UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 0-13393
AMCORE FINANCIAL, INC.
NEVADA 36-3183870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Seventh Street, Rockford, Illinois 61104
Telephone number (815) 968-2241
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common stock, par value
$.22 per share, at April 30, 1999 was 28,224,000 shares.
Index of Exhibits on Page 23
<PAGE>
AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART I Page Number
- ------ -----------
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998.......................................... 1
Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998....................... 2
Consolidated Statements of Stockholders' Equity for the
periods ended March 31, 1999 and 1998...................... 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998....................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 11
PART II
Item 4 Submission of Matters to a Vote of Security Holders.............. 23
Item 6 Exhibits and Reports on Form 10-Q................................ 23
Signatures.............................................................. 24
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except per share data) 1999 1998
=================================================================================================================================
<S> <C> <C> <C>
Assets Cash and cash equivalents......................................................... $ 115,522 $ 144,199
Interest earning deposits in banks................................................ 19,170 13,397
Federal funds sold and other short-term investments............................... - 9,427
Loans held for sale............................................................... 26,286 46,836
Securities available for sale..................................................... 1,372,109 1,327,532
Securities held to maturity (fair value of $ 15,064 in 1999; $ 16,371 in 1998).... 14,861 16,142
---------- ----------
Total securities ............................................................. $1,386,970 $1,343,674
Loans and leases, net of unearned income.......................................... 2,519,582 2,451,518
Allowance for loan and lease losses............................................... (27,919) (26,403)
---------- ----------
Net loans and leases.......................................................... $2,491,663 $2,425,115
Premises and equipment, net ...................................................... 57,890 58,763
Intangible assets, net............................................................ 18,581 19,028
Foreclosed real estate............................................................ 2,477 2,321
Other assets...................................................................... 81,583 85,073
---------- ----------
TOTAL ASSETS.................................................................. $4,200,142 $4,147,833
========== ==========
Liabilities LIABILITIES
And Deposits:
Stockholders' Demand deposits................................................................. $1,163,577 $1,169,835
Equity Savings deposits................................................................ 168,721 182,330
Other time deposits............................................................. 1,593,953 1,595,559
---------- ----------
Total deposits............................................................... $2,926,251 $2,947,724
Short-term borrowings............................................................. 614,308 498,211
Long-term borrowings ............................................................. 296,273 330,361
Other liabilities................................................................. 51,063 55,454
---------- ----------
TOTAL LIABILITIES............................................................ $3,887,895 $3,831,750
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares; none issued......... $ - $ -
Common stock, $.22 par value: authorized 45,000,000 shares;
March 31, December 31,
1999 1998
Issued 29,593,495 29,593,495
Outstanding 28,221,774 28,837,698 6,572 6,572
Additional paid-in capital........................................................ 75,048 75,260
Retained earnings ................................................................ 253,571 247,486
Deferred compensation for non-employee directors.................................. (1,895) (1,706)
Treasury stock ................................................................... (22,433) (8,263)
Accumulated other comprehensive income............................................ 1,384 (3,266)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................... $ 312,247 $ 316,083
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $4,200,142 $4,147,833
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
(in thousands, except per share data) 1999 1998
===========================================================================================================
<S> <C> <C> <C>
Interest Interest and fees on loans and leases............................... $ 51,437 $ 42,989
Income Interest on securities:
Taxable........................................................... 16,369 20,133
Tax-exempt........................................................ 4,303 4,308
----------------------
Total Income from Securities................................... $ 20,672 $ 24,441
Interest on federal funds sold and other short-term investments..... $ 53 $ 104
Interest and fees on loans held for sale............................ 624 751
Interest on deposits in banks....................................... 106 30
----------------------
Total Interest Income.......................................... $ 72,892 $ 68,315
----------------------
Interest Interest on deposits................................................ $ 28,574 $ 27,100
Expense Interest on short-term borrowings................................... 7,684 9,092
Interest on long-term borrowings.................................... 4,851 3,170
----------------------
Total Interest Expense......................................... $ 41,109 $ 39,362
----------------------
Net Interest Income............................................ $ 31,783 $ 28,953
Provision for loan and lease losses................................. 2,226 2,145
----------------------
Net Interest Income After Provision for Loan and Lease Losses.. $ 29,557 $ 26,808
----------------------
Trust and asset management income................................... $ 6,587 $ 5,261
Non-Interest Service charges on deposits......................................... 2,218 1,864
Income Mortgage revenues................................................... 2,138 2,638
Other............................................................... 2,626 2,634
----------------------
Non-Interest Income, Excluding Net Realized Security Gains..... $ 13,569 $ 12,397
Net realized security gains......................................... 193 542
----------------------
Total Non-Interest Income...................................... $ 13,762 $ 12,939
Compensation expense................................................ $ 12,985 $ 12,555
Operating Employee benefits................................................... 3,740 3,544
Expenses Net occupancy expense............................................... 1,729 1,713
Equipment expense................................................... 2,105 2,146
Data processing expense............................................. 1,601 1,775
Professional fees................................................... 1,131 2,679
Advertising and business development................................ 746 882
Amortization of intangible assets................................... 497 586
Other............................................................... 4,824 6,026
----------------------
Total Operating Expenses....................................... $ 29,358 $ 31,906
----------------------
Income Before Income Taxes.......................................... $ 13,961 $ 7,841
Income taxes........................................................ 3,925 1,742
----------------------
NET INCOME..................................................... $ 10,036 $ 6,099
======================
BASIC EARNINGS PER COMMON SHARE..................................... $ 0.35 $ 0.23
DILUTED EARNINGS PER COMMON SHARE................................... 0.35 0.22
DIVIDENDS PER COMMON SHARE.......................................... 0.14 0.12
AVERAGE COMMON SHARES OUTSTANDING................................... 28,475 27,099
AVERAGE DILUTED SHARES OUTSTANDING.................................. $ 28,924 $ 27,533
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
Additional Compensation
Common Paid-in Retained Non-Employee
(in thousands, except share data) Stock Capital Earnings Directors
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997.................................................. $6,152 $ 73,262 $206,235 $(1,478)
-------------------------------------------
Comprehensive Income:
Net Income.................................................................. - - 6,099 -
Unrealized holding losses on securities available for sale arising
during the period....................................................... - - - -
Less reclassification adjustment for realized gains included in net income. - - - -
-------------------------------------------
Net unrealized gains (losses) on securities available for sale............... - - - -
-------------------------------------------
Comprehensive Income.......................................................... - - 6,099 -
-------------------------------------------
Cash dividends on common stock-$.12 per share............................... - - (3,251) -
Issuance of common shares for Midwest Federal Financial Corp................ 420 2,314 17,074 -
Reissuance of treasury shares for Investors Management Group............... - 680 - -
Purchase of shares for the treasury......................................... - - - -
Reissuance of treasury shares for Non-Employee
Directors stock plan...................................................... - 139 - (175)
Deferred compensation expense............................................... - - - 133
Reissuance of treasury shares for employee benefit plans.................... - 1,233 - -
-------------------------------------------
Balance at March 31, 1998..................................................... $6,572 $ 77,628 $226,157 $(1,520)
-------------------------------------------
-------------------------------------------
Balance at December 31, 1998.................................................. $6,572 $ 75,260 $247,486 $(1,706)
-------------------------------------------
Comprehensive Income:
Net Income.................................................................. - - 10,036 -
Unrealized holding gains on securities available for sale arising
during the period....................................................... - - - -
Less reclassification adjustment for realized gains included in net income. - - - -
-------------------------------------------
Net unrealized gains (losses) on securities available for sale............... - - - -
-------------------------------------------
Comprehensive Income.......................................................... - - 10,036 -
-------------------------------------------
Cash dividends on common stock-$.14 per share............................... - - (3,951) -
Purchase of shares for the treasury......................................... - - - -
Reissuance of treasury shares for Non-Employee
Directors stock plan...................................................... - (7) - (325)
Deferred compensation expense............................................... - - - 136
Reissuance of treasury shares for employee benefit plans.................... - (205) - -
-------------------------------------------
Balance at March 31, 1999..................................................... $6,572 $ 75,048 $253,571 $(1,895)
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Stockholders'
(in thousands, except share data) Stock Income Equity
----------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997..................................................$(5,069) $ 8,374 $287,476
----------------------------------------
Comprehensive Income:
Net Income.................................................................. - - 6,099
Unrealized holding losses on securities available for sale arising
during the period....................................................... - 243 243
Less reclassification adjustment for realized gains included in net income. - (325) (325)
----------------------------------------
Net unrealized gains (losses) on securities available for sale............... - (82) (82)
----------------------------------------
Comprehensive Income.......................................................... - (82) 6,017
----------------------------------------
Cash dividends on common stock-$.12 per share............................... - - (3,251)
Issuance of common shares for Midwest Federal Financial Corp................ - 178 19,986
Reissuance of treasury shares for Investors Management Group............... 6,242 - 6,922
Purchase of shares for the treasury......................................... (4,758) - (4,758)
Reissuance of treasury shares for Non-Employee
Directors stock plan...................................................... 36 - -
Deferred compensation expense............................................... - - 133
Reissuance of treasury shares for employee benefit plans.................... 691 - 1,924
----------------------------------------
Balance at March 31, 1998.....................................................$(2,858) $ 8,470 $314,449
----------------------------------------
----------------------------------------
Balance at December 31, 1998..................................................$(8,263) $(3,266) $316,083
----------------------------------------
Comprehensive Income:
Net Income.................................................................. - - 10,036
Unrealized holding gains on securities available for sale arising
during the period....................................................... - 4,766 4,766
Less reclassification adjustment for realized gains included in net income. - (116) (116)
----------------------------------------
Net unrealized gains (losses) on securities available for sale............... - 4,650 4,650
----------------------------------------
Comprehensive Income.......................................................... - 4,650 14,686
----------------------------------------
Cash dividends on common stock-$.14 per share............................... - - (3,951)
Purchase of shares for the treasury.........................................(16,282) - (16,282)
Reissuance of treasury shares for Non-Employee
Directors stock plan...................................................... 332 - -
Deferred compensation expense............................................... - - 136
Reissuance of treasury shares for employee benefit plans.................... 1,780 - 1,575
----------------------------------------
Balance at March 31, 1999.....................................................(22,433) $ 1,384 $312,247
----------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) Three Months Ended
March 31,
(in thousands) 1999 1998
============================================================================================================================
<S> <C> <C> <C>
Cash Flows Net income....................................................................... $ 10,036 $ 6,099
From Adjustments to reconcile net income to net
Operating cash provided by operating activities:
Activities Depreciation and amortization of premises and equipment..................... 1,765 1,763
Amortization and accretion of securities, net............................... 3,189 1,673
Provision for loan and lease losses......................................... 2,226 2,145
Amortization of intangible assets........................................... 497 586
Net gain on sale of securities available for sale........................... (193) (542)
Deferred income taxes....................................................... 407 1,267
Originations of loans held for sale......................................... (96,517) (104,805)
Proceeds from sales of loans held for sale.................................. 117,067 98,833
Other, net.................................................................. (4,399) 9,107
-------------------------
Net cash provided by operating activities................................ $ 34,078 $ 16,126
-------------------------
Cash Flows Proceeds from maturities of securities available for sale........................ $ 122,212 $ 83,551
From Proceeds from maturities of securities held to maturity.......................... 1,281 700
Investing Proceeds from sales of securities available for sale............................. 38,238 92,809
Activities Purchase of securities available for sale........................................ (200,227) (280,731)
Net decrease (increase) in federal funds sold
and other short-term investments.............................................. 9,427 (2,200)
Net (increase) decrease in interest earning deposits in banks.................... (5,773) 164
Proceeds from the sale of consumer finance loans and leases...................... 1,212 1,573
Loans made to customers and principal collection of loans, net................... (70,434) (29,522)
Premises and equipment expenditures, net......................................... (916) (978)
Proceeds from the sale of other real estate...................................... 370 429
Net cash and cash equivalents acquired through acquisitions...................... - 5,763
-------------------------
Net cash used for investing activities................................... $(104,610) $(128,442)
-------------------------
Cash Flows Net (decrease) increase in demand deposits and savings accounts.................. (19,867) 27,417
From Net (decrease) increase in time deposits......................................... (1,606) 16,550
Financing Net increase in short-term borrowings............................................ 82,447 13,291
Activities Proceeds from long-term borrowings............................................... - 79,800
Payment of long-term borrowings.................................................. (461) (461)
Dividends paid................................................................... (3,951) (3,251)
Issuance of treasury stock for employee incentive plans.......................... 1,575 1,924
Purchase of treasury stock....................................................... (16,282) (4,758)
-------------------------
Net cash provided by financing activities................................ $ 41,855 $ 130,512
-------------------------
Net change in cash and cash equivalents.......................................... $ (28,677) $ 18,196
Cash and cash equivalents:
Beginning of year.............................................................. 144,199 105,218
-------------------------
End of period.................................................................. $ 115,522 $ 123,414
=========================
Supplemental Cash payments for:
Disclosures of Interest paid to depositors.................................................... 30,959 26,781
Cash Flow Interest paid on borrowings.................................................... 12,326 12,054
Information Income taxes paid.............................................................. 166 951
Non-Cash Other real estate acquired in settlement of loans................................ 520 248
Investing and Transfer of securities held to maturity to available for sale.................... - -
Financing Transfer of long-term borrowings to short-term borrowings........................ 33,650 -
Activities Common stock issued for Midwest Federal Financial Corp........................... - 19,986
Common stock issued for Investors Management Group, Ltd.......................... - 6,922
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS (continued)
AMCORE FINANCIAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, these financial statements do not include all the
information and footnotes required by generally accepted accounting principles.
These financial statements include, however, all adjustments (consisting of
normal recurring accruals), which in the opinion of management, are considered
necessary for the fair presentation of the financial position and results of
operations for the periods shown.
On March 27, 1998, Midwest Federal Financial Corp. (Midwest) merged into the
company. 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. On February 17, 1998, Investors Management Group, LTD (IMG)
was acquired by the Company. 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. Operating results for the three month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Form 10-K Annual Report of AMCORE Financial, Inc. and Subsidiaries (the
"Company") for the year ended December 31, 1998.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is based on dividing net income by the weighted average
number of shares of common stock outstanding. The weighted average common shares
outstanding were 28,475,000 and 27,099,000 for the three months ended March 31,
1999 and 1998, 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, and any shares contingently issuable, that then shared in the
earnings of the Company. The weighted average diluted shares outstanding were
28,924,000 and 27,533,000 for the three months ended March 31, 1999 and 1998
respectively.
5
<PAGE>
NOTE 3 - SECURITIES
A summary of securities at March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
At March 31, 1999
Securities Available for Sale:
U.S. Treasury $ 64,905 $ 727 $ (45) $ 65,587
U.S. Government agencies 54,002 274 (9) 54,267
Agency mortgage-backed securities 775,433 3,854 (11,766) 767,521
State and political subdivisions 338,273 10,967 (1,093) 348,147
Corporate obligations and other 137,196 449 (1,058) 136,587
-----------------------------------------------------------
Total Securities Available for Sale $1,369,809 $ 16,271 $ (13,971) $1,372,109
-----------------------------------------------------------
Securities Held to Maturity:
U.S. Treasury $ 1,050 $ 8 $ - $ 1,058
U.S. Government agencies 27 - - 27
State and political subdivisions 13,783 241 (46) 13,978
Corporate obligations and other 1 - - 1
-----------------------------------------------------------
Total Securities Held to Maturity $ 14,861 $ 249 $ (46) $ 15,064
-----------------------------------------------------------
Total Securities $1,384,670 $ 16,520 $ (14,017) $1,387,173
===========================================================
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
===========================================================
</TABLE>
Realized gross gains resulting from the sale of securities available for sale
were $306,000 and $598,000 in the first three months of 1999 and 1998,
respectively. Realized gross losses were $113,000 and $56,000 in the first three
months of 1999 and 1998, respectively.
6
<PAGE>
NOTE 4 - LOANS AND LEASES
The composition of the loan and lease portfolio at March 31, 1999 and December
31, 1998, was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1999 1998
-------------------------------
<S> <C> <C>
Commercial, financial and agricultural............................ $ 666,661 $ 659,946
Real estate-construction.......................................... 103,570 105,574
Real estate-commercial............................................ 645,731 626,358
Real estate-residential........................................... 689,572 672,720
Installment and consumer.......................................... 412,230 384,004
Direct lease financing............................................ 1,994 3,127
-------------------------------
Gross loans and leases....................................... $2,519,758 $2,451,729
Unearned income.............................................. (176) (211)
-------------------------------
Loans and leases, net of unearned income..................... $2,519,582 $2,451,518
Allowance for loan and lease losses.......................... (27,919) (26,403)
-------------------------------
NET LOANS AND LEASES......................................... $2,491,663 $2,425,115
===============================
</TABLE>
7
<PAGE>
NOTE 5 - BORROWINGS
Short-Term Borrowings
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Securities sold under agreements to repurchase...........$478,423 $434,071
Federal Home Loan Bank borrowings..........................65,879 32,629
Federal funds purchased....................................65,000 29,200
U.S. Treasury tax and loan accounts.........................2,006 2,311
Commercial paper borrowings................................ 3,000 -
- ---------------------------------------------------------------------------------
Total Short-term Borrowings..............................$614,308 $498,211
=================================================================================
</TABLE>
Long-Term Borrowings
Several of the Company's subsidiary banks borrow from the Federal Home Loan Bank
(FHLB) to fund mortgage loans and mortgage-backed securities. Certain FHLB
borrowings have prepayment penalties and call features associated with them. The
current balance of these borrowings is $255,090,000 with an average maturity of
6.41 years, and a weighted average borrowing rate of 5.13%.
Other long-term borrowings include $40 million of capital securities issued
through AMCORE Capital Trust I, a statutory business trust. The securities
require semiannual cash distributions at an annual rate of 9.35% and are
redeemable from March 25, 2007 until March 25, 2017, when redemption is
mandatory. Also included in other long-term borrowings is a non-interest bearing
note requiring annual payments of $444,000 through 2002. The note was discounted
at an interest rate of 8.0%
Scheduled reductions of long-term borrowings are as follows at March 31, 1999:
(In thousands) Total
- --------------------------------------------------------------------------
1999 ...........................................................$ 28,131
2000 ........................................................... 75,598
2001 ........................................................... 498
2002 ........................................................... 65,762
2003 ........................................................... 2,070
Thereafter ..................................................... 186,014
- --------------------------------------------------------------------------
Sub-Total.................................................. $ 358,073
==========================================================================
Less current portion of FHLB borrowings ........................ (61,800)
- --------------------------------------------------------------------------
Total Long-term Borrowings ................................ $ 296,273
==========================================================================
8
<PAGE>
NOTE 6-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 family 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), 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 the secondary market and
AMCORE's banking affiliates, 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 Company accounts for intersegment revenue, expenses and
transfers at current market prices.
9
<PAGE>
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Trust and Asset Mortgage Total
For the three months ended March 31, 1999 Banking Management Banking Segments
(in thousands)
<S> <C> <C> <C> <C>
Net interest income $ 31,566 $ 53 $ 659 $ 32,278
Provision for loan and lease losses 2,226 - - 2,226
Non-interest income 5,237 7,165 2,630 15,032
Operating expenses 21,752 5,274 2,144 29,170
Income taxes 3,228 854 458 4,540
-------------------------------------------------------------------
Segment profit $ 9,597 $ 1,090 $ 687 $ 11,374
===================================================================
Segment assets $ 4,242,620 $ 17,173 $34,816 $4,294,609
===================================================================
For the three months ended March 31, 1998
Net interest income $ 29,066 $ 15 $ 583 $ 29,664
Provision for loan and lease losses 2,145 - - 2,145
Non-interest income 4,945 5,783 2,662 13,390
Operating expenses 22,438 4,168 2,767 29,373
Income taxes 1,704 689 191 2,584
Segment profit $ 7,724 $ 941 $ 287 $ 8,952
After tax merger related and information systems charges 1,245 - - 1,245
-------------------------------------------------------------------
Segment profit before merger related charges $ 8,969 $ 941 $ 287 $ 10,197
===================================================================
Segment assets $ 4,062,664 $ 14,381 $43,779 $4,120,824
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconcilement of Segment Information to Financial Statements
For the three months ended March 31,
Net interest income and non-interest income 1999 1998
- -------------------------------------------
<S> <C> <C>
Total for segments $ 47,310 $ 43,054
Unallocated revenues:
Holding company revenues 6,099 5,114
Other 16 120
Elimination of intersegment revenues $ (7,880) $ (6,396)
-------------------------------
Consolidated total revenues $ 45,545 $ 41,892
===============================
Profit
- ------
Total for segments $ 11,374 $ 8,952
Unallocated profit:
Holding company loss (1,059) (2,956)
Other (163) (18)
Elimination of intersegment (loss) gain (116) 121
-------------------------------
Consolidated net income $ 10,036 $ 6,099
===============================
Assets
- ------
Total for segments $4,294,609 $4,120,824
Unallocated assets:
Holding company assets 42,656 45,630
Other 43,569 44,678
Elimination of intersegment assets (180,692) (179,369)
-------------------------------
Consolidated assets $4,200,142 $4,031,763
===============================
</TABLE>
10
<PAGE>
AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the significant factors which
affected AMCORE Financial, Inc. and subsidiaries ("AMCORE") Consolidated Balance
Sheet as of March 31, 1999 as compared to December 31, 1998 and the results of
operations for the three months ended March 31, 1999 as compared to the same
period in 1998. This discussion is intended to be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
report.
This review contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the new
organizational structure and results of operations and businesses of AMCORE.
Contemplated or projected, forecasted or estimated results in such
forward-looking statements involve certain risks and uncertainties including,
among others, the following possibilities: (I) heightened competition, including
specifically the intensification of price competition, the entry of new
competitors and the formation of new products by new and existing competitors;
(II) adverse state and federal legislation and regulation; (III) failure to
obtain new customers and retain existing customers; (IV) inability to carry out
marketing and/or expansion plans; (V) loss of key executives; (VI) changes in
interest rates including effect of prepayment; (VII) general economic and
business conditions which are less favorable than expected; (VIII) unanticipated
changes in industry trends; (IX) changes in Federal Reserve Board monetary
policies; (X) inability to realize cost savings anticipated with the new
organizational structure, mergers or data processing outsourcing; and (XI)
higher than expected costs or other difficulties associated with merger
integration, data processing conversion or year 2000 compliance solutions.
OVERVIEW OF OPERATIONS
AMCORE's net income for the three months ended March 31, 1999 was $10.0 million,
an increase of $3.9 million from the $6.1 million reported in the 1998
comparable period. The first quarter of 1998 included a $3.3 million after-tax
merger-related charge (the "Merger Charge"). Excluding the Merger Charge, first
quarter net income increased $630,000, or 6.7%.
Diluted earnings per share were $0.35 for the three months ended March 31, 1999,
an increase of $0.13 from the $0.22 reported in the 1998 comparable period.
Excluding the Merger Charge, first quarter diluted earnings per share increased
$0.01. AMCORE's annualized return on average equity was 12.75% for the first
quarter of 1999 compared to 13.09%, excluding the Merger Charge, recorded in the
first quarter of 1998. The return on average assets was 0.98% in 1999 versus
1.03%, excluding the Merger Charge, in 1998.
The primary factors contributing to the improved operating earnings were strong
loan growth and the acquisition of Midwest Federal Financial Corporation on
March 27, 1998. The transaction was accounted for as a pooling of interests,
however, the size of the transaction
11
<PAGE>
was not material to AMCORE's consolidated financial statements. Therefore,
results previous to the date of acquisition were not restated.
On March 31, 1999, AMCORE acquired Wellmark Capital Value, Inc. ("WCV") of Des
Moines, Iowa for $50,000 in cash. An additional $174,000 may be paid over the
next two years, contingent upon the level of customer assets under management.
WCV provides complete recordkeeping and other administrative services to 401(k)
and other tax-qualified retirement plans. The acquisition of WCV will enable
AMCORE to bring plan administration services in-house where it can enhance its
recordkeeping ability and strengthen the relationship with plan sponsors. The
transaction was accounted for using the purchase method of accounting.
On April 27, 1999, AMCORE announced a new "Customer Focused Organizational
Structure" that is expected to improve efficiency, enhance responsiveness to
local markets and increase shareholder value. The new structure will increase
the ability of bank presidents, directors and salespeople to focus on serving
customers and their communities by centralizing or regionalizing certain support
functions. To accomplish this, AMCORE will operate under one charter, while
still preserving its super community banking philosophy. AMCORE expects to have
its new organizational structure in place in the fourth quarter of 1999.
AMCORE's subsidiary banks continue to be "well capitalized" as defined by
regulatory guidelines. At March 31, 1999, the company's total capital to risk
weighted assets was 12.99%, which is in excess of regulatory requirements.
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 to 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. The company has established a project team which reports directly to the
Board of Directors 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 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 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 operation or financial condition. AMCORE
12
<PAGE>
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 may 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 operations throughout the Year 2000
and beyond.
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
was substantially completed as of March 31, 1999. AMCORE expects all Year
2000-specific contingency plans to be completed by June 30, 1999 and related
testing to continue throughout the year. At this point, the costs associated
with the Year 2000 during 1998 and 1999 are estimated at approximately $2.3
million, of which $1.3 million is for replacement hardware and software. These
items are not anticipated to have a material impact on future results of
operations. A total of $786,000 was expensed in 1998 and $184,000 during the
first quarter of 1999.
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.
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.
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 for the first quarter of 1999 was $9.6
million, an increase of $628,000 or 7.0% from the same period in 1998, before
the Merger Charge. The 1999 increase in banking segment operating profit is the
result of net interest income and non-interest income increasing at a 8.6% and
5.9% respective rate, while operating expenses, excluding the Merger Charge,
increased 6.9%. The growth in average loans, which included the acquisition of
Midwest Federal, was the primary contributor.
The banking segment represented 84.4% and 88.0%of total segment profit before,
the Merger Charge in the first quarter of 1999 and 1998, respectively.
13
<PAGE>
Trust and Asset Management Segment
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 Funds 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(TM)),
regionally to institutional investors and corporations, and locally through
AMCORE's 66 banking locations.
The Trust and Asset Management segment's profit increased $149,000 or 15.8% to
$1.1 million in the first quarter of 1999. The increase is due to strong sales
efforts, favorable investment performance, revenue contributions from Investors
Management Group, Ltd. ("IMG"), and cost savings from bringing Vintage mutual
fund administration in-house.
As of March 31, 1999, trust assets under administration total $4.25 billion,
including nearly $1.4 billion in the Vintage Mutual Fund family.
The Trust and Asset Management segment represented 9.6% and 9.2% of total
segment profit before the Merger Charge in the first quarter of 1999 and 1998,
respectively.
Mortgage Banking Segment
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 for the first quarter of 1999 was
$687,000, an increase of $400,000 or 139.4% over the same period a year ago. The
increase includes $218,000 (net of tax) of purchased mortgage servicing rights
expenses incurred in 1998 associated with a portfolio that has since been sold.
An additional $266,000 (net of tax) relates to the reversals of mortgage
servicing rights impairment in 1999. The increase was partially offset by lower
revenues in the first quarter of 1999, when compared to the first quarter of
1998, which had attained a record level of mortgage originations.
The Mortgage Banking segment represented 6.0% and 2.8% of total segment profit
before the Merger Charge in the first quarter of 1999 and 1998, respectively.
CONSOLIDATED EARNINGS ANALYSIS
The analysis below discusses by major components the changes in net income when
comparing the three months ended March 31, 1999 and 1998.
14
<PAGE>
Net Interest Income
Net interest income is the difference between income earned on interest-earning
assets and the interest expense incurred on interest-bearing liabilities. The
interest income on certain loans and municipal securities is not subject to
federal income tax. For analytical purposes, the interest income and rates on
these types of assets are adjusted to a "fully taxable equivalent" basis. The
fully taxable equivalent adjustment was calculated using the statutory federal
income tax rate of 35%. Adjusted interest income is as follows (in thousands):
Quarter Ended Quarter Ended
March 31, 1999 March 31, 1998
-------------- --------------
Interest Income Book Basis $ 72,892 $ 68,315
Taxable Equivalent Adjustment 2,511 2,435
-------- --------
Interest Income Taxable
Equivalent Basis 75,403 70,750
Interest Expense 41,109 39,362
------- -------
Net Interest Income Taxable
Equivalent Basis $ 34,294 $31,388
======== =======
Net interest income on a fully taxable equivalent basis increased $2.9 million
or 9.3% during the first quarter of 1999 over the same period in 1998. The
improvement in net interest income results mainly from a 12.5% increase in
average earning assets which was partially offset by a narrowing of the interest
rate spread.
The growth in average earning assets can be attributed to strong loan growth and
the Midwest Federal acquisition. Average loans increased $511.6 million or 25.9%
when comparing the first quarters of 1999 and 1998, due to a strong regional
economy, sales management initiatives and the Midwest Federal acquisition.The
investment-leveraging program, which is designed to better utilize capital,
increased approximately $37.1 million on average. This program contributed
approximately $1.6 million to net interest income during the first quarter of
1999, a decrease of $1.4 million when compared to the same period in 1998. The
program is funded primarily through the use of repurchase agreements and Federal
Home Loan Bank borrowings and wholesale deposits. The proceeds of these
borrowings are invested principally in mortgage-backed and U.S. government
agency securities.
The net interest spread is the difference between the average rates on
interest-earning assets and the average rates on interest-bearing liabilities.
The interest rate margin represents net interest income divided by average
earning assets. These ratios can also be used to analyze net interest income.
Since a significant portion of the Company's funding is derived from
interest-free sources, primarily demand deposits and stockholders' equity, the
effective rate paid for all funding sources is lower than the rate paid on
interest-bearing
15
<PAGE>
liabilities alone.
As the table below indicates, the net interest spread decreased 5 basis points
to 2.84% in the first quarter of 1999 when compared to the 2.89% during the same
period in 1998. The net interest margin was 3.45% during the first quarter of
1999, a decrease of 10 basis points from the comparable period in 1998. The
interest rate spread on the investment securities included in the
investment-leveraging program was 74 and 145 basis points for the quarter ended
March 31, 1999 and 1998, respectively. The interest rate spread on all other
earning assets was 3.43% and 3.36% during the comparable periods, an increase of
7 basis points. As a result, the effect of the leveraging program accounted for
a 12 basis point decline in the interest rate spread.
The net interest margin was also negatively impacted by the investment
leveraging program and represented the entire 10 basis point decline in the net
interest margin. The core interest margin, excluding the impact of investment
leveraging, was 4.18% in both the quarter ended March 31, 1999 and 1998.
<TABLE>
<CAPTION> Quarter Ended Quarter Ended
March 31, 1999 March 31, 1998
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxable securities $ 1,069,039 $ 16,369 6.13% $ 1,164,847 $ 20,175 6.94%
Tax-exempt securities (1) 338,466 6,620 7.82% 326,343 6,563 8.04%
-------------------------------------------------------------------------------
Total Securities (2) 1,407,505 22,989 6.54% 1,491,190 26,738 7.18%
Loans held for sale (3) 32,030 422 5.27% 28,552 540 7.57%
Loans (1) (4) 2,483,163 51,631 8.34% 1,971,572 43,127 8.77%
Other earning assets 17,029 159 3.73% 10,209 134 5.25%
Fees on mortgage loans held for sale (3) - 202 - - 211 -
-------------------------------------- --------------------------------------
Total Interest-Earning Assets $ 3,939,727 $ 75,403 7.67% $ 3,501,523 $ 70,750 8.10%
Cash and due from banks 99,321 95,337
Other assets 158,308 142,206
Allowance for loan losses (27,163) (20,827)
------------- -------------
Total Assets $ 4,170,193 $ 3,718,239
============= =============
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand and savings deposits $ 952,932 $ 6,496 2.76% $ 763,928 $ 5,699 3.03%
Time deposits 1,589,036 21,918 5.59% 1,457,188 21,309 5.93%
-------------------------------------- --------------------------------------
Total interest-bearing deposits 2,541,968 28,414 4.53% 2,221,116 27,008 4.93%
Short-term borrowings 581,188 7,684 5.30% 632,941 9,092 5.76%
Long-term borrowings 318,232 5,011 6.39% 204,490 3,262 6.47%
-------------------------------------- --------------------------------------
Total Interest-Bearing Liabilities $ 3,441,388 $ 41,109 4.83% $ 3,058,547 $ 39,362 5.21%
Noninterest-Bearing Liabilities:
Demand deposits 352,491 316,274
Other liabilities 57,070 51,918
------------- -------------
Total Liabilities $ 3,850,949 $ 3,426,739
Stockholders' Equity 319,244 291,500
------------- -------------
Total Liabilities and
Stockholders' Equity $ 4,170,193 $ 3,718,239
============= =============
Net Interest Income $ 34,294 $ 31,388
============ ==============
Net Interest Spread 2.84% 2.89%
============= ===========
Interest Rate Margin 3.45% 3.55%
============= ===========
</TABLE>
Notes:
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The average 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.
16
<PAGE>
The level of net interest income is the result of the relationship between total
volume and mix of interest-earning assets and the rates earned and the total
volume and mix of interest-bearing liabilities and the rates paid. The rate and
volume components associated with interest-earning assets and interest-bearing
liabilities are segregated in the table above to analyze the changes in net
interest income. Because of changes in the mix of the components of
interest-earning assets and interest-bearing liabilities, the computations for
each of the components do not equal the calculation for interest-earning assets
as a total and interest-bearing liabilities as a total. The table below presents
an analysis of the changes in net interest income.
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1999 / March 31, 1998
(in thousands)
-----------------------------------------------------
Total Net
Increase (Decrease) Due to Change In Increase
Average Volume Average Rate (Decrease)
-----------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Taxable securities $ (1,537) $ (2,269) $ (3,806)
Tax-exempt securities (1) 240 (183) 57
-----------------------------------------------------
Total Securities (2) (1,297) (2,452) (3,749)
Loans held for sale 60 (178) (118)
Loans (1) (4) 10,765 (2,261) 8,504
Other earning assets 72 (47) 25
Fees on mortgage loans held for sale (3) 85 (94) (9)
-----------------------------------------------------
Total Interest-Earning Assets $ 8,541 $ (3,888) $ 4,653
-----------------------------------------------------
Interest Expense:
Interest-bearing demand and savings deposits $ 1,320 $ (523) $ 797
Time deposits 1,861 (1,252) 609
-----------------------------------------------------
Total interest-bearing deposits 3,751 (2,345) 1,406
Short-term borrowings (708) (700) (1,408)
Long-term borrowings 1,792 (43) 1,749
-----------------------------------------------------
Total Interest-Bearing Liabilities $ 4,835 $ (3,088) $ 1,747
-----------------------------------------------------
Net Interest Margin / Net Interest Income (FTE) $ 3,706 $ (800) $ 2,906
=====================================================
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.
17
<PAGE>
The change in net interest income due to changes in average volume resulted from
a 25.9% increase in average loans net of a 5.6% decrease in average investment
securities. The positive effects of this net increase were partially offset by
the 14.4% increase in average interest bearing deposits and a 7.4% increase in
average borrowings.
The decrease in net interest income due to changes in average rates resulted as
the yield on average earning assets decreased 43 basis points compared to the
first quarter of 1998, primarily on mortgage related assets. This more than
offset a 38 basis point decrease on average total interest-bearing liabilities.
Average total borrowings, which had a higher cost than other average
interest-bearing liabilities, decreased to represent 26.1% of average total
interest-bearing liabilities in 1999 versus 27.4% in 1998. Also, a 40 basis
point decrease in the rate paid on interest-bearing deposits contributed to the
decrease in the rate paid on average total interest-bearing liabilities. This
decrease is attributable to overall market conditions and declining interest
rates when comparing the first quarter of 1999 to same period in 1998.
Provision for Loan and Lease Losses
Management determines an appropriate provision for loan losses based upon its
regular evaluation of individual loans and groups of loans, historical loss
experience, and the size and nature of the loan portfolios. Other factors
include the current economic and industry environment, concentration
characteristics of the loan portfolio and the composition and underlying
collateral of problem loans.
The provision for loan and lease losses was $2.2 million during the first
quarter of 1999, an increase of $81,000 from the same period in 1998. The
increase in the provision relates to a growth in total loans, both internally
and through the acquisition of Midwest Federal.. The allowance for loan losses
as a percent of total loans was 1.11% and 1.08% at March 31, 1999 and December
31, 1998, respectively.
Annualized net charge-offs to average loans were 0.11% in the first quarter of
1999 and 0.09% during the same period of 1998.
Non-Interest Income
Total non-interest income was $13.8 million in the first quarter of 1999, an
increase of $823,000 or 6.4% from the same period in 1998.
Trust and asset management income increased 25.2% or $1.3 million to total $6.6
million for the first three months of 1999 versus the same period in 1998. The
increase is attributable to strong sales efforts , favorable investment
performance, revenue contributions from IMG, and cost savings from bringing
Vintage mutual funds administration in-house. Total managed assets, which
includes fee-based accounts and Vintage Fund balances, rose 2.2% during the
quarter and now stand at $4.25 billion.
Mortgage revenues decreased $500,000 or 19.0%. The decrease relates mainly to a
decline
18
<PAGE>
in originations to $96.5 million from the record level of $105.0 million in the
first quarter of 1998 that related to a rise in refinancings caused by the
decline in mortgage rates.
Operating Expenses
Operating expenses totaled $29.4 million for the first quarter of 1999, a
decrease of $2.5 million from the first quarter of 1998. The decrease is
attributable to a $4.5 million pre-tax Merger Charge previously mentioned.
Excluding the Merger Charge, operating expenses increased $1.9 million or 7.1%.
This increase is due to the Midwest Federal and IMGacquisitions and data
processing conversion costs. The efficiency ratio, excluding the 1998 Merger
Charge, improved by 74 basis points to 61.09%. This occurred as revenue growth
outpaced expense growth.
Compensation expenses increased $430,000 when compared to the first quarter of
1998 to total $13.0 million for the first quarter of 1999. Excluding $427,000 of
severance and contract payments included in the 1998 Merger Charge, compensation
expenses increased $857,000 or 7.1%. The increase relates primarily to annual
merit increases and the Midwest Federal and IMG acquisitions.
Professional fees totaled $1.1 million for the first quarter of 1999, a decrease
of $1.5 million over the same period as last year. The decrease primarily
relates to legal and investment-banking fees included in the 1998 Merger Charge.
Other operating expenses were $4.8 million during the quarter ended March
31,1999, a decrease of $1.2 million from the same quarter in 1998. The decrease
includes $338,000 of additional expenses incurred in 1998 related to the sale of
satellite dish receivables and $363,000 of purchased mortgage servicing rights
expenses also incurred in 1998 associated with a portfolio that has since been
sold. An additional $443,000 relates to the reversal of mortgage servicing
rights impairment in 1999.
Income Taxes
Income tax expense increased $2.2 million to $3.9 million for the first quarter
of 1999. The increase is due primarily to the increase in income before taxes.
The effective tax rate for the first quarter of 1999 was 28.1% compared to 22.2%
for the same period in 1998.
Quantitative and Qualitative Disclosures About Market Risk
A comprehensive qualitative and quantitative analysis regarding market risk was
disclosed in the Company's December 31, 1998 Form 10K. There have been no
material changes in the assumptions used or results obtained regarding market
risk.
Balance Sheet Review
Total assets were $4.2 billion at March 31, 1999, an increase of $52.3 million
or 1.3% from December 31, 1998. Total loans increased and total deposits
decreased $68.1 million and
19
<PAGE>
$21.5 million, respectively, from December 31, 1998. Total investments and total
borrowings increased $43.3 million and $82.0 million, respectively, from
December 31, 1998.
ASSET QUALITY REVIEW
Allowance for Loan and Lease Losses
The allowance for loan and lease losses was $27.9 million at March 31,1999, an
increase of $1.5 million from December 31, 1998. The allowance represented 1.11%
of total loans and 124.5% of non-performing loans at March 31, 1999. The
comparable ratios were 1.08% and 145.2% at December 31, 1998.
Net charge-offs were $710,000 during the first quarter of 1999 versus $454,000
for the same quarter of 1998.
An analysis of the allowance for loan losses as of March 31, 1999 and 1998 is
presented below:
For the Three Months Ended
--------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Balance at beginning of period $26,403 $19,908
Charge Offs:
Commercial loans & leases 198 160
Real estate loans 117 17
Installment loans 698 641
Credit card loans 101 91
-------------------------- -----------------
1,114 909
Recoveries:
Commercial loans & leases 73 249
Real estate loans 10 10
Installment loans 297 180
Credit card loans 24 16
-------------------------- -----------------
404 455
Net Charge-Offs 710 454
Provision charged to expense 2,226 2,145
Allowance acquired through merger 2,146
-------------------------- -----------------
Balance at end of period $27,919 $23,745
========================== =================
Ratio of net-charge-offs during the
period to average loans outstanding
during the period (1) 0.11% 0.09%
========================== =================
(1) On an annualized basis
20
<PAGE>
Non-Performing Assets
Non-performing assets increased $4.4 million from December 31, 1998 to $24.9
million at March 31, 1999. Non-performing assets as of March 31, 1999 and
December 31, 1998 are presented below.
March 31, December 31,
1999 1998
Impaired loans:
Non-accrual loans and leases
Commercial................................ $ 15,352 $ 11,139
Real estate............................... 1,383 1,963
Other non-performing:
Non-accrual loans (1)..................... 5,690 5,077
-------------------------
Total non-performing loans................... $ 22,425 $ 18,179
=========================
Foreclosed real estate....................... 2,477 2,321
-------------------------
Total non-performing assets............... $ 24,902 $ 20,500
=========================
Loans 90 days or more past due and still
accruing......... $ 8,078 $ 7,272
(1) These loans are not considered impaired since they are part of a small
balance homogeneous portfolio.
Capital Management
Total stockholder's equity was $312.2 million at March 31, 1999, a decrease of
$3.8 million from December 31, 1998. The book value per share of AMCORE common
stock was $11.06 at March 31, 1999. AMCORE paid a $.14 per share dividend during
the first quarter of 1999.
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 31, 1999, 1.2 million shares have
been purchased at an average price of $23.32.
AMCORE's bank subsidiaries are considered "well capitalized" based on regulatory
guidelines. AMCORE's leverage ratio was 7.99% at March 31, 1999. AMCORE's ratio
of Tier I capital at 11.98% and total risk based capital of 12.99% significantly
exceed the regulatory minimums as indicated in the table below.
21
<PAGE>
March 31, 1999 March 31, 1998
-------------- --------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
Tier I Capital $331,654 11.98% $325,689 13.07%
Tier I Capital Minimum 110,766 4.00% 99,751 4.00%
---------- ----- -------- -----
Amount in Excess of Minimum $220,888 7.98% $226,118 9.07%
========== ===== ======== =====
Total Capital $359,573 12.99% $349,614 14.02%
Total Capital Minimum 221,531 8.00% 199,502 8.00%
---------- ----- -------- -----
Amount in Excess of Minimum $138,042 4.99% $150,112 6.02%
========== ===== ======== =====
Risk adjusted assets $2,769,138 $2,493,777
========== ==========
22
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) AMCORE Financial, Inc. 1999 Annual Meeting of Stockholders was held on
May 4, 1999.
(b) Proxies were solicited by AMCORE Financial, Inc. management for the
purpose of electing four Class I directors whose term will expire in
2002. The following individuals were elected as Class I directors:
Name Votes For Votes Withheld
---- ---------
Lawrence E. Gloyd 20,815,325 519,189
John A. Halbrook 21,151,389 183,125
Frederick D. Hay 21,137,831 196,683
Robert J. Meuleman 20,697,229 637,285
(c) Proxies were solicited by AMCORE Financial, Inc. management to ratify
the appointment of KPMG LLP as independent auditors. The appointment of
KPMG LLP was ratified, via 21,202,970 votes for, 100,428 votes against
and 31,116 votes abstaining the ratification of the appointment.
(d) Proxies were solicited by AMCORE Financial, Inc. management to approve
the AMCORE Stock Option Advantage Plan. The plan was approved, via
19,108,818 votes for, 1,471,596 votes against and 291,329 votes
abstaining.
ITEM 6. Exhibits and Reports on Form 10-Q
(a) 3 Amended and Restated Articles of Incorporation of AMCORE
Financial, Inc. dated May 1, 1990 (Incorporated by reference to
Exhibit 23 of AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1989).
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990
(Incorporated by reference to Exhibit 3.1 of AMCORE's Annual
Report of Form 10-K for the year ended December 31, 1994).
4 Rights Agreement dated February 21, 1996, between AMCORE
Financial, Inc. and Firstar Trust Company (Incorporated by
reference to AMCORE's Form 8-K as filed with the Commission on
February 28, 1996).
10.1 Transitional Compensation Agreement dated January 1, 1999 between
AMCORE Financial, Inc. and the following individuals: Lewis R.
Jones and Joseph McGougan.
22 1999 Notice of Annual Meeting of Stockholders and Proxy Statement
(Incorporated by reference to Exhibit 22 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
27 Financial Data Schedule
99 Additional exhibits - Press release dated February 24, 1999.
- Press release dated April 27, 1999
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCORE Financial, Inc.
(Registrant)
Date: May 14, 1999
/s/ John R. Hecht
-----------------------------------------
John R. Hecht
Executive Vice President and Chief
Financial Officer
(Duly authorized officer of the registrant
and principal financial officer)
24
</TABLE>
Exhibit 10.1
TRANSITIONAL COMPENSATION AGREEMENT
-----------------------------------
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation
(the "Company"), and LEWIS R. JONES (the "Executive"), dated as of the 1st day
of January, 1999. This Agreement restates and supersedes any and all prior
agreements between the Company and the Executive relating to the subject matter
of this Agreement.
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. 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:
<PAGE>
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 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
commencing on the date of execution hereof and ending on January 1, 2000;
provided, however, that on January 1, 2000, 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
2
<PAGE>
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, 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
3
<PAGE>
(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 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 first anniversary of such
date (the "Effective Period").
4. Termination of Employment
4
<PAGE>
(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 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
5
<PAGE>
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:
(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;
6
<PAGE>
(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.
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
7
<PAGE>
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, 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
8
<PAGE>
Company for less than twelve (12) full months) bonus paid or payable, before
taking into account any deferral, to the Executive by the 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 (1) the Executive's then current monthly base salary by (2) the
number of months determined in accordance with Exhibit A attached to this
Agreement, which Exhibit A describes a method of determining a specific number
of months on the basis of the Executive's then current (a) completed years of
service with the Company and its affiliates, (b) annual base salary and (c) age;
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 continuation to be received by the Executive, upon such termination of
employment, under any other severance plan, policy or arrangement of the
Company.
(ii) After the Date of Termination, for twenty-four
(24) months or for the number of months determined pursuant to part (2) of
Section 5(a)(i)(B), above, whichever period is shorter, or for 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
9
<PAGE>
Company shall arrange to provide benefits to the Executive substantially
equivalent in value to those required to be provided under this subparagraph
(ii).
(iii) After the Date of Termination, for twenty-four
(24) months or for the number of months determined pursuant to part (2) of
Section 5(a)(i)(B), above, whichever period is shorter, or for 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 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
10
<PAGE>
(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 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
11
<PAGE>
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 Obligations shall be paid to the Executive in a lump
sum in cash within thirty (30) days of the Date of Termination.
6. Limitation of Payments.
(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) would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the
amount payable to the Executive pursuant to paragraph (a)(i) of Section 5 of
this Agreement shall be reduced so that it is the maximum amount which can be
paid without 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) being subject to the excise tax
imposed by Section 4999 of the Code.
(b) All determinations required to be made under this Section
6 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) business days of receipt of a written request from the
Company or the Executive for a determination as to whether reduction of a
payment is necessary in order to avoid the excise tax imposed by Section 4999 of
the Code. In the event that the
12
<PAGE>
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. If the Accounting Firm determines that a payment under
this Agreement (without reduction pursuant to paragraph (a), above) will not be
subject to the excise tax imposed by Section 4999 of the Code, the Accounting
Firm shall furnish the Executive with a written opinion that failure to report,
on the Executive's applicable federal income tax return, any excise tax in
connection with such payment 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.
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 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
13
<PAGE>
(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.
(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
14
<PAGE>
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 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
15
<PAGE>
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
(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:
--------------------
Lewis R. Jones
16
<PAGE>
1954 Sweetbriar Lane
Rockford, IL 61107
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.
(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
17
<PAGE>
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.
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 & Chief Administrative Officer
--------------------------------------------------------
------------------------------------
Lewis R. Jones
("Executive")
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<PAGE>
Exhibit A
---------
1. The number of months to be used in calculating the Severance Amount
under Section 5(a)(i)(B) of the Agreement to which this Exhibit A is attached is
to be determined by multiplying (a) the number of months determined under
paragraph 2, below, by (b) the Applicable Percentage determined under paragraph
3, below.
2. The following matrix shall be used to determine a specific number of
months on the basis of the Executive's completed years of service with the
Company and its affiliates ("Years of Service") and the Executive's annual base
salary ("Base Salary"):
Years of Service
----------------
0-2 3-5 6-10 11-20 21-30 Over 30
--- --- ---- ----- ----- -------
Base Salary
$100,000 and Over 14 16 18 20 24 28
$75,000 to $99,999 10 12 14 16 20 24
$50,000 to $74,999 6 8 10 12 16 20
$30,000 to $49,999 3 4 6 8 10 12
Less than $30,000 2 3 4 5 6 8
Number of Months
----------------
3. The Applicable Percentage shall be determined according to the following
chart on the basis of Executive's age on the Date of Termination, with that age
being determined as of the Executive's most recent birth anniversary date
preceding the Date of Termination:
Age at Date of Termination Applicable Percentage
-------------------------- ---------------------
Under 40 Years 100%
40 to 54 Years 125%
55 to 59 Years 150%
60 Years and Over 200%
<PAGE>
TRANSITIONAL COMPENSATION AGREEMENT
-----------------------------------
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation
(the "Company"), and JOSEPH B. MCGOUGAN (the "Executive"), dated as of the 1st
day of January, 1999. This Agreement restates and supersedes any and all prior
agreements between the Company and the Executive relating to the subject matter
of this Agreement.
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. 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:
<PAGE>
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 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
commencing on the date of execution hereof and ending on September 25, 1998;
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
2
<PAGE>
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, 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
3
<PAGE>
(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 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 first anniversary of such
date (the "Effective Period").
4. Termination of Employment
4
<PAGE>
(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 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
5
<PAGE>
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:
(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;
6
<PAGE>
(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.
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
7
<PAGE>
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, 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
8
<PAGE>
Company for less than twelve (12) full months) bonus paid or payable, before
taking into account any deferral, to the Executive by the 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 (1)
the Executive's then current monthly base salary by (2) the number of months
determined in accordance with Exhibit A attached to this Agreement, which
Exhibit A describes a method of determining a specific number of months on the
basis of the Executive's then current (a) completed years of service with the
Company and its affiliates, (b) annual base salary and (c) age; 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 continuation
to be received by the Executive, upon such termination of employment, under any
other severance plan, policy or arrangement of the Company.
(ii) After the Date of Termination, for twenty-four
(24) months or for the number of months determined pursuant to part (2) of
Section 5(a)(i)(B), above, whichever period is shorter, or for 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
9
<PAGE>
Company shall arrange to provide benefits to the Executive substantially
equivalent in value to those required to be provided under this subparagraph
(ii).
(iii) After the Date of Termination, for twenty-four
(24) months or for the number of months determined pursuant to part (2) of
Section 5(a)(i)(B), above, whichever period is shorter, or for 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 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
10
<PAGE>
(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 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
11
<PAGE>
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 Obligations shall be paid to the Executive in a lump
sum in cash within thirty (30) days of the Date of Termination.
6. Limitation of Payments.
(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) would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the
amount payable to the Executive pursuant to paragraph (a)(i) of Section 5 of
this Agreement shall be reduced so that it is the maximum amount which can be
paid without 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) being subject to the excise tax
imposed by Section 4999 of the Code.
(b) All determinations required to be made under this Section
6 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) business days of receipt of a written request from the
Company or the Executive for a determination as to whether reduction of a
payment is necessary in order to avoid the excise tax imposed by Section 4999 of
the Code. In the event that the
12
<PAGE>
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. If the Accounting Firm determines that a payment under
this Agreement (without reduction pursuant to paragraph (a), above) will not be
subject to the excise tax imposed by Section 4999 of the Code, the Accounting
Firm shall furnish the Executive with a written opinion that failure to report,
on the Executive's applicable federal income tax return, any excise tax in
connection with such payment 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.
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 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
13
<PAGE>
(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.
(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
14
<PAGE>
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 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
15
<PAGE>
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
(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:
--------------------
Joseph B. McGougan
16
<PAGE>
2314 Bradley Road
Rockford, IL 61107
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.
(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
17
<PAGE>
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.
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 & Chief Administrative Officer
--------------------------------------------------------
------------------------------------
Joseph B. McGougan
("Executive")
18
<PAGE>
Exhibit A
---------
1. The number of months to be used in calculating the Severance Amount
under Section 5(a)(i)(B) of the Agreement to which this Exhibit A is attached is
to be determined by multiplying (a) the number of months determined under
paragraph 2, below, by (b) the Applicable Percentage determined under paragraph
3, below.
2. The following matrix shall be used to determine a specific number of
months on the basis of the Executive's completed years of service with the
Company and its affiliates ("Years of Service") and the Executive's annual base
salary ("Base Salary"):
Years of Service
--------------------
0-2 3-5 6-10 11-20 21-30 Over 30
--- --- ---- ----- ----- -------
Base Salary
$100,000 and Over 14 16 18 20 24 28
$75,000 to $99,999 10 12 14 16 20 24
$50,000 to $74,999 6 8 10 12 16 20
$30,000 to $49,999 3 4 6 8 10 12
Less than $30,000 2 3 4 5 6 8
Number of Months
----------------
3. The Applicable Percentage shall be determined according to the following
chart on the basis of Executive's age on the Date of Termination, with that age
being determined as of the Executive's most recent birth anniversary date
preceding the Date of Termination:
Age at Date of Termination Applicable Percentage
-------------------------- ---------------------
Under 40 Years 100%
40 to 54 Years 125%
55 to 59 Years 150%
60 Years and Over 200%
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 115,522
<INT-BEARING-DEPOSITS> 19,170
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,372,109
<INVESTMENTS-CARRYING> 14,861
<INVESTMENTS-MARKET> 15,064
<LOANS> 2,545,868
<ALLOWANCE> 27,919
<TOTAL-ASSETS> 4,200,142
<DEPOSITS> 2,926,251
<SHORT-TERM> 614,308
<LIABILITIES-OTHER> 51,063
<LONG-TERM> 296,273
0
0
<COMMON> 6,572
<OTHER-SE> 305,675
<TOTAL-LIABILITIES-AND-EQUITY> 4,200,142
<INTEREST-LOAN> 51,437
<INTEREST-INVEST> 20,672
<INTEREST-OTHER> 783
<INTEREST-TOTAL> 72,892
<INTEREST-DEPOSIT> 28,574
<INTEREST-EXPENSE> 41,109
<INTEREST-INCOME-NET> 31,783
<LOAN-LOSSES> 2,226
<SECURITIES-GAINS> 193
<EXPENSE-OTHER> 29,358
<INCOME-PRETAX> 13,961
<INCOME-PRE-EXTRAORDINARY> 13,961
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,036
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.45
<LOANS-NON> 22,425
<LOANS-PAST> 8,078
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 22,543
<ALLOWANCE-OPEN> 26,403
<CHARGE-OFFS> 1,114
<RECOVERIES> 404
<ALLOWANCE-CLOSE> 27,919
<ALLOWANCE-DOMESTIC> 19,915
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,004
</TABLE>
Exhibit 99.1
NEWS RELEASE
Date: Feb. 24, 1999
Contact: Katherine Taylor
Investor Relations Manager
815-961-7164
AMCORE FINANCIAL ANNOUNCES LETTER OF INTENT
TO ACQUIRE WELLMARK CAPITAL VALUE
ROCKFORD -- In a strategic move to build its defined contribution and 401
(k) business, AMCORE Investment Group, N.A., a $4.2 billion trust and asset
management company, executed a nonbinding letter of intent to acquire Wellmark
Capital Value, Inc., Des Moines, Iowa. AMCORE Investment Group (AIG) is a
wholly-owned subsidiary of AMCORE Financial, Inc., a $4.1 billion regional
financial services company.
Wellmark Capital Value is a subsidiary of Wellmark, Inc., and provides
complete recordkeeping and other administrative services to 401 (k) and other
tax-qualified retirement plans.
"The fastest growing market for mutual funds is 401 (k) plans, which are
expected to grow at a 15 percent rate over the next five years," said Robert J.
Meuleman, president and chief executive officer of AMCORE Financial. "This is a
good business move for AMCORE as we seek to broaden and strengthen our position
in providing high quality investment services to our clients."
Alan W. Kennebeck, president and chief executive officer of AIG, said that
the participant recordkeeper will increasingly play the central and pivotal role
with plan sponsors going forward. "Accuracy, timeliness and responsiveness are
key advantages in serving the retirement plan market," he said. "The successful
competitors in the 401 (k) arena will be those that can deliver excellent
administration."
The acquisition of Wellmark Capital Value will enable AMCORE to bring plan
administrative services in-house where it can enhance its record keeping
ability. AMCORE is familiar with the quality of services Wellmark Capital Value
provides through their work with Investors Management Group (IMG), AMCORE's
investment advisory firm.
"Wellmark Capital Value's quality standards are impeccable," said David W.
Miles, senior managing director of IMG. "Pension professionals familiar with
the company regard them as among the finest recordkeepers in the business."
<PAGE>
Wellmark Capital Value provides recordkeeping and other administrative
services to retirement plans that currently have assets, in the aggregate, in
excess of $150 million. The company will remain located in Des Moines. Wellmark
Capital Value has customers in Iowa, South Dakota and Illinois. "AMCORE is a
great fit to assume Wellmark Capital Value's business because of the
high-quality services they can provide our customers and for the strong interest
they indicated in our personnel," said Gerry Lentz, vice president of Wellmark,
Inc.
Through AIG, AMCORE has $4.2 billion in assets under management and has
provided trust and investment services for over 100 years. AIG's institutional
asset management department provides comprehensive plan services including
acting as a trustee, investment management, plan design consultation, paying
agent, plan provision and investment option educator.
AMCORE Financial, Inc., headquartered in northern Illinois, is a financial
services company with banking assets of $4.1 billion and 9 banks operating in 66
locations in Illinois and Wisconsin. The company also has four financial
services companies: AMCORE Investment Group, which provides trust and brokerage
services, and through Investors Management Group, provides capital management
and mutual fund administrative services, and is the investment advisor for the
Vintage family of mutual funds; AMCORE Mortgage, Inc.; AMCORE Consumer Finance
Company, Inc. and AMCORE Insurance Group, Inc.
AMCORE common stock is listed on The NASDAQ Stock Market under the symbol
"AMFI." Further information about AMCORE Financial Inc. can be found at our
website at http://www.AMCORE.com.
Exhibit 99.2
NEWS RELEASE
Date: April 27, 1999
Contact: Katherine Taylor
Investor Relations Manager
815-961-7164
AMCORE FINANCIAL ANNOUNCES NEW ORGANIZATIONAL STRUCTURE
-- FIRST QUARTER OPERATING EARNINGS UP 7 PERCENT --
ROCKFORD, IL -- AMCORE Financial, Inc., a $4.2 billion regional financial
services company, announced a new organizational plan that is expected to
improve efficiency, enhance responsiveness to local markets and increase
shareholder value.
"What matters most to our customers is how we respond to their financial
needs with local decision making, local pricing, product innovation and
community involvement," said Robert J. Meuleman, president and chief executive
officer. "We believe that our new structure will continue to embrace our super
community banking commitment and at the same time improve our efficiency."
AMCORE's new "Customer Focused Organizational Structure" will increase the
ability of bank presidents, directors and salespeople to focus on serving
customers and their communities by centralizing or regionalizing certain
corporate functions. To accomplish this, AMCORE will operate as one banking
company while still preserving its super community banking philosophy.
"We need to go beyond merely focusing on achieving higher loan volume and
fee income and take an important step in becoming a more efficient customer
focused company," said Meuleman. "While we have made improvements in our
earnings from a year ago, we believe our new organizational structure will drive
even greater efficiencies in the future."
HIGHLIGHTS:
- Bank presidents and directors will be able to concentrate on customer
needs and sales. This focus on customers and communities should improve
financial performance.
- Operating under one charter is expected to increase operational
efficiencies, address redundancies within the company and reduce
reporting requirements and regulatory fees.
- Each market will have a manager focused on promoting the community
banking philosophy and meeting customers' financial needs.
Page 1
<PAGE>
- Centralized corporate functions will support a sales staff that is
managed directly at the local market level.
AMCORE expects to have its new organizational structure fully in place in
the fourth quarter. Although the Company will be operating under one charter, it
will not be eliminating directors or bank presidents. Instead, their
responsibilities will change from a fiduciary role to focus more on business
development, corporate advocacy and community leadership. "We recognize the need
to deliver shareholder value while continuing to embrace our super community
banking philosophy," said Meuleman. "The structure we announced today addresses
both critical objectives."
FIRST QUARTER EARNINGS
AMCORE also announced its earnings today for the first quarter ending March
31, 1999 with a 7 percent, or $630,000 increase in net income from operations
from a year ago. Diluted earnings per share from operations were $0.35, a 3
percent increase from $0.34 per share in the first quarter of 1998. Net income
from operations excludes the Midwest Federal Financial Corp. merger related
charges of $3.3 million in 1998.
"The first quarter saw a continuation of our strong loan growth, which is
due to our healthy local economies and the success of our sales management
program," said Meuleman. "We believe our new organizational structure will have
a positive impact on our performance in the future by reducing duplicate efforts
in our markets and allowing our bank presidents and sales force more time to
work closely with their customers and communities."
HIGHLIGHTS
----------
o Net revenues increased 9 percent or $3.7 million from a year ago.
o Average loans for the first quarter were up 26 percent, or $512
million from the same period last year due to a strong regional
economy, sales management initiatives and the Midwest Federal
acquisition.
o Net interest income increased 9 percent in the first quarter.
o Net interest margin in the first quarter dropped 1 basis point to
3.45 percent compared to the previous quarter, while the core
margin, which excludes the leveraged investment portfolio, improved
1 basis point to 4.18 percent compared to the previous quarter.
o Asset quality remains stable. The allowance for loan losses to
ending loans increased to 1.11 percent of loans compared to 1.10
percent a year ago and the allowance for loan losses to
non-performing loans remained at 124 percent for both periods.
o Trust and asset management fees rose 25 percent in the first quarter
to $6.6 million due to strong sales results driven by favorable
investment performance and continued revenue contributions from
Investors Management Group (IMG), Des Moines, Iowa.
Page 2
<PAGE>
EARNINGS FROM OPERATIONS
------------------------
"We continue to be encouraged by the strong loan growth in our markets,"
said Meuleman. "This is continuing evidence that our sales management training
is delivering expected results. Translating those sales gains into improved
margins remains our primary focus as evidenced by our modest improvement in our
core operating margin."
Total loans increased 17 percent, or $358 million from the same period a
year ago, and was evenly balanced between commercial and retail lending. Average
earning assets rose 12.5 percent causing a $2.9 million increase in net interest
income on a fully taxable equivalent basis. A portion of the loan growth was
funded through a decrease in investment securities. The core interest margin
remained unchanged from a year ago, but improved 1 basis point when compared to
the fourth quarter of 1998. Net interest margin decreased 10 basis points to
3.45 percent when compared to the first quarter of 1998. Earning asset yields
fell 43 basis points compared to the first quarter of 1998, primarily on
mortgage related assets, which more than offset a 38 basis point decrease in
total funding costs.
Trust and asset management revenues increased 25 percent to $6.6 million in
the first quarter of 1999 compared to $5.3 million in the first quarter of 1998.
The increase is due to strong sales efforts and revenue contributions from
bringing Vintage mutual fund administration in-house through IMG. Total managed
assets, which includes fee based accounts and Vintage Fund balances, rose 2.2
percent during the quarter and now stands at $4.25 billion.
Total operating expenses for the first quarter of 1999 increased 7 percent
to $29.4 million when compared to the first quarter of 1998. The increase in
expenses is due to the addition of Midwest Federal and Investors Management
Group, both of which were not restated in prior year numbers, and data
processing conversion expenses.
ASSET QUALITY AND RESERVES
--------------------------
The allowance for loan losses to total loans was 1.11 percent at March 31,
1999, compared to 1.10 percent at March 31, 1998, and 1.08 percent at December
31, 1998. The allowance for loan losses to non-performing loans remained at 124
percent at the end of both periods. Total non-performing assets at March 31,
1999 were $24.9 million, or 0.59 percent of total assets compared to $20.8
million or 0.52 percent of total assets last year.
"We have been increasing the level of allowance for loan losses over the
past several quarters to match the strong loan growth we've experienced," said
Meuleman. Net charge-offs represented 11 basis points annualized of average
loans for the first quarter, a 2 basis point increase from the same period a
year ago.
Page 3
<PAGE>
AMCORE Financial, Inc., headquartered in northern Illinois, is a financial
services company with banking assets of $4.2 billion and nine banks operating in
66 locations in Illinois and Wisconsin. The company also has four financial
services companies: AMCORE Investment Group, which provides trust and brokerage
services, and through Investors Management Group, provides capital management,
mutual fund administrative services, and is the investment advisor for the
Vintage family of mutual funds; AMCORE Mortgage, Inc.; AMCORE Consumer Finance
Company, Inc. and AMCORE Insurance Group, Inc.
This news release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the new
organizational structure and results of operations and businesses of AMCORE.
Forward-looking statements may include hopes, beliefs, expectations or
predictions of the future. These forward-looking statements involve certain
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated, projected, forecasted or estimated in such
forward-looking statements include, among others, the following possibilities:
(I) heightened competition, including specifically the intensification of price
competition, the entry of new competitors and the formation of new products by
new and existing competitors; (II) adverse state and federal legislation and
regulation; (III) failure to obtain new customers 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 the new organizational structure, 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.
AMCORE common stock is listed on The NASDAQ Stock Market under the symbol
"AMFI." Further information about AMCORE Financial Inc. can be found at our
website at http://www.AMCORE.com.
Page 4
<PAGE>
AMCORE Financial, Inc.
CONSOLIDATED KEY FINANCIAL DATA SUMMARY
NOTE: AMCORE Financial, Inc. (AFI) acquired Investors Management Group, Ltd. on
February 17, 1998, which was accounted for as a purchase. AFI merged
with Midwest Federal Financial Corp. on March 27, 1998. This transaction
was accounted for as a pooling of interests, however, the size of the
transaction does not require restatement of prior year amounts. AFI
acquired Wellmark Capital Value, Inc. on March 31, 1999, which was
accounted for as a purchase.
<TABLE>
<CAPTION>
(in thousands, except share data) Trailing Twelve Months Ended
Quarter Ended March 31, March 31,
---------------------------------------------------------------------------------
Percent Percent
Financial Highlights 1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues, including security gains.......... $ 45,545 $ 41,892 8.7% $ 185,135 $ 162,223 14.1%
Net interest income - FTE....................... 34,294 31,388 9.3% 135,627 122,348 10.9%
Operating expenses.............................. 29,358 27,409 7.1% 117,046 120,913 (3.2%)
Net income from operations...................... 10,036 9,406 6.7% 43,518 36,275 20.0%
Net income...................................... 10,036 6,099 64.6% 43,518 26,524 64.1%
Basic earnings per share from operations........ 0.35 0.35 0.0% 1.51 1.35 11.9%
Basic earnings per share........................ 0.35 0.23 52.2% 1.51 0.99 52.5%
Diluted earnings per share from operations...... 0.35 0.34 2.9% 1.50 1.32 13.6%
Diluted earnings per share...................... 0.35 0.22 59.1% 1.50 0.96 56.3%
Cash dividends per share........................ 0.14 0.12 16.7% 0.56 0.47 19.1%
Book value per share............................ 11.06 10.83 2.2%
Quarter Ended March 31,
------------------------------------
Key Financial Ratios (A) 1999 1998 Change
- ------------------------------------------------------------------------------------
Return on average assets...................... 0.98% 1.03% (0.05%)
Return on average equity...................... 12.75% 13.09% (0.34%)
Net interest margin (FTE)..................... 3.45% 3.55% (0.10%)
Core interest margin (FTE).................... 4.18% 4.18% 0.00%
Efficiency Ratio (FTE) ...................... 61.09% 61.83% (0.74%)
</TABLE>
(A) All ratios have been adjusted to exclude merger-related and information
systems charges.
<TABLE>
<CAPTION>
(in thousands, except share data)
Quarter Ended March 31,
--------------------------------------
Percent
Income Statements 1999 1998 Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income........................... $ 72,892 $ 68,315 6.7%
Interest expense.......................... 41,109 39,362 4.4%
-------------------------------------
Net interest income.................... 31,783 28,953 9.8%
Provision for loan losses................. 2,226 2,145 3.8%
Non-interest income:
Trust and asset management income...... 6,587 5,261 25.2%
Service charges on deposits............ 2,218 1,864 19.0%
Mortgage revenues...................... 2,138 2,638 (19.0%)
Other.................................. 2,626 2,634 (0.3%)
-------------------------------------
Total non-interest income........... 13,569 12,397 9.5%
Net security gains........................ 193 542 (64.4%)
Operating expenses:
Personnel costs........................ 16,725 15,670 6.7%
Net occupancy expense.................. 1,729 1,713 0.9%
Equipment expense...................... 2,105 1,821 15.6%
External data processing expense....... 1,601 298 N/M
Professional fees...................... 1,131 895 26.4%
Advertising and business development... 746 766 (2.6%)
Amortization of intangible assets...... 497 586 (15.2%)
Other.................................. 4,824 5,660 (14.8%)
-------------------------------------
Total operating expenses............ 29,358 27,409 7.1%
-------------------------------------
Income before income taxes................ 13,961 12,338 13.2%
Income taxes.............................. 3,925 2,932 33.9%
-------------------------------------
Net income from operations................ $ 10,036 $ 9,406 6.7%
Merger related charges, net of tax .... - 3,307 N/M
-------------------------------------
Net income................................ $ 10,036 $ 6,099 64.6%
=====================================
Average shares outstanding - basic (000).. 28,475 27,099 5.1%
Average shares outstanding - diluted (000) 28,924 27,533 5.1%
Ending shares outstanding (000)........... 28,222 29,043 (2.8%)
</TABLE>
<PAGE>
AMCORE Financial, Inc.
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------------------------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Ending Average Yield/ Average Yield/
Balance Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Taxable securities................................ $ 1,037,527 $ 1,069,039 6.13% $ 1,164,847 6.94%
Tax-exempt securities (FTE)....................... 347,143 338,466 7.82% 326,343 8.04%
Other earning assets.............................. 19,170 17,029 3.73% 10,209 5.25%
Loans held for sale............................... 26,286 32,030 5.27% 28,552 7.57%
Loans, net of unearned income (FTE)............... 2,519,582 2,483,163 8.34% 1,971,572 8.77%
------------------------------------------------------------------------
Total Earning Assets (FTE)..................... $ 3,949,708 $ 3,939,727 7.67% $ 3,501,523 8.10%
Intangible assets.............................. 18,581 18,754 15,266
Other non-earning assets....................... 231,853 211,712 201,450
------------------------------------------------------------------------
Total Assets................................... $ 4,200,142 $ 4,170,193 $ 3,718,239
========================================================================
Liabilities and Stockholders' Equity:
Interest bearing deposits......................... $ 2,550,973 $ 2,541,968 4.53% $ 2,221,116 4.93%
Non-interest bearing deposits..................... 375,278 352,491 316,274
------------------------------------------------------------------------
Total Deposits................................. $ 2,926,251 $ 2,894,459 $ 2,537,390
------------------------------------------------------------------------
Short-term borrowings............................. 614,308 581,188 5.30% 632,941 5.76%
Long-term borrowings.............................. 296,273 318,232 6.39% 204,490 6.47%
------------------------------------------------------------------------
Total Interest Bearing Liabilities............. 3,461,554 3,441,388 4.83% 3,058,547 5.21%
Other liabilities.............................. 51,063 57,070 51,918
------------------------------------------------------------------------
Total Liabilities.............................. $ 3,887,895 $ 3,850,949 $ 3,426,739
Stockholders' Equity........................... 312,247 319,244 291,500
------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity........................... $ 4,200,142 $ 4,170,193 $ 3,718,239
========================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------------
March 31, Percent December 31, Percent
Asset Quality (in thousands) 1999 1998 Change 1998 Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ending allowance for loan losses.................... $ 27,919 $ 23,745 17.6% $ 26,403 5.7%
Net charge-offs..................................... 710 454 56.4% 1,513 (53.1%)
Net charge-offs to average loans (B)................ 0.11% 0.09% 0.02% 0.25% (0.14%)
Non-performing assets:
Non-performing loans - nonaccrual................ $ 22,425 $ 19,138 17.2% $ 18,179 23.4%
Other real estate owned (OREO)................... 2,477 1,655 49.7% 2,321 6.7%
========================================================================
Total non-performing assets................... $ 24,902 $ 20,793 19.8% $ 20,500 21.5%
========================================================================
Loans 90 days past due and still accruing........... $ 8,078 $ 3,430 135.5% $ 7,272 11.1%
</TABLE>
(B) On an annualized basis.
<TABLE>
<CAPTION>
Key Asset Quality Ratios Change Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance to ending loans.................. 1.11% 1.10% 0.01% 1.08% 0.03%
Allowance to non-performing loans.......... 124.50% 124.07% 0.43% 145.24% (20.74%)
Non-performing loans to loans.............. 0.89% 0.89% 0.00% 0.74% 0.15%
Non-performing assets to loans & OREO...... 0.99% 0.96% 0.03% 0.84% 0.15%
Non-performing assets to total assets...... 0.59% 0.52% 0.07% 0.50% 0.09%
Capital Adequacy
- --------------------------------------------------------------------------------------------------------------
Total risk-based capital.................... 12.99% 14.05% (1.06%) 13.46% (0.47%)
Tier 1 risk-based capital................... 11.98% 13.09% (1.11%) 12.49% (0.51%)
Leverage ratio.............................. 7.99% 8.81% (0.82%) 8.31% (0.32%)
</TABLE>
