6.31% -- 6.31%
Forward rate........................ -- 5.98% 6.04% 6.07% 6.11% -- 6.04%
Interest rate floors.................. -- 50,000 40,000 25,000 30,000 -- 145,000
Average strike rate................. -- 5.43% 5.13% 5.61% 5.20% -- 5.33%
Forward rate........................ -- 5.98% 6.04% 6.07% 6.11% -- 6.04%
</TABLE>
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 144,199 $ 105,218
Interest earning deposits in banks.................................... 13,397 2,206
Federal funds sold and other short-term investments................... 9,427 633
Loans and leases held for sale........................................ 46,836 29,869
Securities available for sale......................................... 1,327,532 1,441,593
Securities held to maturity (fair value of $16,371 in 1998; $15,611 in
1997).............................................................. 16,142 15,423
---------- ----------
Total securities................................................... $1,343,674 $1,457,016
Loans and leases, net of unearned income.............................. 2,451,518 1,962,674
Allowance for loan and lease losses................................... (26,403) (19,908)
---------- ----------
Net loans and leases............................................... $2,425,115 $1,942,766
Premises and equipment, net........................................... 58,763 54,774
Intangible assets, net................................................ 19,028 12,168
Foreclosed real estate................................................ 2,321 1,668
Other assets.......................................................... 85,073 61,372
---------- ----------
TOTAL ASSETS....................................................... $4,147,833 $3,667,690
========== ==========
LIABILITIES
Deposits:
Demand deposits.................................................... $1,169,835 $ 915,954
Savings deposits................................................... 182,330 170,882
Other time deposits................................................ 1,595,559 1,440,207
---------- ----------
Total deposits................................................... $2,947,724 $2,527,043
Short-term borrowings.............................................. 498,211 647,509
Long-term borrowings............................................... 330,361 159,125
Other liabilities.................................................. 55,454 46,537
---------- ----------
TOTAL LIABILITIES.................................................. $3,831,750 $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:
1998 1997
---------- ----------------------------------
Issued 29,593,495 27,681,138
Outstanding 28,837,698 26,922,604 6,572 6,152
Additional paid-in capital............................................ 75,260 73,262
Retained earnings..................................................... 247,486 206,235
Deferred compensation non-employee directors.......................... (1,706) (1,478)
Treasury stock........................................................ (8,263) (5,069)
Accumulated other comprehensive income................................ (3,266) 8,374
---------- ----------
TOTAL STOCKHOLDERS' EQUITY......................................... $ 316,083 $ 287,476
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $4,147,833 $3,667,690
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases............... $192,974 $164,520 $152,974
Interest on securities:
Taxable.......................................... 76,786 77,076 62,780
Tax-exempt....................................... 17,449 16,296 15,058
-------- -------- --------
Total Income from Securities................... $ 94,235 $ 93,372 $ 77,838
Interest on federal funds sold and other short-term
investments...................................... 364 448 1,477
Interest and fees on loans held for sale............ 2,923 1,529 1,322
Interest on deposits in banks....................... 365 90 68
-------- -------- --------
TOTAL INTEREST INCOME.......................... $290,861 $259,959 $233,679
INTEREST EXPENSE
Interest on deposits................................ $116,604 $101,075 $ 93,197
Interest on short-term borrowings................... 34,855 38,998 26,044
Interest on long-term borrowings.................... 16,668 8,887 9,661
-------- -------- --------
Total Interest Expense........................... $168,127 $148,960 $128,902
-------- -------- --------
NET INTEREST INCOME.............................. $122,734 $110,999 $104,777
Provision for loan and lease losses................. 7,993 7,045 5,428
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES..................................... $114,741 $103,954 $ 99,349
NON-INTEREST INCOME
Trust and asset management income................... $ 23,721 $ 16,451 $ 14,100
Service charges on deposits......................... 8,831 7,837 7,686
Mortgage revenues................................... 10,560 5,827 6,006
Insurance revenues.................................. 1,875 1,584 2,025
Collection fee income............................... -- 2,105 2,145
Other............................................... 9,334 10,599 9,595
-------- -------- --------
TOTAL NON-INTEREST INCOME, EXCLUDING NET REALIZED
SECURITY GAINS................................. $ 54,321 $ 44,403 $ 41,557
Net realized security gains......................... 4,427 4,198 1,871
-------- -------- --------
TOTAL NON-INTEREST INCOME........................ $ 58,748 $ 48,601 $ 43,428
OPERATING EXPENSES
Compensation expense................................ $ 51,469 $ 47,199 $ 43,715
Employee benefits................................... 12,964 11,659 12,346
Net occupancy expense............................... 6,750 6,490 6,596
Equipment expense 7,895 10,816 8,454
Data processing expense............................. 5,339 2,654 1,143
Professional fees................................... 5,723 6,366 3,150
Advertising and business development................ 3,771 2,827 2,662
Amortization of intangible assets................... 2,536 2,212 2,219
Impairment on loans held for sale................... -- 4,955 --
Other............................................... 23,147 19,795 18,455
-------- -------- --------
TOTAL OPERATING EXPENSES......................... $119,594 $114,973 $ 98,740
-------- -------- --------
INCOME BEFORE INCOME TAXES.......................... $ 53,895 $ 37,582 $ 44,037
Income taxes.......................................... 14,314 8,918 12,161
-------- -------- --------
NET INCOME.......................................... $ 39,581 $ 28,664 $ 31,876
======== ======== ========
Basic Earnings Per Common Share..................... $ 1.39 $ 1.07 $ 1.20
Diluted Earnings Per Common Share................... 1.36 1.05 1.18
Dividends Per Common Share.......................... 0.54 0.45 0.38
Average Common Shares Outstanding................... 28,515 26,862 26,649
Average Diluted Shares Outstanding.................. 29,098 27,405 26,987
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
ADDITIONAL COMPENSATION OTHER TOTAL
COMMON PAID-IN RETAINED NON-EMPLOYEE TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS DIRECTORS STOCK INCOME EQUITY
------ ---------- -------- ------------ -------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........... $6,127 $67,950 $169,648 $(1,307) $(6,420) $ 6,126 $242,124
------ ------- -------- ------- ------- ------- --------
Comprehensive Income:
Net Income............................ -- -- 31,876 -- -- -- 31,876
Unrealized holding losses on
securities available for sale
arising during the period........... -- -- -- -- (6,959) (6,959)
Less reclassification adjustment for
realized gains included in net
income.............................. -- -- -- -- (1,123) (1,123)
------ ------- -------- ------- ------- ------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- (8,082) (8,082)
Comprehensive Income................... -- -- 31,876 -- -- (8,082) 23,794
------ ------- -------- ------- ------- ------- --------
Cash dividends on common stock -- $.38
per share........................... -- -- (10,039) -- -- -- (10,039)
Reissuance of 39,556 treasury shares
for Non-Employee Directors stock
plan................................ -- 205 -- (542) 337 -- --
Deferred compensation expense......... -- (331) -- 467 -- -- 136
Reissuance of 61,436 treasury shares
for employee incentive plan......... -- (30) -- -- 401 -- 371
Issuance of 31,159 common shares for
employee incentive plan............. 7 183 -- -- -- -- 190
Reissuance of 98,135 treasury shares
under incentive stock option
plans............................... -- 70 -- -- 774 -- 844
------ ------- -------- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1996........... $6,134 $68,047 $191,485 $(1,382) $(4,908) $(1,956) $257,420
====== ======= ======== ======= ======= ======= ========
Comprehensive Income:
Net income............................ -- -- 28,664 -- -- -- 28,664
Unrealized holding gains on securities
available for sale arising during
the period.......................... -- -- -- -- -- 12,849 12,849
Less reclassification adjustment for
realized gains included in net
income.............................. -- -- -- -- (2,519) (2,519)
------ ------- -------- ------- ------- ------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- 10,330 10,330
------ ------- -------- ------- ------- ------- --------
Comprehensive Income................... -- -- 28,664 -- -- 10,330 38,994
------ ------- -------- ------- ------- ------- --------
Cash dividends on common stock -- $.45
per share........................... -- -- (12,130) -- -- -- (12,130)
Purchase of AMCORE Bank Belleville
minority interest................... -- 1,768 (1,784) -- -- -- (16)
Purchase of 53,000 shares for the
treasury............................ -- -- -- -- (1,327) -- (1,327)
Three-for-two stock split fractional
share payments...................... -- (18) -- -- -- -- (18)
Reissuance of 18,486 treasury shares
for Non-Employee Directors stock
plan................................ -- 244 -- (356) 112 -- --
Issuance of 16,377 common shares for
directors stock plan................ 4 106 (110) --
Deferred compensation expense......... -- -- -- 370 -- -- 370
Reissuance of 264,600 treasury shares
under incentive stock option
plans............................... -- 2,678 -- -- 1,035 -- 3,713
Reissuance of 2,457 treasury shares
for employee incentive plan......... -- 21 -- -- 19 -- 40
Issuance of 63,743 common shares for
employee incentive plan............. 14 416 -- -- -- -- 430
------ ------- -------- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997........... $6,152 $73,262 $206,235 $(1,478) $(5,069) $ 8,374 $287,476
====== ======= ======== ======= ======= ======= ========
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
ADDITIONAL COMPENSATION OTHER TOTAL
COMMON PAID-IN RETAINED NON-EMPLOYEE TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS DIRECTORS STOCK INCOME EQUITY
------ ---------- -------- ------------ -------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive Income:
Net income............................ -- -- 39,581 -- -- -- 39,581
Unrealized holding losses on
securities available for sale
arising during the period........... -- -- -- -- (9,162) (9,162)
Less reclassification adjustment for
realized gains included in net
income.............................. -- -- -- -- (2,656) (2,656)
------ ------- -------- ------- ------- ------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- (11,818) (11,818)
------ ------- -------- ------- ------- ------- --------
Comprehensive Income................... -- -- 39,581 -- -- (11,818) 27,763
------ ------- -------- ------- ------- ------- --------
Cash dividends on common stock -- $.54
per share........................... -- -- (15,404) -- -- -- (15,404)
Issuance of 1,912,357 common shares
for Midwest Federal Financial
Corp................................ 420 2,314 17,074 -- -- 178 19,986
Reissuance of 340,471 treasury shares
for Investors Management Group...... -- 578 -- -- 7,944 -- 8,522
Purchase of 826,980 shares for the
treasury............................ -- -- -- -- (19,745) -- (19,745)
Reissuance of 27,174 treasury shares
for Non-Employee Directors stock
plan................................ -- 290 -- (692) 402 -- --
Deferred compensation expense......... -- -- -- 464 -- -- 464
Reissuance of 460,004 treasury shares
under incentive stock option
plans............................... -- (1,366) -- -- 8,165 -- 6,799
Reissuance of 2,105 treasury shares for
employee incentive plans.............. -- -- -- -- 41 -- 41
Repayment of ESOP loan, 37 shares
returned to treasury.................. -- 182 -- -- (1) -- 181
------ ------- -------- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1998........... $6,572 $75,260 $247,486 $(1,706) $(8,263) $(3,266) $316,083
====== ======= ======== ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 39,581 $ 28,664 $ 31,876
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of premises and equipment... 6,854 5,391 6,100
Amortization and accretion of securities, net............. 10,252 2,081 3,397
Provision for loan and lease losses....................... 7,993 7,045 5,428
Amortization of intangible assets......................... 2,536 2,212 2,219
Net gain on sale of securities available for sale......... (4,427) (4,198) (1,871)
Fair value adjustment on loans held for sale.............. -- 4,955 --
Impairment of long-lived assets........................... -- 2,081 --
Deferred income taxes..................................... (1,154) (3,817) (132)
Originations of loans held for sale....................... (478,921) (217,020) (196,798)
Proceeds from sales of loans held for sale................ 463,811 208,896 201,391
Other, net................................................ 7,711 (397) 1,060
--------- --------- ---------
Net cash provided by operating activities............. $ 54,236 $ 35,893 $ 52,670
========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale... $ 487,143 $ 205,772 $ 199,496
Proceeds from maturities of securities held to maturity..... 2,425 9,982 7,874
Proceeds from sales of securities available for sale........ 405,906 487,813 191,289
Purchase of securities held to maturity..................... (4,411) (14,197) (13,967)
Purchase of securities available for sale................... (777,576) (857,278) (653,333)
Net (increase) decrease in federal funds sold and other
short-term investments.................................... (8,794) 24,398 (4,100)
Net increase in interest earning deposits in banks.......... (11,186) (1,373) (429)
Proceeds from the sale of credit card receivables........... 5,815 15,457 --
Proceeds from the sale of merchant bankcard processing...... -- -- 1,400
Proceeds from the sale of consumer finance loans and
leases.................................................... 6,047 1,798 5,997
Loans made to customers and principal collection of loans,
net....................................................... (335,458) (194,449) (197,165)
Proceeds from sale of collection agency..................... -- 700 --
Premises and equipment expenditures, net.................... (6,515) (6,164) (3,374)
Investment in company owned life insurance.................. (10,798) (1,816) --
Proceeds from the sale of other real estate................. 2,294 1,259 2,529
Net cash and cash equivalents acquired through
acquisitions.............................................. 5,763 -- --
--------- --------- ---------
Net cash used for investing activities................ $(239,345) $(328,098) $(463,783)
========= ========= =========
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits and savings accounts........ $ 191,183 $ 53,143 $ 25,858
Net increase in time deposits............................... 65,897 122,410 116,794
Net (decrease) increase in short-term borrowings............ (178,948) 29,175 199,836
Proceeds from long-term borrowings.......................... 174,800 111,872 72,500
Payment of long-term borrowings............................. (533) (15,250) (7,335)
Dividends paid.............................................. (15,404) (12,130) (10,039)
Issuance of common stock for employee incentive plans....... -- 430 --
Issuance of treasury stock for employee incentive plans..... 6,840 3,753 1,239
Purchase of treasury stock.................................. (19,745) (1,327) --
--------- --------- ---------
Net cash provided by financing activities............. $ 224,090 $ 292,076 $ 398,853
--------- --------- ---------
Net change in cash and cash equivalents..................... $ 38,981 $ (129) $ (12,260)
Cash and cash equivalents:
Beginning of year......................................... 105,218 105,347 117,607
--------- --------- ---------
End of period............................................. $ 144,199 $ 105,218 $ 105,347
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors............................... $ 115,003 $ 99,002 $ 90,448
Interest paid on borrowings............................... 52,517 46,282 33,663
Income taxes paid......................................... 14,425 11,616 12,865
NON-CASH INVESTING AND FINANCING
Other real estate acquired in settlement of loans........... 3,308 2,147 1,192
Transfer of securities held to maturity to available for
sale...................................................... -- 31,018 --
Transfer of short-term investments to securities available
for sale.................................................. -- 1,230 --
Transfer of loans and leases to loans held for sale......... -- 14,970 --
Transfer of long-term borrowings to short-term borrowings... 28,150 69,253 --
Common stock issued for Midwest Federal Financial Corp...... 19,986 -- --
Common stock issued for Investors Management Group, Ltd..... 8,522 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of AMCORE Financial, Inc. and
subsidiaries (Company) conform to generally accepted accounting principles. The
preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ from those estimates. The following is a
summary of the more significant accounting policies of the Company.
DESCRIPTION OF THE BUSINESS
The Company is a multi-bank holding company headquartered in Rockford,
Illinois, and conducts its principal business activities with businesses and
individuals located within northern Illinois and south-central Wisconsin. The
primary business of the Company is the extension of credit and the collection of
deposits with commercial and financial, agricultural, real estate and consumer
loan customers throughout northern Illinois and south-central Wisconsin.
Although the Company has a diversified loan portfolio, adverse changes in the
local economy would have a direct impact on the credit risk in the portfolio.
The Company also offers a variety of financial services through its
financial services subsidiaries. These include mortgage banking, personal and
employee benefit trust administration for individuals, estates and corporations,
consumer finance, investment management, brokerage, insurance, debt collection
services and the reinsurance of credit life and accident and health insurance in
conjunction with the lending activities of the Company's bank subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Financial information for 1996 has been
restated to reflect the pooling of interests mergers that took place during 1997
as explained in Note 2.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash on hand,
amounts due from banks, and cash items in process of clearing to be cash and
cash equivalents. Cash flows for fed funds sold and other short-term
investments, interest earning deposits in banks, loans, demand deposits and
savings accounts, time deposits and short-term borrowings are reported net.
LOANS AND LEASES HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
recorded at the lower of cost or fair value in the aggregate. Gains and losses
on the sale of mortgage loans are included in other non-interest income.
The portfolio of satellite dish loans was transferred to loans held for
sale in 1997 in anticipation of the sale of these loans. The transfer of these
loans resulted in a $5 million impairment recorded in operating expenses for
1997. The loans were subsequently sold on January 28, 1998.
SECURITIES
Securities are classified into three categories: held to maturity,
available for sale and trading. Securities for which the Company has the ability
and the intent to hold to maturity are classified as held to maturity and are
reported at amortized cost. Securities held for resale are classified as trading
securities and are reported at fair value with unrealized gains and losses
recorded in earnings. Securities, which are neither held to maturity
35
<PAGE> 36
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nor trading, are classified as available for sale and are reported at fair
value. The level yield method is used for the amortization and accretion of
premiums and discounts. The cost of securities sold is determined on a specific
identification method. There were no trading securities outstanding at December
31, 1998 and 1997.
When it is determined that securities are impaired and the impairment is
other than temporary, an impairment loss is recorded in earnings and a new cost
basis is established for the security.
Upon completion of the merger of First National Bancorp, Inc. (FNB) on
April 18, 1997, approximately $31,018,000 of FNB's securities classified as held
to maturity were reclassified into the available for sale category. This
transfer was done in order to maintain the Company's existing interest rate
position.
LOANS AND LEASES
Loans and leases are carried at their principal amount outstanding plus any
unamortized net deferred origination costs or less any unamortized net deferred
origination fees less unearned income. Interest on commercial, real estate, and
certain installment and consumer loans is accrued and recognized as income based
upon the outstanding principal amount and the contractual interest rate of each
loan. Unearned interest on discounted installment loans has been recognized as
income using methods which approximate level rates of return over the terms of
the loans. Loan origination fees and certain direct origination costs on loans
retained in the portfolio are deferred and amortized over the expected life of
each loan as an adjustment of the related loan's yield. Certain financing leases
are originated and sold with limited recourse. A liability is recorded for the
estimated amount of recourse due to uncollectible leases and is a component of
the gain or loss recognized on sale.
Loans measured for impairment include commercial, financial, agricultural,
real estate commercial and real estate construction loans. Loans are considered
impaired when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Impairment is measured based on the present value
of expected future cash flows, or alternatively, the observable market price of
the loans or the fair value of the collateral. However, for those loans that are
collateral-dependent, and for which management has determined foreclosure is
probable, the measure of impairment is based on the fair value of the
collateral.
The accrual of interest income for impaired loans is discontinued when
management believes, after considering collection efforts and other factors that
the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans reduce the principal balance, and
no interest income is recognized until the remaining principal balance is fully
collectible. An impaired loan is returned to accrual status when management
determines that the borrower's financial condition has improved such that both
the remaining principal and interest are deemed collectible. In the event that
it is determined that collection of an impaired loan is remote, the loan is
charged-off.
The Company considers consumer loans and residential real estate loans to
be smaller balance, homogeneous loans which are exempt from impairment
measurement. These types of loans, except for credit card and consumer finance
receivables, are placed on non-accrual when payment becomes 90 days past due. In
most instances, a charge-off is recorded when a consumer or residential real
estate loan becomes 180 days past due. See Note 4 for a breakdown of impaired
and non-accrual loans.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is established through a provision
charged to expense. Loans and leases are charged against the allowance when
management believes the collectibility of principal is unlikely. The allowance
is an amount that management estimates will be adequate to absorb possible
losses on existing loans and leases. The evaluation of the allowance is
performed by management, lending officers and the corporate loan review staff
and is based on past loan loss experience, overall loan quality, the nature of
and size
36
<PAGE> 37
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the portfolio, review of specific problem loans, known and inherent risks in
the portfolio, adverse situations that may affect the borrowers' ability to
repay, the estimated value of any underlying collateral, and current economic
conditions. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions or other factors.
PREMISES AND EQUIPMENT
Premises and equipment including leasehold improvements are stated at cost
less accumulated depreciation and amortization. Depreciation is computed
principally on the straight-line method over the estimated useful life of the
assets. Leasehold improvements are being amortized using the straight-line
method over the terms of the respective leases or their useful lives, whichever
is shorter.
INTANGIBLE ASSETS
Certain intangible assets, such as core deposit intangibles and goodwill,
have arisen from the purchase of subsidiaries. Core deposit intangibles
represent a valuation of acquired deposit relationships and are being amortized
based on the present value of the future net income or cost savings derived from
the related deposits over an original period ranging from six to twelve years.
Goodwill represents the excess of the purchase price over the fair value of the
identifiable net assets acquired and is being amortized over a maximum of
fifteen years using the straight-line method.
FORECLOSED REAL ESTATE
Foreclosed real estate is comprised of real properties acquired in partial
or full satisfaction of loans. These properties are carried as other assets at
the lower of cost or fair value less estimated costs to sell the properties.
When the property is acquired through foreclosure, any excess of the related
loan balance over the fair value less expected sales costs, is charged against
the allowance for loan and lease losses. Subsequent write-downs or gains and
losses upon sale, if any, are charged to other operating expense.
MORTGAGE SERVICING RIGHTS
The value of mortgage servicing rights either attained through the
origination of mortgage loans or the purchase of a servicing rights portfolio
are recognized as separate capitalized assets. When the originated mortgage
loans are sold or securitized into the secondary market, the Company allocates
the total cost of the mortgage loans between mortgage servicing rights and other
retained interests, and the loans, based on their relative fair values. The cost
of mortgage servicing rights and other retained interests is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, the servicing rights are stratified into pools
based on one or more predominant risk characteristics of the underlying loans
including loan type, interest rate, term and geographic location. Impairment
represents the excess of carrying value of a stratified pool over its fair
value, and is recognized through a valuation allowance. The fair value of each
servicing rights pool is evaluated based on the present value of estimated
future cash flows using a discount rate commensurate with the risk associated
with that pool, given current market conditions. Estimates of fair value include
assumptions about prepayment speeds, interest rates, and other factors which are
subject to change over time. Changes in these underlying assumptions could cause
the fair value of mortgage servicing rights, and the related valuation
allowance, to change significantly in the future.
The Company adopted FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", in January 1997. As a
result of this statement, the Company changed its
37
<PAGE> 38
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of evaluating for impairment of purchase mortgage servicing rights and
deferred excess servicing rights, previously on an undiscounted basis, to a
method similar to that used for originated mortgage servicing rights. Under this
method, the fair value is evaluated based on the present value of estimated
future cash flows using a discount rate commensurate with the associated risk.
During January 1997, the Company reduced the carrying value of deferred excess
servicing rights by $742,000.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets including certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. A review of these assets in
1997 resulted in an impairment charge of $2,081,000.
TRUST ASSETS
Assets that are held by subsidiaries in a fiduciary or agency capacity are
not included in the consolidated financial statements as they are not assets of
the Company. The total assets under management at December 31, 1998 was
$4,156,437,000.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk. Interest rate derivative
financial instruments (swap, floor and cap agreements) are used to manage
interest rate exposure by hedging certain assets and liabilities. Income and
expense are accrued under the terms of the agreements based on expected
settlement payments, and are recorded as a component of net interest income.
Fees paid on these financial contracts are amortized over their contractual life
as a component of the interest reported on the asset or liability hedged. If a
hedged asset or liability settles before maturity of the instruments used as a
hedge, the derivatives are used to hedge a similar asset or liability. Gains and
losses on sales or cancellation of derivative financial instruments which are
used to manage interest rate risk or which are considered cash flow hedges are
deferred and amortized into income or expenses over the original maturity period
of the financial instrument.
INCOME TAXES
Deferred taxes are provided on a liability method whereby net operating
losses, tax credit carryforwards, and deferred tax assets are recognized for
deductible temporary differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE
Basic earnings per share is based on dividing net income by the weighted
average number of shares of common stock outstanding during the periods. Diluted
earnings per share reflects the potential dilution that could occur if stock
options granted pursuant to incentive stock option plans were exercised or
converted into common stock, and any shares contingently issuable, that then
shared in the earnings of the Company. Earnings per share amounts have been
restated to give effect to mergers accounted for as a pooling of interests
requiring restatement and the three-for-two stock split on September 17, 1997.
Basic and diluted earnings per share are presented on the Consolidated
Statements of Income, and a reconciliation of the calculations are found in Note
14.
38
<PAGE> 39
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
(FAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." FAS 131 requires disclosure of operating segments based on the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
adoption of FAS 131 did not affect the Company's results of operations or
financial position. See Note 15 for further information.
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued FAS No.
130, "Reporting Comprehensive Income". This statement established standards for
the reporting and display of comprehensive income and its components and
requires presentation in a full set of general-purpose financial statements.
Comprehensive income is the change in an enterprise's equity that results from
transactions during the period with nonowner sources; it includes net income and
specific items that bypass net income and are reported as a separate component
of equity. The Company adopted this Statement in 1998 and it had no impact on
its financial position or results of operations.
In 1998, the FASB issued FAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits", which revised disclosure for pension and
other postretirement benefit plans. The Company adopted this statement in 1998
and it did not have a material impact on the Company's financial position or
results of operation.
The FASB has issued FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", in 1998, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. FAS
No. 133 is effective for fiscal quarters of all fiscal years beginning after
June 15, 1999. The Company is currently assessing the impact of this statement
on its financial position and results of operations.
The FASB has issued FAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," in 1998. The Statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on ability and intent to sell or hold those
investments. The Company currently does not securitize its mortgage loans held
for sale, therefore this statement is expected to have an immaterial impact on
the Company's financial position and results of operations. FAS No. 134 is
effective for the first fiscal quarter beginning after December 15, 1998.
NOTE 2 -- MERGERS AND ACQUISITIONS
Mergers occurred during the reported periods as follows:
On March 27, 1998, Midwest Federal Financial Corp. (Midwest), a one-bank
holding company, merged into the Company, which issued 1,912,357 common shares
in exchange for the 1,628,924 outstanding Midwest shares. At the date of the
merger, Midwest had total assets of approximately $211 million. This transaction
was accounted for as a pooling of interests, however, the size of the
transaction was not material to the Company's consolidated financial statements.
Therefore, results previous to the date of acquisition were not restated. The
results of Midwest's operations have been included in the Company's operating
results since March 27, 1998.
On February 17, 1998, Investors Management Group, LTD (IMG), an asset
management firm, was acquired by the Company. AMCORE issued 270,139 shares at
closing for an approximate value of
39
<PAGE> 40
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$6.0 million. Additional shares valued at $4.8 million may be issued contingent
upon IMG's performance from 1998 through 2000. At December 31, 1998, additional
shares of 70,332 were earned and issued. At the date of the acquisition, IMG had
approximately $1.6 billion in assets under management. This transaction was
accounted for as a purchase. The results of IMG's operations have been included
in the Company's operating results since February 17, 1998. Proforma net income
and earnings per share are not materially different from historical amounts. The
excess of the purchase price over the fair value of assets acquired was recorded
as goodwill and is being amortized over fifteen years using the straight-line
method.
On July 16, 1997, Country Bank Shares Corporation (Country), a five-bank
holding company, merged into the Company, which issued 2,469,417 common shares
in exchange for the 433,699 outstanding Country shares. At the date of the
merger, Country had total assets of approximately $310 million. This transaction
was account for as a pooling of interests and, accordingly, all financial
information of the Company has been restated to include Country.
On April 18, 1997, First National Bancorp, Inc. (FNB), a one-bank holding
company, merged into the Company, which issued 2,822,286 common shares in
exchange for the 249,539 outstanding FNB shares. At the date of the merger, FNB
had total assets of approximately $219 million. This transaction was account for
as a pooling of interests and, accordingly, all financial information of the
Company has been restated to include FNB.
The results of operations of the separate companies for the periods prior
to the mergers are summarized as follows:
<TABLE>
<CAPTION>
AMCORE COMBINED
FINANCIAL FNB COUNTRY TOTAL
--------- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Net interest income................................. $87,034 $7,927 $11,173 $106,134
Net income.......................................... 26,383 2,817 2,676 31,876
Three months ended March 31, 1997:
Net interest income................................. $22,361 $1,935 * $ 24,296
Net income.......................................... 6,857 664 * 7,521
Six months ended June 30, 1997:
Net interest income................................. $49,330 ** $ 5,828 $ 55,158
Net income.......................................... 10,648 ** (378) 10,270
</TABLE>
- ------------------
* Not required since the merger with Country took place after FNB merger.
** The six month results of AMCORE Financial include FNB as the merger was
completed on April 18, 1997.
In connection with these mergers, the Company recorded charges of
$3,307,000 in 1998 and $3,845,000 in 1997 for merger-related costs. The charges
include costs for data conversion expenses, professional fees, severance and
personnel related costs, and other miscellaneous costs. At December 31, 1998,
the remaining liability was approximately $2,000,000 relating primarily to data
processing expenses and contract termination costs, which are scheduled to occur
in 1999. At December 31, 1997, the remaining liability was approximately
$750,000 relating primarily to data conversion expenses.
40
<PAGE> 41
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SECURITIES
A summary of securities at December 31, 1998, 1997, and 1996 were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Securities Available for Sale:
U.S. Treasury......................... $ 66,431 $ 1,047 $ (19) $ 67,459
U.S. Government agencies.............. 82,814 701 (2) 83,513
Agency mortgage-backed securities..... 727,506 4,645 (22,308) 709,843
State and political subdivisions...... 312,116 11,489 (374) 323,231
Corporate obligations and other....... 144,106 586 (1,206) 143,486
---------- ------- -------- ----------
Total Securities Available for
Sale............................. $1,332,973 $18,468 $(23,909) $1,327,532
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury............................ $ 1,053 $ 15 $ -- $ 1,068
U.S. Government agencies................. 27 -- -- 27
State and political subdivisions......... 15,061 261 (47) 15,275
Corporate obligations and other.......... 1 -- -- 1
---------- ------- -------- ----------
Total Securities Held to Maturity..... $ 16,142 $ 276 $ (47) $ 16,371
---------- ------- -------- ----------
Total Securities.................... $1,349,115 $18,744 $(23,956) $1,343,903
========== ======= ======== ==========
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
========== ======= ======== ==========
AT DECEMBER 31, 1996:
Securities Available for Sale:
U.S. Treasury......................... $ 132,377 $ 650 $ (544) $ 132,483
U.S. Government agencies.............. 165,557 216 (3,855) 161,918
Agency mortgage-backed securities..... 553,472 2,659 (5,203) 550,928
State and political subdivisions...... 263,341 4,545 (1,330) 266,556
Corporate obligations and other....... 102,504 223 (655) 102,072
---------- ------- -------- ----------
Total Securities Available for
Sale............................. $1,217,251 $ 8,293 $(11,587) $1,213,957
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury............................ $ 1,647 $ 5 $ (4) $ 1,648
U.S. Government agencies................. 5,684 61 -- 5,745
Agency mortgage-backed securities........ 11,413 103 (115) 11,401
State and political subdivisions......... 31,587 703 (86) 32,204
Corporate obligations and other.......... 4,217 27 -- 4,244
---------- ------- -------- ----------
Total Securities Held to Maturity..... $ 54,548 $ 899 $ (205) $ 55,242
---------- ------- -------- ----------
Total securities.................... $1,271,799 $ 9,192 $(11,792) $1,269,199
========== ======= ======== ==========
</TABLE>
41
<PAGE> 42
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of both securities available for sale and
securities held to maturity as of December 31, 1998, by contractual maturity are
shown below. Mortgage-backed security maturities may differ from contractual
maturities because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 62,449 $ 62,481 $ 2,500 $ 2,523
Due after one year through five years....... 164,805 167,961 9,811 9,979
Due after five years through ten years...... 92,792 96,212 1,954 1,986
Due after ten years......................... 188,907 194,992 1,877 1,883
Mortgage-backed securities (agency and
corporate)................................ 824,020 805,886 -- --
---------- ---------- ------- -------
Total Securities....................... $1,332,973 $1,327,532 $16,142 $16,371
========== ========== ======= =======
</TABLE>
At December 31, 1998, 1997, and 1996, securities with a fair value of
approximately $826,822,000, $927,772,000 and $755,611,000, respectively, were
pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes required by law.
NOTE 4 -- LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of the loan and lease portfolio at December 31, 1998 and 1997,
was as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 659,946 $ 538,259
Real estate-construction.................................... 105,574 60,624
Real estate-commercial...................................... 626,358 487,321
Real estate-residential..................................... 658,406 572,509
Installment and consumer.................................... 398,318 301,163
Direct lease financing...................................... 3,127 3,172
---------- ----------
Gross loans and leases.................................... $2,451,729 $1,963,048
Unearned income........................................... (211) (374)
---------- ----------
Loans and leases, net of unearned income.................. $2,451,518 $1,962,674
Allowance for loan and lease losses....................... (26,403) (19,908)
---------- ----------
NET LOANS AND LEASES...................................... $2,425,115 $1,942,766
========== ==========
</TABLE>
42
<PAGE> 43
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Non-performing loan information as of and for the years ended December 31,
1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Impaired Loans:
Non-accrual Loans:
Commercial............................................. $11,139 $10,060
Real estate............................................ 1,963 4,484
Troubled debt restructurings.............................. -- 377
Other Non-performing:
Non-accrual loans(1)...................................... 5,077 4,947
------- -------
Total Non-performing Loans.................................. $18,179 $19,868
======= =======
Loans 90 days or more past due and still accruing......... $ 7,272 $ 3,386
</TABLE>
- ------------------
(1) These loans are not considered impaired since they are part of a small
balance homogeneous portfolio.
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Allowance provided for impaired loans, included in the
allowance for loan losses................................. $ 3,854 $ 2,311
Impaired loans with no specific allowance for loan losses
provided.................................................. 3,782 8,111
Average recorded investment in impaired loans............... 13,367 15,874
Interest income recognized from impaired loans.............. 493 717
</TABLE>
An analysis of the allowance for loan and lease losses for the years ended
December 31, 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $19,908 $19,295 $17,107
Allowance for loan and lease losses acquired through
merger.................................................... 2,146 -- --
Provision charged to expense................................ 7,993 7,045 5,428
Loans charged off........................................... (5,064) (7,777) (4,641)
Recoveries on loans previously charged off.................. 1,420 1,345 1,401
------- ------- -------
BALANCE AT END OF YEAR.................................... $26,403 $19,908 $19,295
======= ======= =======
</TABLE>
The Company's subsidiaries have had, and are expected to have in the
future, banking transactions with directors, executive officers, their immediate
families and affiliated companies in which they are a principal stockholder
(commonly referred to as related parties). These transactions were made in the
ordinary course of business on substantially the same terms as comparable
transactions with other borrowers.
Related party loan transactions during 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $ 44,691 $ 44,074
New loans................................................... 116,959 85,123
Repayments.................................................. (117,381) (84,506)
--------- --------
BALANCE AT END OF YEAR.................................... $ 44,269 $ 44,691
========= ========
</TABLE>
43
<PAGE> 44
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value amounts have been estimated by the Company using available
market information and appropriate valuation methodologies as discussed below.
Considerable judgement was required, however, to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented below
are not necessarily indicative of the amounts the Company could realize in a
current market exchange.
The following table shows the carrying amounts and fair values of financial
instruments at December 31, 1996 and 1997 that have liquid markets in which fair
value is assumed to be equal to the carrying amount, or have readily available
quoted market prices, or are based on quoted prices for similar financial
instruments:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 144,199 $ 144,199 $ 105,218 $ 105,218
Interest earning deposits in banks............ 13,397 13,397 2,206 2,206
Federal funds sold and other short-term
investments................................. 9,427 9,427 633 633
Loans and leases held for sale................ 46,836 48,455 29,869 30,354
Securities available for sale................. 1,327,532 1,327,532 1,441,593 1,441,593
Securities held to maturity................... 16,142 16,371 15,423 15,611
Mortgage servicing rights..................... 4,753 5,040 5,807 6,798
</TABLE>
The carrying amounts and fair value of accruing loans and leases at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........ $ 648,807 $ 665,386 $ 622,318 $ 630,730
Real estate................................... 1,388,374 1,428,237 1,017,501 1,038,293
Installment and consumer, net................. 393,030 397,535 300,170 298,364
Direct lease financing........................ 3,127 3,226 3,194 3,279
---------- ---------- ---------- ----------
Total loans and leases...................... $2,433,338 $2,494,384 $1,943,183 $1,970,666
========== ========== ========== ==========
</TABLE>
Fair values of loans were estimated for portfolios of loans with similar
characteristics. Loans were segregated by type as shown above and then each
category was further segmented into fixed and floating interest rate terms. The
fair value of fixed-rate loans, excluding residential and real-estate loans, was
calculated by discounting contractual cash flows using estimated market discount
rates which reflect the credit and interest rate risk inherent in the loan. The
cash flows were further reduced by estimated prepayment assumptions. Fair value
for residential real-estate loans was estimated by discounting estimated future
cash flows, adjusted for prepayment estimates, using market discount rates based
on secondary market sources. Cash flow assumptions for credit card loans did not
include the value of new receivables generated from existing cardholders over
the remaining estimated life of the portfolio, thus understating the value of
the entire credit card relationship. The fair value of non-accrual loans with a
recorded book value of $18.2 million and $19.5 million in 1998 and 1997,
respectively, was not estimated because it was not practicable to reasonably
assess the credit risk adjustment that would be applied in the marketplace for
such loans. (See Note 4).
The carrying value of interest receivable and payable approximates fair
value due to the relatively short period of time between accrual and expected
realization. At December 31, 1998 and 1997, interest receivable
44
<PAGE> 45
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was $30.8 million and $28.3 million, respectively, and interest payable was
$23.7 million and $22.5 million, respectively.
The following table shows the carrying amounts and fair values of financial
instrument liabilities and other off-balance sheet financial instruments at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits and savings................... $1,352,165 $1,352,165 $1,088,836 $1,086,836
Time deposits................................. 1,595,559 1,620,382 1,440,207 1,452,360
Short-term borrowings......................... 498,211 499,917 647,509 649,771
Long-term borrowings.......................... 330,361 332,418 159,125 161,323
Commitments to extend credit.................. -- -- -- (11)
Standby letters of credit..................... (366) (1,019) (295) (681)
Interest rate swap agreements................. (666) (2,483) (459) (1,075)
Interest rate floor agreements................ 637 (1,540) 1,072 183
Interest rate cap agreements.................. 635 247 941 13
Forward contracts............................. -- (264) -- (172)
</TABLE>
The fair value of deposits with no stated maturity, such as non-interest
bearing deposits, savings, NOW and money market accounts, is equal to the
carrying amount. There is, however, considerable additional value to the core
deposits of the Company, a significant portion of which has not been recognized
in the financial statements. This value results from the cost savings of these
core funding sources versus obtaining higher-rate funding in the market. The
fair value of time deposits was determined by discounting contractual cash flows
using currently offered rates for deposits with similar remaining maturities.
The estimated fair value of both accrued interest receivable and accrued
interest payable was considered to be equal to the carrying rate.
The fair value of off-balance sheet instruments was based on the amount the
Company would pay to terminate the contracts or agreements, using current rates
and, when appropriate, the current creditworthiness of the customer. The
off-balance sheet carrying amounts shown above represent accruals or deferred
fees arising from those unrecognized financial instruments.
The above fair value estimates were made at a discrete point in time based
on relevant market information and other assumptions about the financial
instruments. As no active market exists for a significant portion of the
Company's financial instruments, fair value estimates were based on judgements
regarding current economic conditions, future expected cash flows and loss
experience, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and therefore cannot be
calculated with precision. Changes in these assumptions could significantly
affect these estimates. In addition, the fair value estimates are based on
existing on and off-balance sheet financial instruments without attempting to
assess the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
investments in subsidiaries, specifically the trust, mortgage and brokerage
operations, are not considered financial instruments and the franchise values
have not been included in the fair value estimates. Similarly, premises and
equipment and intangible assets have not been considered.
45
<PAGE> 46
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 10,345 $ 9,694
Buildings and improvements.................................. 55,710 53,956
Furniture and equipment..................................... 47,975 39,348
Leasehold improvements...................................... 5,154 5,520
Construction in progress.................................... 1,300 1,269
-------- --------
Total premises and equipment................................ $120,484 $109,787
Accumulated depreciation and amortization................... (61,721) (55,013)
-------- --------
PREMISES AND EQUIPMENT, NET............................... $ 58,763 $ 54,774
======== ========
</TABLE>
NOTE 7 -- MORTGAGE SERVING RIGHTS
The unpaid principal balance of mortgage loans serviced for others, which
are not included on the consolidated balance sheets, was $735,882,000 and
$721,803,000 at December 31, 1998 and 1997, respectively. Of this amount, the
Company has recorded both originated and purchased capitalized mortgage
servicing rights, as shown below, on mortgage loans serviced balances of
$567,129,000 and $533,869,000 at December 31, 1998 and 1997, respectively. The
remaining balance of originated loans sold and serviced for others also have
servicing rights associated with them; however, these servicing rights arose
prior to the adoption of FAS 122, and accordingly, have not been capitalized.
The carrying value and fair value of capitalized mortgage servicing rights
consisted of the following as of December 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Unamortized cost of mortgage servicing rights............... $ 5,934 $ 6,091
Valuation allowance......................................... (1,181) (284)
------- -------
Carrying value of mortgage servicing rights................. $ 4,753 $ 5,807
======= =======
Fair value of mortgage servicing rights..................... $ 5,040 $ 6,798
======= =======
</TABLE>
The following is an analysis of the mortgage servicing rights activity and
the related valuation allowance for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year................................ $ 6,091 $ 5,154
Additions of mortgage servicing rights...................... 3,915 1,706
Additions of mortgage servicing rights from acquisition..... 510 --
Sale of mortgage servicing rights........................... (2,146) --
Amortization................................................ (2,436) (769)
------- -------
Balance at end of year.................................... $ 5,934 $ 6,091
======= =======
</TABLE>
46
<PAGE> 47
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
VALUATION ALLOWANCE
Balance at beginning of year................................ $ 284 $ --
Addition of impairment allowance from acquisition........... 8 --
Impairment allowance charged to expense..................... 1,088 284
Recoveries on impairments................................... (199) --
------- -------
Balance at end of year.................................... $ 1,181 $ 284
======= =======
</TABLE>
NOTE 8 -- SHORT TERM BORROWINGS
At December 31, 1998, 1997 and 1996, short-term borrowings consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase............. $434,071 $526,607 $441,915
Federal Home Loan Bank borrowings.......................... 32,629 70,679 74,168
Federal funds purchased.................................... 29,200 44,550 14,800
U.S. Treasury tax and loan note accounts................... 2,311 3,673 3,743
Commercial paper borrowings................................ -- -- 14,455
-------- -------- --------
TOTAL SHORT-TERM BORROWINGS.............................. $498,211 $647,509 $549,081
======== ======== ========
</TABLE>
Additional details on securities sold under agreements to repurchase are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Average balance during the year............................ $529,373 $559,344 $398,701
Maximum month-end balance during the year.................. 630,279 660,774 458,540
Weighted average rate during the year...................... 5.73% 5.75% 5.55%
Weighted average rate at December 31....................... 5.38% 5.82% 5.37%
</TABLE>
The Company has a commercial paper agreement with an unrelated financial
institution (Issuer) that provides for the Company to issue non-rated short-term
unsecured debt obligations at negotiated rates and terms, not to exceed
$50,000,000. In the event the agent is unable to place the Company's commercial
paper on a particular day, the proceeds are provided by overnight borrowings on
a $50,000,000 line of credit with the same financial institution. The commercial
paper agreement was primarily established for the purpose of funding consumer
finance receivables and mortgage loans held for sale. This agreement may be
terminated at any time by written notice of either the Issuer or the Company. As
of December 31, 1998, the entire $50,000,000 of commercial paper and $50,000,000
line of credit was available.
47
<PAGE> 48
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG-TERM BORROWINGS
Long-term borrowings consisted of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank borrowings........................... $288,757 $117,195
Capital Trust preferred securities.......................... 40,000 40,000
Other long-term borrowings.................................. 1,604 1,930
-------- --------
TOTAL LONG-TERM BORROWINGS................................ $330,361 $159,125
======== ========
</TABLE>
Several of the Company's subsidiary banks periodically borrowed additional
funds from the Federal Home Loan Bank in connection with the purchase of
mortgage-backed securities. Certain Federal Home Loan Bank borrowings have
prepayment penalties and call features associated with them. The ending balance
of the borrowings was $288,757,000 and $117,195,000 at December 31, 1998 and
1997, respectively. The average maturity of these borrowings at December 31,
1998 is 6.02 years, with a weighted average borrowing rate of 5.23%.
On March 25, 1997, the Company issued $40 million of capital securities
through AMCORE Capital Trust 1 ("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 average rate of 9.35%. The
securities are redeemable from March 25, 2007 until March 25, 2017 at a
declining rate of 104.6760% to 100% 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.
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:
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
1999........................................................ $ 419
2000........................................................ 75,598
2001........................................................ 498
2002........................................................ 65,762
2003........................................................ 2,070
Thereafter.................................................. 186,014
--------
TOTAL..................................................... $330,361
========
</TABLE>
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk.
48
<PAGE> 49
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit risk is the possibility that the Company will incur a loss due to
the other party's failure to perform under its contractual obligations. The
Company's exposure to credit loss in the event of non-performance by the other
party with regard to commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for actual extensions of credit. The credit risk involved for commitments
to extend credit and in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the customer. Collateral held varies, but
may include accounts receivable, securities, inventory, property and equipment
and income-producing commercial properties.
Market risk is the possibility that, due to changes in interest rates or
other economic conditions, the Company's net interest income will be adversely
affected. The financial instruments utilized by the Company to manage this risk
include interest rate swaps, floors and caps, and forward contracts. The
contract or notional amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial instruments. The
contract or notional amount of interest rate swap, floor and cap agreements and
forward contracts represent only limited exposure to credit risk.
A summary of the contract amount of the Company's exposure to off-balance
sheet risk as of December 31, 1998 and 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Financial instruments whose contract amount represent credit
risk only:
Commitments to extend credit.............................. $446,833 $437,942
Standby letters of credit................................. 81,495 54,494
Financial instruments whose contract or notional amount
represent market risk only:
Interest rate swap agreements............................. 220,000 270,000
Interest rate floor agreements............................ 150,000 145,000
Interest rate cap agreements.............................. 145,000 75,000
Forward contracts......................................... 33,211 23,664
</TABLE>
Commitments to extend credit are contractual agreements entered into with
customers as long as there is no violation of any condition established on the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The Company has no derivative financial instruments held or issued for
trading purposes. The derivative financial instruments with which the Company is
involved are utilized for purposes of asset/liability management to modify the
existing market risk characteristics of certain hedged assets and liabilities.
An interest rate swap agreement is the most common financial instrument used for
these purposes and involves the exchange of fixed and floating rate interest
payment obligations based on the underlying notional principal amounts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the agreements and not the notional principal amounts
used only to express the volume of the transactions. The Company's credit risk
on a swap agreement is limited to nonperformance of the counterparty's
obligations under the terms of the swap agreement. The Company deals exclusively
with
49
<PAGE> 50
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counterparties that have high credit ratings, and based on management's
assessments, all counterparties were expected to meet any outstanding
obligations as of December 31, 1998.
Following is a table outlining the nature and terms of each swap agreement
as of December 31, 1998:
<TABLE>
<CAPTION>
NOTIONAL MATURITY
TYPE OF SWAP AMOUNT (000'S) PAY RECEIVE DATE
- ------------ -------------- ------------------------- ------------- --------
<S> <C> <C> <C> <C>
Fixed Rate.............. $25,000 Fixed (5.255%) 3 Month LIBOR 03/08/99
Fixed Rate.............. 20,000 Fixed (6.458%) 3 Month LIBOR 05/15/01
Fixed Rate.............. 15,000 Fixed (5.720%) 3 Month LIBOR 10/11/01
Fixed Rate.............. 25,000 Fixed (8.520%) PRIME 12/23/00
Fixed Rate.............. 70,000 Fixed (8.520%) PRIME 07/15/01
Fixed Rate.............. 5,000 Fixed (8.410%) PRIME 08/06/01
Fixed Rate.............. 10,000 Fixed (8.520%) PRIME 09/22/01
Fixed Rate.............. 10,000 Fixed (8.530%) PRIME 09/22/01
Fixed Rate.............. 5,000 Fixed (5.940%) * Fixed 10/22/07
(6.750%)
Fixed to Floating....... 25,000 3 Month LIBOR minus 15 BP Fixed 08/06/07
(7.000%)
Fixed to Floating....... 10,000 3 Month LIBOR minus 15 BP Fixed 08/27/07
(7.000%)
</TABLE>
- ------------------
(BP=basis points)
* This swap currently pays a fixed rate. The swap will pay 3 month LIBOR minus 8
basis points starting in October, 1999.
The fixed rate swap agreements totaling $60,000,000 where the Company
receives 3 month LIBOR, are used to hedge market risk associated with the
repurchase agreements used in the investment leveraging program. The fixed rate
swap agreements totaling $120,000,000 where the Company receives PRIME, are used
to hedge market risk associated with fixed rate loans. The fixed rate swap for
$5,000,000 where the Company receives 6.750% and the fixed to floating swap
agreements totaling $35,000,000 where the Company receives 7.000%, are used to
lower the Company's cost of deposits.
The Company is also party to various interest rate floor contracts with a
notional amount totaling $150,000,000. Interest rate floor contracts totaling
$25,000,000 provides the Company with a market risk hedge on the mortgage-backed
security portfolio in the event of a significant decline in interest rates. The
remaining $125,000,000 of interest rate floor contracts and corresponding
$125,000,000 of interest rate caps provide the Company with a market risk hedge
on the Company's repurchase agreements. The remaining interest rate cap totaling
$20,000,000 provides the Company with a market risk hedge on the money market
deposit accounts.
Each of the interest rate swap agreements require a quarterly cash
settlement of the net difference between the calculated pay and receive amounts
on each transaction. The net difference between the calculated pay and receive
amounts is accrued on a monthly basis and recorded as an adjustment of the
interest income or expense of the asset or liability being hedged. Premiums paid
for the purchase of interest rate floor contracts are amortized over the
respective lives of the contracts. Each floor rate reprices quarterly and a cash
settlement is received from the counterparty and recorded as an adjustment to
interest income, if the indexed rate falls below the floor rate. Floors and caps
are similarly tied to the 3 month LIBOR.
Forward contracts provide for future delivery or purchase of securities or
interest rate instruments. The Company's affiliates enter into forward contracts
in connection with specific customer transactions and to minimize the market
risk exposure of mortgage banking activities.
The Company periodically will sell options for the right to purchase
certain securities held in its investment portfolio to a bank or dealer. These
call option transactions are designed to reduce the total return
50
<PAGE> 51
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
volatility associated with holding these assets and to yield additional fee
income. The type of risk associated with these transactions is opportunity cost
risk. Any option premium income generated by these transactions is deferred and
recorded upon either the expiration or exercise date of the option. If the
option is exercised by the purchaser, the premium income is recognized as a
component of the gain or loss on the underlying security. If the option expires
unexercised, the premium income is recognized as other non-interest income.
There were no call option agreements outstanding at December 31, 1998.
NOTE 11 -- RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Under current banking law, the banking subsidiaries of the Company are
limited in the amount of dividends they can pay without obtaining prior approval
from bank regulatory agencies. As of December 31, 1998, approximately
$44,925,000 was available for payment to the Company without prior regulatory
approval.
The subsidiaries are also limited as to the amount they may loan to the
Company unless such loans are collateralized by U.S. Treasury or agency
securities, a segregated deposit with the subsidiary or other specified
obligations. At December 31, 1998, the maximum amount available for transfer
from the subsidiaries to the Company in the form of loans approximated
$20,349,000.
NOTE 12 -- STOCK INCENTIVE AND EMPLOYEE BENEFIT PLANS
At December 31, 1998, the Company has three stock-based compensation plans
which are described below. Grants under those plans are accounted for following
APB Opinion No. 25 and related interpretations.
STOCK INCENTIVE PLANS. In 1995, stockholders approved the adoption of the
1995 Stock Incentive Plan (Plan). The Plan provides for the ability to grant
stock options, stock appreciation rights, performance units, and stock awards to
key employees. The total number of shares approved and available for grant under
the Plan in its first year were 2.5% of the total shares of stock outstanding as
of the effective date and 1.5% of outstanding shares in each subsequent Plan
year not to exceed 525,000 in any year. Options to purchase shares of common
stock of the Company and performance units were granted to key employees
pursuant to both the Plan and previous stock incentive plans.
Stock Options. Non-Qualified Stock Options are issued at an option price
equal to the fair market value of the shares on the grant date and become
exercisable at 25% annually beginning one year from the date of grant. The
following table presents certain information with respect to stock options
issued pursuant to these incentive plans.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year........................ 1,405,423 $12.68 1,384,017 $11.04 1,139,776 $10.14
Options granted.................. 282,000 25.48 295,875 18.50 350,625 13.33
Options assumed in business
combinations................... 349,422 8.58 -- -- -- --
Option reloads................... 106,294 23.47 -- -- -- --
Options exercised................ (448,754) 10.25 (258,602) 10.42 (98,134) 8.60
Options lapsed................... (17,793) 18.19 (15,867) 15.80 (8,250) 13.01
--------- ------ --------- ------ --------- ------
Options outstanding at end of
year........................... 1,678,592 $15.68 1,405,423 $12.68 1,384,017 $11.04
========= ====== ========= ====== ========= ======
Options exercisable at end of
year........................... 1,394,592 $13.58 1,405,423 $12.68 1,384,017 $11.04
========= ====== ========= ====== ========= ======
</TABLE>
51
<PAGE> 52
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Units. Performance Units (Units) granted entitle holders to
cash or stock payments if certain long term performance targets are met. The
payout range on all Units granted is $4.45 to $11.11 per unit. In addition, a
dividend is paid on each Unit at a rate equivalent to the rate of dividends paid
on each share of the Company's common stock. The expense related to these Units
for the years ended December 31, 1998, 1997 and 1996 was approximately $457,000,
$60,000 and $354,000, respectively. The following table presents certain
information with respect to issuances pursuant to these plans.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of
year........................... 282,386 -- 336,568 -- 330,879 --
Units granted.................... 150,116 -- 113,253 -- 104,298 --
Units paid....................... -- -- (113,883) $ 4.81 (98,609) $ 4.45
Units forfeited.................. (92,059) -- (53,552) -- -- --
--------- ------ --------- ------ --------- ------
Units outstanding at end of
year........................... 340,443 -- 282,386 -- 336,568 --
========= ====== ========= ====== ========= ======
</TABLE>
The following table presents a summary of issuances pursuant to these
incentive plans.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
YEAR END BALANCES SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding.................... 1,676,592 $15.58 1,405,423 $12.68 1,384,017 $11.04
Units outstanding...................... 340,443 -- 282,386 -- 336,568 --
Available to grant under Plan.......... 75,269 -- 53,814 -- 60,446 --
</TABLE>
In accordance with APB Opinion No. 25, no compensation cost has been
recognized for stock option grants issued during 1998 pursuant to all option
plans. Had compensation cost for these grants been determined based on the grant
date fair values of awards (the method described in FAS No. 123, "Accounting for
Stock-Based Compensation"), reported net income and earnings per common share
would have been reduced to the pro forma amounts shown below:
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996, respectively: dividend rates of
2.36%, 1.79% and 3.20%; price volatility of 30.99%, 69.95% and 21.71%, risk-free
interest rates of 5.73%, 6.64% and 6.34%; and expected lives of 6.7, 6.5 and 6.5
years.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported....................................... $39,581 $28,664 $31,876
Pro forma......................................... 37,350 26,690 31,191
Basic earnings per share:
As reported....................................... $ 1.39 $ 1.07 $ 1.20
Pro forma......................................... 1.31 0.99 1.17
Diluted earnings per share:
As reported....................................... $ 1.36 $ 1.05 $ 1.18
Pro forma......................................... 1.28 0.97 1.16
</TABLE>
DIRECTORS' STOCK PLANS. During 1989, the Company adopted the Restricted
Stock Plan for Non-Employee Directors (Stock Plan). The Stock Plan provides that
each current eligible non-employee director
52
<PAGE> 53
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and each subsequently elected non-employee director receive, in lieu of a cash
retainer, shares of common stock of the Company, the fair value of which is
equal to three times the annual retainer. The shares vest annually over a
three-year period based upon the anniversary date of the original award. The
expense related to the Stock Plan for the years ended December 31, 1998, 1997
and 1996 was approximately $514,000, $370,000 and $467,000, respectively.
In addition, the Company pays a lifetime annual retainer to certain retired
directors. Effective January 1, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" to
account for these benefits. This statement requires employers to recognize
postretirement benefits on an accrual basis rather than on a cash basis. The
expense in 1998, 1997 and 1996 related to this plan was $73,000, $82,000 and
$107,000, respective. The transition obligation, representing the present value
of future payments upon adoption of accrual basis accounting, was approximately
$842,000 and is being amortized over a twenty year period.
In 1994, stockholders approved the 1994 Stock Option Plan for Non-Employee
Directors (Option Plan). The Option Plan provides that each current eligible
non-employee director and each subsequently elected non-employee director
receive Options to purchase common stock of the Company. Each option granted
under the Option Plan will have a ten-year term and will generally become
exercisable twelve months after the grant date at an option price equal to the
fair market value of the shares on the grant date. The following table presents
certain information with respect to stock options issued pursuant to the Option
Plan all of which were granted prior to December 15, 1998.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................. 192,750 $19.67 130,500 $13.11 63,750 $12.87
Options granted........................ 56,500 25.50 69,000 18.50 75,000 13.33
Options exercised...................... (11,250) 14.44 (6,000) 13.06 -- --
Options lapsed......................... (10,000) 21.14 (750) 13.33 (8,250) 13.23
------- ------ ------- ------ ------- ------
Options outstanding at end of year..... 228,000 $17.40 192,750 $19.67 130,600 $13.11
======= ====== ======= ====== ======= ======
Options exercisable at end of year..... 177,000 $15.06 123,750 $20.32 55,500 $12.81
======= ====== ======= ====== ======= ======
Available to grant under Plan at year
end.................................. 54,750 -- 101,250 -- 169,500 --
======= ====== ======= ====== ======= ======
</TABLE>
OPTIONS SUMMARY. The following table presents certain information with
respect to issuances of stock options pursuant to all plans discussed above.
<TABLE>
<CAPTION>
WEIGHTED-AVG
NUMBER REMAINING WEIGHTED-AVG
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ----------- ---------------- --------------
<S> <C> <C> <C>
$2.60-7.80......................................... 202,987 3.5years $ 5.32
7.80-10.40........................................ 108,011 3.8 10.11
10.40-13.00........................................ 370,116 5.4 12.79
13.00-15.60........................................ 454,242 7.1 13.63
15.60-20.80........................................ 336,943 8.1 18.36
20.80-26.00........................................ 432,293 8.4 24.99
--------- --- ------
Total Options Outstanding.......................... 1,904,592 6.7 $15.80
========= === ======
</TABLE>
EMPLOYEE BENEFIT PLANS. All subsidiaries of the Company participate in the
AMCORE Financial Security Plan (Security Plan), a qualified profit sharing plan
under Section 401(a) of the Internal Revenue
53
<PAGE> 54
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Code. The Security Plan offers participants a personal retirement account,
profit sharing payment and personal savings account [401(k)]. In 1998, the
Security Plan was amended to provide for a higher match percent to employee
contributions and the profit sharing portion converted to a cash payment rather
than contributed to employee accounts. The expense related to the Security Plan
and other similar plans from acquired companies for the years ended December 31,
1998, 1997 and 1996 was approximately $3,555,000, $2,763,000 and $3,248,000,
respectively.
The Company maintains non-qualified non-contributory pension plans that
cover senior executive management. One non-qualified plan provides pension
benefits that would have been provided under the qualified plans in the absence
of limits placed on qualified plan benefits by the Internal Revenue Service.
Another plan provides defined pension benefits to a select group of management
or highly compensated employees. The benefits payable under the plan are based
upon three percent of final base salary times number of years of service and
shall not exceed 70% nor be less than 45% of a participant's final base salary.
The Company's funding policy is to fund benefits as they are paid. The expense
related to these plans was approximately $456,000, $217,000, and $220,000 for
1998, 1997 and 1996, respectively.
In addition to the Security Plan, certain health care and life insurance
benefits are made available to active employees. The cost of these benefits is
expensed as incurred. Group health benefits are offered to retirees with 100% of
the cost borne by the retiree.
NOTE 13 -- INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently paid or payable................................... $15,468 $12,735 $12,293
Deferred.................................................... (1,154) (3,817) (132)
------- ------- -------
TOTAL..................................................... $14,314 $ 8,918 $12,161
======= ======= =======
</TABLE>
The effective tax rates on income for 1998, 1997, and 1996 were 26.6%,
23.7% and 27.6%, respectively. Income tax expense was less than the amounts
computed by applying the federal statutory rate of 35% due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory rate................................ $18,863 $13,154 $15,413
Increase (decrease) resulting from:
Tax-exempt income......................................... (5,479) (5,027) (4,718)
State income taxes, net of federal benefit................ 24 (301) 1,346
Non-deductible expenses, net.............................. 1,395 1,581 356
Other, net................................................ (489) (489) (236)
------- ------- -------
TOTAL.................................................. $14,314 $ 8,918 $12,161
======= ======= =======
</TABLE>
54
<PAGE> 55
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred compensation..................................... $ 4,807 $ 4,094
Securities................................................ 2,277 --
Allowance for loan and lease losses....................... 9,630 7,784
Other..................................................... 643 4,257
------- -------
Total deferred tax assets.............................. 17,357 $16,135
------- -------
Deferred tax liabilities:
Securities................................................ $ -- $ 5,895
Premises and equipment.................................... 4,491 4,946
Other..................................................... 2,914 4,248
------- -------
Total deferred tax Liabilities......................... $ 7,405 $15,089
------- -------
NET DEFERRED TAX ASSET.................................... 9,952 1,046
Less: Tax effect of net unrealized (gain) loss on securities
available for sale reflected in stockholders' equity...... 2,175 (5,577)
------- -------
NET DEFERRED TAX ASSET EXCLUDING NET UNREALIZED (GAINS)
LOSS ON SECURITIES AVAILABLE FOR SALE.................. $ 7,777 $ 6,623
======= =======
</TABLE>
Net operating loss carryforwards for state income tax purposes were
approximately $15,615,000 at December 31, 1998. The associated deferred asset is
$1,228,000 ($798,000 net of federal). The carryforwards expire beginning
December 31, 1999 through December 31, 2013. A valuation allowance of $798,000
has been established at December 31, 1998 against the deferred tax asset, due to
the uncertainty surrounding the utilization of state net operating loss
carryforwards.
Retained earnings at December 31, 1998 include $3,182,000 for which no
provision for income tax has been made. This amount represents allocations of
income to thrift bad debt deductions for tax purposes only. This amount will
only be taxable upon the occurrence of certain events. At this time management
does not foresee the occurrence of any of these events.
Tax benefits of $2,292,000 have been credited directly to paid in capital
for non-qualified stock options exercised during the year.
NOTE 14 -- EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the year by
the weighted average number of common shares outstanding. The weighted average
common shares outstanding were 28,515,000, 26,862,000 and 26,649,000 for 1998,
1997 and 1996, respectively.
Diluted earnings per share reflects the potential dilution using the
treasury stock method that could occur if stock options granted pursuant to
incentive stock plans were exercised or converted into common stock, therefore
sharing in the earnings of the Company. The weighted average diluted shares
outstanding were 29,098,000, 27,405,000 and 26,987,000 for 1998, 1997 and 1996,
respectively.
Prior year's 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.
55
<PAGE> 56
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- SEGMENT INFORMATION
The Company's operations include three business segments: Banking, Trust
and Asset Management, and Mortgage Banking. The Banking segment provides
commercial and personal banking services through its 66 banking locations in
northern Illinois and south-central Wisconsin, and the Consumer Finance
subsidiary. The services provided by this segment include lending, deposits,
cash management, safe deposit box rental, automated teller machines, and other
traditional banking services. The Trust and Asset Management segment provides
trust, investment management and brokerage services. It also acts as an advisor
and provides fund administration to the Vintage Mutual Fund and offers a
complete line of commercial and individual insurance products. These products
are distributed nationally (i.e. Vintage Equity Fund is available through
Charles Schwaab), regionally to institutional investors and corporations, and
locally through AMCORE's 66 banking locations. The Mortgage Banking segment
originates residential mortgage loans for sale to AMCORE's banking affiliates
and the secondary market, as well as providing servicing of these mortgage
loans.
The Company's three reportable segments are strategic business units that
are separately managed as they offer different products and services. The
Company evaluates financial performance based on several factors, of which the
primary financial measure is segment profit before remittances to the banking
affiliates. The accounting policies of the three segments are the same as those
described in the summary of significant accounting policies (Note 1). The
Company accounts for intersegment revenue, expenses and transfers at current
market prices.
<TABLE>
<CAPTION>
TRUST AND ASSET MORTGAGE TOTAL
BANKING MANAGEMENT BANKING SEGMENTS
---------- --------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BUSINESS SEGMENTS
1998
Net interest income......................................... $ 122,542 $ 131 $ 2,551 $ 125,224
Provision for loan and lease losses......................... 7,993 -- -- 7,993
Non-interest income......................................... 25,435 26,022 11,472 62,929
Operating expenses.......................................... 87,324 18,293 11,396 117,013
Depreciation and amortization............................... 7,285 811 89 8,185
Income taxes................................................ 13,150 3,388 1,054 17,592
Segment profit.............................................. $ 39,510 $ 4,472 $ 1,573 $ 45,555
After tax merger related and information systems charges.... 1,245 -- -- 1,245
---------- ------- ------- ----------
Segment profit before merger related charges................ $ 40,755 $ 4,472 $ 1,573 $ 46,800
========== ======= ======= ==========
Segment assets.............................................. $4,227,050 $23,944 $54,656 $4,305,650
========== ======= ======= ==========
1997
Net interest income......................................... $ 110,778 $ 64 $ 1,578 $ 112,420
Provision for loan and lease losses......................... 7,045 -- -- 7,045
Non-interest income......................................... 23,618 18,417 5,583 47,618
Operating expenses.......................................... 84,745 13,601 6,366 104,712
Depreciation and amortization............................... 6,117 299 89 6,505
Income taxes................................................ 10,211 1,999 320 12,530
Segment profit.............................................. $ 32,395 $ 2,881 $ 475 $ 35,751
After tax merger related and information systems charges.... 2,833 -- -- 2,833
---------- ------- ------- ----------
Segment profit before merger related and information system
charges................................................... $ 35,228 $ 2,881 $ 475 $ 38,584
========== ======= ======= ==========
Segment assets.............................................. $3,738,080 $ 6,322 $28,298 $3,772,700
========== ======= ======= ==========
1996
Net interest income......................................... $ 104,048 $ 102 $ 1,381 $ 105,531
Provision for loan and lease losses......................... 5,428 -- -- 5,428
Non-interest income......................................... 21,966 12,792 5,288 40,046
Operating expenses.......................................... 76,545 9,694 5,595 91,834
Depreciation and amortization............................... 6,551 271 71 6,893
Income taxes................................................ 12,376 1,304 432 14,112
Segment profit.............................................. $ 31,665 $ 1,896 $ 642 $ 34,203
========== ======= ======= ==========
Segment assets.............................................. $3,367,594 $ 5,165 $18,945 $3,391,704
========== ======= ======= ==========
</TABLE>
56
<PAGE> 57
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILEMENT OF SEGMENT INFORMATION TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET INTEREST INCOME AND NON-INTEREST INCOME
Total for segments................................... $ 188,153 $ 160,038 $ 145,577
Unallocated revenues:
Holding company revenues........................... 20,931 19,919 18,004
Other.............................................. 55 3,309 5,063
Elimination of intersegment revenues................. (27,657) (23,666) (20,439)
---------- ---------- ----------
Consolidated total revenues.......................... $ 181,482 $ 159,600 $ 148,205
========== ========== ==========
PROFIT
Total for segments................................... $ 45,555 $ 35,751 $ 34,203
Unallocated profit:
Holding company loss............................... (5,999) (6,234) (2,711)
Other.............................................. (219) (674) 914
Elimination of intersegment profit (loss)............ 244 (179) (530)
---------- ---------- ----------
Consolidated net income.............................. $ 39,581 $ 28,664 $ 31,876
========== ========== ==========
ASSETS
Total for segments................................... $4,305,650 $3,772,700 $3,391,704
Unallocated assets:
Holding company assets............................. 53,110 46,128 37,945
Other.............................................. 42,701 43,675 15,302
Elimination of intersegment assets................... (253,628) (194,813) (112,956)
---------- ---------- ----------
Consolidated assets.................................. $4,147,833 $3,667,690 $3,331,995
========== ========== ==========
</TABLE>
NOTE 16 -- CAPITAL REQUIREMENTS
The Company and its banking subsidiaries (Regulated Companies) are subject
to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Regulated Companies must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Their capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Regulated Companies to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital to risk-weighted assets,
and of Tier I capital to average assets. Management believes, as of December 31,
1998, that the Regulated Companies meet all capital adequacy requirements to
which it is subject.
As of December 31, 1998, the most recent notification from the Company's
regulators categorized the Regulated Companies as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized a company must maintain minimum total risk-based, Tier I risk based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Regulated Companies category.
57
<PAGE> 58
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's and each significant subsidiary's actual capital amounts and
ratios are presented in the table.
<TABLE>
<CAPTION>
FOR CAPITAL ADEQUACY PURPOSES
-----------------------------------------
ACTUAL MINIMUM WELL CAPITALIZED
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total Capital (to Risk Weighted Assets):
CONSOLIDATED $366,121 13.43% $218,078 >8.00% N/A N/A
-
AMCORE Bank N.A. Rockford 137,712 11.11% 99,205 >8.00% 124,006 >10.00%
- -
AMCORE Bank N.A. Rock River Valley 48,559 12.20% 31,834 >8.00% 39,793 >10.00%
Tier 1 Capital (to Risk Weighted Assets): - -
CONSOLIDATED $339,718 12.46% $109,039 >4.00% N/A N/A
-
AMCORE Bank N.A. Rockford 126,920 10.23% 49,603 >4.00% 74,404 >6.00%
- -
AMCORE Bank N.A. Rock River Valley 44,456 11.17% 15,917 >4.00% 23,876 >6.00%
Tier 1 Capital (to Average Assets): - -
CONSOLIDATED $339,718 8.31% $163,485 >4.00% N/A N/A
-
AMCORE Bank N.A. Rockford 126,920 7.27% 69,837 >4.00% 87,296 >5.00%
- -
AMCORE Bank N.A. Rock River Valley 44,456 6.89% 25,804 >4.00% 32,255 >5.00%
AS OF DECEMBER 31, 1997: - -
Total Capital (to Risk Weighted Assets):
CONSOLIDATED $326,271 14.38% $181,574 >8.00% N/A N/A
-
AMCORE Bank N.A. Rockford 118,710 11.11% 85,493 >8.00% 106,866 >10.00%
- -
AMCORE Bank N.A. Rock River Valley 55,270 14.61% 30,267 >8.00% 37,834 >10.00%
Tier 1 Capital (to Risk Weighted Assets): - -
CONSOLIDATED $306,364 13.50% $ 90,775 >4.00% N/A N/A
-
AMCORE Bank N.A. Rockford 110,717 10.36% 42,747 >4.00% 64,120 >6.00%
- -
AMCORE Bank N.A. Rock River Valley 51,731 13.67% 15,134 >4.00% 22,700 >6.00%
Tier 1 Capital (to Average Assets): - -
CONSOLIDATED $306,364 8.31% $147,388 >4.00% N/A N/A
-
AMCORE Bank N.A. Rockford 110,717 6.82% 64,934 >4.00% 81,167 >5.00%
- -
AMCORE Bank N.A. Rock River Valley 51,731 7.65% 27,044 >4.00% 33,806 >5.00%
- -
</TABLE>
58
<PAGE> 59
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1,343 $ 955
Securities available for sale............................... 2,865 431
Short-term investments...................................... 3,000 10,000
Due from subsidiaries....................................... 1,020 933
Loans to subsidiaries....................................... 19,808 22,763
Investment in bank subsidiaries............................. 307,322 285,374
Investment in financial services subsidiaries............... 5,783 6,049
Premises and equipment,net.................................. 4,788 2,888
Other assets................................................ 17,747 8,008
-------- --------
TOTAL ASSETS.............................................. $363,676 $337,401
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Long-term borrowings........................................ $ 42,842 $ 43,168
Other liabilities........................................... 4,751 6,757
-------- --------
TOTAL LIABILITIES........................................... $ 47,593 $ 49,925
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock............................................. $ -- $ --
Common stock................................................ 6,572 6,152
Additional paid-in capital.................................. 75,260 73,262
Retained earnings........................................... 247,486 206,235
Treasury stock and other.................................... (9,969) (6,547)
Accumulated other comprehensive income...................... (3,266) 8,374
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................ $316,083 $287,476
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $363,676 $337,401
======== ========
</TABLE>
59
<PAGE> 60
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries.............................. $ 37,923 $ 17,749 $ 21,492
Interest income.......................................... 2,064 2,284 1,260
Management fees and other................................ 23,372 21,436 18,833
-------- -------- --------
TOTAL INCOME........................................... $ 63,359 $ 41,469 $ 41,585
-------- -------- --------
EXPENSES:
Interest expense......................................... $ 4,204 $ 3,801 $ 2,090
Compensation expense and employee benefits............... 14,615 14,455 12,846
Professional fees........................................ 2,316 2,540 1,192
Other.................................................... 11,152 12,388 8,871
-------- -------- --------
TOTAL EXPENSES......................................... $ 32,287 $ 33,184 $ 24,999
-------- -------- --------
Income before income tax benefits and equity in
undistributed net income of subsidiaries............... $ 31,072 $ 8,285 $ 16,586
Income tax benefits...................................... (2,751) (3,231) (2,195)
-------- -------- --------
Income before equity in undistributed net income of
subsidiaries........................................... $ 33,823 $ 11,516 $ 18,781
-------- -------- --------
Equity in undistributed net income of subsidiaries....... 5,758 17,148 13,095
-------- -------- --------
NET INCOME............................................. $ 39,581 $ 28,664 $ 31,876
======== ======== ========
</TABLE>
60
<PAGE> 61
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 39,581 $ 28,664 $ 31,876
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,032 1,531 1,026
Non-employee directors compensation expense............ 464 370 467
Equity in undistributed net income of subsidiaries..... (5,758) (17,148) (13,095)
(Increase) decrease in due from subsidiaries........... (87) 255 (831)
Decrease (increase) in other assets.................... 2,503 (1,119) 1,905
(Decrease) increase in other liabilities............... (2,006) 2,011 (1,089)
Other, net............................................. 298 560 (90)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... $ 36,027 $ 15,124 $ 20,169
======== ======== ========
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities................................... $ (2,428) $(14,071) $ (345)
Proceeds from maturities of securities................... -- 14,197 101
Net increase (decrease) in short term investments........ 7,000 (8,000) (2,000)
Dissolution of less-active state banking charters........ -- 96 --
Proceeds from sale of collection agency.................. -- 700 --
Net investment made in subsidiaries...................... (681) (10,788) --
Loans to subsidiaries.................................... (74,035) (13,470) (24,364)
Payments received on loans to subsidiaries............... 76,990 16,916 7,343
Transfer of premises and equipment (from) to
affiliates............................................. (23) (114) 1,218
Premises and equipment expenditures, net................. (2,909) (1,514) (1,234)
Investment in company owned life insurance............... (10,798) (1,816) (1,721)
-------- -------- --------
NET CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES.......................................... $ (6,884) $(17,864) $(21,002)
======== ======== ========
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings......... $ -- $(14,455) $ 11,305
Proceeds from long-term borrowings....................... -- 41,238 --
Payment of long-term borrowings.......................... (444) (14,044) (3,844)
Dividends paid........................................... (15,406) (12,130) (9,096)
Proceeds from the sale of common stock................... -- 430 --
Proceeds from exercise of incentive stock options........ 6,840 3,753 1,405
Purchase of treasury stock............................... (19,745) (1,327) --
-------- -------- --------
NET CASH (REQUIRED FOR) PROVIDED BY FINANCING
ACTIVITIES.......................................... $(28,755) $ 3,465 $ (230)
-------- -------- --------
Net change in cash and cash equivalents.................. $ 388 $ 725 $ (1,063)
Cash and cash equivalents:
Beginning of year...................................... 955 230 1,293
-------- -------- --------
End of period.......................................... $ 1,343 $ 955 $ 230
======== ======== ========
</TABLE>
61
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AMCORE FINANCIAL, INC.
We have audited the accompanying consolidated balance sheet of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG LLP
KPMG LLP
Chicago, Illinois
January 19, 1999
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
AMCORE FINANCIAL, INC.
Rockford, Illinois
We have audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the two year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for each of the years in the two year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Rockford, Illinois
January 19, 1998
62
<PAGE> 63
CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $68,315 $74,520 $74,979 $73,047 $61,035 $63,004 $67,708 $68,212
Interest expense........................ 39,362 43,302 43,593 41,870 33,926 35,523 39,666 39,845
------- ------- ------- ------- ------- ------- ------- -------
Net interest income..................... $28,953 $31,218 $31,386 $31,177 $27,109 $27,481 $28,042 $28,367
Provision for loan losses............... 2,145 1,642 2,226 1,980 1,915 1,936 2,673 521
Other income............................ 12,939 13,898 14,586 17,325 12,160 10,575 11,161 14,705
Other expense........................... 31,906 27,932 28,997 30,759 25,966 33,747 24,369 30,891
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.............. $ 7,841 $15,542 $14,749 $15,763 $11,388 $ 2,373 $12,161 $11,660
Income taxes............................ 1,742 4,306 3,871 4,395 3,149 341 3,114 2,314
------- ------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 6,099 $11,236 $10,878 $11,368 $ 8,239 $ 2,032 $ 9,047 $ 9,346
======= ======= ======= ======= ======= ======= ======= =======
Per share data:
Basic earnings:......................... $ 0.23 $ 0.39 $ 0.37 $ 0.39 $ 0.31 $ 0.07 $ 0.34 $ 0.35
Diluted earnings........................ $ 0.22 $ 0.38 $ 0.37 $ 0.39 $ 0.31 $ 0.07 $ 0.33 $ 0.34
Dividends............................... 0.12 0.14 0.14 0.14 0.10 0.11 0.12 0.12
Stock price ranges -- high.............. 27.50 27.75 26.25 24.50 19.50 19.33 24.00 25.94
-- low.................. 21.75 23.38 20.38 19.13 15.33 17.17 18.50 22.00
-- close................ 27.00 24.00 22.75 22.89 18.83 18.17 22.75 25.13
</TABLE>
The financial information contains all normal and recurring
reclassification for a fair and consistent presentation.
Quotes have been obtained from the National Association of Security
Dealers. These quotes do not reflect retail mark-ups, mark-downs or commissions
nor are they necessarily representative of actual transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. The Proxy Statement and Notice of 1999 Annual
Meeting dated March 25, 1999 is incorporated herein by reference.
(b) Executive Officers of the Registrant. The information is presented in Item
1 of this document.
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement and Notice of 1999 Annual Meeting dated March 25, 1999
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Proxy Statement and Notice of 1999 Annual Meeting dated March 25, 1999
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement and Notice of 1999 Annual Meeting dated March 25, 1999
is incorporated herein by reference.
63
<PAGE> 64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of AMCORE are filed as a
part of this document under Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
<TABLE>
<CAPTION>
(A)3. EXHIBITS
- ----- --------
<C> <S>
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 on 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 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.)
10.3C 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.)
10.3D 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.)
10.3E Transitional Compensation Agreement dated November 18, 1998
between AMCORE Financial, Inc. and the following
individuals: Kenneth E. Edge, John R. Hecht, and James S.
Waddell
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
(A)3. EXHIBITS
- ----- --------
<C> <S>
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 Robert J. Meuleman (Incorporated by reference to
Exhibit 10.6 of AMCORE's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
10.6 Indenture, dated as of March 25, 1997, between the Company
and The First National Bank of Chicago (incorporated herein
by reference to Exhibit 4.1 of the Company's registration
statement on Form S-4, Registration No. 333-25375).
10.7 Form of New Guarantee between the Company and The First
National Bank of Chicago (incorporated herein by reference
to Exhibit 4.7 of the Company's registration statement on
Form S-4, Registration No. 333-25375).
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 10.9 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. (Incorporated by reference
to Exhibit 10.10 of AMCORE's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.)
10.11 Executive Insurance Agreement dated August 10, 1998 between
AMCORE Financial, Inc. and the following executives: Kenneth
E. Edge, John R. Hecht, and James S. Waddell. (Incorporated
by reference to Exhibit 10.10 of AMCORE's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.)
10.12 Fourth Amendment to Loan Agreement with M & I Marshall and
Ilsley Bank dated November 2, 1998.
13 1998 Summary Annual Report to Stockholders.
21 Subsidiaries of the Registrant
22 Proxy Statement and Notice of 1999 Annual Meeting
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
65
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rockford, State of
Illinois, on this 25th day of March 1999.
AMCORE FINANCIAL, INC.
JOHN R. HECHT
By:
--------------------------------------
John R. Hecht
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 25th day of March, 1999 by the following persons on
behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
ROBERT J. MEULEMAN President and Chief Executive Officer
- --------------------------------------------- (principal executive officer)
Robert J. Meuleman
JOHN R. HECHT Executive Vice President and Chief Financial
- --------------------------------------------- Officer (principal financial officer and principal
John R. Hecht accounting officer)
</TABLE>
Directors: Milton R. Brown, Carl J. Dargene, Richard C. Dell, Paul Donovan,
Lawrence E. Gloyd, John A. Halbrook, Frederick D. Hay, William R.
McManaman, Robert J. Meuleman, Ted Ross, Jack D. Ward and Gary L.
Watson
<TABLE>
<S> <C>
Robert J. Meuleman
- ---------------------------------------------
Robert J. Meuleman*
JOHN R. HECHT
- ---------------------------------------------
John R. Hecht*
Attorney in Fact*
</TABLE>
66
<PAGE> 1
EXHIBIT 10.3e
AMENDED AND RESTATED
TRANSITIONAL COMPENSATION AGREEMENT
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation (the
"Company"), and KENNETH E. EDGE, JOHN R. HECHT, and JAMES S. WADDELL (the
"Executive"), dated as of the 18TH DAY OF NOVEMBER, 1998. This Agreement
amends, restates and supersedes any and all prior agreements between the Company
and the Executive relating to the subject matter of this Agreement, including
(but not by way of limitation) the Transitional Compensation Agreement dated
September 25, 1995.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefit arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other similar
corporations. The Board believes that, in connection with such compensation and
benefit arrangements, it is appropriate to provide for a "Gross-Up Payment" to
the Executive to cover certain special taxes which might result from his
<PAGE> 2
receipt of other compensation and benefits. Therefore, in order to accomplish
these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in paragraph (b), below) on which a Change of Control
(as defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment or
cessation of status as an officer (i) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control, or (ii)
otherwise arose in connection with or anticipation of the Change of Control and
was not (A) for conduct by the Executive of the type described in Section 4(b),
below, (B) for significant deficiencies in the Executive's performance of his
duties to the Company (including, but not by way of limitation, significant
failure to cooperate in implementing a decision of the Board), or (C) for some
other specific substantial business reason unrelated to the
2
<PAGE> 3
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment or cessation of status as an officer.
(b) The "Change of Control Period" shall mean the period which
commenced on September 25, 1995 and ending on the third anniversary of such
date; provided, however, that on September 25, 1996, and on each annual
anniversary of such date (such date and each annual anniversary thereof being
hereinafter referred to as a "Renewal Date"), this Agreement and the Change of
Control Period shall be automatically extended so as to terminate three (3)
years from such Renewal Date, unless at least sixty (60) days prior to the
Renewal Date the Company shall give notice to the Executive that the Change of
Control Period shall not be so extended, in which case this Agreement shall
terminate upon the expiration of the Change of Control Period.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of fifteen percent (15%) or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors, but excluding for this purpose any such acquisition by the Company or
any of its subsidiaries, or any employee benefit plan (or related trust) of the
Company or its subsidiaries, or any corporation with respect to which, following
such acquisition, more than sixty percent (60%) of, respectively,
3
<PAGE> 4
the then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the common stock
and voting securities of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of common stock of the Company or
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors, as the case may
be; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided that any individual becoming a director subsequent to the date
hereof, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act); or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation of the Company, in each case, with
respect to which all or substantially all of the individuals and entities who
were the respective beneficial owners of the common stock and
4
<PAGE> 5
voting securities of the Company immediately prior to such reorganization,
merger or consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than sixty percent
(60%) of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation, or (ii) a complete
liquidation or dissolution of the Company, or (iii) the sale or other
disposition of all or substantially all of the assets of the Company.
3. Effective Period. This Agreement shall be in effect for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Effective Period").
4. Termination of Employment
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Effective Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Effective Period (pursuant to the definition of Disability
as set forth below), it may give to the Executive written notice in accordance
with Section 11(b) of this Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the thirtieth (30th) day after receipt of
such notice by the Executive (the "Disability Effective Date"), provided that,
within the thirty (30) days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company
5
<PAGE> 6
on a full-time basis for one hundred and eighty (180) consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably.)
(b) Cause. The Company may terminate the Executive's employment during
the Effective Period for Cause and may suspend the Executive from his duties
with full pay and benefits if the Executive is indicted for a felony involving
moral turpitude; provided, however, that the Executive will repay all amounts
paid by the Company from the date of such suspension if the Executive is
convicted of such felony. For purposes of this Agreement, "Cause" shall mean
(i) repeated violations by the Executive of the Executive's assigned duties as
an employee of the Company (other than as a result of incapacity due to physical
or mental illness) which are demonstrably willful and deliberate on the
Executive's part, which are committed in bad faith or without reasonable belief
that such violations are in the best interests of the Company, and which are not
remedied within thirty (30) days after receipt of written notice from the
Company specifying such violations or (ii) the conviction of the Executive of a
felony involving moral turpitude.
(c) Good Reason
(i) The Executive's employment may be terminated during the
Effective Period by the Executive for Good Reason (as defined below).
(ii) For purposes of this Agreement, "Good Reason" shall mean:
6
<PAGE> 7
(A) The assignment to the Executive of any duties inconsistent
in any material respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as in effect immediately prior to the Effective Date, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company within thirty (30) days after receipt of notice thereof
given by the Executive;
(B) Any reduction by the Company in Executive's compensation or
benefits as in effect immediately prior to the Effective Date, other than an
isolated, insubstantial and inadvertent reduction not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(C) The Company's requiring the Executive to be based at any
office or location more than twenty (20) miles from that in effect immediately
prior to the Effective Date;
(D) Any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(E) Any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement, provided that such successor has received at
least ten (10) days prior written notice from the Company or the Executive of
the requirements of Section 10(c) of this Agreement.
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<PAGE> 8
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by a Notice of
Termination to the other party given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen (15) days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability,
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<PAGE> 9
the Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Effective Period, the Company shall terminate the Executive's employment
other than for Cause or Disability, or the Executive shall terminate employment
for Good Reason:
(i) The Company shall pay to the Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
A. The sum of (1) the Executive's then current annual base
salary through the Date of Termination to the extent not theretofore paid; (2)
the product of (x) Executive's Recent Average Bonus (as defined below) and (y) a
fraction, the numerator of which is the number of days in the then current
fiscal year through the Date of Termination, and the denominator of which is
three hundred and sixty-five (365); (3) any compensation previously deferred by
the Executive (together with any accrued interest or earnings thereon); and (4)
any accrued vacation pay; in each case to the extent not theretofore paid (the
sum of the amounts described in parts (1), (2), (3) and (4), above, being
hereinafter referred to as the "Accrued Obligations"). For purposes of this
Agreement, Executive's Recent Average Bonus shall be the average annualized (for
any fiscal year consisting of less than twelve (12) full months or with respect
to which the Executive has been employed by the Company for less than twelve
(12) full months) bonus paid or payable, before taking into account any
deferral, to the Executive by the
9
<PAGE> 10
Company and its affiliated companies in respect of the three (3) fiscal years
immediately preceding the fiscal year in which the termination of Executive's
employment occurs; and
B. The amount (such amount being hereinafter referred to as the
"Severance Amount") equal to the product of multiplying by three (3) the sum of
(1) the Executive's then current annual base salary and (2) Executive's Recent
Average Bonus; provided, however, that such amount shall be reduced by the
present value (determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation to be received by the Executive, upon
such termination of employment, under any other severance plan, policy or
arrangement of the Company; and
C. A separate lump-sum supplemental retirement benefit (the
amount of such benefit being hereinafter referred to as the "Supplemental
Retirement Amount") equal to the difference between (1) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions utilized with respect to
the Financial Security Plans of the Company (or any successor plans thereto)
(the "Retirement Plans") during the ninety (90)-day period immediately preceding
the Effective Date) of the benefits payable under the Retirement Plans and under
any supplemental and/or excess retirement plans of the Company and its
affiliated companies providing benefits for the Executive (the "SERPs") which
the Executive would have received if the Executive's employment had continued
(at the compensation level in effect at the time of termination of Executive's
employment) for three (3) years after the Date of Termination, assuming for this
purpose that all accrued benefits are fully vested and that benefit accrual
formulas are no less
10
<PAGE> 11
advantageous to the Executive than those in effect during the ninety (90)-day
period immediately preceding the Effective Date, and (2) the actuarial
equivalent (utilizing for this purpose the actuarial assumptions utilized with
respect to the Retirement Plans during the ninety (90)-day period immediately
preceding the Effective Date) of the Executive's actual benefits (paid or
payable), if any, under the Retirement Plans and the SERPs; and
(ii) For three (3) years after the Date of Termination, or such longer
period as any other plan, program, practice or policy may provide, the
Executive's employment shall continue under all applicable stock option plans,
restricted stock plans, and other equity incentive plans or programs of the
Company and its affiliates solely for purposes of determining (A) the date(s) on
which any option(s) or similar right(s) shall become exercisable or shall expire
and (B) the date(s) on which any stock restriction(s) shall lapse; provided that
if such continuation is not possible under the provisions of such plans or
programs or under applicable law, the Company shall arrange to provide benefits
to the Executive substantially equivalent in value to those required to be
provided under this subparagraph (ii).
(iii) For three (3) years after the Date of Termination, or such longer
period as any other plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them, if the Executive's
employment had not been terminated, in accordance with (A) the welfare benefit
plans, practices, programs or policies of the Company and its affiliated
companies as in effect and applicable generally to other peer executives and
their families during the ninety (90)-day period immediately preceding the
Effective Date or (B) if more favorable to the
11
<PAGE> 12
Executive, those in effect generally from time to time thereafter with respect
to other peer executives of the Company and its affiliated companies and their
families (such continuation of such benefits for the applicable period herein
set forth being hereinafter referred to as "Welfare Benefit Continuation");
provided that if such continued coverage is not permitted by the applicable
plans or by applicable law, the Company shall provide the Executive and/or
Executive's family with comparable benefits of equal value; and provided further
that if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the end of the
Effective Period and to have retired on the last day of such period; and
(iv) To the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive and/or the Executive's family any other
amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
or under (A) any other plan, program, policy or practice, or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
ninety (90)-day period immediately preceding the Effective Date or (B) if more
favorable to the Executive, those in effect generally from time to time
thereafter with respect to other peer executives of the Company and its
affiliated
12
<PAGE> 13
companies and their families (such other amounts and benefits being hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Effective Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the Accrued Obligations
(which shall be paid to the Executive's estate or beneficiary, as applicable, in
a lump sum in cash within thirty (30) days of the Date of Termination) and (ii)
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Effective Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid to the Executive in a
lump sum in cash within thirty (30) days of the Date of Termination) and (ii)
the timely payment or provision of the Welfare Benefit Continuation and Other
Benefits.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Effective Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay the Executive's then current annual base salary through the Date of
Termination, plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Effective Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for (i) the Accrued Obligations and (ii) the timely
payment or provision of Other Benefits. In such case, all Accrued
13
<PAGE> 14
Obligations shall be paid to the Executive in a lump sum in cash within thirty
(30) days of the Date of Termination.
6. Certain Additional Payments by the Company. The Company agrees that:
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, being hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of paragraph (c), below, all
determinations required to be made under this Section 6, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by McGladrey & Company (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15)
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<PAGE> 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 6, shall be paid by the Company to the Executive within five (5)
days of the receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any good faith determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to paragraph (c), below, and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
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<PAGE> 16
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than fifteen (15) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty
(30)-day period following the date on which Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) Give the Company any information reasonably requested by the
Company relating to such claim,
(ii) Take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) Permit the Company to participate in any proceedings relating
to such claim;
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<PAGE> 17
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this paragraph (c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner; and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be
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<PAGE> 18
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to paragraph (c), above, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of said paragraph (c)) promptly
pay to the Company the amount of such refund (together with any interest paid or
credited thereon, after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to said paragraph (c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of the Gross-Up Payment required
to be paid.
7. Non-exclusivity of Rights. Except as explicitly provided in this
Agreement, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under applicable law or under any other
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any other plan, policy, practice or program of, or any other
contract or agreement with, the Company or any of its affiliated companies at,
or
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<PAGE> 19
subsequent to, the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; Resolution of Disputes
(a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
5(a)(iii) of this Agreement, such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a result of any
contest by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest initiated
by the Executive about the amount of any payment due pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code; provided,
however, that in the event that it is finally judicially determined that the
Executive was terminated for Cause, then the Executive shall be obligated to
repay to the Company the full amount of all such legal fees and expenses paid
for the Executive by the Company in connection with that contest, plus interest
at the rate described above.
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(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
5(a) hereof as though such termination were by the Company without Cause or by
the Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive and/or the other
recipient(s), as the case may be, to repay all such amounts to which the
Executive or other recipient, as the case may be, is ultimately adjudged by such
court not to be entitled.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written
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<PAGE> 21
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. However, in no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
10. Successors
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, no obligations or rights hereunder shall be
assignable by the Executive otherwise than by will or the laws of descent or
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement, by operation of law or otherwise.
11. Miscellaneous
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(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
choice of law. The captions of this Agreement are for convenience only and are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given to the other party by hand delivery or commercial messenger
delivery or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Kenneth E. Edge
1684 Oakforest Drive
Rockford, IL 61107
John R. Hecht
4912 Great Day Lane
Rockford, IL 61109
James S. Waddell
2657 Saxon Place
Rockford, IL 61114
If to the Company:
Amcore Financial, Inc.
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
Attention: Mr. James S. Waddell
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
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<PAGE> 23
(d) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or the failure to assert any right that the
Executive or the Company may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason pursuant to
Section 4(c) of this Agreement, shall not be deemed to be a waiver of such
provision or right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement is
not a contract of employment and that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the
employment of the Executive by the Company is, and shall remain during the
Effective Period, "at will" and may, subject to Section 5, above, be terminated
by either the Executive or the Company at any time. Moreover, subject to
Section 1, above, if prior to the Effective Date (i) the Executive's employment
with the Company and all affiliates terminates or (ii) the Executive ceases to
be an officer of the Company and of all affiliates, then the Executive shall
have no further rights under this Agreement.
(g) This Agreement embodies the entire agreement and understanding
between the Company and the Executive and supersedes all prior agreements and
understandings between the Company and Executive relating to the subject matter
hereof, including (but not by way of limitation) the Transitional Compensation
Agreement dated September 25, 1995.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
AMCORE FINANCIAL, INC.
By:
------------------------------------------------------------
James S. Waddell
Its Executive Vice President and Chief Administrative Officer
/s/ John R. Hecht
-----------------------
John R. Hecht
/s/ Kenneth E. Edge
-----------------------
Kenneth E. Edge
/s/ James S. Waddell
-----------------------
James S. Waddell
24
<PAGE> 1
EXHIBIT 10.12
AMENDMENT TO COMMERCIAL PAPER PLACEMENT AGREEMENT
BETWEEN AMCORE FINANCIAL, INC.
AND M&I MARSHALL ILSLEY BANK
OCTOBER 28, 1998
Section 2. Aggregate Limits of Issuer's Commercial Paper. Issuer covenants
and agrees that the outstanding principal amount owing under
Issuer's Commercial Paper placed by agent with Purchasers
pursuant to this Agreement, when added to the amounts drawn and
outstanding under Bank-Up Lines of Credit, shall not at any time
exceed $50,000,000.
All other sections of the Commercial Paper Placement Agreement shall remain in
effect.
DATE: 11/2/98
-----------------------------
ISSUER: Amcore Financial, Inc.
---------------------------
BY: /s/ John R. Hecht
-------------------------------
ITS: EVP & CFO
------------------------------
(Title)
AGENT: M&I Marshall & Ilsley Bank
----------------------------
BY:
-------------------------------
ITS:
------------------------------
<PAGE> 1
Exhibit 13
AMCORE Financial, Inc., Summary Annual Report 1998
<PAGE> 2
At
AMCORE Financial
You're the
Star of
the Show.
<PAGE> 3
1998 was a stellar year for AMCORE Financial's core businesses. Focusing on the
true needs of individual customers and shareholders has been the abiding secret
of our success. It will be the secret to our success in the future, as well.
You should be able to see yourself in everything we do.
<PAGE> 4
Letter to
Shareholders
[PHOTO]
Robert J. Meuleman
President & CEO
AMCORE Financial, Inc.
FELLOW SHAREHOLDERS:
The stars were shining bright for AMCORE in 1998 as your company improved
shareholder value and achieved some significant milestones. Here are some
of the standouts from a great year.
* Excellent growth in banking, investment and mortgage activities resulted in
a 22 percent increase in net income from operations to $42.9 million for
1998.
* The success of our sales management program and a robust Midwest economy
boosted average loan volume 19 percent to $2.2 billion in loans for 1998.
* Record mortgage originations totaling $479 million led to an 81 percent
increase in mortgage revenues.
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<PAGE> 5
* The addition of Midwest Federal Financial Corp., Baraboo, Wisconsin,
increased banking assets to $4.1 billion, ranking AMCORE among the top 100
bank holding companies nationally.
* Trust and asset management revenues increased 44 percent due to strong sales
results, favorable investment performance and the addition of Investors
Management Group, Des Moines, Iowa.
* AMCORE now ranks nationally among the top 15 percent of asset management
firms based on size with $4.2 billion in assets under management.
* PERFORMANCE HIGHLIGHTS
We also improved our return on equity and earnings per share. Our
operating return on equity (ROE) increased 65 basis points to 13.70 percent
for 1998 compared to 13.05 percent in 1997. We made significant improvement
throughout the year and achieved a 14.01 percent ROE in the fourth quarter.
We announced a buy-back program in October 1998, to purchase up to
five percent of our common stock or approximately 1.45 million shares. Our
buy-back program is tangible evidence of our belief that our company's
stock represents a good value.
Here are some of the achievements that led to a record year for your
company. Our diluted earnings per share increased nearly 30 percent to
$1.36 in 1998 compared to $1.05 in 1997. Cash dividends to shareholders
increased 20 percent to 54 cents in 1998, up from 45 cents in 1997.
Shareholders' equity has increased 49 percent over the past five years to
$316 million at year end.
Of course, none of these accomplishments would have been possible
without the hard work and dedication of our 1,600 employees. The
professional development of our employees through training and professional
schools, combined with a customer focused attitude, has greatly enhanced
our ability to serve our customers. They are our strength and the power
behind our success.
2
<PAGE> 6
* STRATEGIC VISION
Our vision and purpose is to be a high performing, regional financial
services company by developing more efficient operations, growing the company
internally and through acquisitions, and exceeding customer expectations by
meeting their financial needs with the best products, services and expertise
available. The best way to accomplish these goals is to make everyone
accountable for achieving them.
Toward that end, we initiated stock ownership requirements for senior
management in 1998 to better align their objectives with shareholder goals.
Our philosophy is that AMCORE belongs to each of us, and each of us plays a
role in its destiny.
In 1998, we decided to refine our road map for the future. We embarked
on a strategic planning process that should offer you greter shareholder
value. Our objective is to maximize the efficiencies in our organizations and
identify successful market opportunities to meet our corporate goals.
Many of our markets have felt the effects of mega bank mergers and we
believe these are an opportunity for us. AMCORE offers the responsiveness
of a local community bank with the breadth of financial services and greater
accessibility of a larger regional financial services company. Our market
share in many of our key markets increased significantly, with some increases
as much as six percentage points in 1998.
* SALES SUCCESS
Commercial lending volume increased nearly 28 percent in 1998 and our
retail lending volume increased 22 percent, while our asset quality standards
remained high. This success was primarily due to our sales management
program and capitalizing on strong local economies.
In a sales management culture, we believe by focusing on our
customers' needs first, greater sales opportunities will follow. Our sales
process was just one factor in our strong performance. In addition, we
focused on lowering costs and improving efficiencies.
In 1998, we converted all of our Illinois banks and the majority of
our Wisconsin banks to ALLTEL, a third-party data processor. With the final
conversion of our Central Wisconsin bank in March 1999, we now have one
standard operating platform. The conversion process required an extraordinary
commitment from our employees who worked long hours and weekends to make the
transition as smooth as possible.
* YEAR 2000
With the conversion to ALLTEL, our core banking applications are
substantially Year 2000 ready. We have been working on Year 2000 readiness
since 1996. We continue to fulfill Federal Banking Regulators' mandates for
quarterly reviews and substantially completed testing of mission critical
applications as of December 31, 1998. We expect
<PAGE> 7
testing of external service providers will be substantially completed by
March 31, 1999. Our goal is to work on Year 2000 issues and implement
changes so the transition to the new millennium is a non-event for our
customers.
* GAINING EFFICIENCIES
Now that we have our technological improvements in place, we are
focusing on building an effective support system. Our goal is to improve
our response time between our salespeople and our customers and eliminate
redundancies within our operations. While we did not reach our goal of
achieving a 15 percent ROE in 1998, we did make substantial progress, and
that target is much closer to being realized.
We are optimistic and look forward to continued strong performance
from our core businesses. Our emphasis continues to be on improving our
operations by remaining focused on you, our shareholders, customers,
communities and employees. You truly are the stars of our show. Thank you
for your support.
/s/ Robert J. Meuleman
------------------------------------------
ROBERT J. MEULEMAN, President and Chief Executive Officer,
AMCORE Financial, Inc.
[PHOTO]
Robert J. Meuleman
President & CEO
[PHOTO]
James S. Waddell
Executive Vice President & CAO
[PHOTO]
Kenneth E. Edge
Executive Vice President & COO
[PHOTO]
John R. Hecht
Executive Vice President & CFO
4
<PAGE> 8
FINANCIAL
HIGHLIGHTS
AMCORE Financial, Inc. reported record earnings for 1998 due to strong loan
growth, robust local economies and a successful sales management program. Net
income, for instance, increased 38 percent from a year ago to $39.6 million in
1998.
(in thousands, except per share data) 1998 1997 Change
- --------------------------------------------------------------------------------
Operating Results:
- --------------------------------------------------------------------------------
Net interest income $ 122,734 $ 110,999 10.57%
- --------------------------------------------------------------------------------
Provision for loan and lease losses 7,993 7,045 13.46
- --------------------------------------------------------------------------------
Non-interest income 58,748 48,601 20.88
- --------------------------------------------------------------------------------
Operating expense 119,594 114,973 4.02
- --------------------------------------------------------------------------------
Pretax income 53,895 37,582 43.40
================================================================================
Net Income $ 39,581 $ 28,664 38.09
================================================================================
- --------------------------------------------------------------------------------
Basic earnings per share $ 1.39 $ 1.07 29.91%
- --------------------------------------------------------------------------------
Diluted earnings per share 1.36 1.05 29.52
- --------------------------------------------------------------------------------
Dividends per share 0.54 0.45 20.00
- --------------------------------------------------------------------------------
Average common shares outstanding 28,515 26,862 6.15
- --------------------------------------------------------------------------------
Average diluted shares outstanding 29,098 27,405 6.18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Ratios:
- --------------------------------------------------------------------------------
Operating return on average equity (1) 13.70% 13.05% 0.65%
- --------------------------------------------------------------------------------
Operating return on average assets (1) 1.08 1.00 0.08
- --------------------------------------------------------------------------------
Net interest margin 3.51 3.59 (0.08)
- --------------------------------------------------------------------------------
Leverage ratio 8.31 8.31 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year End Balances:
- --------------------------------------------------------------------------------
Total assets $4,147,833 $3,667,690 13.09%
- --------------------------------------------------------------------------------
Loans and leases, net of unearned income 2,451,518 1,962,674 24.91
- --------------------------------------------------------------------------------
Deposits 2,947,724 2,527,043 16.65
- --------------------------------------------------------------------------------
Stockholders' equity 316,083 287,476 9.95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Stock Information at Year End:
- --------------------------------------------------------------------------------
Book value per share $ 10.96 $ 10.68 2.62%
- --------------------------------------------------------------------------------
Market value per share 22.89 25.13 (8.91)
- --------------------------------------------------------------------------------
(1) The 1998 ratios including the impact of the $3.3 million, or $.11 per share,
after-tax merger related charges: return on average equity 12.64%; return on
average assets 0.99%.
The 1997 ratios including the impact of the $6.4 million, or $.24 per share,
after-tax merger related and information systems charges: return on average
equity 10.66%; return on average assets 0.81%.
5
<PAGE> 9
DILUTED EARNINGS PER SHARE DIVIDENDS PER SHARE
$1.36 in 1998 $0.54 in 1998
98 $1.36 98 $0.54
97 $1.05 97 $0.45
96 $1.18 96 $0.38
95 $0.86 95 $0.33
94 $0.96 94 $0.31
Diluted earnings per share were $1.36 for 1998, a 30 percent increase from 1997.
This increase is the direct result of strong loan growth. *Dividends per share
in 1998 were $0.54, a 20 percent increase from $0.45 in 1997. Book value per
share was $10.96, a 2.6 percent increase from the previous year. *Significant
progress was made in 1998 toward our goal of achieving a 15 percent return on
equity. Operating ROE for 1998 was 13.70 percent, and in the fourth quarter of
the year, the company reported ROE of over 14 percent.
BOOK VALUE PER SHARE OPERATING RETURN ON EQUITY (1)
$10.96 in 1998 13.70% in 1998
98 $10.96 98 13.70%
97 $10.68 97 13.05%
96 $ 9.64 96 13.14%
95 $ 9.10 95 11.81%
94 $ 8.03 94 12.30%
<PAGE> 10
NET INTEREST INCOME - FTE AVERAGE LOANS
$132.7 (in millions) $2.2 in 1998 (in billions)
98 $132.7 98 $2.219
97 $120.2 97 $1.867
96 $114.6 96 $1.712
95 $104.8 95 $1.557
94 $102.6 94 $1.391
Net interest income, AMCORE's primary source of revenue, increased 10 percent to
$132.7 million on a fully taxable equivalent basis. The growth in average
earning assets can be attributed to a $352 million, or 19 percent, increase in
average loans. Non-interest income, which consists of fee revenues from trust
and asset management, mortgage banking, brokerage and insurance services,
increased 22 percent to $54.3 million, excluding security gains.
NON-INTEREST INCOME TOTAL AVERAGE ASSETS
$58.7 in 1998 (in millions) $4.0 in 1998 (in billion)
98 $ 58.7 98 $3.984
97 $ 48.6 97 $3.520
96 $ 42.3 96 $3.182
95 $ 36.9 95 $2.716
94 $ 33.9 94 $2.505
<PAGE> 11
MARKET
HIGHLIGHTS
AMCORE FINANCIAL IS BLESSED WITH A GROWING AND VIBRANT MARKETPLACE. OUR GROWTH
IS A REFLECTION NOT ONLY OF OUR INCREASING SALES SKILLS AND STRATEGIES, BUT OF
THE GROWTH OF OUR MARKETPLACE.
AMCORE has forged a unique position in the Illinois, Wisconsin and Iowa
markets by providing a higher level of service than larger competitors and more
financial services and accessibility than smaller competitors. The goal is to
better service all of our markets by creating a combination of price,
convenience, professionalism and responsiveness that other companies cannot
match.
In 1998, AMCORE enjoyed substantial increases in business as a result of
strong, healthy local economies. Our banking asset size reached $4.1 billion,
while our investments under management grew to $4.2 billion. Loan volume and fee
revenues increased significantly, making 1998 a record year. Here is a recap of
our market highlights.
ILLINOIS
Over $3.2 billion of the company's banking assets are in Illinois. The
company is the largest independent banking company in Illinois headquartered
outside of the Chicagoland area. AMCORE has strong market share positions in
most of the communities it serves, consistently ranking in the top five in terms
of deposit market share. AMCORE is clearly the market leader in both Rockford
and the Rock River Valley region.
NORTHWEST CHICAGO SUBURBS
Projected 10 year
population growth
of 26%.
MADISON AREA
Projected 10 year
population growth
of 12%
8
<PAGE> 12
ROCKFORD
AMCORE has 36 percent loan market share and 34 percent deposit market share
in Rockford, far outdistancing its competitors. This represents a three percent
increase in 1998. The Rockford bank experienced significant loan growth with a
21 percent increase in commercial lending and 20 percent increase in retail
lending. Average deposits grew 14 percent in 1998. AMCORE Bank, Rockford, has
$1.8 billion in assets and 18 locations.
Rockford is the second largest city in Illinois with a metropolitan
statistical area (MSA) population of over 350,000. The area is ranked in the top
40 percent in the nation for export sales and is home to several international
manufacturing corporations such as Woodward, CLARCOR and Ingersoll Milling
Machine Company. In fact, the city ranks 37th out of the 310 best U.S.
metropolitan areas for manufacturing.
AMCORE is committed to serving the needs of its business clients and in
1998 earned the Small Business Administration's Preferred Lender status. The
small business segment is a growing market, and it is important to the company's
strategic goals. Rockford also ranks among the top 20 cities nationally as best
for small businesses by Entrepreneur Magazine. One of the city's biggest
attractions is its transportation and distribution hub, since it is easily
accessible to major highways, airports and rail services. Rockford is home to
the nation's second largest UPS air packaging center and a national trucking
distribution center.
NORTHWEST CHICAGO SUBURBS
The northwest Chicago suburbs are a strong growth market for AMCORE. AMCORE
Bank, Northwest, has $261 million in assets and four offices. McHenry County is
the fastest growing county in the state and the sixth fastest growing county in
the nation. AMCORE opened a branch in the city of McHenry in January 1998 to
expand its market share in the area. The strong vibrant economy contributed to a
25 percent increase in loan volume in 1998. This led to a six percentage point
increase in market share. The area's population of over 250,000 is expected to
increase over the next 10 years by 26 percent. The strong service sector,
booming residential housing market and growth in manufacturing is expected to
continue to offer revenue opportunities for AMCORE.
NORTH CENTRAL ILLINOIS AND ROCK RIVER VALLEY
This area represents a mix of metropolitan and rural communities with a
strong emphasis in manufacturing, service and agri-business. AMCORE Bank, Rock
River Valley, has $651 million in assets and seven locations. AMCORE Bank, North
Central, has $446 million in assets and 11 locations. AMCORE Bank, Rock River
Valley, is a leader in its market with a 42 percent market share for both loans
and deposits. AMCORE Bank, North Central, also has a top market share position.
Growth along the Interstate 88, 39 and 80 corridors should continue to offer
opportunities to increase asset size and profitability.
9
<PAGE> 13
WITH LOCATIONS IN ILLINOIS,
WISCONSIN AND IOWA,
AMCORE IS STRATEGICALLY
LOCATED TO BENEFIT FROM THE
CONTINUING MIDWESTERN
ECONOMIC STRENGTHS IN
MANUFACTURING, TECHNOLOGY
AND SERVICE PROVIDERS.
[MAP]
ROCKFORD MSA POPULATION 350,000
WISCONSIN
AMCORE ranks among the top 10 banks in the state with $881 million in
assets and 25 locations. The Wisconsin market comprises an eight county market
area with a population of 800,000 that is expected to grow by 12 percent in 10
years. AMCORE added Midwest Federal Financial Corp., Baraboo, to its Wisconsin
operations in March 1998. This was a strategic fit for the company, filling a
market gap between two previous acquisitions. Also in 1998, AMCORE combined the
operations of several of its Wisconsin banks to gain greater efficiencies and
improve service.
IOWA
Iowa is home to Investors Management Group, AMCORE's asset management and
mutual fund administration operations, which was acquired in February 1998. This
aquisition broadened the company's expertise in fixed-income management,
expanded the number of Vintage Mutual Funds from seven to 10 and brought
administration of the Vintage Funds in-house. Assets in the Vintage Funds
increased 49 percent to $1.3 billion as of December 31, 1998. The Vintage Equity
Fund reached a milestone by surpassing $500 million in assets in 1998 and
consistently earned a four- or five-star rating from Morningstar since 1996.
More than half of the increase in trust and asset management revenues in 1998
are a result of the addition of Investors Management Group and bringing mutual
fund administration in-house.
10
<PAGE> 14
ABOVE ALL ELSE, WE UNDERSTAND THIS: AMCORE SHAREHOLDERS ARE OUR CUSTOMERS, TOO.
OUR COMMITMENT TO DELIVER SHAREHOLDER VALUE IS NOT A JOB FOR JUST A FEW OF US;
IT IS A JOB FOR EVERYONE IN OUR COMPANY. WE TAKE PRIDE IN WHAT WE DO, AND ARE
FOCUSED ON YOU.
SHARE
HOLDER
Being an AMCORE shareholder meant more than just owning a stock certificate
for Marty Pschirrer. Stock ownership meant understanding the company's strategic
goals and having confidence in the people who run the business.
"My wife, Becky, and I grew up in the Midwest," said Marty. "Our roots are
here, so we wanted to invest in a company that shared our Midwestern values and
would give us a good return on our investment."
AMCORE HAS FIVE KEY STRATEGIC INITIATIVES.
CUSTOMER FOCUS: AMCORE's success depends upon how well it meets its
customers' needs, and meeting those needs will lead to greater profitability.
SALES MANAGEMENT: Employees do more than just sell products; they identify
customer needs, offer financial solutions and manage the relationship to develop
long-term customer loyalty.
FINANCIAL SERVICES ATTITUDE: Our employees realize we are more than just a
bank and are able to offer a wide variety of products and services.
SUPER COMMUNITY BANKING: We offer more personalized service, more locally
responsive decision making and more community involvement than the mega banks.
We also offer more sophisticated products, more advanced technology and more
knowledgeable sales staff than the smaller local banks.
GROWTH: The company grows through increased sales and strategic
acquisitions which enhance shareholder value.
CUSTOMERS
26
<PAGE> 15
[PHOTO]
ONE OF THE BEST WAYS A COMPANY CAN INCREASE SHAREHOLDER VALUE IS TO ENCOURAGE
ITS EMPLOYEES TO TAKE OWNERSHIP IN THE COMPANY'S PERFORMANCE. AT AMCORE, ALL
EMPLOYEES ARE SHAREHOLDERS.
<PAGE> 16
[PHOTO]
[PHOTO] AN ENTREPRENEURIAL SPIRIT IS BEHIND EVERY SUCCESSFUL BUSINESS.
AMCORE'S GOAL IS TO PARTNER WITH OUR BUSINESS CUSTOMER BY
MEETING THEIR FINANCIAL NEEDS, BOTH BIG AND SMALL, SO THEY CAN FOCUS ON
WHAT THEY DO BEST - RUNNING THEIR BUSINESS.
<PAGE> 17
AMCORE EARNED SBA "PREFERRED" LENDER STATUS IN ILLINOIS IN 1998, WHICH ALLOWS US
TO BETTER SERVE SMALL BUSINESS CUSTOMERS - OF WHICH THERE ARE MANY. ROCKFORD,
ILLINOIS, OUR HEADQUARTERS, RANKS AMONG THE TOP 20 CITIES NATIONALLY FOR SMALL
BUSINESSES, ACCORDING TO ENTREPRENEUR MAGAZINE.
BUSINESS
BANKING
Bill Hoff had big dreams for his business, Prime Automation. After all, he
put a lot of hard work into starting it 10 years ago. When it came time to build
a new facility, he knew he had to find a lender that could do more than just
loan him money. He needed a lender that could understand and share his vision
for his company.
"AMCORE took the time to find out what my business was all about," said
Bill. "I felt my banker, Jack Joyce, was on my team. When I needed him, he was
there at a moment's notice."
"You can't take on more orders if you don't have the space to build your
product. Other banks were slow to respond to my lending requests, but AMCORE
understood my urgency," said Bill. "Now I rely on AMCORE for cash management,
equipment financing and my own personal banking needs."
At AMCORE, business banking means helping our local businesses and our
communities grow. In 1998, commercial lending increased nearly 28 percent, or
$301.8 million, for a total of nearly $1.4 billion in loans outstanding. This
growth was due to our successful sales management program and strong local
markets. Through the Small Business Express Program and the SBA Preferred
Lending Program, AMCORE had 35 loans approved in 1998 totaling $11.6 million.
AMCORE ranked fourth in loan volume in the Illinois Capital Access Program,
which provides working capital to small businesses.
CUSTOMERS
14
<PAGE> 18
AT AMCORE BANK, THE CART NEVER COMES BEFORE THE HORSE. FIRST, WE DETERMINE
NEEDS, THEN WE DEVELOP PRODUCTS. THE KEYSTONE PHILOSOPHY IS REFLECTED IN THE
PHRASE, "FOCUSED ON YOU." THIS TRULY IS A FINANCIAL INSTITUTION WHERE ENHANCING
OUR CUSTOMERS' LIVES AND FULFILLING THEIR NEEDS IS THE MOST IMPORTANT THING WE
DO.
PERSONAL
BANKING
Dr. Pam Schmidt needed a bank that could help her simplify her life. She
and her husband, Roger, have a busy dental practice and a busy family life. "We
don't have a lot of free time, and the time we do have, we like to spend with
our three daughters," she said. "I don't want to spend my time playing phone tag
with my banker."
As an AMCORE Pinnacle Private Banking customer, Pam doesn't have to make a
lot of calls to a lot of departments to get her questions answered. All she has
to do is call her private banker, Jody Jungerberg. "Jody's great, she answers
all my questions," said Pam. "Even out-of-the ordinary ones like, `What's the
blue book value of my car?'"
Whether our customers sit down with a personal banker, a private banker or
an Ambassador Club banker for customers over 55, the results are the same: Real
solutions for everyday life.
By focusing on our customers' needs, we have been able to increase sales
and revenues. Our installment loan volume increased 54 percent to $155.2 million
and our home equity lending increased 11 percent to $140.5 million. Our popular
AMDEX Money Market Account brought in nearly $260 million in deposits. In 1999,
we will add online banking to our product offerings, making it even easier for
our customers to do business with us and access their accounts, anytime,
anywhere.
CUSTOMERS
15
<PAGE> 19
[PHOTO] OUR STRENGTH IS OUR EMPLOYEES. THEY UNDERGO EXTENSIVE
SALES MANAGEMENT AND PRODUCT KNOWLEDGE TRAINING SO
THEY CAN BETTER UNDERSTAND OUR CUSTOMERS' FINANCIAL NEEDS AND SUGGEST
THE BEST PRODUCTS AND SERVICES AVAILABLE.
<PAGE> 20
[PHOTOS]
AMCORE BRINGS WALL STREET HOME TO THE MIDWEST. WE'VE ESTABLISHED A TRADITION OF
EXCELLENCE BY PROVIDING HIGH QUALITY TRUST, INVESTMENT MANAGEMENT AND INSURANCE
SERVICES TO INDIVIDUALS AND CORPORATIONS FOR OVER 100 YEARS.
<PAGE> 21
WITH THE 1998 ACQUISITION OF IOWA-BASED INVESTORS MANAGEMENT GROUP, OUR ASSETS
UNDER MANAGEMENT DOUBLED TO $4.2 BILLION. OUR VINTAGE FAMILY OF MUTUAL FUNDS
NOW INCLUDES 10 FUNDS AND $1.3 BILLION IN ASSETS.
INVEST
MENT
After more than 30 years with Aqua-Aerobic Systems, Inc., Jim Gault was
retiring from his job as president. However, he wasn't quite ready to hang up
his hat and sit back in his easy chair. He was 62 and planned to continue
leading a busy professional life while enjoying some important family time.
"AMCORE's trust and investment area offered me sound investment decisions,"
said Jim.
Jim was familiar with AMCORE's institutional asset management group, which
managed Aqua-Aerobic's employee 401K plan. "I liked the investment performance
AMCORE achieved with our employee plan, so I thought I would see what they could
do for me," said Jim. "As my retirement life gets busier, I wouldn't be
surprised if I turn over the management of more of my investments to AMCORE, so
I can enjoy the really important things in life, like fishing in the North Woods
of Wisconsin."
AMCORE Investment Group, N.A. (AIG) has established a tradition of
excellence by providing high quality trust and investment management services to
individuals and corporations. Insurance products are offered to individual and
corporate clients through AMCORE Insurance Group, Inc.
In 1998, AIG significantly expanded its investment capabilities with the
acquisition in February of Investors Management Group, Des Moines, Iowa. With
$4.2 billion in assets under management, AIG now ranks among the top 15 percent
of asset managers based on size in the country. AIG has 17 locations throughout
Illinois, Iowa and Wisconsin.
CLIENTS
18
<PAGE> 22
IN 1998, OUR MORTGAGE ORIGINATIONS REACHED RECORD LEVELS DUE TO OUR EXPANSION
INTO WISCONSIN, THE LOW INTEREST RATE ENVIRONMENT AND OUR COMMITMENT TO PROVIDE
AFFORDABLE MORTGAGES AND REFINANCING.
MORT
GAGE
Buying a new home was the most important purchase the Saez-Gimeno's ever
made. So when it came time to find a mortgage lender to finance their dream
home, they wanted personalized service, hassle-free loan approval and rates and
terms to fit their needs.
"Buying a home is stressful enough, but we were also getting married," said
Julie Saez-Gimeno. "We closed on our home 15 days after our wedding." Julie's
husband, Jesus, said it was the little things their AMCORE Mortgage loan
originator, Margie Nowak, did that made the loan process as hassle-free as
possible. "She met with us right away on a Saturday, told us up front what items
we needed in order to be approved, and we had our answer within 24 hours," said
Jesus. "She kept in touch with us throughout the process so we could lock in at
the lowest rate possible."
"Now we're focusing on the more relaxing part of owning a home, like
redecorating," said Julie.
Personalized service, improved loan processing technology and attractive
products have helped AMCORE Mortgage reach record loan originations of $479
million in 1998. This growth also was made possible by a strong housing market
and low interest rates, which fueled the refinancing boom. This was the first
year AMCORE Mortgage began operating in Wisconsin, which added significantly to
loan growth with $128 million in originations. Mortgage revenues overall were
$10.6 million in 1998, compared to $5.8 million in 1997. AMCORE Mortgage manages
a servicing portfolio of 1-to-4 family residential loans of over $1.2 billion.
CUSTOMERS
19
<PAGE> 23
[PHOTO]
[PHOTO] ROCKFORD, ILLINOIS, AMCORE'S HEADQUARTERS, IS THE
SECOND MOST AFFORDABLE HOUSING MARKET IN THE NATION. LOW INTEREST
RATES AND FAVORABLE MARKET CONDITIONS IN ALL OF AMCORE'S COMMUNITIES
LED TO A 121% INCREASE IN MORTGAGE ORIGINATIONS.
<PAGE> 24
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
$
<PAGE> 25
FINANCIALS
AMCORE Financial, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
As of December 31,
ASSETS 1998 1997
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 144,199 $ 105,218
----------------------------------------------------------------------------
Federal funds sold and other
short-term investments 22,824 2,839
----------------------------------------------------------------------------
Loans held for sale 46,836 29,869
----------------------------------------------------------------------------
Securities available for sale 1,327,532 1,441,593
----------------------------------------------------------------------------
Securities held to maturity
(fair value of $16,371 in 1998;
$15,611 in 1997) 16,142 15,423
============================================================================
Total Securities 1,343,674 1,457,016
----------------------------------------------------------------------------
Loans and leases, net of unearned income 2,451,518 1,962,674
----------------------------------------------------------------------------
Allowance for loan and lease losses (26,403) (19,908)
============================================================================
Net Loans and Leases 2,425,115 1,942,766
----------------------------------------------------------------------------
Premises and equipment, net 58,763 54,774
----------------------------------------------------------------------------
Intangible assets, net 19,028 12,168
----------------------------------------------------------------------------
Foreclosed real estate 2,321 1,668
----------------------------------------------------------------------------
Other assets 85,073 61,372
----------------------------------------------------------------------------
Total Assets $ 4,147,833 $ 3,667,690
============================================================================
LIABILITIES
----------------------------------------------------------------------------
Deposits:
----------------------------------------------------------------------------
Demand deposits $ 1,169,835 $ 915,954
----------------------------------------------------------------------------
Savings deposits 182,330 170,882
----------------------------------------------------------------------------
Other time deposits 1,595,559 1,440,207
============================================================================
Total Deposits 2,947,724 2,527,043
----------------------------------------------------------------------------
Short-term borrowings 498,211 647,509
----------------------------------------------------------------------------
Long-term borrowings 330,361 159,125
----------------------------------------------------------------------------
Other liabilities 55,454 46,537
============================================================================
Total Liabilities $ 3,831,750 $ 3,380,214
============================================================================
STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------
Preferred stock, $1 par value:
authorized 10,000,000 shares;
none issued $ - $ -
----------------------------------------------------------------------------
Common stock, $.22 par value:
authorized 45,000,000 shares; issued
29,593,495 in 1998,
----------------------------------------------------------------------------
27,681,138 in 1997; outstanding 28,837,698
in 1998, 26,922,604 in 1997 6,572 6,152
----------------------------------------------------------------------------
Additional paid-in capital 75,260 73,262
----------------------------------------------------------------------------
Retained earnings 247,486 206,235
----------------------------------------------------------------------------
Treasury stock and other (9,969) (6,547)
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) (3,266) 8,374
============================================================================
Total Stockholders' Equity $ 316,083 $ 287,476
============================================================================
Total Liabilities and
Stockholders' Equity $ 4,147,833 $ 3,667,690
============================================================================
22
<PAGE> 26
AMCORE Financial, Inc. and Subsidiaries CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share data)
Years ended December 31,
INTEREST INCOME 1998 1997
============================================================================
Interest and fees on loans and leases $ 192,974 $ 164,520
----------------------------------------------------------------------------
Interest on securities 94,235 93,372
----------------------------------------------------------------------------
Interest on federal funds sold and
other short-term investments 729 538
----------------------------------------------------------------------------
Interest and fees on loans held for sale 2,923 1,529
============================================================================
Total Interest Income $ 290,861 $ 259,959
============================================================================
INTEREST EXPENSE
============================================================================
Interest on deposits $ 116,604 $ 101,075
----------------------------------------------------------------------------
Interest on short-term borrowings 34,855 38,998
----------------------------------------------------------------------------
Interest on long-term borrowings 16,668 8,887
============================================================================
Total Interest Expense $ 168,127 $ 148,960
============================================================================
============================================================================
Net Interest Income $ 122,734 $ 110,999
============================================================================
Provision for loan and lease losses 7,993 7,045
============================================================================
Net Interest Income After Provision
for Loan and Lease Losses $ 114,741 $ 103,954
============================================================================
NON-INTEREST INCOME
----------------------------------------------------------------------------
Trust and asset management income $ 23,721 $ 16,451
----------------------------------------------------------------------------
Service charges on deposits 8,831 7,837
----------------------------------------------------------------------------
Mortgage revenues 10,560 5,827
----------------------------------------------------------------------------
Insurance revenues 1,875 1,584
----------------------------------------------------------------------------
Collection fee income - 2,105
----------------------------------------------------------------------------
Other 9,334 10,599
============================================================================
Total Non-Interest Income,
Excluding Net Security Gains $ 54,321 $ 44,403
============================================================================
Net realized security gains 4,427 4,198
----------------------------------------------------------------------------
OPERATING EXPENSES
============================================================================
Personnel expense $ 64,433 $ 58,858
----------------------------------------------------------------------------
Net occupancy expense 6,750 6,490
----------------------------------------------------------------------------
Equipment expense 7,895 10,816
----------------------------------------------------------------------------
External data processing expense 5,339 2,654
----------------------------------------------------------------------------
Professional fees 5,723 6,366
----------------------------------------------------------------------------
Other 29,454 29,789
============================================================================
Total Operating Expenses $ 119,594 $ 114,973
============================================================================
Income Before Income Taxes $ 53,895 $ 37,582
----------------------------------------------------------------------------
Income taxes 14,314 8,918
============================================================================
Net Income $ 39,581 $ 28,664
============================================================================
Basic Earnings Per Common Share $ 1.39 $ 1.07
----------------------------------------------------------------------------
Diluted Earnings per Common Share 1.36 1.05
----------------------------------------------------------------------------
Dividends per Common Share 0.54 0.45
----------------------------------------------------------------------------
Average Common Shares Outstanding 28,515 26,862
----------------------------------------------------------------------------
Average Diluted Shares Outstanding 29,098 27,405
----------------------------------------------------------------------------
23
<PAGE> 27
December 31, 1998
CAPITAL (in thousands) AMOUNT RATIO
============================================================================
Tier 1 Capital $ 339,718 12.46%
----------------------------------------------------------------------------
Tier 1 Capital Minimum 109,039 4.00
----------------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $ 230,679 8.46%
============================================================================
AMOUNT RATIO
----------------------------------------------------------------------------
Total Capital $ 366,121 13.43%
----------------------------------------------------------------------------
Total Capital Minimum 218,078 8.00
----------------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $ 148,043 5.43%
============================================================================
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet of AMCORE Financial, Inc. and subsidiaries
as of December 31, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated January 19, 1999, we expressed an
unqualified opinion on those consolidated financial statements. The
financial statements of AMCORE Financial, Inc. and subsidiaries as of
December 31, 1997, were audited by other auditors whose report thereon
dated January 19, 1998 expressed an unqualified opinion on those
statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998 and condensed
consolidated statement of income for the year then ended appearing on pages
22 and 23 is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
/s/ KPMG LLP
-----------------------
Chicago, Illinois
January 19, 1999
ANNUAL MEETING & STOCK LISTING
The annual meeting of the stockholders will be held at 5:30 p.m. on
Tuesday, May 4, 1999 at Cliffbreakers, 700 West Riverside Boulevard,
Rockford, Illinois. Common stock of AMCORE Financial, Inc. is traded on the
National Market System of NASDAQ under the symbol "AMFI."
The stock transfer agent for AMCORE Financial, Inc. is:
Firstar Trust Company
1555 N. RiverCenter Drive
Suite 301
Milwaukee, Wisconsin 53212
1-800-637-7549
A comprehensive presentation of the financial statements and management's
presentation of the analysis of financial condition and results of
operations can be found in the 1998 Annual Report on Form 10-K filed with
the Securities Exchange Commission, which can be referenced at www.SEC.gov.
All shareholders have been provided the 1999 Notice of Annual Meeting, 1998
Proxy and 1998 Annual Report on Form 10-K along with this Summary Annual
Report.
AMCORE is an equal opportunity employer and participates in affirmative
action.
24
<PAGE> 28
AMCORE LOCATIONS
IN ILLINOIS:
AMCORE BANK, ALEDO
Aledo Office and Drive-Up
201 W. Main Street
Aledo, Illinois 61231
- -------------------------------------------------------------------------------
AMCORE Bank N.A., North Central
Ashton Office and Drive-Up
803 Main Street
Ashton, Illinois 61006
Gridley Office and Drive-Up
325 Center Street
Gridley, Illinois 61744
Mendota Office and Drive-Up
801 Washington Street
Mendota, Illinois 61342
Mendota Drive-Up
609 Eighth Avenue
Mendota, Illinois 61342
Peru Office
1810 Fourth Street
Peru, Illinois 61354
Peru Drive-Up
2022 Fourth Street
Peru, Illinois 61354
Peru EconoFoods Office
1351 38th Street
Peru, Illinois 61354
Princeton South Office and Drive-Up
815 S. Main Street
Princeton, Illinois 61356
Princeton North Office and Drive-Up
1407 N. Main Street
Princeton, Illinois 61356
Sheffield Office
113 S. Main Street
Sheffield, Illinois 61361
Wyanet Office and Drive-Up
135 E. Main Street
Wyanet, Illinois 61379
- -------------------------------------------------------------------------------
AMCORE BANK N.A., NORTHWEST
Crystal Lake Office and Drive-Up
5100 Northwest Highway
Crystal Lake, Illinois 60014
McHenry Office
3922 W. Main Street
McHenry, Illinois 60050
Northwood Drive-Up
2100 N. Seminary Avenue
Woodstock, Illinois 60098
Woodstock Office and Drive-Up
225 W. Jackson
Woodstock, Illinois 60098
- -------------------------------------------------------------------------------
AMCORE BANK N.A., ROCK RIVER VALLEY
Dixon Office and Drive-Up
101 W. First Street
Dixon, Illinois 61021
Hennepin and Boyd Drive-Up
212 North Hennepin
Dixon, Illinois 61021
Independence Court Office and Drive-Up
101 Independence Court
Dixon, Illinois 61021
Mt. Morris Office and Drive-Up
2 W. Main Street
Mt. Morris, Illinois 61054
Oregon Office
122 North Fourth Street
Oregon, Illinois 61061
Rock Falls Office and Drive-Up
941 First Avenue
Rock Falls, Illinois 61071
Sterling Office and Drive-Up
302 First Avenue
Sterling, Illinois 61081
- -------------------------------------------------------------------------------
AMCORE BANK N.A., ROCKFORD
Seventh Street Corporate Office
501 Seventh Street
Rockford, Illinois 61104
Alpine Village Office and Drive-Up
2510 S. Alpine Road
Rockford, Illinois 61108
Belvidere Pacemaker Office and Drive-Up
401 Southtowne Drive
Belvidere, Illinois 61008
Brynwood Office and Drive-Up
2705 N. Mulford Road
Rockford, Illinois 61114
Brynwood Hilander Office
2601 N. Mulford Road
Rockford, Illinois 61114
Carpentersville Office and Drive-Up
94 Kennedy Memorial Drive
Carpentersville, Illinois 60110
Colonial Village Office and Drive-Up
1480 S. Alpine Road
Rockford, Illinois 61108
Elgin Office and Drive-Up
1950 Big Timber Road
Elgin, Illinois 60123
Freeport Cub Foods Office
1512 S. West Avenue
Freeport, Illinois 61032
North Alpine Cub Foods Office
6550 N. Alpine Road
Loves Park, Illinois 61111
North Main Hilander Office
3710 N. Main Street
Rockford, Illinois 61103
Rochelle Eagle Office
320 Eagle Drive
Rochelle, Illinois 61068
Rochelle Office and Drive-Up
1010 Highway 251 South
Rochelle, Illinois 61068
Roscoe Hilander Office and Drive-Up
4844 Hononegah Road
Roscoe, Illinois 61073
Rural Hilander Office
1715 Rural Street
Rockford, Illinois 61107
Sixth Street Drive-Up
920 Fourth Avenue
Rockford, Illinois 61104
South Beloit Office and Drive-Up
640 Blackhawk Boulevard
South Beloit, Illinois 61080
South Main Office and Drive-Up
228 S. Main Street
Rockford, Illinois 61101
25
<PAGE> 29
IN WISCONSIN:
AMCORE BANK, CENTRAL WISCONSIN
Baraboo Office and Drive-Up
1159 Eighth Street
Baraboo, Wisconsin 53913
Baraboo/Trust
128 Fourth Avenue
Baraboo, Wisconsin 53913
Baraboo Pick `n Save Office
615 Highway 136
West Baraboo, Wisconsin 53913
Dalton Office
509 Main Street
Dalton, Wisconsin 53926
Kingston Office and Drive-Up
120 N. South Street
Kingston, Wisconsin 53939
Lodi Office and Drive-Up
713 N. Main Street
Lodi, Wisconsin 53555
Portage North Office and Drive-Up
2851 New Pinery Road
Portage, Wisconsin 53901
Portage South Drive-Up
611 E. Wisconsin Street
Portage, Wisconsin 53901
Sauk Prairie Office and Drive-Up
525 Water Street
Sauk City, Wisconsin 53583
- -------------------------------------------------------------------------------
AMCORE BANK, CLINTON
Clinton Office
214 Allen Street
Clinton, Wisconsin 53525
Clinton Office and Drive-Up
500 Peck Avenue
Clinton, Wisconsin 53525
Darien Office
218 N. Walworth Street
Darien, Wisconsin 53114
- -------------------------------------------------------------------------------
AMCORE BANK, MONTELLO
Montello Office and Drive-Up
24 West Street
Montello, Wisconsin 53949
Westfield Office and Drive-Up
326 Second Street
Westfield, Wisconsin 53964
- -------------------------------------------------------------------------------
AMCORE BANK N.A., SOUTH CENTRAL
Monroe Office
1625 Tenth Street
Monroe, Wisconsin 53566
Monroe Drive-Up
1919 Tenth Street
Monroe, Wisconsin 53566
Argyle Office and Drive-Up
321 Milwaukee Street
Argyle, Wisconsin 53504
Darlington Office
153 Wells Street
Darlington, Wisconsin 53530
Mt. Horeb Office
100 S. First Street
Mt. Horeb, Wisconsin 53572
Mt. Horeb Drive-Up
1300 Business Hwy. 18-151 East
Mt. Horeb, Wisconsin 53572
New Glarus Office and Drive-Up
512 Highway 69
New Glarus, Wisconsin 53574
Belleville Office and Drive-Up
One W. Main Street
Belleville, Wisconsin 53508
Hilldale Office and Drive-Up
3609 University Avenue
Madison, Wisconsin 53705
Odana Office and Drive-Up
6698 Odana Road
Madison, Wisconsin 53719
Verona Office and Drive-Up
610 W. Verona Avenue
Verona, Wisconsin 53593
- -------------------------------------------------------------------------------
AMCORE FINANCIAL SERVICES COMPANIES
AMCORE Consumer Finance Company, Inc.
262 N. Phelps Avenue
Rockford, Illinois 61108
(815) 961-4941
AMCORE Insurance Group, Inc.
201 W. Main Street
Aledo, Illinois 61231
(815) 961-3467
AMCORE Investment Group, N.A.
AMCORE Financial Plaza
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 961-7119
AMCORE Investment Services, Inc.
AMCORE Financial Plaza
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
(815) 961-7049
AMCORE Mortgage, Inc.
1021 N. Mulford Road
P.O. Box 1687
Rockford, Illinois 61110-0187
(815) 961-7200
Investors Management Group, Ltd.
2203 Grand Avenue
Des Moines, Iowa 50312-5338
(515) 244-5426
Rockford Office:
AMCORE Financial Plaza
501 Seventh Street
P.O.Box 1537
Rockford, Illinois 61110-0037
(815) 961-7779
26
<PAGE> 30
DIRECTORS OF AMCORE FINANCIAL, INC.
Milton R. Brown
Chairman of the Board,
President & Chief Executive Officer
Suntec Industries Incorporated
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Richard C. Dell
Group President
Newell Co.
Paul Donovan
Executive Vice President
& Chief Financial Officer
Sundstrand Corporation
Lawrence E. Gloyd
Chairman, President
& Chief Executive Officer
CLARCOR
John A. Halbrook
Chairman, President
& Chief Executive Officer
Woodward
Frederick D. Hay
Senior Vice President - Operations
Snap-on Incorporated
William R. McManaman
Vice President - Finance
& Chief Financial Officer
Dean Foods Company
Robert J. Meuleman
President & Chief Executive Officer
AMCORE Financial, Inc.
Ted Ross
President
Ross and Noerr Incorporated
Jack D. Ward, Esq.
Reno, Zahm, Folgate, Lindberg
& Powell, Attorneys
Gary L. Watson
President/Newspaper Division
Gannett Co., Inc.
- -------------------------------------------------------------------------------
DIRECTORS EMERITI OF AMCORE FINANCIAL, INC.
David A. Carlson
Retired Chairman
Carlson Roofing Company
Thomas L. Clinton, Sr.
Chairman
Clinton Electronics Corporation
Robert A. Doyle
President
Yenom Development Company
C. Roger Greene
Retired Chairman
Rockford Clutch Division
Borg-Warner Corporation
Robert A. Henry, M.D.
President
The Visioneering Group
Roger Reno, Esq.
Chairman Emeritus
AMCORE Financial, Inc.
- -------------------------------------------------------------------------------
CORPORATE EXECUTIVE STAFF & CORPORATE BOARD CHAIRMEN
Patricia M. Bonavia
President
AMCORE Investment Services, Inc.
Carl J. Dargene
Chairman
AMCORE Financial, Inc.
Kenneth E. Edge
Executive Vice President
& Chief Operating Officer
AMCORE Financial, Inc.
Jay H. Evans
President & Chief Investment Officer
Investors Management Group, Ltd.
Lori A. Gaddis
President
AMCORE Insurance Group, Inc.
Charles E. Gagnier
Executive Vice President
Bank Mergers & Acquisitions
AMCORE Financial, Inc.
Chairman - AMCORE Bank N.A.,
Rockford
Ronald L. Georgeson
President & Chief Executive Officer
AMCORE Bank N.A., South Central
Andrew Hartlieb
President & Chief Executive Officer
AMCORE Bank N.A., Northwest
John R. Hecht
Executive Vice President &
Chief Financial Officer
AMCORE Financial, Inc.
William T. Hippensteel
Senior Vice President &
Marketing Director
AMCORE Financial, Inc.
Leon Holschbach
President & Chief Executive Officer
AMCORE Bank N.A., North Central
Scott Huedepohl
President & Chief Executive Officer
AMCORE Bank, Central Wisconsin
Alan W. Kennebeck
Group Vice President - Financial Services
AMCORE Financial, Inc.
President & Chief Executive Officer
AMCORE Investment Group, N.A.
Jerry A. Lecklider
President & Chief Executive Officer
AMCORE Bank, Aledo
AMCORE Bank N.A., Rock River Valley
Joseph B. McGougan
President & Chief Executive Officer
AMCORE Mortgage, Inc.
Robert J. Meuleman
President & Chief Executive Officer
AMCORE Financial, Inc.
Donald L. Miller
President & Chief Executive Officer
AMCORE Consumer Finance Company, Inc.
Wayne W. Pivotto
President & Chief Executive Officer
AMCORE Bank, Montello
James S. Waddell
Executive Vice President &
Chief Administrative Officer
Corporate Secretary
AMCORE Financial, Inc.
James F. Warsaw
Group Vice President & Chief Credit Officer
AMCORE Financial, Inc.
President & Chief Executive Officer
AMCORE Bank N.A., Rockford
Charie A. Zanck
Group Vice President - Banking
AMCORE Financial, Inc.
Scott Zimmerman
President & Chief Executive Officer
AMCORE Bank, Clinton
27
<PAGE> 31
AMCORE
Financial, Inc.
501 SEVENTH STREET, ROCKFORD, ILLINOIS 61104 815.968.2241
www.AMCORE.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Percent of Capital
Name of Subsidiary Organization Stock Owned
- ------------------ --------------- ------------------
AMCORE Bank N.A., Rockford United States 100%
AMCORE Bank N.A., Rock River Valley United States 100%
AMCORE Bank N.A.,Northwest United States 100%
AMCORE Bank N.A., North Central United States 100%
AMCORE Bank Aledo Illinois 100%
Country Bank Shares Corporation Wisconsin 100%
AMCORE Bank Clinton Wisconsin 100%
AMCORE Bank Montello Wisconsin 100%
AMCORE Bank N.A., South Central United States 100%
AMCORE Bank Central Wisconsin United States 100%
Midwest Federal Financial Corporation Wisconsin 100%
BF Financial Services, Inc. Wisconsin 100%
AMCORE Investment Group, N.A. United States 100%
Investors Management Group - Rockford Illinois 100%
Investors Management Group - Des Moines Iowa 100%
IMG Financial Services Iowa 100%
AMCORE Mortgage, Inc. Nevada 100%
AMCORE Consumer Finance Company, Inc. Nevada 100%
AMCORE Financial Life Insurance Company Arizona 100%
AMCORE Insurance Group, Inc. Illinois 100%
AMCORE Investment Banking, Inc. Illinois 100%
AMCORE Investment Services, Inc. Illinois 100%
AMCORE Capital Trust I Delaware 100%
CBSC-Mt. Horeb, Inc. Nevada 100%
CBSC-Clinton, Inc. Nevada 100%
CBSC-Montello, Inc. Nevada 100%
AMCORE Central WI, Inc. Nevada 100%
<PAGE> 1
AMCORE LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 1999
TO THE STOCKHOLDERS OF AMCORE FINANCIAL, INC.:
The Annual Meeting of Stockholders of AMCORE Financial, Inc., a Nevada
corporation, will be held at Cliffbreakers, 700 West Riverside Boulevard,
Rockford, Illinois on May 4, 1999, at 5:30 p.m., Rockford time, for the
following purposes:
1. To elect four directors;
2. To ratify the appointment of KPMG LLP as auditors;
3. To approve the AMCORE Stock Option Advantage Plan, as set forth in
Exhibit A of the Proxy Statement appended to this Notice; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 15, 1999 are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting.
Stockholders are cordially invited to attend the Annual Meeting. However,
whether or not you expect to be present in person at the Annual Meeting, you are
requested to SIGN, DATE AND RETURN THE ENCLOSED PROXY in the enclosed addressed
envelope. The proxy may be revoked at any time before it is voted, provided that
written notice thereof has been given to the Secretary of the Company. If you
are present at the meeting, you may vote your shares in person and the proxy
will not be used.
For further information concerning individuals nominated as directors, the
appointment of KPMG LLP as auditors, approval of the Stock Option Advantage
Plan, and the use of the proxy, you are respectfully urged to read the Proxy
Statement on the following pages.
By order of the Board of Directors,
/s/ James S. Waddell
James S. Waddell
Secretary
March 25, 1999
Rockford, Illinois
<PAGE> 2
AMCORE FINANCIAL, INC.
501 SEVENTH STREET
ROCKFORD, ILLINOIS 61104
MARCH 25, 1999
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of AMCORE Financial,
Inc. (Company), a Nevada corporation, to be held on May 4, 1999 at 5:30 p.m.,
Rockford time, at Cliffbreakers, 700 West Riverside Boulevard, Rockford,
Illinois and any adjournment thereof, and further to inform the stockholders
concerning the use of the proxy and the business to be transacted at the
meeting.
The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy may be revoked at any time before it is voted. Proxies may be revoked
by filing written notice of revocation with the Secretary of the Company before
the meeting or by attending the meeting and voting in person. The items
enumerated herein constitute the only business which the Board of Directors
intends to present or is informed that others will present at the meeting. The
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Stockholders are entitled to one vote for each
share. Only stockholders of record at the close of business on March 15, 1999
are entitled to notice of and to vote at the meeting.
Pursuant to the Bylaws of the Company, a majority of the outstanding shares
of the Company entitled to vote, represented in person or by proxy, shall
constitute a quorum at the meeting. Directors shall be elected by a plurality of
the votes cast in the election of directors. Any action to be taken by a vote of
the stockholders, other than the election of directors, must be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Under applicable Nevada law, in tabulating the vote,
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may in some cases also be
made by telephone or personal call by officers, directors or regular employees
of the Company who will not be specially compensated for such solicitation. This
proxy statement and the accompanying proxy are first being mailed or delivered
to stockholders on or about March 25, 1999.
ITEM 1 -- ELECTION OF DIRECTORS
In the election of the Board of Directors, stockholders are entitled to one
vote for each common share owned by them for each of the four nominees. They may
not cumulate their votes. As of March 15, 1999, the Company had outstanding
28,220,899 shares of common stock.
There are four Class I directors to be elected at the 1999 Annual Meeting.
Proxy votes not limited to the contrary will be cast for the election of
the nominees named below, but should any of such individuals unexpectedly become
unavailable for election, the proxies reserve the right to nominate and vote for
such other person or persons as they shall designate.
The following sets forth the names, ages, principal occupations and other
information regarding the director nominees and those directors whose terms
continue after the meeting.
Nominees for Class I directors whose terms will expire in 2002 are:
1
<PAGE> 3
Lawrence E. Gloyd -- Director since 1987
Mr. Gloyd, age 66, has been Chairman and Chief Executive Officer of CLARCOR
(diversified manufacturer) since March 1995 and is a Director of CLARCOR. He was
previously the Chairman, President and Chief Executive Officer of CLARCOR. He is
a Director of Thomas Industries, Inc. (manufacturer of lighting, fixtures, pumps
and compressors) and a Director of Woodward Governor Company (manufacturer of
controls for various types of engines).
John A. Halbrook -- Director since 1997
Mr. Halbrook, age 53, has been Chairman and CEO of Woodward Governor
Company (manufacturer of controls for various types of engines) since January
1995. He was previously President of Woodward Governor Company. Mr. Halbrook
served as a Director of AMCORE Investment Group, N.A. until November 1997.
Frederick D. Hay -- Director since 1997
Mr. Hay, age 54, has been Senior Vice President -- Operations of Snap-On
Incorporated (manufacturer of tools) since September 1998. He was Senior Vice
President -- Transportation of Snap-On Incorporated from February 1996 to
September 1998, and previous to that was President of Interior Systems and
Components Division at United Technologies Automotive.
Robert J. Meuleman -- Director since 1995
Mr. Meuleman, age 59, has been President and Chief Executive Officer of the
Company since January 1996. He was previously Executive Vice President and Chief
Operating Officer, Banking Subsidiaries. He is a director of AMCORE Bank N.A,
Rockford and was previously a Director of AMCORE Bank N.A., Rock River Valley
until December 1996.
Those directors whose terms do not expire this year are:
CLASS II (TERMS EXPIRE 2000)
Milton R. Brown -- Director since 1989
Mr. Brown, age 67, is Chairman, President and Chief Executive Officer of
Suntec Industries Incorporated (manufacturer of fuel unit components). He is a
Director of CLARCOR (diversified manufacturer).
Carl J. Dargene -- Director since 1982
Mr. Dargene, age 68, has been Chairman of the Board of Directors of the
Company, since May 1995. He retired in December 1995 as President and Chief
Executive Officer of the Company. He is Vice Chairman and Director of AMCORE
Investment Group, N.A. He is a Director of Woodward Governor Company
(manufacturer of controls for various types of engines) and of CLARCOR
(diversified manufacturer). He was previously Chairman of the Board of Directors
for AMCORE Bank N.A., Rockford until December 1996.
Richard C. Dell -- Director since 1994
Mr. Dell, age 52, is Group President of Newell Company (diversified
manufacturer).
William R. McManaman -- Director since 1997
Mr. McManaman, age 51, has been Vice President -- Finance and Chief
Financial Officer of Dean Foods Company since October 1995. He was previously
Vice President -- Finance of Brunswick Corporation.
2
<PAGE> 4
CLASS III (TERMS EXPIRE 2001)
Ted Ross -- Director since 1982
Mr. Ross, age 67, is President of Ross & Noerr Incorporated, previously
Ross Consulting, Inc. (financial consultants). He is a Director of Precision
Products Group, Inc. (manufacturer of tubes and springs), and has been Chief
Financial Officer and Secretary of Rockford Process Control, Inc. (manufacturer
of weldments and institutional hardware) since 1997.
Paul Donovan -- Director since 1998
Mr. Donovan, age 51, is the Executive Vice President and Chief Financial
Officer of Sundstrand Corporation (manufacturer of industrial and aerospace
products). He was previously a Director of AMCORE Bank N.A., Rockford until
August 1998.
Jack D. Ward -- Director since 1995
Mr. Ward, age 46, is an Attorney at Law and Partner with the law firm of
Reno, Zahm, Folgate, Lindberg & Powell, and was previously a Director of AMCORE
Mortgage, Inc. until May 1995.
Gary L. Watson -- Director since 1987
Mr. Watson, age 53, is President of Newspaper Division, Gannett Co., Inc.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company has an Executive Committee whose members are Messrs. Brown,
Dargene, Gloyd, McManaman, Meuleman and Ross. The Executive Committee exercises
those powers of the Board of Directors in the management of the Company, which
have been delegated to it by the Board of Directors. The Executive Committee met
twice during 1998.
The Company has an Audit Committee whose members are Messrs. Brown,
Halbrook, McManaman, Ward and Watson. Mr. Dargene serves as an ex-officio member
of this Committee. The duties of the Audit Committee are to review the proposed
scope of the annual audit and the results and recommendations of the independent
auditors upon completion of the annual audit; nominate a firm of independent
auditors to be submitted to the Board of Directors for approval and subsequent
ratification by stockholders at the annual meeting; recommend the compensation
of the independent auditors; review the Company's system of internal controls
and the performance of its internal auditors; and monitor compliance by
management with certain Company policies. The Audit Committee met five times
during 1998.
The Company has an Investment Committee whose members are Messrs. Donovan,
Halbrook, McManaman, Meuleman, and Ross. Messrs. Dargene, Kenneth E. Edge,
Executive Vice President and Chief Operating Officer of the Company, John R.
Hecht, Executive Vice President and Chief Financial Officer of the Company,
James F. Warsaw, President and CEO of AMCORE Bank N.A., Rockford, and Charie A.
Zanck, Group Vice President of the Company, serve as ex-officio members of the
committee. The Investment Committee establishes the investment policies of the
Company and its subsidiaries. During 1998, the Investment Committee met four
times.
The Company has a Compensation Committee whose members are Messrs. Dargene,
Dell, Donovan, Gloyd, and Hay. Mr. Meuleman serves as an ex-officio member of
this committee. The Compensation Committee advises the Company concerning its
employee compensation and benefit policies and administers the Company's
Long-Term Incentive Plan, 1992 Stock Incentive Plan and 1995 Stock Incentive
Plan. The Compensation Committee also administers the Restricted Stock Plan for
Non-Employee Directors of the Company and its Participating Subsidiaries and the
1994 Stock Option Plan for Non-Employee Directors. During 1998, the Compensation
Committee met four times. A report of the Compensation Committee is set forth on
page ten of this Proxy Statement.
3
<PAGE> 5
The Company has a Directors Affairs Committee whose members are Messrs.
Brown, Dell, Hay, and Ward. Messrs. Dargene and Meuleman serve as ex-officio
members of this Committee. The primary duties of the Directors Affairs Committee
are to provide nominations to the Board of Directors, make recommendations
regarding directors' remuneration, recommend policies for the retirement of
directors and fulfill other responsibilities as may be delegated to it by the
Board of Directors. The Directors Affairs Committee met once during 1998.
As of December 31, 1998, the Company had no other committees of the Board
of Directors.
The Board of Directors met five times during 1998. All directors attended
at least 75% of the Board meetings and meetings held by all committees of the
Board on which they served during the period they were directors in 1998.
Directors of the Company, other than Messrs. Dargene and Meuleman, earned
an annual retainer of $10,000 of the Company's common stock, pursuant to the
Non-Employee Director's Stock Plan, for services rendered to the Company as a
member of its Board of Directors. All non-employee directors earned a fee of
$750 for each Board and committee meeting attended through May 5, 1998,
increasing to $1,000 for each Board and committee meeting attended during the
remainder of 1998. All non-employee committee chairmen earned a one-time fee of
$1,500. Mr. Dargene was paid $216,667 for services rendered as Chairman of the
Board of Directors of the Company in 1998. Messrs. David A. Carlson, Thomas L.
Clinton, and C. Roger Greene, as Director Emeriti, receive a lifetime retainer
of $7,000 per year. Mr. Robert A. Doyle, and Dr. Robert A. Henry, as Director
Emeriti, receive a lifetime retainer of $10,000 per year. All non-employee
directors were granted 1,000 common stock options on May 20, 1998 at $25.50
pursuant to the 1994 Stock Option Plan for Non-Employee Directors.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following tabulation sets forth the number of shares of common stock of
the Company beneficially owned by each of the directors and nominees for
election to the Board of Directors, by each named executive officer, and by all
directors and officers as a group as of March 1, 1999 and the percentage that
these shares bear to the total common stock outstanding on that date.
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF SHARES BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------ ----------------------------- -------
<S> <C> <C> <C>
Milton R. Brown.......................................... 27,700 (2)(3) *
Carl J. Dargene.......................................... 232,146 (2)(3)(4)(5) 0.82%
Richard C. Dell.......................................... 9,711 (3) *
Paul Donovan............................................. 4,602 (3) *
Kenneth E. Edge.......................................... 57,360 (3)(4)(5) *
Lawrence E. Gloyd........................................ 28,194 (3)(6) *
John A. Halbrook......................................... 4,679 (3) *
Frederick D. Hay......................................... 2,622 *
John R. Hecht............................................ 42,478 (3)(4)(5) *
Alan W. Kennebeck........................................ 27,205 (3)(4) *
William R. McManaman..................................... 4,161 (3) *
Robert J. Meuleman....................................... 230,997 (2)(3)(4) 0.82%
Ted Ross................................................. 36,070 (3)(6) *
James S. Waddell......................................... 98,364 (3)(4)(5) *
Jack D. Ward............................................. 11,646 (3) *
Gary L. Watson........................................... 20,868 (3)(6) *
All executive officers and directors (22 persons)........ 1,190,597 (2)(3)(4)(5)(6) 4.21%
</TABLE>
- ---------------
* The amount shown is less than 1/2% of the outstanding shares of such class.
4
<PAGE> 6
1. The information contained in this column is based upon information
furnished to the Company by the persons named above or obtained from
records of the Company. The nature of beneficial ownership for shares shown
in this column is sole voting and investment power unless otherwise
indicated herein.
2. Includes shares held individually by certain family members of the
directors and officers as follows: Milton R. Brown -- 1,369 shares, Carl J.
Dargene -- 22,870 shares, Robert J. Meuleman -- 24,961 shares, and all
executive officers and directors -- 51,836 shares.
3. Includes shares which such person has a right to acquire within sixty days
through the exercise of stock options as follows: Milton R. Brown -- 6,000
shares, Carl J. Dargene -- 110,079 shares, Richard C. Dell -- 4,500 shares,
Paul Donovan -- 2,250 shares, Kenneth E. Edge -- 31,198 shares, Lawrence E.
Gloyd -- 6,000 shares, John A. Halbrook -- 2,250 shares, John R. Hecht --
32,906 shares, Alan W. Kennebeck -- 24,431 shares, William R. McManaman --
1,500 shares, Robert J. Meuleman -- 148,301 shares, Ted Ross -- 6,000
shares, James S. Waddell -- 55,401 shares, Jack D. Ward -- 4,500 shares,
Gary L. Watson -- 6,000 shares and all executive officers and directors --
682,331 shares.
4. Includes shares held in trust with power to vote but without investment
authority as follows: Carl J. Dargene -- 9,894 shares, Kenneth E. Edge --
7,259 shares, John R. Hecht -- 4,215, Alan W. Kennebeck -- 716 shares,
Robert J. Meuleman -- 10,508 shares, James S. Waddell -- 1,824 shares, and
all executive officers and directors -- 54,201 shares.
5. Includes shares held in joint tenancy with the spouses of certain of the
directors and executive officers as to which voting and investment power is
shared as follows: Carl J. Dargene -- 1,732 shares, Kenneth E. Edge --
18,903 shares, John R. Hecht -- 2,622 shares, James S. Waddell -- 4,500
shares, and all executive officers and directors -- 63,875 shares.
6. Includes shares held in trusts of which such persons are trustees having
sole voting and investment power as follows: Lawrence E. Gloyd -- 5,424
shares, Ted Ross -- 4,500 shares, Gary L. Watson -- 703 shares and all
executive officers and directors -- 10,627 shares.
SECTION 16(A) BENEFICIAL OWNERSHIP
Pursuant to Section 16 of the Exchange Act, the Company's officers,
directors and holders of more than ten percent of the Company's Capital Stock
are required to file reports of their trading in equity securities of the
Company with the Commission, the Company and the NASDAQ Stock Market. Based
solely on its review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports on Form 5 were
required for those persons, the Company believes that during 1998 all filing
requirements applicable to its officers, directors and more than ten percent
shareholders were complied with.
BENEFICIAL OWNERSHIP BY CERTAIN PERSONS
The following table lists the beneficial ownership of the Company's common
stock with respect to all persons, other than those listed above, known to the
Company as of March 1, 1999 to be the beneficial owner of more than five percent
of such common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL INTEREST(1) OF CLASS
- ------------------------------------ ---------------------- --------
<S> <C> <C>
AMCORE Investment Group, N.A................................ 2,354,709(2)(3) 8.69%
501 Seventh Street, Rockford, IL 61104
</TABLE>
- ---------------
1. The information contained in this column is based upon information
furnished to the Company by the persons named above or obtained from
records of the Company.
2. Includes 2,354,709 shares held by nominees acting on behalf of AMCORE
Investment Group, N.A. Excludes 858,060 shares held as trustee of various
trusts over which AMCORE Investment Group, N.A. has neither voting nor
investment power, and as to which beneficial ownership is disclaimed on
these shares. The nature of beneficial ownership for the shares shown in
this column is as follows: sole voting power -- 2,080,876 shares, shared
voting power -- 6,450 shares, no voting power -- 339,383 shares, sole
5
<PAGE> 7
investment power -- 1,905,705 shares, shared investment power -- 424,219
shares and no investment power -- 24,785 shares.
3. Although there is no affirmative duty or obligation to do so, it is the
general practice of AMCORE Investment Group, N.A. to solicit the direction
of trust beneficiaries or grantors with regard to the voting of shares held
in trust on all issues which are subject to vote by proxy. The shares are
then voted as directed by the trust beneficiary or grantor.
6
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
chief executive officer and each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the year
ended December 31, 1998:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS OTHER
------------------------------------------------ ---------- ---------- ---------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) COMPENSATION(3) OPTIONS PAYOUTS(4) COMPENSATION(5)
- ------------------ ---- --------- ----------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman............ 1998 $360,000 $ 90,146 $116,556 18,000 $183,099 $ 56,739
President & Chief 1997 320,000 17,336 9,182 60,000 35,608 334,691
Executive Officer 1996 275,000 143,340 7,101 25,500 105,466 400,173
Kenneth E. Edge............... 1998 230,000 51,479 46,779 21,448 50,138 26,457
Executive Vice President & 1997 180,000 24,447 254 15,000 6,820 68,759
Chief Operating Officer 1996 135,000 39,691 653 13,500 2,938 23,810
James S. Waddell.............. 1998 215,000 46,451 22,705 22,401 84,251 28,522
Executive Vice President & 1997 200,000 22,580 785 15,000 17,986 80,706
Chief Administrative Officer 1996 170,000 65,896 1,211 18,000 43,933 88,461
John R. Hecht................. 1998 170,000 44,756 2,267 15,406 41,626 17,994
Executive Vice President & 1997 135,000 12,480 2,542 9,000 7,266 18,213
Chief Financial Officer 1996 115,000 41,090 1,779 10,500 15,659 21,822
Alan W. Kennebeck............. 1998 160,000 50,904 479 14,431 44,894 19,973
President and Chief
Executive 1997 145,600 35,544 274 9,000 6,492 20,427
Officer, AMCORE Investment 1996 135,200 52,206 1,195 10,500 2,942 10,970
Group, N.A
</TABLE>
- ---------------
1. Compensation deferred pursuant to the Company's deferred compensation plan
is included in Salary and Bonus totals.
2. Reflects bonus earned during the year which was paid during the following
year.
3. These amounts represent reimbursements during the year for taxes. 1998
amounts also include accrued supplemental retirement benefits of Meuleman
-- $107,934, Edge -- $46,385, Waddell -- $22,092, and Hecht -- $958
pursuant to the Supplemental Executive Retirement Plan.
4. Reflects long term incentive plan payouts earned during the year and
dividend equivalent payments made on all outstanding Performance Units.
5. Amounts shown for 1998 consist of the following:
<TABLE>
<CAPTION>
MEULEMAN EDGE WADDELL HECHT KENNEBECK
-------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Imputed income life insurance........... $ 7,117 $ 3,004 $ 2,886 $ 848 $ 1,549
Above market interest on deferred
compensation.......................... 4,801 -- 1,695 855 1,581
AMCORE Financial Security Plan.......... 11,200 11,200 11,200 11,200 11,200
Company's contributions to Top Hat
Plan.................................. 33,621 12,253 12,741 5,091 5,643
------- ------- ------- ------- -------
Total other compensation................ $56,739 $26,457 $28,522 $17,994 $19,973
======= ======= ======= ======= =======
</TABLE>
Prior year reported amounts include contributions to the security plan, top
hat plan, above market interest on deferred compensation, and life insurance
imputed income and the value of life insurance premiums. The value of life
insurance for Messrs. Meuleman, Waddell and Edge include the value of premiums
advanced by the Company under a split-dollar life insurance agreement with the
Company. For further discussion of these agreements, see "Employee Agreements"
on page nine.
7
<PAGE> 9
OPTION GRANTS
The following table provides information related to options granted to the
named executive officers during 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF POTENTIAL NET REALIZABLE
SECURITIES PERCENT OF VALUE AT ASSUMED
UNDERLYING TOTAL OPTIONS EXERCISE ANNUAL RATES OF STOCK
OPTIONS GRANTED TO PRICE PER EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED(2)(3) EMPLOYEES SHARE (2)(3)(4) DATE OPTION TERM (1)
- ---- ------------- ------------- --------------- ---------- -------------------------
5% 10%
----------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman... 18,000 6.4 % $25.50 5/20/08 $288,663 $731,528
Kenneth E. Edge...... 12,000 4.3 25.50 5/20/08 192,442 487,685
James S. Waddell..... 12,000 4.3 25.50 5/20/08 192,442 487,685
John R. Hecht........ 12,000 4.3 25.50 5/20/08 192,442 487,685
Alan W. Kennebeck.... 9,500 3.4 25.50 5/20/08 152,350 386,084
Reload Options Granted
Robert J. Meuleman... -- N/A $ -- -- $ -- $ --
Kenneth E. Edge...... 9,448 N/A 24.094 5/15/06 143,162 362,800
James S. Waddell..... 10,401 N/A 23.563 5/18/04 154,125 390,584
John R. Hecht........ 3,406 N/A 24.157 5/09/05 51,744 131,128
Alan W. Kennebeck.... 4,931 N/A 22.219 8/30/05 68,903 174,613
</TABLE>
- ---------------
1. Values are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
conditions and the optionholders' continued employment.
2. Reflects options granted on May 20, 1998 to acquire shares of Common Stock
pursuant to the 1995 Stock Incentive Plan.
3. Options granted pursuant to the 1995 Stock Incentive Plan have an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of the grant. Options generally become fully exercisable in four
years (25% per year) following the date of grant and remain exercisable
until ten years from the date of the grant unless the optionee ceases to be
an employee of the Company or its subsidiaries. The option exercise price
may be paid in cash, shares of Common Stock having a fair market value
equal to the exercise price, stock withholding or any combination of the
above.
4. Options reloaded pursuant to various stock incentive plans have an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of the exercise of the option that created the reload. Reload
options become exercisable immediately and remain exercisable until the
expiration date of the original grant unless the optionee ceases to be an
employee of the Company or its subsidiaries. The option exercise price may
be paid in cash, shares of Common Stock having a fair market value equal to
the exercise price, stock withholding or any combination of the above.
8
<PAGE> 10
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last year and
unexercised options held as of December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR END(1) OPTIONS AT
ACQUIRED ON VALUE ---------------------------- YEAR END(2)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Robert J. Meuleman........... 13,730 $239,988 148,301 18,000 $1,231,804
Kenneth E. Edge.............. 27,000 323,331 31,198 12,000 134,317
James S. Waddell............. 15,000 162,075 55,401 12,000 359,594
John R. Hecht................ 8,073 102,785 32,906 12,000 239,222
Alan W. Kennebeck............ 6,750 59,765 24,431 9,500 143,188
</TABLE>
- ---------------
1. Options granted to acquire shares of Common Stock pursuant to various stock
incentive plans.
2. The amounts shown reflect the value of unexercised options calculated by
determining the difference between the closing price of the Company's
Common Stock on the last day of the year ($22.891) and the applicable
exercise price of such options.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth information with respect to the named
executives concerning Performance Unit Awards granted during 1998 pursuant to
the Company's 1995 Stock Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF ------------------------------------
PERFORMANCE PERFORMANCE THRESHOLD TARGET OUTSTANDING
NAME UNITS(1) PERIOD 13% 14% 15%
- ---- ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Robert J. Meuleman............. 36,162 3 years $160,921 $241,201 $401,760
Kenneth E. Edge................ 17,241 3 years 76,722 114,997 191,548
James S. Waddell............... 16,117 3 years 71,721 107,500 179,060
John R. Hecht.................. 12,744 3 years 56,711 85,002 141,586
Alan W. Kennebeck.............. 8,156 3 years 36,294 54,401 90,613
</TABLE>
- ---------------
1. Performance units were granted to certain executive officers on January 2,
1998 pursuant to the 1995 Stock Incentive Plan. The holders of these
performance units will be entitled to cash or stock payments, or a
combination thereof, if certain performance targets are met during the
three-year period ending December 31, 2000. The holders are also entitled
to dividend equivalent payments on these Performance Units. The target
levels applicable to the Performance Units as shown in the table above are
achieved if the average consolidated return on stockholders' equity (ROE)
for the performance period is as shown above for each of the performance
levels. Each Performance Unit shall be of no value unless at least the
minimum level is achieved. If the Company achieves an average ROE in excess
of the minimum performance level set forth above, each Performance Unit
shall have the following values: $4.45 per unit for threshold performance,
$6.67 per unit for target performance and $11.11 per unit for outstanding
performance. It is the Company's intention to make incremental payments to
executive officers for performance levels that are between these specified
target levels.
EMPLOYEE AGREEMENTS
The Company has entered into individual Transitional Compensation
Agreements with current executive officers, including Messrs. Robert J.
Meuleman, James S. Waddell, Kenneth E. Edge, and John R. Hecht. If, during the
three-year period following a change of control of the Company (as defined in
the agreements), the executive officer's employment is ended through (1)
termination by the Company without cause (as defined
9
<PAGE> 11
in the agreements) or (2) termination by the executive officer for good reason
(as defined in the agreements) based upon a breach of the agreement by the
Company or a significant adverse change in the executive officer's
responsibilities, compensation or benefits, then a termination payment will be
made to the executive. The agreements provide that such payment will equal three
times the sum of the executive's then current annual salary and annual bonus. In
addition, the agreements provide that, if any portion of the termination payment
is subject to an excise tax as an excess parachute payment, as defined in the
Internal Revenue Code Section 4999, the Company shall pay the executive the
amount necessary to offset the excise tax and any applicable taxes on this
additional payment. Additional provisions provide for the continuation, for
three years after termination, of welfare and other benefits to the executive
and his family unless termination is for cause. Upon a change of control of the
Company, the executive is entitled to a lump sum cash payment equivalent to the
present value of the projected benefits under certain supplemental retirement
plans.
The Company also entered into Transitional Compensation Agreements with
Alan W. Kennebeck and four other executive officers. These agreements provide
that if such executive's employment is terminated within one year after a change
in control of the Company either (i) by the Company other than for "cause" or
other than as a consequence of disability or retirement (all as defined in such
agreements) or (ii) by such executive for reasons relating to a diminution of
responsibilities, compensation or benefits or relocation requiring a change in
residence or a significant increase in travel, he will receive: (a) lump sum
payment equal to his monthly salary in effect at the date of termination for a
period of time determined pursuant to each agreement based upon his salary,
years of service and age at the time of his termination, and a prorata portion
of his annual bonus; (b) life, disability, accident and health insurance as
provided in the Company's insurance programs for a period of 24 months after
termination of employment; and (c) certain perquisites and outplacement
services. The agreements provide for a commensurate reduction in the amount of
cash payments to be made to an executive under the agreement in the event that
the payments fail to be deductible by the Company as a result of Section 280G of
the Internal Revenue Code of 1986, as amended. If these severance agreements had
become operative in December 1998, the maximum number of monthly payments
payable to the following individual (subject to reduction as described in the
previous sentence) would have been approximately: Alan W. Kennebeck, 20 months.
On August 10, 1998, the Company entered into Endorsement Split Dollar
Insurance Agreements (Agreement(s)) with Robert J. Meuleman, James Waddell,
Kenneth E. Edge, and John R. Hecht, replacing prior agreements. The Company
purchased split-dollar and/or bank-owned life insurance policies for the named
executives pursuant to each Agreement in conjunction with the Supplemental
Executive Retirement Plan. The Company may terminate any such Agreement and
receive its interest in the life insurance policy under certain conditions,
including termination of employment (other than due to death, disability or
retirement, unless such terminated employee becomes affiliated with a competitor
following any such termination due to disability or retirement), provided the
Company may not terminate any of the Agreements if such termination of
employment or affiliation occurs after a "change in control" of the Company.
The Company has also adopted a non-qualified, unfunded supplemental pension
program for Mssrs. Meuleman, Edge, Waddell, and Hecht (the "Supplemental
Executive Retirement Plan" (SERP)), which provides retirement benefits in excess
of the maximum benefit accruals for qualified plans which are permitted under
the Code. The benefits under the SERP are provided by the Company on a
non-contributory basis. The Company has not funded these supplemental retirement
benefits other than accruing a liability in the amount of the actuarially
determined present value of the retirement benefits.
A participant's annual retirement benefits payable under the SERP are based
upon three percent of such participant's final base salary times number of years
of service and shall not exceed 70% of a participant's final base salary and
shall be no less than 45% of a participant's final base salary. The benefits
payable shall be reduced by any other AMCORE provided benefits and also reduced
by 50% of applicable Social Security benefits. The benefits shall be payable in
the form of installment payments for the remainder of the participant's life,
but in no event less than ten years, with payment continuing to the
participant's designated beneficiary for the remaining period of such ten years
in the event of the participant's death after payments have commenced but prior
to the expiration of the ten-year period.
10
<PAGE> 12
The Company provides a Top Hat plan (entitled "AMCORE Top Hat Plan") for
senior executive officers to maintain certain levels of retirement benefits and
maximize the effectiveness and flexibility of compensation arrangements for
participants in the AMCORE Financial Security Plan (Security Plan). This is
accomplished by crediting each participating executive with contributions that
would be made to the Security Plan, but for certain limitations imposed by the
Internal Revenue Code.
In August 1997, the Company adopted a Transitional Compensation policy
(Policy) to provide severance pay for substantially all of the Company's
employees whose employment is terminated within one year following a change in
control (as defined in the Policy). The Policy provides for semi-monthly
payments, depending on employment status, equal to such employee's current
weekly or monthly salary for a period of time determined pursuant to the Policy
based upon his or her salary, years of service and age.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carl J. Dargene serves as Chairman of the Company's Compensation Committee
and is the Company's Chairman of the Board. Mr. Dargene also serves on the board
of CLARCOR and its Compensation Committee. Lawrence E. Gloyd, Chairman and Chief
Executive Officer of CLARCOR, also serves on the Company's Compensation
Committee. Mr. Dargene also serves on the board of Woodward Governor Company and
its Compensation Committee. Lawrence E. Gloyd, Director of the Company, also
serves on the board of Woodward Governor Company and its Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews the Company's
compensation and benefit policies, including individual salaries of the
executive officers, and submits recommendations to the Board of Directors.
The Company engages a compensation consulting firm on a regular basis to
assist the Compensation Committee and the Board of Directors in formulating
compensation policies and determining appropriate compensation levels. This firm
provides reports directly to the Compensation Committee.
Compensation received is one measure of the accomplishments and potential
of the employee, relative to peers. AMCORE believes that base compensation
should be competitive in the marketplace, but that incentive opportunities
should increase the amount of compensation available to key personnel. Incentive
opportunities should be tied to both quantitative and qualitative objectives
designed to enhance both short and long term shareholder value.
Toward that end, it is the philosophy of management, supported by the
Compensation Committee, that senior management base pay should be at or near the
median for similar positions in the industry and that incentives for meeting
objectives should provide the opportunity for total compensation to reach the
75th percentile and beyond based on performance relative to industry and peer
applicable comparisons.
AMCORE believes that incentives should not be disincentives. In the short
term, they should be achievable, but challenging, goals. When these goals are
achieved, they will increase compensation and set the basis for higher standards
as the next step.
EXECUTIVE OFFICER COMPENSATION
Consistent with this philosophy, the Compensation Committee has established
a compensation program consisting of an annual base salary and the opportunity
to earn incentive compensation tied directly to the performance of the Company,
personal performance and increases in stockholder value. The Company's executive
compensation program in 1998 consisted of the following components:
- Base Salary
- Short-Term Incentive Plan
- Intermediate-Term Incentive Plan
- Long-Term Incentive Plan
11
<PAGE> 13
The Compensation Committee, working with the compensation consulting firm,
determines a range for the executive officers' base salaries in order to be
competitive and consistent with amounts paid to executives performing similar
functions in comparable companies. The objective is to determine the salary
ranges at a level within the third quartile of trailing twelve-month activity of
the comparable companies. The amount of each executive's base salary is set
within the range based upon the performance of the Company, performance of
particular business units, the personal performance of such executive officers,
cost of living increases and such other factors as the Compensation Committee
and the Board of Directors deem appropriate.
The short-term incentive component of each executive officer's compensation
is based upon participation in the Company's cash profit sharing plan, generally
available to all of the Company's employees, and a cash bonus, based upon a
maximum target amount assigned at the beginning of each year. Amounts payable
under the Company's profit sharing plan range between 0% and 5% of the executive
officer's total eligible wages, and are based upon the profitability of the
Company. The cash profit sharing payout earned was 2.5% of total eligible wages.
The annual cash bonus targets range from 30% to 50% of the midpoint of the base
salaries of executive officers. The amount of targeted cash bonuses payable to
such officers are contingent upon the attainment of financial targets such as
consolidated or affiliate earnings which are established at the beginning of the
year, personal performance of the executive and, where appropriate, attainment
of earnings goals of the operating unit or units for which the executive has
responsibility. The targets may be adjusted from time to time to take into
account unforeseen or extraordinary events. Generally, if certain minimum target
financial results are not achieved, no annual incentive will be paid.
Executive officers are eligible for an annual cash bonus pursuant to a
formula determined by the Compensation Committee. The formula provides for a
minimum payout of 4% of a targeted cash bonus at 85% achievement of financial
goals. For each 1% of earnings above this threshold level, the cash bonus
increases by 4% up to a maximum of 100% of the target bonus upon achievement of
110% or more of the consolidated or affiliate earnings goals. In 1998, the
consolidated operating earnings objective was $43,578,000, an increase of 24%
over the prior year, whereas affiliate earnings goals varied by company. In
1998, the total short-term incentive payouts to executive officers were
approximately 57% of the maximum targets established under the plan.
The intermediate-term incentive component of each executive officer's
compensation is based upon the award of performance units which provide for cash
or stock payouts, or a combination thereof, based upon the achievement by the
Company of targeted average consolidated returns on stockholders' equity over a
three year performance period. The holders are also entitled to dividend
equivalent payments on these performance units. The three target levels
applicable to the performance units granted are: Threshold 13% ROE, Target 14%
ROE and Outstanding 15% ROE. Each performance unit shall be of no value unless
at least the minimum performance level is achieved. If the Company achieves an
average ROE in excess of the minimum performance level set forth above, each
performance unit shall have the following values: $4.45 per unit for Threshold
performance, $6.67 per unit for Target performance and $11.11 per unit for
Outstanding performance. Average return on equity in excess of 13% but less than
14% was attained for the 1996 performance units expiring December 1998.
Therefore, payouts of approximately $417,000 were made in January 1999 pursuant
to these units.
The long-term incentive component of each executive officer's compensation
involves the award of stock options or stock awards pursuant to the AMCORE
Long-Term Incentive Plan and 1992 and 1995 Stock Incentive Plans. Long-term
incentives are provided to reward executives for achieving long-term strategic
goals and to provide a balance against overemphasis on short-term results.
Through stock ownership, executives' long-term incentives are tied to
stockholder value. The Compensation Committee recommends grants of annual awards
of stock options to executive officers at levels determined with reference to
fixed percentages up to 35% of base compensation subject to increases and
decreases based on individual performance.
12
<PAGE> 14
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation package for Mr. Robert J. Meuleman, who was the Chief
Executive Officer of the Company during 1998, was determined in the same manner
as for all other executive officers, except that Mr. Meuleman's short-term
incentive was based 100% on the Company's total performance without reference to
any particular business unit of the Company or personal objectives. For this
purpose, Company performance was measured by comparing the consolidated
operating earnings of the Company, which excludes merger-related charges, to
earnings goals established by the Compensation Committee. Consolidated operating
earnings were $42,888,000 in 1998 and represented 98.4% of the earnings goal of
$43,578,000.
Mr. Meuleman's base salary in 1998 was $360,000, which was in the upper
first quartile of his salary range, and his short-term bonus was $90,146, a
payout of 52% of the maximum, for a combined total of $450,146. During 1997, Mr.
Meuleman earned a base salary of $320,000 and short-term bonus of $17,336, for a
total of $337,336.
The Compensation Committee believes that the executive team of the Company
will receive appropriate rewards under this program of corporate incentives, but
only if they achieve the performance goals established for them and the Company
and if they succeed in increasing stockholder value.
<TABLE>
<S> <C>
Carl J. Dargene, Chairman
Richard C. Dell
Paul Donovan
Lawrence E. Gloyd
Frederick D. Hay
Robert J. Meuleman, Ex-officio member
</TABLE>
13
<PAGE> 15
COMPANY PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the cumulative total
returns on the NASDAQ Stock Market Index and NASDAQ Bank Stocks Peer Index.
Cumulative total returns have been measured by dividing the sum of the
cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and the difference between the share price at the end and the
beginning of the measurement period by the share price at the beginning of the
measurement period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(AMCORE FINANCIAL, INC., NASDAQ STOCK MARKET INDEX, NASDAQ BANK STOCK INDEX)
<TABLE>
<CAPTION>
COMPANY MARKET PEER
AMCORE NASDAQ Stock NASDAQ Bank Stocks
<S> <C> <C> <C>
Dec-93 100.000 100.000 100.000
Jan-94 103.226 103.035 101.643
Feb-94 92.281 102.073 100.365
Mar-94 84.483 95.797 98.790
Apr-94 106.579 94.553 101.984
May-94 111.228 94.785 106.634
Jun-94 111.228 91.318 106.639
Jul-94 105.994 93.193 108.119
Aug-94 116.462 99.135 110.882
Sep-94 112.013 98.881 107.821
Oct-94 102.789 100.824 104.581
Nov-94 93.048 97.479 100.216
Dec-94 99.695 97.752 99.636
Jan-95 101.024 98.310 102.982
Feb-95 108.478 103.509 108.018
Mar-95 103.121 106.578 109.084
Apr-95 103.121 109.936 112.107
May-95 94.527 112.772 115.524
Jun-95 99.929 121.911 120.435
Jul-95 108.031 130.873 126.109
Aug-95 110.732 133.526 132.878
Sep-95 123.733 136.596 135.945
Oct-95 122.374 135.807 138.159
Nov-95 121.145 138.996 145.244
Dec-95 110.879 138.256 148.383
Jan-96 114.985 138.936 148.729
Feb-96 119.092 144.224 150.772
Mar-96 115.161 144.699 154.228
Apr-96 110.334 156.700 153.443
May-96 111.024 163.896 156.019
Jun-96 109.827 156.508 156.788
Jul-96 107.046 142.551 154.835
Aug-96 111.217 150.538 165.560
Sep-96 114.904 162.052 173.490
Oct-96 116.305 160.261 181.172
Nov-96 124.713 170.168 194.714
Dec-96 151.014 170.015 195.908
Jan-97 134.783 182.098 206.805
Feb-97 141.134 172.026 218.474
Mar-97 160.492 160.793 210.605
Apr-97 151.970 165.820 215.342
May-97 161.912 184.612 228.788
Jun-97 155.680 190.266 245.068
Jul-97 165.678 210.349 263.878
Aug-97 169.963 210.028 261.731
Sep-97 196.122 222.440 289.029
Oct-97 202.588 210.924 290.198
Nov-97 204.743 211.979 301.508
Dec-97 217.649 208.580 328.018
Jan-98 212.235 215.158 313.620
Feb-98 221.980 235.360 330.930
Mar-98 235.009 244.052 346.761
Apr-98 225.217 248.196 351.227
May-98 214.337 234.573 339.439
Jun-98 210.103 251.119 340.136
Jul-98 223.234 248.467 329.863
Aug-98 188.217 199.752 268.966
Sep-98 200.346 227.341 286.870
Oct-98 210.804 236.632 307.340
Nov-98 207.501 259.943 317.206
Dec-98 202.767 293.209 324.902
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The index level for all series was set to 100.0 as of December 31, 1993.
14
<PAGE> 16
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Company and their associates were
customers of, and had transactions with, the Company's subsidiaries in the
ordinary course of business during 1998. Comparable transactions may be expected
to take place in the future. All outstanding loans, commitments to loan,
transactions in repurchase agreements and certificates of deposit, and
depository relationships in the ordinary course of business, were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for transactions with other persons, and, in the opinion
of management of the Company, did not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 1998,
various directors and officers of the Company were indebted to the Company's
subsidiaries in the amount of approximately $3,595,000. This amount represents
0.15 percent of the Company's subsidiaries' outstanding loans and 1.14 percent
of the Company's stockholders' equity as of that date. The maximum aggregate
amount of their indebtedness to the Company's subsidiaries during 1998 was
$4,142,000. As of December 31, 1998, associates of directors and officers of the
Company were indebted in the amount of $209,000 to the Company's subsidiaries.
Further, the Company's subsidiaries have additional committed, but unfunded,
lines of credit of $6,735,000 to associates of directors and officers of the
Company. The maximum aggregate amount of such associates' indebtedness to the
Company's subsidiaries during 1998 was $4,966,000.
The Board of Directors, on February 22, 1984, authorized the Executive
Committee to negotiate such agreements as may be necessary to accomplish stock
redemptions pursuant to Section 303 of the Internal Revenue Code to pay death
taxes of certain stockholders. Such redemptions will be conditioned upon any
requisite bank regulatory agency or debt covenant approvals. Bank holding
companies, such as the Company, are required to notify the Federal Reserve Board
prior to paying 10% or more of consolidated net worth to redeem shares over a
twelve-month period.
ITEM 2 -- APPOINTMENT OF INDEPENDENT AUDITORS
KPMG LLP has been appointed to serve as the independent auditors for the
Company and subsidiaries for the fiscal year ending December 31, 1999. This
appointment is being submitted to the stockholders for ratification.
Representatives of the firm are expected to be present at the Annual Meeting to
respond to appropriate questions from stockholders and to have the opportunity
to make any statements they consider appropriate. In the event the stockholders
do not ratify the appointment of KPMG LLP, the selection of independent auditors
will be determined by the Audit Committee and the Board of Directors after
careful consideration of all information submitted by the stockholders.
Accounting services rendered by KPMG LLP during 1998 included the
examination of the annual consolidated financial statements, review of unaudited
quarterly statements, assistance with Securities and Exchange Commission
filings, legally required special audits of subsidiaries, and consultations in
connection with various tax and accounting-related matters.
During 1998, the Board of Directors reviewed and approved in advance or
ratified the scope of all of KPMG LLP's professional services rendered to the
Company and related entities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
KPMG LLP AS AUDITORS FOR THE YEAR 1999.
15
<PAGE> 17
ITEM 3 -- ADOPTION OF AMCORE STOCK OPTION
ADVANTAGE PLAN
On February 16, 1999, the Board of Directors adopted, subject to
stockholder approval, the AMCORE Stock Option Advantage employee stock purchase
plan (the "Plan"). The purpose of the Plan is to provide employees of the
Company with an opportunity to purchase common stock of the Company through
accumulated payroll deductions. The Company believes that stock ownership is one
of the prime methods of attracting and retaining key personnel responsible for
the continued achievement of the financial goals of the Company's business. In
addition, an employee stock purchase plan is considered a way to enhance
teamwork and customer service through motivation of employees. The Plan will
become effective as long as it is approved by the stockholders within twelve
months after its adoption by the Board of Directors. If approved, the Plan will
continue in effect until the number of shares reserved for issuance thereunder
have been exhausted or ten years after the date of its adoption by the Board of
Directors, whichever is earlier.
Beginning on April 1, 1999, payroll deductions commenced for all eligible
employees who enrolled in the Plan as of such date. If the Plan is approved by
stockholders, the payroll deductions will accumulate and be utilized for the
purchase of shares of stock upon exercise of the Options at the first Exercise
Date. If the Plan is not approved by stockholders, the accumulated payroll
deductions will be returned to such employees.
VOTE REQUIRED
The affirmative vote of a majority of the shares present in person or
represented by proxy at the Annual Meeting of Stockholders or any adjournment
thereof will be required to approve the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE AMCORE STOCK OPTION ADVANTAGE PLAN.
The essential terms of the Plan are summarized as follows:
SUMMARY OF THE AMCORE STOCK OPTION ADVANTAGE PLAN
General. The purpose of the Plan is to provide employees with an
opportunity to purchase common stock of the Company through payroll deductions.
Administration. The Plan shall be administered by an individual or a
committee appointed by the Board of Directors (the "Administrator"). All
questions of interpretation or application of the Plan are determined by the
Administrator, and, to the full extent permitted by law, its decisions are
final, conclusive and binding upon all participants.
Eligibility. Each employee of the Company (including officers), whose
customary employment with the Company is more than 20 hours per week and more
than five months in any calendar year, is eligible to participate in an Exercise
Period (as defined below); provided, however, that no employee shall be granted
an option under the Plan (i) to the extent that, immediately after the grant,
such employee would own five percent of either the voting power or value of the
stock of the Company, or (ii) to the extent that his or her rights to purchase
stock under all employee stock purchase plans of the Company accrue at a rate
which exceeds $25,000 worth of stock (determined at the Fair Market Value of the
shares at the time such option is granted) for each calendar year. Eligible
employees become participants in the Plan by filing with the Company an
enrollment and change form authorizing payroll deductions (an "Agreement") in
the manner prescribed by the Administrator.
Participation in an Offering. The Plan is implemented by consecutive
overlapping offering periods lasting twelve (12) months (each an "Exercise
Period") with a new Exercise Period commencing on January 1, April 1, July 1 and
October 1 of each year. Employees may enroll in the Plan as of one of such dates
by submitting an Agreement in the manner prescribed by the Administrator. Common
stock may be purchased under the Plan every three months (an "Exercise Date"),
unless the participant withdraws or terminates employment earlier. To
participate in the Plan, each eligible employee must authorize payroll
deductions pursuant to the Plan. Such payroll deductions may not exceed 10% of a
participant's compensation.
16
<PAGE> 18
Compensation is defined as base straight time gross earnings, sales commissions,
bonuses, incentive compensation and payments for overtime and shift premiums.
Once an employee becomes a participant in the Plan, the employee will
automatically participate in each successive Exercise Period until such time as
the employee withdraws from the Plan or the employee's employment with the
Company terminates. At the beginning of the Exercise Period, each participant is
automatically granted options to purchase shares of the Company's common stock.
The option expires at the end of the Exercise Period or upon termination of
employment, whichever is earlier, but is exercised at the end of each Exercise
Period to the extent of the payroll deductions accumulated during such Exercise
Period.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by applicable
provisions of any law.
Purchase Price, Shares Purchased. Shares of common stock may be purchased
under the Plan at a price not less than 85% of the lesser of the Fair Market
Value of the common stock on (i) the first day of the Exercise Period or (ii)
such Exercise Date. The "Fair Market Value" of the common stock on any relevant
date will be the closing price per share as reported on The Nasdaq National
market (or the mean of the closing bid and asked prices, if no sales were
reported) as quoted on such exchange or reported in The Wall Street Journal. The
number of shares of common stock a participant purchases on each Exercise Date
is determined by dividing the total amount of payroll deductions withheld from
the participant's compensation since the prior Exercise Date by the purchase
price.
Restriction on Transfer of Shares. A Participant may not sell any stock
acquired under the terms of the Plan for two years after the Exercise Date upon
which such shares were purchased. Notwithstanding the above, this sales
restriction will lapse upon the earlier of the death, disability or retirement
of the Participant. For purposes of this provision, a Participant shall be
considered disabled if he has been determined to be disabled under the terms of
the Company's Long-Term Disability Plan. The Administrator may waive this
restriction in its sole discretion. For the purposes of the Plan, a Participant
shall be considered retired if he has ceased employment at 55 years of age or
older with at least ten years of service or at 65 years of age or older with at
least five years of service.
Dividends. Dividends earned on shares of Stock held in the participant's
stock account shall be credited to the participant's payroll account and used to
purchase additional shares of stock (as provided in the Company's Dividend
Reinvestment Plan).
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of the Company for at least 20 hours
per week, cancels his or her option and participation in the Plan immediately.
In such event, the payroll deductions credited to the participant's account will
be returned to him or her or, in the case of death, to the person or persons
entitled thereto as provided in the Plan.
Company Option to Repurchase Stock. Upon termination of employment of a
Participant other than for death, disability or retirement, the Company shall
have the option to repurchase all, or any portion of, the shares owned by such
Participant that, at the time of such termination, are subject to the two year
restriction on transfer provided for in the Plan. The Company shall have the
right to repurchase such shares at the purchase price per share paid by the
Participant at the applicable Exercise Date.
Adjustment Upon Change in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company, or any other increase or decrease in the number of shares of
common stock effected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the Plan, the number and class of shares of stock subject to
options outstanding under the Plan and the exercise price of any such
outstanding options. Any such adjustment shall be made by the Administrator, in
its sole discretion, whose determination shall be conclusive.
17
<PAGE> 19
Dissolution, Liquidation, Merger or Asset Sale. In the event of a proposed
dissolution, liquidation, merger or sale of all or substantially all of the
assets of the Company, the Exercise Period then in progress will be shortened
and a new exercise date will be set, unless otherwise provided by the Board of
Directors. In addition, the restrictions on transfer of shares of stock
purchased under the Plan will be waived. Notwithstanding the foregoing, if the
Board determines, in its sole discretion, to continue the Plan upon a merger
with or into another corporation, the Administrator may grant Options in
substitution for stock awards, stock options, stock appreciation rights or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with such transaction. The terms of such substituted
Options shall be determined by the Administrator in its sole discretion, subject
only to the limitations of the Plan.
Amendment and Termination of the Plan. The Board of Directors has the
authority to amend or terminate the Plan, except that no such action may
adversely affect any outstanding rights to purchase stock under the Plan,
provided that if the Board of Directors determines that a change in the
applicable accounting rules or a change in applicable laws renders an amendment
or termination desirable then the Board of Directors may approve such amendment
or termination. The Board of Directors may not amend the Plan without approval
of the stockholders within 12 months of the adoption of such amendment if such
amendment would (i) increase the number of shares that may be issued under the
Plan or (ii) change the designation of the employees (or class of employees)
eligible for participation in the Plan.
Withdrawal. Generally, a participant may withdraw from an Exercise Period
at any time without affecting his or her eligibility to participate in future
Exercise Periods.
Federal Tax Information for Purchase Plan. The Plan, and the right of
participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Internal Revenue code of 1986, as
amended (the "Code"). Under these provisions, no income will be taxable to a
participant until the shares purchased under the Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the Exercise Period or more than one year from the
date of transfer of the stock of the participant, then the participant will
recognize ordinary income measured as the lesser of (i) the excess of the Fair
Market Value of the shares at the time of such sale or disposition over the
Purchase Price, or (ii) an amount equal to 15% of the Fair Market Value of the
shares as of the first day of the Exercise Period. Any additional gain will be
treated as long-term capital gain. If the shares are sold or otherwise disposed
of before the expiration of this holding period, the participant will recognize
ordinary income generally measured as the excess of the Fair Market Value of the
shares on the date the shares are purchased over the purchase price. Any
additional gain or loss on such sale or disposition will be long-term or
short-term capital gain or loss, depending on the holding period. The Company is
not entitled to a deduction for amounts taxed as ordinary income or capital gain
to a participant except to the extent of ordinary income is recognized by
participants upon a sale or disposition of shares prior to the expiration of the
holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Plan. Reference should be made to the applicable provisions of the Code. In
addition, the summary does not discuss the tax consequences of a participant's
death or the income tax laws of any state or foreign country in which the
participant may reside.
Participation In The Plan
Participation in the Plan is voluntary and is dependent on each eligible
employee's election to participate and his or her determination as to the level
of payroll deductions. Accordingly, future purchases under the Plan are not
determinable. Nonemployee directors are not eligible to participate in the Plan.
New Plan Benefits
No specific determinations have been made or can be made in advance as to
the future recipients of benefits under the Plan. Known future grants of options
under the Plan, if any, are set forth in the summary compensation table. See "--
Executive Compensation."
18
<PAGE> 20
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
NOMINATIONS FOR THE BOARD OF DIRECTORS
The Company's Bylaws provide that the notice of proposed stockholder
nominations for the election of directors must be timely and given to the
Secretary of the Company prior to the meeting at which directors are to be
elected. To be timely, notice must be received by the Company not less than 50
days nor more than 75 days prior to the meeting. The date of an annual meeting
of stockholders may be obtained from the Secretary of the Company when
determined by the Board of Directors.
Notice to the Company from a stockholder who proposes to nominate a person
at the meeting for election as a director must contain certain information about
that person, including age, business and residence addresses and principal
occupation, the class and number of shares of the Company's stock beneficially
owned and such other information as would be required to be included in a proxy
statement soliciting proxies to nominate that person. The Company may also
require any proposed nominee to furnish other information reasonably required by
the Company to determine the proposed nominee's eligibility to serve as
director. If the chairman of the meeting of stockholders determines that a
person was not nominated in accordance with the foregoing procedures, such
person shall not be eligible for election as a director.
OTHER PROPOSALS
Stockholders may submit proposals appropriate for stockholder action at the
Company's Annual Meeting consistent with the regulations of the Securities and
Exchange Commission. For proposals to be considered for inclusion in the Proxy
Statement for the 2000 Annual Meeting, they must be received by the Company no
later than November 30, 1999. Such proposals should be directed to AMCORE
Financial, Inc., Attention: Corporate Secretary, 501 Seventh Street, Rockford,
Illinois 61104.
By order of the Board of Directors,
/s/ James S. Waddell
James S. Waddell
Secretary
19
<PAGE> 21
EXHIBIT A
AMCORE STOCK OPTION ADVANTAGE PLAN
PREAMBLE
WHEREAS, AMCORE Financial. Inc. (the "Company") desires to establish a plan
through which certain employees of the Company and its affiliates may purchase
from the Company shares of its common stock; and
WHEREAS, the Company intends that the plan be an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code of 1986,
and has designed the plan to conform to the provisions of Rule 16b-3 of the
Exchange Act;
NOW, THEREFORE, the Company hereby establishes the AMCORE Stock Option
Advantage Plan (the "Plan"), subject to the approval of stockholders of the
Company, to be effective April 1, 1999:
ARTICLE 1.
PURPOSE OF PLAN
The purpose of the Plan is to secure for the Company and its shareholders
the benefits of the incentive inherent in the ownership of the Company's common
stock by present and future eligible employees of the Company and its
Affiliates.
ARTICLE 2.
DEFINITIONS
2.1 Administrator. The individual or committee designated by the Board
to administer the Plan.
2.2 Affiliate. Each corporation that is designated as an Affiliate by
the Company pursuant to Section 5.3.
2.3 Agreement. An enrollment and authorization form submitted by an
Eligible Employee to the Administrator through which the Eligible Employee
elects to participate in the Plan and authorizes payroll deductions or other
procedures established by the Administrator for payment of the exercise price of
Options.
2.4 Board. The Board of Directors of the Company.
2.5 Code. The Internal Revenue Code of 1986, as amended.
2.6 Company. AMCORE Financial, Inc. and its successors and assigns.
2.7 Compensation. An employee's annual rate of compensation earned from
employment with the Company or one of its Affiliates, including regular
earnings, bonuses, overtime, commissions, shift premium, incentive compensation,
incentive payments, amounts elected under a salary reduction agreement pursuant
to a plan described in Section 125 of the Code or a deferred compensation plan,
and amounts excluded from taxable income under Section 402(g) of the Code.
2.8 Eligible Employee. An Employee of the Company or an Affiliate who is
compensated through the Company's or the Affiliate's regular payroll, except for
the following:
(a) An Employee whose customary employment by the Company or Affiliate is
20 hours or less per week.
(b) An Employee whose customary employment by the Company or Affiliate is
for five months or less in a calendar year.
(c) An employee who would own more than 5% of the total combined voting
power of all classes of stock of the Company or an Affiliate at the
time such employee would be granted an Option. For
A-1
<PAGE> 22
the purpose of determining if an employee owns more than 5% of such
stock, he shall be deemed to own (i) any stock owned (directly or
indirectly) by or for his brothers and sisters (whether by whole or half
blood), spouse, ancestors or lineal descendants, (ii) any stock owned
(directly or indirectly) by or for a corporation, partnership, estate or
trust of which such individual is a shareholder, partner or beneficiary
in proportion to his interest in such corporation, partnership, estate
or trust, and (iii) any stock the individual may purchase under an
outstanding stock option.
For purposes of the Plan and except as provided in Section 3.1(c), the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
Company.
2.9 Employee. A regular common law employee of the Company or an
Affiliate who is paid through the Company's regular payroll.
2.10 Exchange Act. The Securities Exchange Act of 1934, as amended.
2.11 Exercise Date. The last day of each of the months of March, June,
September and December on which the NASDAQ is open for trading.
2.12 Exercise Period. The Exercise Period for each Eligible Employee
shall be the period that begins on the Grant Date hereunder and expires twelve
(12) months thereafter.
2.13 Fair Market Value shall mean, as of any date, the value of Stock
determined as follows:
a) If the Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market
or The Nasdaq Small Cap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing price for such stock as quoted on
such exchange or system for the last market trading day on the date of
such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
b) If the Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the
mean of the closing bid and asked prices for the Stock on the date of
such determination, as reported in The Wall Street Journal, or such
other source as the Board deems reliable;
c) In the absence of an established market for the Stock, the Fair Market
Value thereof shall be determined in good faith by the Board.
2.14 Grant Date. The Grant Date for each Eligible Employee shall be
January 1, April 1, July 1 or October 1 of the calendar year in which such
Eligible Employee enrolls in the Plan in accordance with Section 3.1.
2.15 Option. The right that is granted hereunder to a Participant to
purchase from the Company a stated number of shares of Stock at the Fair Market
Value on each Exercise Date.
2.16 Participant. An Eligible Employee who has elected to participate in
the Plan in accordance with Article 3.
2.17 Payroll Account. A bookkeeping account maintained by the Company or
its designated record-keeper to which is added the amounts withheld on behalf of
each Participant under regular payroll deductions, or otherwise, deposited into
the account as authorized by a Participant, and reduced by amounts used to
purchase shares of Stock.
2.18 Plan. The AMCORE Stock Option Advantage Plan.
2.19 Stock. The common stock of the Company, $0.22 par value.
2.20 Stock Account. The book-entry account established by the
Administrator to which all purchases of Stock pursuant to the exercise of an
Option granted under the Plan are credited.
A-2
<PAGE> 23
ARTICLE 3.
GRANT AND EXERCISE OF OPTIONS
3.1 Participation and General Conditions. An Eligible Employee may elect
to become a Participant by completing the Agreement and filing it with the
Administrator prior to the Grant Date or by responding to enrollment procedures
in the form and manner prescribed by the Administrator prior to the Grant Date.
Payroll deductions for a Participant shall commence on the first payroll
following the Grant Date and shall end on the last payroll in the Exercise
Period to which such authorization is applicable, unless sooner terminated by
the Participant as provided in Section 3.7 and 3.8 hereof.
On the Grant Date, each Eligible Employee who becomes a Participant, shall,
without further action of the Administrator, be granted an Option to purchase a
number of whole shares of Stock that, in the aggregate, have an exercise price
(as described below) that is not more than the amount contributed to the Plan by
the Participant, and does not exceed 10% of the Participant's Compensation on
each pay day during the Exercise Period. In addition, no Eligible Employee may
be granted an Option which permits his rights to purchase Stock under the Plan
and all other employee stock purchase plans (described in Section 423(b) of the
Code) of the Company and its Affiliates to accrue at a rate that exceeds $25,000
of Fair Market Value of such Stock (determined on the date that the Option is
granted) for each calendar year in which such Option is outstanding at any time.
Each Option grant is subject to the following terms and conditions:
(a) The exercise price of each Option shall be 85% of Fair Market Value of
each share of Stock that is subject to the Option, determined on
either the Grant Date or, if less, on the Exercise Date.
(b) Each Option, or portion thereof, that is not exercised during an
Exercise Period shall expire at the end of the Exercise Period in
which the Option was granted, unless it expires sooner pursuant to
Section 3.1(c).
(c) Each Option shall expire on the date that the Eligible Employee
terminates employment with the Company and all of its Affiliates;
provided, however, that the Option shall terminate three months after
such termination of employment if termination is due to the death or
disability of the Eligible Employee. For purposes of this provision, a
Participant shall be considered disabled if he has been determined to
be disabled under the terms of the Company's Long-Term Disability
Plan.
(d) A right to purchase Stock which has accrued under one Option granted
hereunder may not be carried over to any other Option.
3.2 Right to Exercise. An Option shall be exercisable on each of the
Exercise Dates of the Exercise Period that includes the Grant Date on which the
Option was granted. An Eligible Employee must exercise an Option while he is an
employee of the Company or an Affiliate or within the periods that are specified
herein after termination of employment.
3.3 Method of Exercise. Unless a Participant withdraws from the Plan as
provided in Section 3.7 hereof, or unless the Board otherwise provides, such
Participant's Option shall be exercised automatically on the Exercise Date, and
the maximum number of shares of Stock subject to such Option will be purchased
for such Participant at the applicable option price with the accumulated payroll
deductions to the Participant's Payroll Account under the Plan pursuant to
Section 3.4 hereof.
The shares of Stock purchased upon exercise of an Option hereunder shall be
credited to the Participant's Stock Account as of the Exercise Date and shall be
deemed to be transferred to the Participant on such date. Except as otherwise
provided herein, the Participant shall have all rights of a shareholder with
respect to such shares of Stock upon their being credited to the Participant's
Stock Account.
3.4 Payment of Exercise Price. Amounts credited to a Participant's
Payroll Account shall be accumulated and reserved for payment of the exercise
price of Options granted hereunder.
(a) A Participant may modify his election to participate in the Plan at
any time by timely providing the Administrator written notice in the
form prescribed by the Administrator. Such modification shall be
effective on the first payroll date following such notice or, if
later, the date specified in the notice.
A-3
<PAGE> 24
(b) An Agreement to begin or modify participation in the Plan must be
completed by the Participant within the time prescribed by the
Administrator prior to the last payroll date in the Exercise Period
for which it is to be effective. If the Agreement is not timely, it
shall take effect upon the next following Exercise Period.
(c) Each Participant's election specified under an Agreement shall remain
in effect for successive Exercise Periods until modified or withdrawn
by the Participant in accordance with this Section 3.4 and Section
3.7.
(d) Interruptions in employment as a result, for example, of a lay-off or
the Family and Medical Leave Act, are considered temporary
interruptions in participation in the Plan and payroll deductions are
to resume when the Eligible Employee returns to work.
3.5 Issuance of Stock. Unless the Participant withdraws from the Plan
pursuant to Section 3.7, on each Exercise Date, the Company shall issue in
book-entry format whole shares of Stock to a Participant as follows:
(a) On each Exercise Date the Company shall determine the number of whole
shares of Stock to be issued to each Participant by dividing the
balance of such Participant's Payroll Account by the applicable
exercise price of the Option.
(b) The Company shall deduct from a Participant's Payroll Account the
amount necessary to purchase the greatest number of whole shares of
Stock that can be acquired under the applicable Option.
(c) If, on an Exercise Date, Participants in the aggregate have Options to
purchase more shares of Stock than are available for purchase under
the Plan, each Participant shall be eligible to purchase a reduced
number of shares on a pro rata basis and any amounts remaining in the
Payroll Account shall be returned to such Participants, all as
provided by rules and regulations adopted by the Administrator.
(d) Any amounts remaining in the Payroll Account after deducting the
exercise price for whole shares of Stock shall generally be held for
use at a subsequent Exercise Date. However, a Participant who has made
contributions to a Payroll Account and has withdrawn from the Plan
under the terms of Section 3.7 may obtain payment of the amounts held
in his Payroll Account from the Company in the manner established by
the Administrator. A Participant who has terminated employment shall
be paid any amounts remaining in his Payroll Account in the manner
established by the Administrator.
3.6 Non-transferability. Any Option granted under this Plan shall not be
transferable except by will or by the laws of descent and distribution and shall
only be transferred in accordance with applicable restrictions. Only the
Participant to whom an Option is granted may exercise such Option, unless he is
deceased. No right or interest of a Participant in any Option shall be liable
for, or subject to, any lien, obligation, garnishment or liability of such
Participant.
3.7 Withdrawal. A Participant may withdraw from the Plan at any time in
the manner prescribed by the Administrator. All of the Participant's payroll
deductions credited to his or her Payroll Account shall be paid to such
Participant in accordance with Section 3.5(d) and such Participant's Option for
the Exercise Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares of Stock shall be made for such Exercise
Period. If a Participant withdraws from an Exercise Period, payroll deductions
shall not resume at the beginning of any succeeding Exercise Period unless the
Participant delivers to the Company a new Agreement.
A Participant's withdrawal from an Exercise Period shall not have any
effect upon his or her eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Exercise Periods which
commence after the termination of the Exercise Period from which the Participant
withdraws.
3.8 Termination of Employment. (a) Upon a Participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions
A-4
<PAGE> 25
credited to such Participant's Payroll Account during the Exercise Period but
not yet used to exercise the Option shall be returned to such Participant or, in
the case of his or her death, to the person or persons entitled thereto by will
or laws of descent and distribution or as otherwise provided in the manner
prescribed by the Administrator, in accordance with Section 3.4(d).
(b) Company Option to Repurchase Stock. Upon termination of employment of
any Participant other than for death, disability or retirement as defined in
Section 4.4 hereof, the Company shall have the option to repurchase all, or any
portion of, the shares owned by such Participant that, at the time of such
termination, are subject to the restriction on transfer provided for in Section
4.4. Such option is exercisable by the Company for 30 days following such
termination of employment by written notice to the Participant. The Company
shall have the right to repurchase such shares at the purchase price per share
paid by the Participant at the applicable Exercise Date.
3.9 Shareholder Rights. No Participant shall have any rights as a
stockholder with respect to shares subject to his Option prior to the time that
such Option is exercised on the Exercise Date.
3.10 Issuance of Shares. Shares of Stock issued pursuant to the exercise
of Options hereunder shall be credited to the Stock Account of the Participant
established by the Administrator as soon as administratively feasible after a
Participant exercises an Option hereunder and executes any applicable
shareholder agreement that the Company requires at the time of exercise. A
Participant may request a stock certificate, which shall be issued as soon as
administratively feasible following the lapse of the restrictions set forth in
Section 4.4.
3.11 Application of Funds. All funds of Participants received or held by
the Company under the Plan before purchase of the Stock may be held in bank
accounts of the Company and shall not accrue interest.
3.12 Dividends. Dividends earned on shares of Stock held in the Employee's
Stock Account shall be credited to the Employee's Payroll Account and used to
purchase additional shares of Stock (as provided in the Company's Dividend
Reinvestment Plan).
ARTICLE 4.
STOCK SUBJECT TO PLAN
4.1 Source of Shares. Upon the exercise of an Option, the Company may
credit to the Participant's book-entry account authorized but unissued shares of
Stock.
4.2 Maximum Number of Shares. The maximum aggregate number of shares of
Stock that may be issued pursuant to the exercise of Options is 250,000, subject
to increases and adjustments as provided in Article 6.
4.3 Forfeitures. If an Option is terminated, in whole or in part, the
number of shares of Stock allocated to such Option or portion thereof may be
reallocated to other Options to be granted under this Plan.
4.4 Restriction on Sale of Stock. A Participant shall be prohibited from
selling any stock acquired under the terms of the Plan until the expiration of
the period commencing on each Exercise Date and ending two years later.
Notwithstanding the above, this sales restriction shall lapse upon the earlier
of the death, disability or retirement of the Participant. For purposes of this
provision, a Participant shall be considered disabled if he has been determined
to be disabled under the terms of the Company's Long-Term Disability Plan. The
Administrator may waive this restriction in its sole discretion. For purposes of
this provision a Participant shall be considered retired if he has ceased
employment at 55 years of age or older with at least ten (10) years of service
or at 65 years of age or older with at least five (5) years of service.
ARTICLE 5.
ADMINISTRATION OF THE PLAN
5.1 General Authority. The Plan shall be administered by the
Administrator. The express grant in the Plan of any specific power to the
Administrator shall not be construed as limiting any power or authority of the
Administrator. The Administrator shall not be liable for any act done in good
faith with respect to this Plan or
A-5
<PAGE> 26
any Agreement or Option. The interpretation and construction by the
Administrator of any terms or provisions of this Plan or of any rule or
regulation promulgated in connection herewith shall, to the fullest extent
permitted by law, be conclusive and binding on all persons. In addition to all
other authority vested with the Administrator under the Plan, the Administrator
shall have the discretionary authority to:
(a) Interpret all provisions of this Plan;
(b) Prescribe the form of any Agreement and notice and manner for
executing or giving the same;
(c) Adopt, amend, or rescind rules for Plan administration; and
(d) Make all determinations it deems advisable for the administration of
this Plan.
5.2 Persons Subject to Section 16(b). Notwithstanding anything in the
Plan to the contrary, the Board, in its absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any provision of the Plan
to Participants who are members of the Committee subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
5.3 Designation of Affiliates. The Company may from time to time
designate a "parent corporation," as defined in Section 424(e) of the Code, or
"subsidiary corporation," as defined in Section 424(f) of the Code, to be a
participating corporation in a manner that is consistent with Treasury
Regulation sec. 1.423-2(c)(4). Corporations that are so designated shall be
Affiliates for purposes of this Plan. Such designation shall be evidenced by the
express inclusion of the corporation as an Affiliate within Section 2.2, the
intentional act of the Company or the Administrator to communicate in writing
the grant of Options hereunder to employees of a corporation, or such other
written document that is intended to evidence such designation. The Company or
Administrator may rescind the designation of a corporation as an Affiliate by
adopting a writing that is intended to evidence such rescission.
ARTICLE 6.
ADJUSTMENT UPON CORPORATE CHANGES
6.1 Adjustments to Shares upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company and subject to Section 6.3,
the reserves of authorized Stock, the maximum number of shares each Participant
may purchase each Exercise Period, as well as the price per share and the number
of shares of Stock covered by each Option under the Plan which has not yet been
exercised shall, as the Administrator determines (in its sole discretion) to be
appropriate, be proportionately adjusted for any increase or decrease in the
number of issued shares of Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Company's Stock,
or any other increase or decrease in the number of shares of the Company's Stock
effected without receipt of consideration by the Company or there occurs any
other event which in the judgment of the Administrator necessitates such action.
6.2 Dissolution, Liquidation, Merger or Asset Sale. In the event of the
proposed dissolution or liquidation of the Company, a proposed merger of the
Company with or into another corporation or a proposed sale of all or
substantially all of the assets of the Company, the Exercise Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution, liquidation, merger or asset sale, unless provided
otherwise by the Board. The New Exercise Date shall be before the date of the
Company's proposed dissolution, liquidation, merger or asset sale. The
Participant's Option shall be exercised automatically on the New Exercise Date,
unless prior to such date the Participant has withdrawn from the Exercise Period
as provided in Section 3.7 hereof. In addition, on the New Exercise Date the
restrictions on transfer of shares of Stock purchased under the Plan provided
for by Section 4.4 hereof shall automatically be waived. Notwithstanding the
foregoing, if the Board determines, in its sole discretion, to continue the Plan
upon a merger with or into another corporation, the Administrator may grant
Options in substitution for stock awards, stock options, stock appreciation
rights or similar awards held by an individual who becomes an employee of the
Company or an Affiliate in connection with a transaction to which Section 424(a)
of the Code applies. The terms of such
A-6
<PAGE> 27
substituted Options shall be determined by the Administrator in its sole
discretion, subject only to the limitations of Article 4.
6.2 No Preemptive Rights. The issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, for
cash or property, or for labor or services rendered, either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, outstanding Options.
6.3 Fractional Shares. Only whole shares of Stock may be acquired
through the exercise of an Option. The Company will return to each Participant's
Payroll Account any amount tendered in the exercise of an Option remaining after
the maximum number of whole shares have been purchased.
ARTICLE 7.
LEGAL COMPLIANCE CONDITIONS
7.1 General. No Option shall be exercisable, no Stock shall be issued,
no certificates for shares of Stock shall be delivered, and no payment shall be
made under this Plan except in compliance with all federal and state laws and
regulations (including, without limitation, withholding tax requirements),
federal and state securities laws and regulations and the rules of all national
securities exchanges or self-regulatory organizations on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. No Option shall be exercisable, no Stock
shall be issued, no certificate for shares shall be delivered and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Administrator may deem advisable from any regulatory bodies
having jurisdiction over such matters.
7.2 Stock Holding Periods. In order for tax treatment under Section
421(a) of the Code to apply to Stock acquired hereunder, the Participant is
generally required to hold such shares of Stock for two years after the Grant
Date of an Option through which shares of Stock were acquired and for one year
after the transfer of Stock to the Participant. A person holding Stock acquired
hereunder who disposes of shares prior to the expiration of such holding
periods, and in accordance with Section 4.4, shall notify the Company of such
disposition in writing.
7.3 Stock Legends. Any certificate issued to evidence shares of Stock
for which an Option is exercised may bear such legends and statements as the
Company or Administrator may deem advisable to assure compliance with federal
and state laws and regulations and any other restrictions. Such legends and
statements may include, but are not limited to, restrictions on transfer.
7.4 Representations by Participants. As a condition to the exercise of
an Option, the Company may require a Participant to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares.
At the option of the Company, a stop transfer order against any shares of stock
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) and stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order to
assure exemption from registration. The Administrator may also require such
other action or agreement by the Participants as may from time to time be
necessary to comply with the federal and state securities laws. This provision
shall not obligate the Company or any Affiliate to undertake registration of
options or stock hereunder.
ARTICLE 8.
GENERAL PROVISIONS
8.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue
A-7
<PAGE> 28
in the employ of the Company or an Affiliate or in any way affect any right and
power of the Company or an Affiliate to terminate the employment of any employee
at any time with or without assigning a reason therefor.
8.2 Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon contractual obligations that may be created hereunder. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
8.3 Costs. All costs and expenses incurred in administering the Plan
shall be paid by the Company, except that any brokerage fees incurred upon the
sale of the stock or costs incurred in the issuance of a stock certificate shall
be paid by the Participant.
8.4 Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
8.5 Governing Law. The internal laws of the State of Nevada shall apply
to all matters arising under this Plan, to the extent that federal law does not
apply. This Plan is not intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended, but is intended to comply with Section 423 of
the Code. Any provisions required to be set forth in this Plan by such Code
Section are hereby included as fully as if set forth in the Plan.
8.6 Compliance With Section 16 of the Exchange Act. With respect to
persons subject to Section 16 of the Exchange Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of this Plan or
action by the Administrator fails to so comply, it shall be deemed null and void
to the extent permitted by law and deemed advisable by the Administrator.
8.7 Amendment. The Board may amend this Plan at any time; provided,
however, that an amendment that would have an adverse effect on the rights of a
Participant under an outstanding Option is not valid with respect to such Option
without the Participant's consent, except as provided in Section 4.4(a) and
except where the Board determines that changes in applicable accounting rules or
a change in applicable laws render an amendment desirable, in which case the
Board may approve such amendment. Provided further, the shareholders of the
Company must, within 12 months before or after the adoption thereof, approve any
amendment that increases the number of shares of Stock in the aggregate which
may be issued pursuant to Options granted under the Plan or changes the
designation of the employees (or class of employees) eligible for participation
in the Plan.
8.8 Termination. The Board may terminate this Plan at a any time or for
any reason; provided, however, that no such termination can affect Options
previously granted which would adversely affect the right of any Participant.
Provided further, if the Board determines that changes in applicable accounting
rules or a change in applicable laws renders a termination desirable, then the
Board may approve such termination. The Plan shall terminate upon the earliest
to occur of (i) the termination of the Plan by the Board in accordance with this
Section 8.8, (ii) issuance of all of the shares of Stock reserved for issuance
under the Plan, or (iii) ten (10) years from the effective date. The termination
of the Plan shall be done in accordance with the procedures established by the
Administrator.
8.9 Governmental Regulations. The Company's obligation to sell and
deliver its stock pursuant to the Plan is subject to all applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals of any governmental or regulatory authority
as may be deemed necessary or appropriate by the Board.
8.10 Withholding. The Company reserves the right to withhold from stock or
cash distributed to a Participant any amounts which it is required by law to
withhold.
A-8
<PAGE> 29
8.11 Effective Date of Plan. This Plan shall be effective and Options may
be granted under this Plan on April 1, 1999, provided that no Option will be
effective or exercisable unless and until this Plan is approved by shareholders
of the Company in a manner that satisfies Treasury Regulation sec. 1.423-2
within 12 months of the date that the Board took action to adopt the Plan. All
Options granted under the Plan will become void immediately following the
12-month anniversary of the date the Board adopted the Plan if such approval by
shareholders has not yet been obtained.
A-9
<PAGE> 30
AMCORE FINANCIAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMCORE FINANCIAL, INC.
FOR THE ANNUAL MEETING ON MAY 4, 1999
The undersigned holder of Common Stock of AMCORE Financial, Inc. hereby
appoints Robert J. Meuleman and James S. Waddell or each of them, with full
power of substitution, to act as proxy for and to vote the stock of the
undersigned at the Annual Meeting of Stockholders of AMCORE Financial, Inc. to
be held at Cliffbreakers, 700 West Riverside Blvd., Rockford, Illinois, at 5:30
p.m., Rockford time, on May 4, 1999 or any adjournment thereof.
In their discretion, the proxies are authorized to vote upon other business
as may properly come before the meeting. This proxy when properly executed will
be voted in the manner directed herein by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1,2 AND 3.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
AMCORE FINANCIAL, INC. 1999 ANNUAL MEETING
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS: 1- Lawrence E. Gloyd 2- John A. Halbrook [ ] FOR all nominees [ ] WITHOUT AUTHORITY
3- Frederick D. Hay 4- Robert J. Mauleman (listed to the left (except to vote for all
as specified below). nominees listed
to the left.
-------------------------------------
(Instructions: To withhold authority to vote for any indicated nominee, write ------------| | |
the number(s) of the nominee(s) in the box provided to the right.) -------------------------------------
2. Ratification of the appointment of KPMG LLP as independent auditors. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the AMCORE Stock Option Advantage Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
Check appropriate box Date:
Indicate changes below: -----------------------
Address Change? [ ] Name Change? [ ] -------------------------------------
| |
| |
| |
-------------------------------------
SIGNATURE(S) IN BOX
Please sign exactly as your name
appears hereon. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by an
authorized person.
</TABLE>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of AMCORE Financial, Inc., a Nevada corporation, which is about to file
an annual report for the year ended December 31, 1998 pursuant to Section 13 of
15(d) of the Securities Act of 1934 on Form 10-K with the Securities and
Exchange Commission, Washington, D.C., 20549 hereby constitutes and appoints
ROBERT J. MEULEMAN and JOHN R. HECHT, and each of them, his true and lawful
attorney-in-fact and agents with power of substitution and resubstitution, from
them and in their name, place and stead, in any and all capacities, to sign the
Company's Form 10-K and other documents in connection therewith with the
Securities and Exchange Commission, granting unto the attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, know that the undersigned as a director or officer has
hereunto set their hand as of this ___________________ day of March, 1999.
-----------------------------------
Signature
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 144,199
<INT-BEARING-DEPOSITS> 13,397
<FED-FUNDS-SOLD> 9,427
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,327,532
<INVESTMENTS-CARRYING> 16,142
<INVESTMENTS-MARKET> 16,371
<LOANS> 2,498,354
<ALLOWANCE> (26,403)
<TOTAL-ASSETS> 4,147,833
<DEPOSITS> 2,947,724
<SHORT-TERM> 498,211
<LIABILITIES-OTHER> 55,454
<LONG-TERM> 330,361
6,572
0
<COMMON> 0
<OTHER-SE> 309,511
<TOTAL-LIABILITIES-AND-EQUITY> 4,147,833
<INTEREST-LOAN> 192,974
<INTEREST-INVEST> 94,235
<INTEREST-OTHER> 3,652
<INTEREST-TOTAL> 290,861
<INTEREST-DEPOSIT> 116,604
<INTEREST-EXPENSE> 168,127
<INTEREST-INCOME-NET> 122,734
<LOAN-LOSSES> 7,993
<SECURITIES-GAINS> 4,427
<EXPENSE-OTHER> 119,594
<INCOME-PRETAX> 53,895
<INCOME-PRE-EXTRAORDINARY> 39,581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,581
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 3.51
<LOANS-NON> 18,179
<LOANS-PAST> 7,272
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 25,924
<ALLOWANCE-OPEN> 19,908
<CHARGE-OFFS> 5,064
<RECOVERIES> 1,420
<ALLOWANCE-CLOSE> 26,403<F1>
<ALLOWANCE-DOMESTIC> 17,095
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,308
<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 WAS NOT MATERIAL
TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, AND THEREFORE, FINANCIAL
STATEMENTS WERE NOT RESTATED.
</FN>
</TABLE>
