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UNITED STATES SECURITIES
AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-13393
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AMCORE FINANCIAL, INC.
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NEVADA 36-3183870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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501 Seventh Street, Rockford, Illinois 61104
Telephone Number (815) 968-2241
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.22 par value
Common Stock Purchase Rights
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 2000, 27,098,080 shares of common stock were outstanding
and the aggregate market value of the shares based upon the average of the bid
and asked price held by non-affiliates was approximately $456,740,000.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 2000 Notice of Annual Meeting and Proxy Statement are
incorporated by reference into Part III of the Form 10-K.
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AMCORE FINANCIAL, INC.
FORM 10-K TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 9
Item 3 Legal Proceedings........................................... 9
Item 4 Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 10
Item 6 Selected Financial Data..................................... 10
Item 7 Management's Discussion and Analysis of the Results of
Operations and Financial Condition.......................... 11
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
Item 8 Financial Statements and Supplementary Data................. 35
Item 9 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 71
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 71
Item 11 Executive Compensation...................................... 71
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 71
Item 13 Certain Relationships and Related Transactions.............. 71
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 71
SIGNATURES............................................................ 74
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PART I
ITEM 1. BUSINESS
GENERAL
AMCORE Financial, Inc. (AMCORE) is a registered bank holding company
incorporated under the laws of the State of Nevada in 1982. The corporate
headquarters are located at 501 Seventh Street in Rockford, Illinois. The
operations are divided into three business segments: Banking, Trust and Asset
Management, and Mortgage Banking. AMCORE owns directly or indirectly all of the
outstanding common stock of each of its subsidiaries. AMCORE provides the
subsidiaries with advice and counsel on policies and operating matters among
other things.
BANKING SEGMENT
AMCORE directly owns AMCORE Bank, N.A. (BANK), a nationally chartered bank.
During 1999, AMCORE combined its nine bank and thrift charters into one bank
charter to improve efficiency, enhance responsiveness to local markets, and
increase shareholder value. AMCORE also directly owns AMCORE Consumer Finance
Company, Inc. (FINANCE), a consumer finance company. The BANK conducts business
at 40 locations throughout northern Illinois, excluding Cook county and the far
northwestern counties. The primary service region includes the Illinois cities
of Rockford, Elgin, Woodstock, McHenry, Carpentersville, Crystal Lake, Huntley,
Sterling, Dixon, Princeton, Aledo, Rochelle, Ashton, South Beloit, Gridley, Mt.
Morris, Mendota, Peru and the surrounding communities. The BANK conducts
business at 25 locations throughout south-central Wisconsin. The primary service
region includes the Wisconsin cities of Madison, Monroe, Clinton, Argyle,
Baraboo, Mt. Horeb, Montello and the surrounding communities.
Through its banking locations, AMCORE provides various personal banking,
commercial banking and related financial services. AMCORE also conducts banking
business through ten supermarket branches, which gives the customer convenient
access to bank services seven days a week.
Personal Banking -- Personal banking services to individuals include
demand, savings and time deposit accounts. Loan services include installment
loans, mortgage loans, overdraft protection, personal credit lines and credit
card programs. AMCORE Vintage Funds, a proprietary family of mutual funds, are
also marketed through each banking location. The Private Client Group offering
private banking services also markets Vintage Funds and meets other special
needs of high net worth individuals. Automated teller machines located
throughout AMCORE's market area make banking transactions available to customers
when the bank facilities and hours are not convenient.
Commercial Banking -- A wide range of financial services are provided to
commercial and governmental organizations. These services include, among others,
lending, deposits, letters of credit and cash management services.
Other Financial Services -- The BANK provides various services to
consumers, commercial customers and correspondent banks. Services available
include safe deposit box rental, securities safekeeping, foreign currency
exchange, lock box and other services.
The BANK also offers four electronic banking services to commercial and
retail customers. AMCORE Data Bank facilitates access to commercial customers'
accounts via personal computers. It also permits the transfer of funds between
accounts and the initiation of wire transfers and ACH activity to accounts at
other financial institutions. AMCORE Direct is a point-of-sale system for credit
card and debit transactions. The AMCORE TeleBank service gives retail customers
the opportunity to use their telephone 24 hours a day to get balance and other
information on their checking and savings accounts, certificates of deposit, or
mortgage loans, all from a completely automated system. AMCORE Online! provides
retail customers with online capability to access deposit and loan account
balances, transfer funds between accounts, make loan payments, and pay bills.
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TRUST AND ASSET MANAGEMENT SEGMENT
AMCORE Investment Group, N.A. (AIG) was converted from a trust company
charter to a nationally chartered non-depository bank in 1996 and owns AMCORE
Investment Services, Inc. (AIS), Investors Management Group-Rockford (IMGR)
previously known as AMCORE Capital Management, Inc., Investors Management
Group-Des Moines (IMG), and AMCORE Capital Value, Inc. (ACV). AIG provides trust
services, employee benefit plan and estate administration and various other
services to corporations and individuals.
AIS, a wholly-owned subsidiary of AIG, was incorporated under the laws of
the State of Illinois in October 1990 and in July 1991 became a member of the
National Association of Security Dealers (NASD). AIS is a full-service brokerage
company that offers a full range of investment alternatives including annuities,
mutual funds, stocks, bonds and AMCORE's Vintage Mutual Fund family. AIS
customers can get real time stock market quotes, investment account information,
and place trades for market hours execution 24 hours a day, 7 days a week
through AMCORETrade.com.
IMGR was incorporated under the laws of the State of Illinois in December
1992 and is a wholly-owned subsidiary of AIG. IMGR manages the assets of
AMCORE's Vintage Mutual Fund family, which were introduced in December 1992, as
well as trust and other private investor assets.
IMG was incorporated under the laws of the State of Iowa in June 1992 and
became a wholly-owned subsidiary of AIG on February 17, 1998. IMG is an asset
management company whose primary clients include mutual funds, insurance
companies, banks, retirement plans, foundations, endowments, and individuals.
IMG also provides the mutual fund administration for the AMCORE Vintage Mutual
Funds.
ACV became part of AIG through the March 31, 1999, acquisition of Wellmark
Capital Value, Inc. (WCV) of Des Moines, Iowa. ACV provides complete
record-keeping and other administrative services to 401(k) and other
tax-qualified retirement plans. This enables AMCORE to bring plan administration
services in-house where it can enhance its record-keeping ability and strengthen
the relationship with plan sponsors.
MORTGAGE SEGMENT
AMCORE Mortgage, Inc. (AMI), a wholly-owned subsidiary of the BANK, was
incorporated under the laws of the State of Nevada in 1987. AMI provides the
BANK with a variety of mortgage lending products to meet its customer needs. All
fixed rate long-term loans originated by AMI are sold in the secondary market.
AMI also originates adjustable rate and balloon loans for sale to the BANK and
other investors. AMI continues to service most of the loans that are sold.
INACTIVE
AMCORE Financial Life Insurance Company (AFLIC), a wholly-owned subsidiary,
was incorporated under the laws of the State of Arizona in 1984. Prior to 1998,
through AFLIC, AMCORE engaged in reinsuring credit life and accident and health
insurance in conjunction with the lending activities of the affiliate banks. In
January 1998, AFLIC ceded most of its re-insurance risk to an unaffiliated
company. Since January 1998, all new credit life and accidental and health
insurance has been written directly with unaffiliated companies. As such, AFLIC
is currently an inactive subsidiary of AMCORE.
AMCORE Investment Banking, Inc. (AIB) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary in November 1993. AIB
obtained approval in July 1993 from the Board of Governors of the Federal
Reserve System (FRB) to perform financial advisory and private placement
services. In 1995, AIB withdrew its brokerage membership with the NASD and, as
such, is currently an inactive subsidiary of AMCORE.
See Note 16 of the Notes to Consolidated Financial Statements included
under Item 8 of this document for further information on AMCORE's segment
financial information.
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COMPETITION
Active competition exists for all services offered by AMCORE's bank and
non-bank affiliates with other national and state banks, savings and loan
associations, credit unions, finance companies, personal loan companies,
brokerage and mutual fund companies, mortgage bankers, insurance agencies,
financial advisory services, and other financial institutions serving the
affiliates' respective market areas. The principal competitive factors in the
banking and financial services industry are quality of services to customers,
ease of access to services and pricing of services, including interest rates
paid on deposits, interest rates charged on loans, and fees charged for
fiduciary and other professional services.
Since 1982, when Illinois multi-bank holding company legislation became
effective, there have been many bank mergers and acquisitions in Illinois. These
combinations have had the effect of increasing the assets and deposits of bank
holding companies involved in such activities. Illinois legislation, effective
December 1, 1990, permitted bank acquisitions in Illinois by institutions
headquartered in any other state which has reciprocal legislation, further
increasing competition. See "Supervision and Regulation".
On September 29, 1994, Congress passed laws allowing interstate banking and
interstate branching. A year later, nationwide interstate banking became
effective allowing institutions to make acquisitions in any state. Beginning
July 1, 1997, interstate branching became effective, and banks can merge with
affiliate banks or establish de novo branches in any state. Individual states,
however, have the right to opt out of interstate branching.
EMPLOYMENT
AMCORE had 1,406 full-time equivalent employees as of March 1, 2000. AMCORE
provides a variety of benefit plans to its employees including health, dental,
group term life and disability insurance, childcare reimbursement, retirement,
profit sharing, 401(k) and flexible spending accounts, stock option, stock
purchase and dividend reinvestment plans. AMCORE believes that its relationship
with its employees is good.
SUPERVISION AND REGULATION
AMCORE is subject to regulations under the Bank Holding Company Act of
1956, as amended (the Act), and is registered with the FRB under the Act. AMCORE
is required by the Act to file quarterly and annual reports of its operations
and such additional information as the FRB may require and is subject, along
with its subsidiaries, to examination by the FRB.
The acquisition of five percent or more of the voting shares or all or
substantially all of the assets of any bank by a bank holding company requires
the prior approval of the FRB and is subject to certain other federal and state
law limitations. The Act also prohibits, with certain exceptions, a holding
company from acquiring direct or indirect ownership or control of more than five
percent of the voting shares of any company which is not a bank and from
engaging in any business other than banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the FRB to be "so closely related to banking as to be a
proper incident thereto". On August 31, 1993, the FRB approved an amendment to
add certain activities and to reduce the burden on bank holding companies that
desire to conduct these activities by simplifying the regulatory review process.
Under current regulations of the FRB, a holding company and its non-bank
subsidiaries are permitted, among other activities, to engage in such
banking-related businesses as sales and consumer finance, equipment leasing,
computer service bureau and software operations, mortgage banking, brokerage and
financial advisory services. The Act does not place territorial restrictions on
the activities of non-bank subsidiaries of bank holding companies. In addition,
federal legislation prohibits acquisition of "control" of a bank or bank holding
company without prior notice to certain federal bank regulators. "Control" is
defined in certain cases as acquisition of ten percent or more of the
outstanding shares of a bank or bank holding company.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential
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loss exposure to the depositors of such depository institutions and to the FDIC
insurance fund in the event the depository institution becomes in danger of
default or is in default. For example, under a policy of the Federal Reserve
with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and commit resources to support such institutions in circumstances
where it might not do so absent such policy. In addition, the "cross-guarantee"
provisions of federal law require insured depository institutions under common
control to reimburse the FDIC for any loss suffered or reasonably anticipated as
a result of the default of a commonly controlled insured depository institution
or for any assistance provided by the FDIC to a commonly controlled insured
depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized" as such terms are defined under regulations issued by each of
the federal banking agencies.
In late 1992, Congress passed the Federal Deposit Insurance Corporation
Improvement Act of 1992 which included many provisions that have had significant
effects on the cost structure and operational and managerial standards of
commercial banks. In addition to provisions for recapitalization of the Bank
Insurance Fund, the Act contains provisions that revise bank supervision and
regulation, including, among many other things, the monitoring of capital
levels, outline additional management reporting and external audit requirements,
and add consumer provisions that include Truth-in-Savings disclosures.
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act
(GLB Act), which among other things, establishes a comprehensive framework to
permit affiliations among commercial banks, insurance companies and securities
firms. Regulatory authorities have issued or will issue regulations implementing
the GLB Act.
We do not believe that the GLB Act will have a material effect upon our
operations in the near term. However, to the extent the GLB Act permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.
The foregoing references to applicable statutes and regulations are brief
summaries thereof and do not purport to be complete and are qualified in their
entirety to be referenced to such statutes and regulations.
AMCORE is supervised and examined by the FRB. The BANK, AMI and AIG are
supervised and regularly examined by the Office of the Comptroller of the
Currency (OCC) and are subject to examination by the FRB. In addition, the BANK
is subject to periodic examination by the Federal Deposit Insurance Corporation
(FDIC).
FINANCE is regulated by the Illinois Department of Financial Institutions.
AFLIC is supervised and examined by the Department of Insurance of the State of
Arizona. Under Arizona law, investments, capital levels and the level of claim
reserves, among other things, are subject to regulation. AIS, IMGR and IMG are
supervised and examined by the NASD and are regulated by the Securities and
Exchange Commission (SEC).
SUBSIDIARY DIVIDENDS AND CAPITAL
Legal limitations exist as to the extent to which the BANK can lend or pay
dividends to AMCORE. The payment of dividends by a national bank without prior
regulatory approval is limited to the current year's net income plus the
adjusted retained net income for the two preceding years. The payment of
dividends by any bank or bank holding company is affected by the requirement to
maintain adequate capital pursuant to the capital adequacy guidelines issued by
the FRB and regulations issued by the FDIC and the OCC (collectively
"Agencies"). As of December 31, 1999, approximately $40.3 million was available
for payment to AMCORE in the form of dividends without prior regulatory
approval. The BANK is also limited as to the amount it may
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lend to AMCORE. At December 31, 1999, the maximum amount available to AMCORE in
the form of loans approximated $15.1 million.
In 1990, the FRB established risk-based capital guidelines for bank holding
companies. These capital rules require minimum capital levels as a percent of
risk-weighted assets. Banking organizations must have minimum capital ratios of
4% and 8% for Tier 1 capital and total capital, respectively. The FRB also
established leverage capital requirements intended primarily to establish
minimum capital requirements for those banking organizations that have
historically invested a significant portion of their funds in low risk assets.
Federally supervised banks are required to maintain a minimum leverage ratio of
not less than 4%. Refer to the Capital section of Item 7 for a summary of
AMCORE's capital ratios as of December 31, 1999 and 1998.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The earnings of all subsidiaries are affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the FRB influences general economic conditions and interest rates
through various monetary policies and tools. It does so primarily through
open-market operations in U.S. Government securities, varying the discount rate
on member and non-member bank borrowings, and setting reserve requirements
against bank deposits. FRB monetary policies have had a significant effect on
the operating results of banks in the past and will continue to do so in the
future. The general effect of such policies upon the future business and
earnings of each of the subsidiary banks cannot accurately be predicted.
Interest rate sensitivity has a major impact on the earnings of bank
affiliates. As market rates change, yields earned on assets may not necessarily
move to the same degree as rates paid on liabilities. For this reason, AMCORE
attempts to minimize earnings volatility related to fluctuations in interest
rates through the use of a formal asset/liability management program and certain
off-balance sheet derivative activities. See Item 7A for additional discussion
of interest rate sensitivity and related derivative activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information about the executive
officers of AMCORE. There are no family relationships between any director or
executive officer of AMCORE.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Robert J. Meuleman.............................. 60 President and Chief Executive Officer of AMCORE
since January 1996. Previously Executive Vice
President and Chief Operating
Officer -- Banking Subsidiaries of AMCORE until
December 1995.
Kenneth E. Edge................................. 54 Executive Vice President and Chief Operating
Officer of AMCORE since April 1997. Chairman of
the Board and Chief Executive Officer of the
BANK since October 1999. Previously Group Vice
President, Banking Subsidiaries from June 1995
to April 1997 and Executive Vice President of
AMCORE Bank N.A., Rockford until June 1995.
John R. Hecht................................... 41 Executive Vice President and Chief Financial
Officer of AMCORE since December 1997.
Previously Senior Vice President and Chief
Financial Officer of AMCORE until December
1997.
James S. Waddell................................ 54 Executive Vice President, Chief Administrative
Officer and Corporate Secretary of AMCORE.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Patricia M. Bonavia............................. 49 Executive Vice President and Chief Operating
Officer for AMCORE Investment Group, N.A. since
March, 2000. President of AMCORE Investment
Services, Inc. since February, 1998. Director
of Investors Management Group, Ltd., since
February, 1998. Vice President and Product
Manager of AMCORE Investors Management Group,
LTD. until February, 1998.
Charles E. Gagnier.............................. 65 Executive Vice President, Bank Mergers and
Acquisitions of AMCORE. Previously Chairman of
the Board of Directors of AMCORE Bank N.A.,
Rockford from January 1997 to October 1999, and
President and Chief Executive Officer of AMCORE
Bank N.A., Rockford until December 1996.
James M. Hansberry.............................. 37 Vice President and Retail Product Manager of
the BANK since July, 1999. Vice President and
Project Manager of the BANK from February, 1999
to December, 1999. Vice President of Affiliate
Banking of the BANK from November, 1997 to
February, 1999. Vice President and Branch
Administrator until November, 1997.
William T. Hippensteel.......................... 43 Senior Vice President and Corporate Marketing
Director of AMCORE.
Lewis R. Jones.................................. 55 Senior Vice President, AMCORE since May 1997.
Previously Vice President and Manager of Bank
Investments until May 1997.
Bruce W. Lammers................................ 44 Executive Vice President and Commercial Product
Manager of the BANK since March, 1999.
Executive Vice President -- Commercial Services
Division of the BANK from October, 1997 to
March, 1999. Senior Vice
President -- Commercial Lending of the BANK
until October, 1997.
Joseph McGougan................................. 39 President and Chief Executive Officer of AMCORE
Mortgage, Inc.
David W. Miles.................................. 42 President and Chief Executive Officer of AMCORE
Investment Group, N.A. and Executive Vice
President of AMCORE since March, 2000. Director
of Vintage Mutual Funds, Inc since May, 1999.
Chief Operating Officer of Investors Management
Group, Ltd from February, 1998 to March, 2000.
President of Investors Management Group, Inc.
until February, 1998.
Gregory R. Sprawka.............................. 49 Senior Vice President of Operations and
Technology of the BANK since April 1999.
Previously Vice President and Controller of
AMCORE and AMCORE Bank N.A., Rockford from
December 1996 to April 1999. Executive Vice
President and Chief Financial Officer of
Victoria BankShares, Inc. until September,
1996.
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<TABLE>
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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James F. Warsaw................................. 49 President of the BANK since October 1999.
President and Chief Executive Officer of AMCORE
Bank N.A., Rockford from January 1997 to
October 1999. Previously Executive Vice
President and Chief Operating Officer of AMCORE
Bank N.A., Rockford from June 1995 to December
1996, and Executive Vice President and Senior
Credit Officer of AMCORE Bank N.A., Rockford
until May 1995.
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ITEM 2. PROPERTIES
On December 31, 1999, AMCORE had 74 locations, of which 51 were owned and
23 were leased. The Banking segment had 71 locations, of which 51 were owned and
20 were leased. The Trust and Asset Management segment had two leased facilities
and the Mortgage segment had one leased facility. All of these offices are
considered by management to be well maintained and adequate for the purpose
intended. See Item 1 and Note 6 of the Notes to Consolidated Financial
Statements included under Item 8 of this document for further information on
properties.
ITEM 3. LEGAL PROCEEDINGS
Management believes that no litigation is threatened or pending in which
AMCORE faces potential loss or exposure which will materially affect AMCORE's
financial position or results of operations, other than noted below. Since
AMCORE's subsidiaries act as depositories of funds, trustee and escrow agents,
they are named as defendants in lawsuits involving claims to the ownership of
funds in particular accounts. This and other litigation is incidental to
AMCORE's business.
On August 26, 1999, Willie Parker and five other plaintiffs filed a civil
action in the Circuit Court of Humphreys County, Mississippi against AMCORE
Consumer Finance Company, Inc., a subsidiary of AMCORE, and other defendants
containing twelve separate counts related to the sale and financing of
residential satellite dish systems. Though the actual purchase price for each of
these systems involves a principal amount of less than $3,000, the complaint
prays for economic loss and compensatory damages in the amount of $5 million for
each plaintiff and punitive damages in the amount of $100 million for each
plaintiff. AMCORE has denied the plaintiffs' allegations and has removed the
case to the United States District Court for the Northern District of
Mississippi. The proceedings are currently stayed pending resolution of the
plaintiffs' motion to remand the case to the state court. Although at this early
date the ultimate disposition of the case cannot be predicted with certainty,
based on information currently available, AMCORE believes that the plaintiffs'
damage claims are disproportionate and that the final outcome of the case will
not have a materially adverse effect on AMCORE's consolidated financial
condition, though it could have a materially adverse affect on AMCORE's
consolidated results of operations in a given year. AMCORE has not recorded an
accrual for payment of the damages in this case because, in management's
opinion, an unfavorable outcome in this litigation is not probable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
See Item 6 and 8 of this document for information on stock price ranges and
dividends. The principal market for the quotations of stock prices is the NASDAQ
National Market System. There are approximately 8,500 holders of record of
AMCORE's common stock as of March 1, 2000.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
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1999 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FOR THE YEAR:
Interest income........................................ $ 300,322 $ 290,861 $ 259,959 $ 233,679 $ 202,268
Interest expense....................................... 168,883 168,127 148,960 128,902 104,017
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Net interest income.................................... 131,439 122,734 110,999 104,777 98,251
Provision for loan and lease losses.................... 10,550 7,993 7,045 5,428 3,165
Non-interest income.................................... 57,976 58,748 48,601 43,428 36,874
Operating expense...................................... 123,610 119,594 114,973 98,740 101,730
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Income before income taxes............................. 55,255 53,895 37,582 44,037 30,230
Income taxes........................................... 15,106 14,314 8,918 12,161 7,205
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Net income............................................. $ 40,149 $ 39,581 $ 28,664 $ 31,876 $ 23,025
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Return on average assets (1)(2)(3)(4).................. 0.95% 0.99% 0.81% 1.00% 0.85%
Return on average equity (1)(2)(3)(4).................. 12.96 12.64 10.66 13.14 10.27
Net interest margin.................................... 3.55 3.53 3.61 3.81 4.12
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AVERAGE BALANCE SHEET:
Total assets........................................... $4,216,662 $3,983,600 $3,520,229 $3,181,646 $2,715,520
Loans and leases, net of unearned income............... 2,593,770 2,218,972 1,867,355 1,711,850 1,557,375
Earning assets......................................... 3,969,851 3,768,197 3,325,778 2,967,054 2,501,973
Deposits............................................... 2,953,023 2,730,173 2,399,423 2,274,191 2,182,327
Long-term borrowings................................... 300,490 278,603 132,533 159,504 34,367
Stockholders' equity................................... 309,723 313,056 268,996 242,657 224,219
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ENDING BALANCE SHEET:
Total assets........................................... $4,347,621 $4,147,833 $3,667,690 $3,331,995 $2,903,282
Loans and leases, net of unearned income............... 2,746,613 2,451,518 1,962,674 1,807,121 1,620,365
Earning assets......................................... 4,008,000 3,864,852 3,452,398 3,114,450 2,635,111
Deposits............................................... 3,016,408 2,947,724 2,527,043 2,351,490 2,208,838
Long-term borrowings................................... 285,270 330,361 159,125 131,612 115,752
Stockholders' equity................................... 293,728 316,083 287,476 257,420 242,096
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FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end loans............ 1.03% 1.08% 1.01% 1.07% 1.06%
Allowance to non-performing loans...................... 154.06 145.24 100.20 156.84 123.06
Net charge-offs to average loans....................... 0.33 0.16 0.34 0.19 0.21
Non-performing loans to net loans...................... 0.67 0.74 1.01 0.68 0.86
Average long-term borrowings to average equity......... 97.02 88.99 49.27 65.73 15.33
Average equity to average assets....................... 7.35 7.86 7.64 7.63 8.26
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STOCKHOLDERS' DATA:
Basic earnings per share............................... $ 1.42 $ 1.39 $ 1.07 $ 1.20 $ 0.87
Diluted earnings per share............................. 1.40 1.36 1.05 1.18 0.86
Book value per share................................... 10.51 10.96 10.68 9.64 9.10
Dividends per share.................................... 0.56 0.54 0.45 0.38 0.33
Dividend payout ratio.................................. 39.49% 38.85% 42.06% 31.67% 37.93%
Average common shares outstanding...................... 28,304 28,515 26,862 26,649 26,504
Average diluted shares outstanding..................... 28,730 29,098 27,405 26,970 26,858
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) The 1999 ratios excluding the impact of the $3.3 million, or $ .11 per
share, after-tax restructuring charges: return on average assets 1.03%;
return on average equity 14.02%
(2) The 1998 ratios excluding the impact of the $3.3 million, or $.11 per share,
after-tax merger related charges: return on average assets 1.08%; return on
average equity 13.70%
(3) The 1997 ratios excluding the impact of the $6.4 million, or $.23 per share,
after-tax merger related and information systems charges: return on average
assets 1.00%; return on average equity 13.05%
(4) The 1995 ratios excluding the impact of the $3.5 million, or $.13 per share,
after-tax impairment and merger-related charges: return on average assets
0.98%; return on average equity 11.81%
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<PAGE> 11
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATION AND
FINANCIAL CONDITION
The following discussion highlights the significant factors affecting the
results of operations and financial condition of AMCORE for the three years
ended December 31, 1999. The discussion should be read in conjunction with the
consolidated financial statements, accompanying notes, and selected financial
data appearing elsewhere within this report.
This report contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of AMCORE. Statements that are not historical facts,
including statements about beliefs and expectations, are forward-looking
statements. These statements are based upon beliefs and assumptions of AMCORE'S
management and on information currently available to such management. The use of
the words "believe", "expect", "anticipate", "plan", "estimate", "may", "will"
or similar expressions are forward looking statements. Forward-looking
statements speak only as of the date they are made, and AMCORE undertakes no
obligation to update publicly any of them in light of new information or future
events.
Contemplated, projected, forecasted or estimated results in such
forward-looking statements involve certain inherent risks and uncertainties. A
number of factors -- many of which are beyond the ability of the company to
control or predict -- could cause actual results to differ materially from those
in its forward-looking statements. These factors 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 or personnel; (VI) changes in
interest rates including the effect of prepayment; (VII) general economic and
business conditions which are less favorable than expected; (VIII) equity and
fixed income market fluctuations; (IX) unanticipated changes in industry trends;
(X) unanticipated changes in credit quality and risk factors; (XI) success in
gaining regulatory approvals when required; (XII) changes in Federal Reserve
Board monetary policies; (XIII) inability to fully realize cost savings from the
new organizational structure within the expected time frame or additional or
unexpected costs are incurred; (XIV) unexpected outcomes on existing or new
litigation in which AMCORE, its subsidiaries, officers, directors or employees
are named defendants; (XV) higher than expected costs or other difficulties
associated with Year 2000 compliance solutions; (XVI) technological changes;
(XVII) changes in Generally Accepted Accounting Principles: and (XVIII)
inability of third-party vendors to perform critical services to the company.
OVERVIEW OF OPERATIONS
AMCORE (or the "Company") reported net income of $40.1 million for the year
ended December 31, 1999. This compares to $39.6 million and $28.7 million
reported for the years ended 1998 and 1997, respectively. Net income from
operations, which excludes $3.3 million of after-tax restructuring-related
charges (the "Restructuring Charge") in 1999, $3.3 million of after-tax
merger-related charges (the "Merger Charge") in 1998 and $6.4 million of
after-tax charges related to bank mergers and the outsourcing of core bank data
processing (the "Merger and Information Systems Charges") in 1997, was $43.4
million, $42.9 million and $35.1 million for the years ended December 31, 1999,
1998 and 1997, respectively. This represents an increase of $522,000 or 1.2% in
net income from operations, when comparing 1999 and 1998, and an increase of
$7.8 million or 22.2% when comparing 1998 and 1997. The primary factors
contributing to the improved operating earnings performance when comparing 1999
and 1998 included increases in net interest income resulting from average
earning asset growth of 6.1% and non-interest income growth mainly from trust
and asset management income.
Diluted earnings per share for 1999 were $1.40 compared to $1.36 in 1998
and $1.05 in 1997. Excluding the above mentioned charges of $0.11 per share in
1999, $0.11 per share in 1998 and $0.23 per share in 1997, diluted earnings per
share from operations were $1.51, $1.47 and $1.28 in 1999, 1998 and 1997,
respectively.
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<PAGE> 12
This represents an increase of $0.04 per share or 2.7%, when comparing 1999 and
1998, and $0.19 per share or 14.8% in diluted earnings per share from
operations, when comparing 1998 and 1997.
This level of net income resulted in a return on average equity for 1999 of
12.96% versus 12.64% in 1998 and 10.66% in 1997. AMCORE's return on average
assets for 1999 was 0.95% compared to 0.99% in 1998 and 0.81% in 1997. If the
above mentioned charges are excluded, the return on average equity and return on
average assets would be 14.02% and 1.03% in 1999, 13.70% and 1.08% in 1998 and
13.05% and 1.00% in 1997.
Both AMCORE and the BANK continue to exceed the minimum capital
requirements established by regulators for banks and bank holding companies. In
addition, the BANK continues to be "well capitalized" as defined by regulatory
guidelines. See Note 17 of the Notes to Consolidated Financial Statements.
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 August 27, 1999, AMCORE sold its insurance agency business. Sales
proceeds will be received in installments over three years, subject to reduction
if certain performance contingencies are not met. No gain has been recorded,
pending resolution of the contingencies. The impact of the disposition is not
material, with or without the contingencies.
On November 24, 1999, AMCORE announced a stock repurchase program for up to
five percent of its common stock or 1.41 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 15, 2000, 952,241 shares have been
repurchased at an average price of $21.01.
During 1999, AMCORE introduced two new E-commerce products, available to
customers with internet access: AMCORE Online! and AMCORETrade.com. AMCORE
Online! provides retail customers with on line capability to access deposit and
loan account balances, transfer funds between accounts, make loan payments, and
pay bills. With AMCORETrade.com customers can get real time stock market quotes,
investment account information and place trades for market hours execution, 24
hours a day, 7 days a week.
YEAR 2000
A critical issue that emerged in the banking industry and for the economy
overall regarded how existing application software programs, operating systems
and other systems would accommodate the date value for the year 2000 ("Year
2000"). The Year 2000 has been a pervasive issue, as almost all date-sensitive
systems could be affected to some degree by the rollover to the two-digit year
from 99 to 00. Potential risks of not addressing this issue have included
business interruption, financial loss, reputation loss and/or legal liability.
AMCORE undertook an enterprise-wide initiative to address the Year 2000
issue. The Company established a project team that reported directly to the
Board of Directors and 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
interfaced with, such as vendors, counterparties, customers, payment systems,
and others, has also been ongoing to mitigate potential risks that Year 2000
posed. In addition, AMCORE has been assessing the readiness of companies that
have borrowed from AMCORE's subsidiaries to insure that incremental Year
2000-related credit risks have been addressed. AMCORE's objective has been to
try and insure that all aspects of the Year 2000 issue, including those related
to efforts of third parties, were fully resolved in time.
As of March 15, 2000, AMCORE has not experienced any significant
disruptions to its existing or continuing financial and operating activities
caused by a Year 2000 computerized systems related failure. The Company has no
information that it is aware of that would indicate that any material borrower
has
12
<PAGE> 13
experienced significant Year 2000 issues that would materially impact its
ability to service their loan or otherwise fulfill their borrowing agreement's
terms and/or covenants. In addition, AMCORE is not aware of any situation
indicating that a significant vendor or service provider may be unable sell to
goods or provide services to the company as the result of a Year 2000 issue.
It is not possible, however, to be sure that all aspects of the Year 2000
issue that may affect AMCORE, including those related to the effects of
customers, suppliers, or other third parties with whom we conduct business, are
fully known or that they will not have a material impact on AMCORE's results of
operation or financial condition. AMCORE will continue to commit the necessary
human and financial resources to monitor its systems and take appropriate
actions if any Year 2000 systems failure should occur. These actions include
contingency plans that the Company has consistently maintained for mission
critical systems and business processes to protect assets against unplanned
events that would prevent normal operations. These plans have been modified to
address the unique risks of the millennium changeover in order to mitigate the
effect of potential impacts and insure continuity of operations throughout the
Year 2000 and beyond.
As of December 31, 1999, the costs associated with the Year 2000 issue
during 1998 and 1999 are estimated at approximately $2.6 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. Through
December 31, 1999, $2.5 million of the $2.6 million total estimated costs have
been incurred or paid since the inception of the project. The remainder of the
costs are expected to be incurred by the end of the first quarter of 2000, as
AMCORE completes post Year 2000 rollover testing and monitoring. These costs do
not include an estimated $359,000 in foregone net interest income associated
with increased cash reserves that were intentionally carried in anticipation of
the potential for Year 2000 related withdrawals by depositors anxious about the
millennium changeover.
1999 RESTRUCTURING CHARGE
On April 27, 1999, AMCORE announced a new "Customer Focused Organizational
Structure" (the "CFOS"). Events giving rise to the announcement was a
recognition by AMCORE that its corporate structure of nine separate banking and
thrift charters was perpetuating operational inefficiencies, staffing
redundancies and burdensome regulatory reporting requirements while actually
impeding its customer focused commitment. The new CFOS is expected to improve
efficiency, enhance responsiveness to local markets and increase shareholder
value. It will increase the ability of market presidents, directors and
salespeople to focus on serving customers and their communities by centralizing
or regionalizing certain support functions.
To accomplish the new CFOS, AMCORE will operate under one charter, while
still preserving its super community banking philosophy. The merger of the nine
charters into one charter under AMCORE Bank, N.A., was completed on October 1.
The centralization of retail operations and corporate support functions,
including the conversion of data processing records into one bank, was
substantially completed during the fourth quarter of 1999.
During the second quarter of 1999, AMCORE accrued a Restructuring Charge
related to the new CFOS of $6.1 million pre-tax, or $3.8 million after tax. The
major components of the Restructuring Charge included employee severance and
benefits, systems and integration costs, legal and professional fees and other
related expenses. As of December 31, 1999, $3.4 million of the pre-tax
Restructuring Charge had been paid and $1.3 million had either been incurred but
remained unpaid or related to the minor centralization and conversion issues
noted above that have not yet been completed. These activities are expected to
be completed and paid by the end of the second quarter in 2000.
The remaining excess Restructuring Charge of $1.4 million pre-tax ($857,000
after tax) was reversed during the fourth quarter of 1999. The excess related to
lower than expected severance and benefits due to unplanned employee attrition
in positions unaffected by the CFOS restructuring that permitted the retention
of some employees whose positions were otherwise being eliminated and by some
affected employees leaving for positions outside the company before their
severance became payable. In addition, systems and integration costs were
completed at a lower cost than expected.
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<PAGE> 14
During the fourth quarter of 1999, in continuation of its CFOS
restructuring initiative, AMCORE adopted plans to centralize its commercial loan
operations and to streamline its Trust and Asset Management segment operations.
As a result, a new Restructuring Charge of $537,000 pre-tax, or $324,000
after-tax, was accrued. None of these costs had been incurred or paid as of
December 31, 1999. AMCORE expects to complete this phase of its CFOS
restructuring during 2000.
AMCORE expects $7.3 million in annual pre-tax savings from its new CFOS.
The primary savings are expected to come from reductions in staffing and
regulatory costs. Altogether, staff reductions of 187 employees are planned.
Through December 31, 1999, 55 employees had been terminated and paid severance
benefits. An additional 86 employees had transferred to other open positions due
to attrition, or had voluntarily left the Company prior to the time severance
benefits became payable. As of December 31, 1999, 46 employees remained to be
severed. Reduced corporate support expenses are also expected due to the simpler
structure. The savings will be reflected on the income statement through reduced
compensation expense, employee benefits and professional fees. The projected
cost savings are expected to be realized beginning in the first quarter of 2000.
See Note 15 to the Notes to Consolidated Financial Statements for a tabular
presentation of the Restructuring Charge by major component.
EARNINGS REVIEW BY BUSINESS SEGMENT
AMCORE's internal reporting and planning process has focused on three
business segments: Banking, Trust and Asset Management, and Mortgage Banking.
Note 16 of the Notes to Consolidated Financial Statements presents a condensed
income statement for each segment.
The financial results of each segment are presented as if operated on a
stand-alone basis. There are no comprehensive authorities for management
accounting equivalent to generally accepted accounting principles. Therefore,
the information provided is not necessarily comparable with similar information
from other financial institutions.
The financial results reflect direct revenue, expenses, assets and
liabilities. The accounting policies used are similar to those described in Note
1 of the Notes to Consolidated Financial Statements. In addition, inter-segment
revenue and expenses are allocated based on an internal cost basis or market
price when available.
BANKING SEGMENT
The Banking segment provides commercial and personal banking services
through its 65 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 1999 was $40.4 million before
the Restructuring Charge, a decrease of $344,000 or 0.8% from 1998, before the
Merger Charge. This followed an increase in 1998 of $5.5 million or 15.7% from
1997, before Merger and Information Systems Charges. The 1999 Banking segment
operating profit decreased despite an 6.6% increase in net interest income. The
increase in net interest income was more than offset by a 11.9% decrease in
non-interest income and by increases in provision for loan losses and operating
expenses of 32.0% and 6.6%, respectively.
Net interest income improved by $8.1 million in 1999, primarily the result
of a 6.1% increase in average earning assets and a 2 basis point improvement in
net interest margin. The growth in average earning assets can be attributed to
double-digit loan growth associated with a strong regional economy and sales
management initiatives. Average loans increased $374.8 million in 1999, or
16.9%. The strong loan growth was offset by decreased levels of investment
securities in 1999 related to the planned reduction of the investment portfolio
as a means of providing liquidity and reducing interest rate risk. Investment
securities declined $142.4 million on average in 1999, or 9.5%.
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<PAGE> 15
Non-interest income decreased by $3.0 million in 1999. The decrease is
primarily the result of substantially lower gains from the sale of securities
and loans that were only partially offset by increased deposit service charges
and by a non-recurring gain in the third quarter of 1999 resulting from the
merger and reorganization of an ATM service provider in which AMCORE has an
equity interest.
The provision for loan and lease losses increased $2.6 million in 1999. The
increase relates to the growth in total loans noted above plus higher
charge-offs. Charge-offs in 1999 include a $3.2 million partial charge-off
related to a single agricultural credit.
Operating expenses increased $5.8 million in 1999. In addition to normal
increases, factors contributing to the increase include: increased data
processing costs associated with systems conversions for Midwest, upgrades of
internal local area networks ("LAN"), development of an on-line banking product,
outsourcing the mainframe processing to achieve a standard platform; and
expenses associated with the Year 2000 initiative. These increases were
partially offset by lower intangibles amortization.
The Banking segment represented 83.8%, 87.1% and 91.3% of total segment
profit before Restructuring, Merger and Merger and Information System Charges in
1999, 1998, and 1997, respectively.
TRUST AND ASSET MANAGEMENT
The Trust and Asset Management segment provides trust, investment
management and brokerage services. It also acts as an advisor and provides fund
administration to the Vintage Mutual Funds. 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 banking locations.
The Trust and Asset Management segment's profit increased $1.4 million or
30.8% to $5.9 million in 1999. The segment's profits also increased $1.6 million
or 55.2% in 1998. The growth in 1999 was due to the February 17, 1998
acquisition of IMG, strong sales efforts, favorable investment performance and
revenues captured from bringing Vintage mutual fund administration in-house.
These increases were partially offset by higher costs associated with the
expansion of the trust and asset management staff resulting from the growth of
the segment, which includes a new program to provide asset management services
to high net worth individuals (the "Private Client Group"), increased goodwill
amortization associated with the IMG acquisition and the WCV acquisition
previously mentioned.
As of December 31, 1999, assets under management total $4.4 billion
including $1.5 billion in the AMCORE family of Vintage Mutual Funds. Total
assets under administration, which include managed assets and custody assets,
total $5.1 billion.
The Trust and Asset Management segment represented 12.1%, 9.5%, and 7.5% of
total segment profit before charges in 1999, 1998, and 1997, respectively.
MORTGAGE BANKING
The Mortgage Banking segment originates residential mortgage loans for sale
to AMCORE's banking affiliates and the secondary market, and provides servicing
of these mortgage loans.
The Mortgage Banking segment's profit was $2.0 million in 1999, an increase
of $389,000 or 24.7% over 1998. This segment's profits increased $1.1 million or
231.2% in 1998. As of December 31, 1999, the Mortgage segment serviced $774.5
million of residential mortgages.
The Mortgage Banking segment was able to realize increased profitability
for 1999 despite a 43.5% decline in mortgage originations, primarily
attributable to lower refinancings in the face of increasing mortgage rates in
1999. The resulting decrease of $3.6 million in mortgage revenues was more than
offset by decreases in variable production costs resulting from the decline in
origination volume, the elimination of expenses associated with a purchased
mortgage servicing right portfolio that was sold in 1998 and the reversal of
$1.2 million of mortgage servicing impairment reserves in 1999 compared to a
$1.1 million impairment charge in 1998.
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<PAGE> 16
The Mortgage Banking segment represented 4.1%, 3.4%, and 1.2% of total
segment profit before charges in 1999, 1998, and 1997, respectively.
EARNINGS REVIEW OF CONSOLIDATED INCOME STATEMENT
The following highlights a comparative discussion of the major components
of net income and their impact for the last two years.
NET INTEREST INCOME
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The interest income on certain loans and investment securities is
not subject to Federal income tax. For analytical purposes, at December 31,
1999, 1998 and 1997, the interest income and rates on these types of assets are
adjusted to a "fully taxable equivalent" basis. The fully taxable equivalent
adjustment was calculated using AMCORE's statutory Federal income tax rate of
35%. Adjusted interest income is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest Income Book Basis................... $300,322 $290,861 $259,959
Taxable Equivalent Adjustment................ 9,887 10,010 9,234
-------- -------- --------
Interest Income Taxable Equivalent Basis..... 310,209 300,871 269,193
Interest Expense............................. 168,883 168,127 148,960
-------- -------- --------
Net Interest Income Taxable Equivalent
Basis...................................... $141,326 $132,744 $120,233
======== ======== ========
</TABLE>
Net interest income on a fully taxable equivalent basis increased $8.6
million or 6.5% in 1999 and $12.5 million or 10.4% in 1998. The improvement in
net interest income during 1999 was primarily the result of an increase in
average earning assets and an increase in net interest spread. In 1998, the
improvement resulted mainly from an increase in average earning assets that was
partially offset by a decrease in the net interest spread.
The growth in average earning assets was 6.1% and 13.0% in 1999 and 1998,
respectively. In 1999, the growth in average earning assets can be attributed to
double-digit loan growth associated with a strong regional economy and sales
management initiatives. The strong loan growth was offset by decreased levels of
investment securities related to the planned reduction of the investment
portfolio as a means of providing liquidity and reducing interest rate risk. In
1998, the growth in average earning assets was also the result of strong loan
growth and the Midwest Federal Financial Corporation ("Midwest") merger. In
addition, 1998 had increased levels of investment securities related to an
investment leveraging program, that began in 1996 and was designed to better
utilize capital. As noted above, the investment strategy was revised in 1999 to
emphasize liquidity and reduced interest rate risk as opposed to enhanced
capital utilization. Average loans increased $374.8 million or 16.9% in 1999 and
$351.6 million or 18.8% in 1998. Average investment securities declined $142.4
million or 9.5% in 1999 and increased $56.2 million or 3.9% in 1998.
The net interest spread is the difference between the average rates on
interest-earning assets and the average rates on interest-bearing liabilities.
The interest rate margin represents net interest income divided by average
earning assets. These ratios can also be used to analyze net interest income.
Since a significant portion of the Company's funding is derived from
interest-free sources, primarily demand deposits and stockholders' equity, the
effective rate paid for all funding sources is lower than the rate paid on
interest-bearing liabilities alone.
As Table 1 indicates, the interest rate spread improved 3 basis points to
2.92% in 1999 from 2.89% in 1998 which was a decline of 7 basis points from the
1997 level of 2.96%. The interest rate margin was 3.55% in 1999, an increase of
2 basis points from 3.53% in 1998. The 1998 level was a decline of 8 basis
points from 3.61% in 1997.
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<PAGE> 17
The level of net interest income is the result of the relationship between
total volume and mix of interest-earning assets and the rates earned and the
total volume and mix of interest-bearing liabilities and the rates paid. The
rate and volume components associated with interest earning assets and
interest-bearing liabilities can be segregated to analyze the year-to-year
changes in net interest income. Changes due to rate/volume variances have been
allocated between changes due to average volume and changes due to average rate
based on the absolute value of each to the total change of both categories.
Because of changes in the mix of the components of interest-earning assets and
interest-bearing liabilities, the computations for each of the components do not
equal the calculation for interest-earning assets as a total and
interest-bearing liabilities as a total. Table 1 analyzes the changes
attributable to the rate and volume components of net interest income.
CHANGES DUE TO VOLUME
The change in net interest income due to average volume in 1999 relates to
the 16.9% growth in average loans which was partially offset by a 9.5% decrease
in average investment securities, 7.3% growth in average interest-bearing
deposits and 1.4% increase in average borrowed funds. The 1998 increase in net
interest income due to the change in average volume is attributable to a 18.8%
growth in average loans and a 3.9% growth in average investment securities which
was partially offset by 14.9% growth in total interest-bearing deposits and 9.3%
growth in borrowed funds.
CHANGES DUE TO RATE
The yield on earning assets declined 21 basis points in 1999. The yield on
average loans declined 33 basis points and was primarily attributable to
residential and commercial real estate loans and installment loans. This
occurred as the impact of refinancings and increasing volumes in 1998 and the
first half of 1999, in a decreasing interest rate environment, more than offset
the impact of continued volume increases in the second half of 1999 when
interest rates were increasing. The yield on average securities declined 19
basis points. As noted earlier, AMCORE has sought to reduce its investment
portfolio in 1999 as a means of funding loan growth, improving liquidity and
reducing interest-rate risk. Maturities of older securities, typically with
higher rates than more recent issues, have largely not been replaced. This has
caused the average yield of the remaining portfolio to decline.
The rate paid on interest bearing liabilities declined 24 basis points in
1999. The decline was primarily driven by a 30 basis point reduction in rates
paid on interest bearing deposits. The reduction was generally across all
deposit accounts, but was led by decreased rates on regular CD's, brokered CD's
and savings/club deposits. New deposits and repricings of these accounts in 1998
and the first half of 1999, when interest rates were declining, more than offset
the impact of repricings and new deposits in the second half of 1999 when
interest rates were increasing. The rate on short-term borrowings increased 5
basis points as recent trends of increased interest rates had more of an impact.
The rate on long-term debt decreased 22 basis points, still influenced by FHLB
renewals at favorable rates during 1998. During the fourth quarter, $64 million
in FHLB advances, bearing an average rate of 5.12%, were called and replaced at
an average rate of 5.81%. While not significantly affecting 1999, as a result of
the foregoing, rates on average long-term borrowings are expected to increase in
2000.
The yield on earning assets declined 9 basis points in 1998 as market rates
declined in general. The decline was less than the decline in the individual
components of investment securities and loans whose yields declined 16 and 11
basis points, respectively, as higher yielding loans represented a larger
proportion of earning assets in 1998. The rate paid on interest bearing
liabilities decreased 2 basis points. The rate paid on interest bearing demand
deposits increased due to growth in the AMDEX money market account, which is
indexed to Treasury yields. The rate on long-term debt decreased 73 basis points
as maturing FHLB borrowings were renewed for a longer term and made up a larger
proportion of the category.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is an amount added to the allowance
against which loan and lease losses are charged. Management determines an
appropriate provision for loan and lease losses based upon
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<PAGE> 18
historical loss experience, regular evaluation of collectibility by lending
officers, credit administration and the corporate loan review staff, 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 of problem loans.
The provision for loan and lease losses was $10.6 million for 1999, an
increase of $2.6 million or 32.0% from the $8.0 million in 1998. The 1999
increase in provision is due to a 12% growth in loans and a $3.2 million partial
charge-off of a single agricultural credit. During 1998, the provision increased
$948,000 or 13.5% from the $7.0 million in 1997. The increase in the 1998
provision was due to a 24.9% growth in loans, decreased charge-offs and
relatively stable nonperforming assets.
AMCORE recorded net charge-offs of $8.6 million, $3.6 million and $6.4
million in 1999, 1998 and 1997, respectively. Future growth in the loan
portfolio, weakening economic conditions or specific credit deterioration could
result in increases in the provision for loan and lease losses. Net charge-offs
represented 33 basis points of average loans in 1999 versus 16 basis points in
1998 and 34 basis points in 1997. The increase in net charge-offs in 1999 is
principally the result of partial charge-off of the agricultural credit as it
was responsible for 12 basis points of the charge-offs for the year. In 1997, a
$2.7 million charge-off of satellite dish receivables accounted for 14 basis
points. Without these two items, net charge-offs have been relatively stable at
21 basis points in 1999, 16 basis points in 1998 and 20 basis points in 1997.
The allowance for loan and lease losses as a percent of total loans was
1.03%, 1.08%, and 1.01% in 1999, 1998, and 1997, respectively. The ratio of the
allowance for loan and lease losses to nonperforming loans was 154.1% at
year-end 1999, 145.2% at year-end 1998, and 100.2% at year-end 1997.
NON-INTEREST INCOME
Total non-interest income is comprised primarily of fee based revenues from
mortgage, trust, brokerage, asset management and insurance services. Fees from
bank-related services, mainly on deposits and electronic banking, along with net
security gains or losses are also included in this category. Non-interest income
totaled $58.0 million in 1999, a decrease of $772,000 or 1.3%. Strong growth in
trust and asset management revenues and service charges on deposits nearly
eclipsed a $3.6 million decline in mortgage revenues and a $3.9 million decrease
in net security gains. Non-interest income also increased 20.9% or $10.1 million
in 1998.
Trust and asset management income, the largest source of fee based
revenues, totaled $28.9 million in 1999, an increase of $5.2 million or 21.7%.
The 1998 growth of trust and asset management fees was $7.3 million or 44.2%.
The growth in 1999 was due to a full year impact of the IMG acquisition, strong
sales efforts and favorable investment performance. In 1999 the methodology for
accruing trust and asset management fees was refined to more accurately reflect
the fees earned at any given period end. The refinement resulted in additional
fee income of $881,000. The growth in 1998 is attributable to the IMG
acquisition, favorable market performance of trust assets, growth in proprietary
Vintage Mutual Funds and new trust accounts. AMCORE anticipates continued growth
in trust and asset management revenues in 2000, but at a slower pace than in
1998 and 1999. Trust and asset management revenues are dependent on market
performance, plan terminations, corporate profit sharing contributions, and
other economic factors.
Service charges on deposits totaled $10.2 million in 1999, an increase of
$1.3 million or 15.2% from the $8.8 million in 1998. During 1998, service
charges on deposits increased $994,000 or 12.7%. Both years' increases are
attributable to increased deposits and revised fee schedules. In 1998, the
acquisition of Midwest accounted for $610,000 of the increase.
Mortgage revenues include fees generated from underwriting, originating and
servicing of mortgage loans along with gains realized from the sale of these
loans. Mortgage revenues declined $3.6 million or 34.4% in 1999. Increasing
interest rates in 1999 resulted in lower originations of $270.4 million, down
$208.5 million or 43.5% from a record $478.9 million in 1998. In 1998, strong
production volume related to the expansion of markets and refinancing volume
related to the lower mortgage rates resulted in a $4.7 million or 81.2% increase
in mortgage revenues.
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Accounting standards require separate recognition of servicing rights on
originated mortgage loans at the time such loans are sold. This asset is
amortized over the remaining estimated lives of the serviced loans. While this
has a favorable impact on earnings at the time of sale, additional earnings
volatility may occur with changes in market conditions, particularly with
fluctuations in interest rates. For example, a decline in interest rates could
result in accelerated mortgage prepayments, which may reduce the value of this
asset and require a charge to earnings through a valuation reserve. If
subsequent valuations result in an increase of value, recoveries can be recorded
through the valuation allowance, to the extent of the previous charge. As of
December 31, 1999, AMCORE had $6.9 million of capitalized mortgage servicing
rights, with a fair value of $7.8 million, and a servicing portfolio of $774.5
million. See Note 7 of the Notes to Consolidated Financial Statements. There was
no impairment reserve as of December 31, 1999.
Insurance revenues totaled $1.7 million in 1999, a decrease of $140,000 or
7.5% from the $1.9 million in 1998. Continued increases in credit life
commissions were more than offset by decreased agency commissions that were
attributable to the sale of AMCORE's insurance agency in August of 1999. In
1998, insurance revenues increased $291,000 or 18.4% from 1997 levels due to
increased sales of credit life insurance resulting from product specific sales
training.
The sale of the collection agency on December 31, 1997 resulted in no
collection fee income being recognized in 1999 or 1998. Collection fee income
was $2.1 million in 1997.
Other non-interest income, which includes customer service charges, credit
card and merchant fees, ATM fees, brokerage commissions, gains on fixed asset
and loan sales and other miscellaneous income, was $9.7 million, a $399,000 or
4.3% increase over 1998. Increases in 1999 included a non-recurring gain of
$750,000 resulting from the merger and reorganization of an ATM service provider
in which AMCORE has an equity interest, increased customer service charges of
$600,000, call option income of $325,000 and gain on fixed asset sales of
$125,000. These increases were partially offset by lower gains on loan sales of
$859,000 and a decline in ATM related fees of $387,000. In 1998, other
non-interest income was $9.3 million, a decrease of $1.3 million or 11.9% from
1997 levels. The 1997 amount included a $1.9 million gain on the sale of credit
card receivables.
Net securities gains totaled $530,000 in 1999 as compared to $4.4 million
in 1998 and $4.2 million in 1997. The level of security gains or losses is
dependent on the size of the available for sale portfolio, interest rate levels,
AMCORE's liquidity needs, and balance sheet risk objectives.
OPERATING EXPENSES
Total operating expense was $123.6 million in 1999, an increase of $4.0
million from $119.6 million in 1998, which was a $4.6 million increase from
$115.0 million in 1997. Operating expenses in 1999 included the Restructuring
Charge of $5.3 million. Operating expenses in 1998 included the Merger Charge of
$4.5 million. Operating expenses in 1997 included a $5.0 million impairment of
satellite receivables portfolio transferred to held for sale and the Merger and
Information Systems Charges of $8.9 million. Excluding these charges, operating
expenses from normal operations would have increased $3.2 million or 2.8% in
1999 and $14.0 million or 13.9% in 1998. The 1998 increase includes $8.4 million
of normal operating expenses of IMG and Midwest. The efficiency ratio, excluding
the above-mentioned charges, was 59% in 1999 versus 60% in 1998 and 1997.
Personnel costs, which include compensation expense and employee benefits,
are the largest component of operating expenses. Personnel costs totaled $69.0
million in 1999, an increase of $4.6 million or 7.1% from 1998. Excluding the
Restructuring Charge in 1999 and the Merger Charge in 1998, personnel costs
increased $2.9 million in 1999, an increase of 4.6%. Normal merit increases,
increased long-term incentive accruals for certain executive officers
("Performance Unit Awards"), increased employee health benefit costs, a full
year of IMG personnel costs in 1999, the expansion of the Trust and Asset
Management segment associated with the formation of the Private Client Group and
the WCV acquisition represent the major portion of the increase. The increase
was partially offset by the sale of the insurance agency and a full year cost
savings from outsourcing core bank data processing. Personnel costs totaled
$64.4 million in 1998, an increase of $5.6 million or 9.5% from 1997. Excluding
the Merger Charge and $4.8 million of normal compensation
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expense of IMG and Midwest in 1998 and the Merger and Information Systems
Charges in 1997, the increase would have been $1.5 million or 2.7%. The higher
costs in 1998 were primarily caused by increased levels of performance driven
compensation, higher Performance Unit Award accruals and normal merit increases.
Net occupancy expense was $6.7 million in 1999, a decrease of $39,000 from
1998, after an increase of $260,000 from 1997 levels. A 1997 property tax refund
for prior years and an increase in the number of facilities were the primary
cause of the increase in 1998.
Equipment expense increased $1.1 million or 14.3% to $9.0 million in 1999.
This followed a $2.9 million or 27.0% decrease in 1998. Excluding $325,000 of
Merger Charges incurred in 1998, equipment expense increased $1.5 million or
19.2% in 1999. The 1999 increase is the result of higher EDP equipment
depreciation and software amortization and maintenance associated with the
upgrade of internal LAN networks and Year 2000 compliance solutions. The 1998
decrease is primarily due to a $2.4 million charge related to equipment and
software written off as part of the 1997 Information Systems Charge.
Data processing expenses include expenses related to core bank data
processing, trust and other external processing systems. This category increased
$1.8 million or 33.9% to $7.2 million in 1999. Excluding the Restructuring
Charge in 1999 and the Merger Charge in 1998, data processing expenses increased
$2.1 million in 1999, an increase of 54.1%. The increase is attributable to
outsourcing the mainframe processing to achieve a standard platform, increased
data processing costs associated with systems conversions for Midwest, upgrades
of internal LAN networks, development of an on-line banking product and expenses
associated with the Year 2000 initiative. This category increased $2.7 million
or 101.2% in 1998 as a result of a partial year's expense from outsourcing
mainframe processing in the third quarter of 1998, the additional processing
expenses of Midwest and IMG, and contract termination costs for Midwest, that
were included as a Merger Charge.
Professional fees totaled $5.3 million in 1999, a decrease of $461,000. Of
this amount, $339,000 was attributable to lower level of professional fees in
the 1999 Restructuring Charge than in the 1998 Merger Charge. Decreased legal
fees accounted for the remaining decrease. Professional fees decreased $643,000
or 10.1% in 1998. The professional fees included in the 1998 Merger Charge were
$699,000 less than those included in the 1997 Merger Charge, accounting for all
of the decrease.
Advertising and business development expenses were $3.6 million in 1999, a
decrease of $174,000 or 4.6%. Excluding $116,000 of 1998 Merger Charges, the
decrease was only $58,000 as the number of markets served by AMCORE stabilized
following acquisitions in 1997 and 1998. This category increased $944,000 or
33.4% in 1998 because of an increase in the number of markets served due to the
1997 and 1998 acquisitions.
Intangibles amortization decreased $545,000 in 1999 to $2.0 million, a
21.5% decrease. Core deposit intangibles associated with a previous acquisition
were fully amortized in 1998 and accounted for a $721,000 decrease. This was
partially offset by $176,000 in increased goodwill amortization related to the
IMG acquisition as 1999 included a full year and as additional contingent shares
were issued and increased the purchase price allocable to goodwill. Intangibles
amortization expense totaled $2.5 million in 1998, an increase of $324,000 or
14.6% as a result of the IMG acquisition.
Other expenses were $20.8 million in 1999, a decrease of $2.3 million or
10.0%, following an increase of $3.4 million or 16.9% in 1998. The 1999 decrease
relates to the reversal of $1.2 million of mortgage servicing impairment
reserves in 1999, due to increasing interest rates, whereas 1998 included $1.1
million in impairment charges. The 1998 increase is primarily the result of
increased mortgage servicing expenses of $1.1 million and an impairment charge
of $1.1 million. The impairment charge was the result of a declining interest
rate environment. The remaining increase related to increased travel and
training expenses.
INCOME TAXES
Income tax expense totaled $15.1 million in 1999, compared with $14.3
million and $8.9 million in 1998 and 1997, respectively. The effective tax rates
were 27.3%, 26.6%, and 23.7% in 1999, 1998, and 1997, respectively. The
effective tax rate was less than the statutory tax rates due primarily to
investments in tax-exempt municipal bonds and loans. The increase in effective
tax rate in 1999 and 1998 primarily resulted from a lower proportion of
tax-exempt income to pretax earnings relative to 1998 and 1997, respectively,
and a steady increase in state income taxes over the same period.
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BALANCE SHEET REVIEW AND LIQUIDITY RISK MANAGEMENT
Liquidity represents the availability of funding to meet the obligations to
depositors, borrowers, and creditors at a reasonable cost without adverse
consequences. Accordingly, the funding base and asset mix influences the
liquidity position.
The parent company requires adequate liquidity to pay its expenses, repay
debt when due and pay stockholder dividends. Liquidity is provided to the parent
through subsidiaries in the form of dividends and fees for services. In 1999,
dividends and fees from subsidiaries amounted to $55.5 million, compared to
$51.0 million in 1998. Other liquidity is provided by access to the capital
markets, cash balances in banks, liquidating short-term investments, commercial
paper borrowings and lines of credit with correspondent banks. While the BANK is
limited in the amount of dividend it can pay, as of December 31, 1999,
approximately $40.3 million was available for payment to the parent in the form
of dividends without prior regulatory approval.
Cash and cash equivalents increased $34.9 million from December 31, 1998 to
December 31, 1999, as the net cash provided from operating activities of $85.8
million plus the net cash provided by financing activities of $185.3 million
exceeded the net cash used for investing activities of $236.2 million in 1999.
The amount of the cash increase primarily represents excess liquidity that was
intentionally increased in anticipation of the potential for Year 2000 related
withdrawals by depositors anxious about the millennium changeover. AMCORE
estimates that the foregone net interest income associated with this excess
liquidity amounted to approximately $359,000.
The net increase in cash provided by operating activities of $31.6 million
from December 31, 1998 to December 31, 1999 was primarily attributable to a
$208.5 million decline in originations of loans held for sale net of a $160.5
million decrease in proceeds from loans held for sale.
The net decrease in cash used for investing activities of $3.1 million from
December 31, 1998 to December 31, 1999 is the result of the decrease in net cash
provided by available for sale securities of $43.4 million. This decrease
results from the net decrease in proceeds from maturities and sales of $414.2
million and the net decrease in cash used for purchases of $370.8 million. This
decrease was more than offset by a net increase of $18.5 million in interest
earning deposits in bank, an $18.2 million net increase in federal funds sold
and other short-term investments and a $10.7 million decrease in net cash used
for investment in company owned life insurance.
The net cash provided by financing activities decreased by $38.8 million
from December 31, 1998 to December 31, 1999. Net cash provided by demand
deposits and savings accounts decreased $194.9 million. Proceeds from long-term
borrowings declined $78.3 million, while payments of long-term borrowings
increased $66.0 million. Net cash required for treasury stock purchases
increased $10.8 million. The sum of these items, $350.0 million, was largely
funded by a net increase in short-term borrowings of $305.0 million and by a net
increase in time deposits of $6.5 million.
SECURITIES
Total securities as of December 31, 1999 were $1.24 billion, a decrease of
$102.3 million or 7.6% over the prior year-end. At December 31, 1999 and 1998,
the total securities portfolio comprised 31.0% and 34.8%, respectively, of total
earning assets.
Substantially all securities are classified as available for sale. This
improves AMCORE's ability to manage interest rate and liquidity risk.
Fluctuations in the unrealized gain or loss component of total stockholders'
equity may result; however, federal banking regulations generally exclude this
component from regulatory risk-based capital calculations.
The securities portfolio serves an important role in the overall context of
balance sheet management in terms of balancing capital utilization and liquidity
needs. The decision to purchase or sell securities is based upon the current
assessment of economic and financial conditions, including the interest rate
environment. The portfolio's scheduled maturities and the prepayment of mortgage
and asset backed securities represent a
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significant source of liquidity. Approximately $71.7 million, or 5.8%, of the
securities portfolio will contractually mature in 2000. This does not include
mortgage and asset backed securities. Mortgage and asset backed security
maturities may differ from contractual maturities because borrowers may have the
right to prepay obligations with or without penalties.
Mortgage and asset backed securities as of December 31, 1999 totaled $800.7
million and represent 64.5% of total securities. The distribution of mortgage
and asset backed securities includes $481.1 million of U.S. government agency
mortgage-backed pass through securities, $235.2 million of agency collateralized
mortgage obligations and $84.4 million of private issue collateral mortgage
obligations, all of which are rated AAA except for $17.1 million of securities
rated between Aa1 and Baa1.
At December 31, 1999, securities held to maturity total $14.0 million,
while securities available for sale were $1.23 billion. There were no trading
securities at the end of 1999 or 1998. At December 31, 1999, the held to
maturity securities portfolio included $53,000 of gross unrealized gains and
$212,000 of gross unrealized losses. The securities available for sale portfolio
at the end of 1999 included gross unrealized gains of $2.8 million and gross
unrealized losses of $47.1 million, of which the combined effect, net of tax, is
included as accumulated other comprehensive income in stockholders' equity. For
comparative purposes, at December 31, 1998, gross unrealized gains of $18.5
million and gross unrealized losses of $23.9 million were included in the
securities available for sale portfolio. For further analysis of the securities
portfolio see Table 4 and Note 3 of the Notes to Consolidated Financial
Statements.
LOANS AND LEASES
Loans represent the largest component of AMCORE's earning asset base. At
year-end 1999, total loans and leases, net of unearned discount, were $2.75
billion, an increase of $295.1 million or 12.0% as compared to 1998. Average
loans increased $374.8 million or 16.9% during 1999. Over 50%, or $153.0
million, of the growth in loans was attributable to real estate loans. This
included $106.1 million in commercial real estate loans, $31.3 million in
residential real estate loans and $15.6 million in real estate construction
loans. The remaining increase was primarily attributable to installment and
commercial loan categories. See Table 2 and Note 4 of the Notes to Consolidated
Financial Statements.
Commercial, financial and agricultural loan balances totaled $710.3 million
at year-end 1999, an increase of $50.4 million or 7.6% when compared to 1998.
This increase was primarily in commercial and industrial loans in the Rockford
and northwestern Chicago suburban markets.
Total real estate loans were $1.54 billion at year-end 1999, an increase of
$153.0 million, or 11.0%, over 1998. The growth from 1999 occurred mainly in the
commercial real estate category. The growth is attributable primarily to the
Rockford and northwestern Chicago suburban markets.
Residential mortgage loans are originated by AMCORE's mortgage affiliate,
of which conforming adjustable rate, 15-year fixed-rate and balloon residential
mortgages are normally sold to the BANK. The 30-year fixed-rate residential
mortgage loans are sold in the secondary market to eliminate interest rate risk,
generate gains on the sale of these loans, as well as servicing income. All
loans of the mortgage affiliate are considered held for sale and are recorded at
the lower of cost or market value.
Installment and consumer loans increased $91.3 million or 22.9% to end the
year at $489.6 million. The growth is primarily related to in-market indirect
automobile loans.
The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 3 shows selected loan maturity data as of December
31, 1999.
DEPOSITS
Total deposits at December 31, 1999, were $3.02 billion, an increase of
$68.7 million or 2.3% when compared to 1998. Average total deposits increased
$222.9 million or 8.2%.
Core deposits, which include demand deposits, consumer time deposits, and
savings deposits are considered by management to be the primary and most stable
source of funding. Total core deposits were
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$2.43 billion at the end of 1999, an $8.1 million or 0.3% decrease from the
prior year-end. This decrease is attributable to declines in non-interest
bearing demand and NOW accounts that were nearly offset by increased money
market deposits. Core deposits represent 80.9% and 82.9% of total deposits at
December 31, 1999 and 1998, respectively. Large certificates of deposit,
brokered deposits, and time deposits from governmental entities supplement these
core deposits. Brokered deposits were $349.8 million at year-end 1999, an
increase of $38.7 million over the prior year-end. Table 5 shows the maturity
distribution of time deposits $100,000 and over.
BORROWINGS
Borrowings totaled $984.7 million at year-end 1999 and were comprised of
$699.4 million of short-term and $285.3 million of long-term borrowings. The
increase in borrowings of $156.1 million was primarily used to fund the growth
in loans, provide additional Year 2000 liquidity and fund the 1998 and 1999
stock repurchase programs. Long-term borrowings declined principally due to FHLB
borrowings that will mature during the next twelve months which have been
reclassified to short-term borrowings.
In 1997, AMCORE issued $40 million of capital securities through AMCORE
Capital Trust I (Trust), a statutory business trust, of which all common
securities are owned by AMCORE. The capital securities pay cumulative cash
distributions semiannually at an annual rate of 9.35%. The securities are
redeemable from March 25, 2007 until March 25, 2017, at a declining premium of
104.675% to 100.0% of the principal amount. After March 25, 2017, they are
redeemable at par until June 15, 2027, when redemption is mandatory. The capital
securities qualify as Tier 1 capital for regulatory purposes. The proceeds of
these securities were used to repay the parent company term loan, debt of
acquired companies, and other general corporate purposes.
The parent company has a commercial paper placement agreement with an
unrelated financial institution that provides for the issuance of non-rated
short-term unsecured debt obligations at negotiated rates and terms, not to
exceed $50.0 million. In the event the agent is unable to place the parent
company's commercial paper on a particular day, the proceeds are provided by
overnight borrowings on a reciprocal line of credit with the same financial
institution.
ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT
AMCORE's credit risk is centered in the loan and lease portfolio which on
December 31, 1999, totaled $2.75 billion, or 68.5%, of earning assets. The
objective in managing loan portfolio risk is to quantify and manage credit risk
on a portfolio basis as well as reduce the risk of a loss resulting from a
customer's failure to perform according to the terms of a transaction. To
achieve this objective, AMCORE strives to maintain a loan portfolio that is
diverse in terms of loan type, industry concentration, and borrower
concentration.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's estimate of
identified and unidentified losses in the existing loan portfolio. To establish
the appropriate level of the allowance, all loans, commitments to extend credit,
and standby letters of credit, are reviewed.
The appropriate allowance for consumer, residential real estate and
residential real estate construction loans are evaluated as groups or pools,
since these loans tend to be smaller balance, homogenous loans. Loss allowances
are allocated based upon a five-year weighted average for actual losses for
these pools.
Similar pool allocations are determined, as a group, for commercial,
financial, agricultural, commercial real estate and commercial real estate
construction loans. In addition to the pool allocations for these groups of
loans, commercial, financial, agricultural and commercial real estate loans are
individually graded and specific allocations are made for loans that are
impaired. Loans are considered impaired, and loss factors are applied, when,
based on current information and events, it is probable that AMCORE will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. In making this determination, management analyzes the ultimate
collectibility of the loan portfolio, incorporating feedback provided by
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lending officers and supervisors, credit administration, the corporate loan
review staff, the grades assigned to the loan and examinations performed by
regulatory agencies.
An additional unallocated allowance is maintained based upon the size,
quality, and concentration characteristics of the remaining loan portfolio,
using both historical quantitative trends and management's evaluation of
qualitative factors including current economic conditions.
The determination by management of the appropriate level of the allowance
amounted to $28.4 million at December 31, 1999, compared to $26.4 million at
December 31, 1998, for an increase of $2.0 million or 7.5%. However, since the
allowance for loan losses is based on estimates, ultimate losses may vary from
the current estimates. Management makes an ongoing evaluation as to the adequacy
of the allowance for loan losses on at least a quarterly basis. As adjustments
in the allowance become necessary, they are recorded in the earnings of that
period and serve as a self-correcting mechanism in reducing differences in
allocations and observed losses. A detailed analysis of the allowance for loan
losses and the allocation of the allowance for loan losses by category for the
past five years are shown in Table 2.
Allocations of the allowance for commercial, financial and agricultural
loans increased $1.0 million. The increase was attributable to greater
anticipated Year 2000 needs, as the date for the millennium roll-over
approached, and increased delinquencies and related concerns due to lending
staff turnover in two markets. These increases were partially offset by
decreased pool allocations for the category. Allocations of the allowance for
real estate loans increased $1.7 million to reflect increased concentrations in
the commercial real estate portfolio, including hotel and motel credits, more
aggressive lending practices driven by competitive factors and lending staff
turnover previously noted. Allocations of the allowance for installment and
consumer loans increased $3.0 million. This increase was attributable to higher
average historical loss factors in the pool calculation, as well as increased
delinquencies, foreclosures and bankruptcies in the fourth quarter of 1999 that
were not fully recognized in the pool calculation. Allocations for impaired
loans increased $615,000 as several medium-sized credits became impaired during
the year, that were not fully offset by reduced impairment on a single
agricultural credit due to partial charge-off of the credit. Unallocated loan
and lease losses declined $4.3 million. The decrease was primarily the result of
the partial charge-off of the agricultural credit in excess of the impairment
allocation and the increase in Year 2000 allocations.
As of December 31, 1999, the allowance for loan losses as a percent of
total loans and of non-performing loans was 1.03% and 154.06%, respectively.
These compare to the same ratios for the prior year of 1.08% and 145.24%. Net
charge-offs as a percent of average loans increased to 0.33% for 1999 versus
0.16% in 1998. Partial charge-offs related to a single agricultural credit
represented 36.8% of total net charge-offs in 1999, thus net charge-offs on all
other loans represented 0.21% of average loans in 1999.
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans with restructured
terms, foreclosed real estate and other foreclosed assets. Non-performing assets
totaled $21.5 million as of year-end 1999, an increase of $921,000 or 4.5% from
the $20.5 million at year-end 1998. Total non-performing assets represent 0.49%
of total assets at both December 31, 1999 and December 31, 1998.
Loans are generally classified as non-accrual when there are reasonable
doubts as to the collectibility of principal and/or interest or when payment
becomes 90 days past due, except loans which are well secured and in the process
of collection. Any loans classified for regulatory purposes that have not been
included in non-performing loans are not expected to materially impact future
operating results, liquidity or capital. Interest collections on non-accrual
loans, for which the ultimate collectibility of principal is uncertain, are
applied as principal reductions. Otherwise, such collections are applied to
interest income when received.
Non-performing loans increased $240,000 or 1.3% to total $18.4 million at
December 31, 1999, when compared to the prior year-end. Non-performing loans
include one grain elevator credit, which represents $1.2 million or 6.5% of
total non-performing loans, whose collectibility is dependent solely on its
guarantors. As of December 31, 1999, non-performing loans to total loans were
0.67% compared to 0.74% at year-end 1998. Table 2 presents non-performing loans
for each of the past five years.
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Foreclosed real estate and other foreclosed assets increased $505,000, or
19.9%, to $3.0 million at December 31, 1999, when compared to year-end 1998.
This increase is concentrated in residential real estate loans, primarily in the
Rockford market.
Loans 90 days or more past due and still accruing interest were $10.2
million at December 31, 1999, an increase of $2.9 million from the $7.3 million
at December 31, 1998. These amounts represented 0.37% and 0.30% of loans
outstanding as of the end of 1999 and 1998, respectively. The increase over 1998
relates primarily to commercial and commercial real estate and includes the
effect of lending staff turnover in two markets.
CONCENTRATION OF CREDIT RISKS
As previously discussed, AMCORE strives to maintain a diverse loan and
lease portfolio in an effort to minimize the effect of credit risk. Summarized
below are the characteristics of classifications that exceed 10% of total loans.
Commercial, financial, and agricultural loans were $710.3 million at
December 31, 1999, and comprised approximately 25.9% of gross loans, of which
.73% were non-performing. Net charge-offs of commercial loans represent 0.65%
during 1999, and 0.11% during 1998, of the year-end balance of the category. The
increase in net charge-offs in 1999 is principally the result of partial
charge-off of the agricultural credit, as it was responsible for 0.45% of the
charge-offs for the category.
Construction, commercial real estate loans, and loans for farmland were
$853.7 million at December 31, 1999, comprising 31.1% of gross loans, of which
0.75% were classified as non-performing. Net charge-offs of this category of
loans represent 0.01% during 1999, and 0.02% during 1998, of the year-end
balance of the category.
Residential real estate loans, which includes home equity and permanent
residential financing, totaled $689.7 million at December 31, 1999, and
represent 25.1% of gross loans, of which 0.73% are non-performing. Net
charge-offs of residential real estate loans represent 0.15% of the category
total in 1999 and 0.05% of the year-end balance in 1998.
Installment and consumer loans were $489.6 million at December 31, 1999,
and comprised 17.8% of gross loans, of which 0.37% were non-performing. Net
charge-offs of consumer loans represented 0.57% and 0.63% of the year-end
category total for 1999 and 1998, respectively. Consumer loans are comprised
primarily of in-market indirect auto loans, credit card loans and direct
installment loans. Indirect auto loans total $363.5 million at December 31,
1999. Both direct loans and indirect auto loans are approved and funded through
a centralized department utilizing the same credit scoring system to provide a
standard methodology for the extension of credit.
CAPITAL MANAGEMENT
Total stockholders' equity at December 31, 1999, was $293.7 million, a
decrease of $22.4 million or 7.1%. The decline in stockholders' equity is due
principally to the acquisition of treasury shares in conjunction with announced
share repurchase programs, normal dividend distributions and unrealized losses
on available for sale securities. The decline was partially offset by earnings
for the year and by stock issued in conjunction with stock and stock option
plans. Stockholders' equity includes accumulated other comprehensive income
which is comprised primarily of an adjustment to fair market value for
securities classified as available for sale. The fair market value of securities
with this classification declined $23.6 million during 1999, to end the year at
a net adjustment of $26.9 million.
AMCORE paid $15.9 million of cash dividends, which represent $0.56 per
share, or a dividend payout ratio of 39.5%. This compares to $0.54 per share
paid in 1998, which represented a payout ratio of 38.9%. The book value per
share declined $0.45 per share to $10.51 at December 31, 1999, down from $10.96
at December 31, 1998.
25
<PAGE> 26
On November 24, 1999, AMCORE announced a stock repurchase program for up to
five percent of its common stock or 1.41 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 15, 2000, 952,241 shares have been
repurchased at an average price of $21.01. As of December 31, 1999, the 1.45
million share repurchase program that was announced October 21, 1998 had been
completed at an average price of $23.59.
AMCORE has outstanding $40 million of capital securities through AMCORE
Capital Trust I (Trust), a statutory business trust, of which all common
securities are owned by AMCORE. The capital securities qualify as Tier 1 capital
for regulatory capital purposes.
The BANK is considered a "well-capitalized" institution based on regulatory
guidelines. AMCORE's leverage ratio of 8.03% at December 31, 1999 exceeds the
regulatory guidelines of 5% for well-capitalized institutions. AMCORE's ratio of
Tier 1 capital at 11.58% and total risk based capital at 12.54% significantly
exceed the regulatory minimums (as the following table indicates), as of
December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ ------------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tier 1 Capital........................................ $ 343,458 11.58% $ 339,718 12.46%
Tier 1 Capital Minimum................................ 118,591 4.00% 109,039 4.00%
---------- ----- ---------- -----
Amount in Excess of Regulatory Minimum................ $ 224,867 7.58% $ 230,679 8.46%
========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Total Capital......................................... $ 371,835 12.54% $ 366,121 13.43%
Total Capital Minimum................................. 237,181 8.00% 218,078 8.00%
---------- ----- ---------- -----
Amount in Excess of Regulatory Minimum................ $ 134,654 4.54% $ 148,043 5.43%
========== ===== ========== =====
Risk Adjusted Assets.................................. $2,964,768 $2,725,981
========== ==========
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of its normal operations, AMCORE is subject to interest-rate risk
on the interest-earning assets it invests in (primarily loans and securities)
and the interest-bearing liabilities it funds with (primarily customer deposits
and borrowed funds), as well as its ability to manage such risk. Fluctuations in
interest rates may result in changes in the fair market values of AMCORE's
financial instruments, cash flows and net interest income. Like most financial
institutions, AMCORE has an exposure to changes in both short-term and long-
term interest rates.
AMCORE expects that its interest-rate risk will be greater during periods
of rising interest rates due to resulting slower prepayments on fixed-rate loans
and securities, relatively quicker repricing of variable rate deposits and
borrowings and the increased likelihood that the FHLB will exercise its option
to call certain of AMCORE's longer-term fixed-rate FHLB advances. See Note 9 of
the Notes to Consolidated Financial Statements. Currently, AMCORE is most
vulnerable to changes in reverse repurchase rates, a short-term rate that
generally re-prices every ninety days. Consequently, AMCORE has chosen to hedge
a portion of these variable rate borrowings through the use of interest rate
swaps and collars (see discussion of off-balance sheet derivative contracts
below).
While AMCORE manages other risks in its normal course of operations, such
as credit and liquidity risk, it considers interest-rate risk to be its most
significant market risk. Other types of market risk, such as foreign currency
exchange risk and commodity price risk, do not arise in the normal course of
AMCORE's business activities and operations. In addition, since AMCORE does not
hold a trading portfolio, it is not exposed to significant market risk from
trading activities. During 1999 there were no material changes in AMCORE's
primary market risk exposures. Interest-rate risk, as described above, continues
to be AMCORE's most
26
<PAGE> 27
significant market risk. Based upon current expectations, no material changes
are anticipated in the future in the types of market risks facing AMCORE.
Table 6 and Note 5 of the Notes to Consolidated Financial Statements
summarize AMCORE's market risk and interest sensitivity position as of December
31, 1999. The amounts and assumptions should not be relied upon as indicative of
expected actual results since, like most financial institutions, AMCORE's net
interest income can be significantly impacted by external factors. These factors
include, but are not limited to: overall economic conditions, policies and
actions of regulatory authorities, the amounts of and rates at which assets and
liabilities re-price, variances in prepayment of loans and securities other than
those that are assumed, early withdrawal of deposits, exercise of call options
on borrowings, competition, a general rise or decline in interest rates, changes
in the slope of the yield-curve and changes in basis.
AMCORE's asset and liability management process is utilized to manage
market and interest rate risk through structuring the balance sheet and
off-balance sheet portfolios to maximize net interest income while maintaining
acceptable levels of risk to changes in market interest rates. While achievement
of this goal requires a balance between profitability, liquidity and interest
rate risk, there are opportunities to enhance revenues through controlled risk.
Interest rate sensitivity analysis is performed monthly using various
simulations with an asset/liability modeling system. These analyses are reviewed
by the Asset and Liability Committee (ALCO), whose actions attempt to minimize
any sudden or sustained negative impact that interest rate movements may have on
net interest income. ALCO reviews the impact of liquidity, loan and deposit
pricing compared to its competition, capital adequacy and rate sensitivity,
among other things, and determines appropriate policy direction to maintain or
meet established ALCO guidelines. In prior years, the above interest-rate risk
management processes were supplemented with re-pricing gap analysis. This was
discontinued during 1999, as it did not meaningfully assist in the risk
management process.
Management uses off-balance sheet derivative contracts to help manage its
exposure to interest rate risk by modifying the existing interest rate risk
characteristics of on-balance sheet assets and liabilities. AMCORE does not have
any derivatives that are held or issued for trading purposes. The derivatives
utilized in the asset/liability management program predominately comprise
interest rate swap and collar contracts. Most of these instruments are designed
to hedge exposure to floating rate liabilities where, as noted above, AMCORE is
most vulnerable to interest-rate risk. In addition, AMCORE owns some stand-alone
interest rate caps and floors. The caps are also used to hedge exposure to
increasing costs of floating rate liabilities. The interest rate floors are used
to manage the exposure to falling interest rates of the originated mortgage
servicing rights intangible asset.
The swap contracts involve the exchange of fixed for variable or variable
for fixed interest rate payments and are based on the notional amount of the
contract. The cap, collar and floor contracts are also based on the notional
amount of the contract. The collar, cap and floor contracts are purchased at a
premium, which is amortized over the lives of the contracts. The notional amount
of the swap, collar, cap and floor contracts only identify the size of the
contracts and are used to calculate the interest payment amounts. The only
credit risk exposure AMCORE has is in relation to the counterparties which all
have investment grade credit ratings. All counterparties are expected to meet
any outstanding interest payment obligations.
The total notional amount of swap contracts outstanding was $100.0 million
and $220.0 million as of December 31, 1999 and 1998, respectively. As of the end
of 1999, swap contracts had an aggregate negative carrying value of $541,000 and
a negative fair value of $351,000, for a net unrealized gain of $190,000. The
total notional amount of collars outstanding was $100.0 million at December
31,1999, versus $125.0 million outstanding as of the end of 1998. As of the end
of 1999, these collars had an aggregate carrying value of $465,000 and a fair
value of $667,000 for a net unrealized gain of $202,000. The total notional
amount of caps outstanding was $60.0 million at December 31, 1999, with $20.0
million outstanding caps as of the end of 1998. As of the end of 1999, the caps
had an aggregate carrying value of $473,000 and a fair value of $1.0 million,
for a net unrealized gain of $572,000. The total notional amount of floors
outstanding was $20.0 million at December 31, 1999, versus $25.0 million
outstanding as of the end of 1998. The floor contracts had a net aggregate
carrying value of $67,000 and a fair value of $39,000, for a net unrealized loss
of $28,000 as of the end of 1999. For further discussion of derivative
contracts, see Notes 5 and 10 of the Notes to the Consolidated Financial
Statements.
27
<PAGE> 28
Based upon a gradual increase in interest rates of 200 basis points over
the next twelve months and no change in the slope of the yield curve, the
potential decrease in net income for 2000 would be approximately $5.2 million.
At the end of 1998, comparable assumptions would have resulted in a potential
decrease in 1999 net income of $1.8 million. Thus, AMCORE's earnings at risk
from a rising rate scenario are greater at the end of 1999 than they were at the
end of 1998. A significant factor in this increased exposure is the reduced
level of swap contracts that hedge interest rate risk on fixed-rate loans. A
total notional amount of $95.0 million of the contracts in place at the
beginning of 1999, that effectively converted a like amount of fixed rate loans
to variable rate loans, were called during the year. The removal of the hedge is
detrimental in a rising-rate environment. In addition, 1999 saw significant
fixed-rate loan growth that was partially funded with variable rate deposits and
borrowings. While there have been interest rate increases during the last half
of 1999, and it is reasonably possible that there will be additional near-term
interest rate increases in 2000, AMCORE does not expect increases to such an
extent that they would approach the hypothetical loss in net interest income as
stated above.
Conversely, a gradual decrease in interest rates of 200 basis points over
the next twelve months and no change in the slope of the yield curve would
result in a potential increase in net income for 2000 of $3.2 million. The same
assumptions at the end of 1998 would have resulted in a potential decline in net
income of $4.8 million. AMCORE's position in a falling rate scenario has
improved from an earnings at risk potential at the end of 1998 to earnings
opportunities at the end of 1999. The factors noted above as harmful in a
falling rising-rate environment are beneficial when rates decline. An additional
factor for the improvement is decreased investments in interest only securities
coupled with actual interest rate increases from a year ago. Together, these
developments decreased the likelihood of impairment charges on these securities
associated with a decline in interest rates. Based upon recent interest rate
movements and current market expectations, AMCORE does not anticipate near-term
interest rate decreases.
AMCORE is shifting its rate sensitivity analysis from the "ramp" scenario
(gradual changes in interest rates over a twelve-month period) used above, to a
"shock" scenario (immediate changes in interest rates). AMCORE is making this
change to facilitate multi-year modeling and to enhance its ability to
understand, predict and manage the scenario that could result in the greatest
risk and opportunity to the Company -- an immediate and substantial change in
interest rates. Under a shock scenario, a 200 basis point increase in rates
would result in a potential decrease in net income for 2000 of $10.7 million. A
200 basis point decrease in rates would result in a potential increase in net
income for 2000 of $3.4 million. Apart from this, no material changes in how
AMCORE's primary market risk exposure (i.e. interest-rate risk) is managed are
anticipated.
The amounts and assumptions used in the rising and falling rate scenarios
should not be viewed as indicative of expected actual results. In addition to
rising or falling interest rates, AMCORE's net interest income can be
significantly impacted by a variety of external factors, such as those
previously noted. In addition, as interest rates move, the ALCO is likely to
adjust interest rate risk management strategies to limit, to the extent
possible, the adverse impact that such changes in interest rates might otherwise
have on AMCORE's net interest income, as well as maximize potential positive
impacts such movements might have.
28
<PAGE> 29
TABLE 1
ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Taxable securities........ $1,016,159 $ 65,331 6.43% $1,152,198 $ 76,786 6.66% $1,123,535 $ 77,076 6.86%
Tax-exempt
securities(1)........... 333,634 25,854 7.75% 339,965 26,845 7.90% 312,429 25,071 8.02%
---------- -------- ----- ---------- -------- ------ ---------- -------- ------
Total Securities(2)..... $1,349,793 $ 91,185 6.76% $1,492,163 $103,631 6.95% $1,435,964 $102,147 7.11%
Mortgage loans held for
sale(3)................. 20,768 1,307 6.29% 30,837 1,886 6.12% 12,871 890 6.91%
Loans (1)(4).............. 2,593,770 216,011 8.33% 2,218,972 193,588 8.66% 1,867,355 164,979 8.77%
Other earning assets...... 22,193 1,100 4.96% 15,210 729 4.73% 10,156 538 5.22%
Fees on mortgage loans
held for sale(3)........ -- 606 -- -- 1,037 -- -- 639 --
---------- -------- ----- ---------- -------- ------ ---------- -------- ------
Total Interest-Earning
Assets.............. $3,986,524 $310,209 7.76% $3,757,182 $300,871 7.97% $3,326,346 $269,193 8.06%
Non Interest-Earning
Assets:................. 230,138 226,418 193,883
---------- ---------- ----------
Total Assets........ $4,216,662 $3,983,600 $3,520,229
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing
Liabilities:
Interest-bearing demand
and savings deposits.... $ 968,111 $ 28,375 2.93% $ 872,063 $ 25,940 2.97% $ 727,184 $ 20,170 2.77%
Time deposits............. 1,624,495 89,007 5.48% 1,543,158 90,664 5.88% 1,374,796 80,905 5.88%
---------- -------- ----- ---------- -------- ------ ---------- -------- ------
Total interest-bearing
deposits.............. $2,592,606 $117,382 4.53% $2,415,221 $116,604 4.83% $2,101,980 $101,075 4.81%
Short-term borrowings..... 597,044 34,200 5.73% 606,768 34,855 5.68% 677,205 38,998 5.69%
Long-term borrowings...... 300,490 17,301 5.76% 278,603 16,668 5.98% 132,533 8,887 6.71%
---------- -------- ----- ---------- -------- ------ ---------- -------- ------
Total Interest-Bearing
Liabilities........... $3,490,140 $168,883 4.84% $3,300,592 $168,127 5.08% $2,911,718 $148,960 5.10%
Non Interest Bearing
Liabilities:
Demand deposits........... 360,417 314,952 297,443
Other liabilities......... 56,382 55,000 42,072
---------- ---------- ----------
Total Liabilities....... $3,906,939 $3,670,544 $3,251,233
Stockholders' Equity........ 309,723 313,056 268,996
---------- ---------- ----------
Total Liabilities and
Stockholders'
Equity............ $4,216,662 $3,983,600 $3,520,229
========== ========== ==========
Net Interest Income (FTE)... $141,326 $132,744 $120,233
======== ======== ========
Net Interest Spread (FTE)... 2.92% 2.89% 2.96%
===== ====== ======
Interest Rate Margin
(FTE)..................... 3.55% 3.53% 3.61%
===== ====== ======
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1999/ DECEMBER 31, 1998/
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------- -----------------------------------
INCREASE DUE TO INCREASE DUE TO
(DECREASE) CHANGE IN TOTAL NET (DECREASE) CHANGE IN TOTAL NET
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
---------- --------- ---------- ---------- --------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable securities................ $(8,820) $(2,635) $(11,455) $ 1,075 $(1,365) $ (290)
Tax-exempt securities(1).......... (495) (496) (991) 3,609 (1,835) 1,774
------- ------- -------- ------- ------- -------
Total Securities(2)............. (9,678) (2,768) (12,446) 4,684 (3,200) 1,484
Mortgage loans held for sale...... (633) 54 (579) 1,109 (113) 996
Loans (1)(4)...................... 30,366 (7,943) 22,423 30,168 (1,558) 28,610
Other earning assets.............. 291 80 371 246 (56) 190
Fees on mortgage loans held for
sale(3)......................... -- (431) (431) 11 387 398
------- ------- -------- ------- ------- -------
Total Interest-Earning Assets..... $17,481 $(8,143) $ 9,338 $34,844 $(3,166) $31,678
======= ======= ======== ======= ======= =======
Interest Expense:
Interest-bearing demand and
savings deposits................ $ 4,402 $(1,967) $ 2,435 $ 4,232 $ 1,538 $ 5,770
Time deposits..................... 4,577 (6,234) (1,657) 9,892 (133) 9,759
------- ------- -------- ------- ------- -------
Total interest-bearing
deposits...................... 8,275 (7,497) 778 15,331 198 15,529
Short-term borrowings............. (801) 146 (655) (4,081) (62) (4,143)
Long-term borrowings.............. 1,276 (643) 633 8,833 (1,052) 7,781
------- ------- -------- ------- ------- -------
Total Interest-Bearing
Liabilities..................... $ 9,107 $(8,351) $ 756 $20,083 $ (916) $19,167
======= ======= ======== ======= ======= =======
Net Interest Margin/Net Interest
Income (FTE).................... $ 8,374 $ 208 $ 8,582 $14,761 $(2,250) $12,511
======= ======= ======== ======= ======= =======
</TABLE>
- ---------------
The above table shows the changes in interest income (tax equivalent "FTE") 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 non-accrual loans are included in average loans outstanding.
Interest on loans includes yield related loan fees.
30
<PAGE> 31
TABLE 2
ANALYSIS OF LOAN AND LEASE PORTFOLIO AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural................. $ 710,302 $ 659,946 $ 538,259 $ 483,300 $ 462,453
Real estate............................................ 1,422,149 1,284,764 1,059,830 930,602 833,544
Real estate-construction............................... 121,216 105,574 60,624 53,039 44,134
Installment and consumer............................... 489,586 398,318 301,163 339,319 283,426
Direct lease financing................................. 3,489 3,127 3,172 2,066 1,117
---------- ---------- ---------- ---------- ----------
Gross Loans.......................................... $2,746,742 $2,451,729 $1,963,048 $1,808,326 $1,624,674
Unearned income...................................... (129) (211) (374) (1,205) (4,309)
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income........................ $2,746,613 $2,451,518 $1,962,674 $1,807,121 $1,620,365
Allowance for loan and lease losses.................. (28,377) (26,403) (19,908) (19,295) (17,107)
---------- ---------- ---------- ---------- ----------
Net Loans.............................................. $2,718,236 $2,425,115 $1,942,766 $1,787,826 $1,603,258
========== ========== ========== ========== ==========
SUMMARY OF LOAN LOSS EXPERIENCE:
Allowance for loan and lease losses, beginning......... $ 26,403 $ 19,908 $ 19,295 $ 17,107 $ 17,246
Allowance for loan and lease losses acquired through
merger............................................... -- 2,146 -- -- --
Amounts charged-off:
Commercial, financial and agricultural............... 5,055 1,395 1,202 537 1,204
Real estate.......................................... 965 480 555 273 1,030
Installment and consumer............................. 4,289 3,189 6,020 3,831 2,329
---------- ---------- ---------- ---------- ----------
Total Charge-offs.................................. $ 10,309 $ 5,064 $ 7,777 $ 4,641 $ 4,563
---------- ---------- ---------- ---------- ----------
Recoveries on amounts previously charged off:
Commercial, financial and agricultural............... 424 678 356 301 533
Real estate.......................................... 48 47 63 281 15
Installment and consumer............................. 1,261 695 926 819 711
---------- ---------- ---------- ---------- ----------
Total Recoveries................................... $ 1,733 $ 1,420 $ 1,345 $ 1,401 $ 1,259
---------- ---------- ---------- ---------- ----------
Net Charge-offs.................................... $ 8,576 $ 3,644 $ 6,432 $ 3,240 $ 3,304
Provision charged to expense........................... 10,550 7,993 7,045 5,428 3,165
---------- ---------- ---------- ---------- ----------
Allowance for Loan and Lease Losses, Ending........ $ 28,377 $ 26,403 $ 19,908 $ 19,295 $ 17,107
========== ========== ========== ========== ==========
NON-PERFORMING LOANS AT YEAR-END:
Non-accrual............................................ $ 18,419 $ 18,179 $ 19,491 $ 12,019 $ 11,410
Restructured........................................... -- -- 377 283 2,491
---------- ---------- ---------- ---------- ----------
Total Non-performing Loans......................... $ 18,419 $ 18,179 $ 19,868 $ 12,302 $ 13,901
========== ========== ========== ========== ==========
Past due 90 days or more not included above............ $ 10,197 $ 7,272 $ 3,386 $ 3,692 $ 1,534
========== ========== ========== ========== ==========
RATIOS:
Allowance for loan and lease losses to year-end
loans................................................ 1.03% 1.08% 1.01% 1.07% 1.06%
Allowance to non-performing loans...................... 154.06% 145.24% 100.20% 156.84% 123.06%
Net charge-offs to average loans....................... 0.33% 0.16% 0.34% 0.19% 0.21%
Recoveries to charge-offs.............................. 16.81% 28.04% 17.29% 30.19% 27.59%
Non-performing loans to loans, net of unearned
income............................................... 0.67% 0.74% 1.01% 0.68% 0.86%
</TABLE>
The allocation of the allowance for loan and lease losses at December 31,
was as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------------------- -------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
------- ---------- ------- ---------- ------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural... $7,863 26.0% $6,845 27.1% $5,617 27.6% $5,293 26.9%
Real estate.......... 3,581 56.2 1,884 56.7 1,697 57.1 2,307 54.4
Installment and
consumer........... 7,471 17.8 4,512 16.2 4,207 15.3 4,019 18.7
Impaired loans....... 4,469 * 3,854 * 2,311 * 1,496 *
Unallocated.......... 4,993 * 9,308 * 6,076 * 6,180 *
------- ----- ------- ----- ------- ----- ------- -----
Total.............. $28,377 100.0% $26,403 100.0% $19,908 100.0% $19,295 100.0%
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
1995
--------------------
PERCENT OF
LOANS IN
AMOUNT CATEGORY
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial
and agricultural... $5,888 28.6%
Real estate.......... 2,079 54.2
Installment and
consumer........... 3,075 17.2
Impaired loans....... 1,185 *
Unallocated.......... 4,880 *
------- -----
Total.............. $17,107 100.0%
======= =====
</TABLE>
- ---------------
* Not applicable
31
<PAGE> 32
TABLE 3
MATURITY AND INTEREST SENSITIVITY OF LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------
LOANS DUE AFTER
TIME REMAINING TO MATURITY ONE YEAR
------------------------------- -------------------
ONE AFTER FIXED FLOATING
DUE WITHIN TO FIVE FIVE INTEREST INTEREST
ONE YEAR YEARS YEARS TOTAL RATE RATE
---------- -------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural............ $294,058 $336,015 $80,229 $710,302 $310,878 $105,366
Real estate-construction.......................... 36,935 53,300 9,590 99,825 59,842 3,048
-------- -------- ------- -------- -------- --------
Total........................................... $330,993 $389,315 $89,819 $810,127 $370,720 $108,414
======== ======== ======= ======== ======== ========
</TABLE>
TABLE 4
MATURITY OF SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------------------------------
U.S. STATES AND CORPORATE
GOVERNMENT POLITICAL OBLIGATIONS
U.S. TREASURY AGENCIES SUBDIVISIONS(1) AND OTHER TOTAL
--------------- ---------------- ---------------- ---------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- -------- ----- -------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available for Sale(2):
One year or less.................. $36,971 5.68% $ 4,465 5.74% $ 13,725 8.12% $ 14,703 5.26% $ 69,864 6.07%
After one through five years...... 24,408 5.96% 5,180 5.85% 72,823 7.57% 3,421 7.16% 105,832 7.10%
After five through ten years...... -- -- 1,003 8.06% 77,753 7.71% -- -- 78,756 7.71%
After ten years................... -- -- 20,898 7.16% 125,202 7.88% 26,175 6.42% 172,275 7.58%
Mortgage-backed and asset-backed
securities(3)................... -- -- 716,310 6.65% -- -- 84,359 6.89% 800,669 6.67%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES AVAILABLE FOR
SALE.......................... $61,379 5.79% $747,856 6.65% $289,503 7.77% $128,658 6.62% $1,227,396 6.87%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
Securities Held to Maturity:
One year or less.................. $ 250 6.38% $ -- -- $ 1,566 7.35% $ 1 7.38% $ 1,817 7.22%
After one through five years...... 803 5.79% -- -- 7,815 7.42% -- -- 8,618 7.26%
After five through ten years...... -- -- -- -- 2,342 7.58% -- -- 2,342 7.58%
After ten years................... -- -- 25 8.25% 1,175 7.72% -- -- 1,200 7.73%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES HELD TO
MATURITY...................... $1,053 5.93% $ 25 8.25% $ 12,898 7.47% $ 1 7.38% $ 13,977 7.35%
------- ---- -------- ---- -------- ---- -------- ---- ---------- ----
TOTAL SECURITIES................ $62,432 5.80% $747,881 6.65% $302,401 7.76% $128,659 6.62% $1,241,373 6.88%
======= ==== ======== ==== ======== ==== ======== ==== ========== ====
</TABLE>
- ---------------
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) Yields were calculated based on amortized cost.
(3) Mortgage-backed and asset-backed security maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without penalties. Therefore, these securities are not
included within the maturity categories above.
TABLE 5
MATURITY OF TIME DEPOSITS $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------
TIME REMAINING TO MATURITY
-------------------------------------------------------------------
DUE WITHIN THREE TO SIX TO TWELVE AFTER TWELVE
THREE MONTHS SIX MONTHS MONTHS MONTHS TOTAL
------------ ---------- ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit......................... $129,581 $158,906 $221,759 $204,567 $714,813
Other time deposits............................. 1,323 784 7,571 7,159 16,837
-------- -------- -------- -------- --------
Total......................................... $130,904 $159,690 $229,331 $211,726 $731,651
======== ======== ======== ======== ========
</TABLE>
32
<PAGE> 33
TABLE 6
INTEREST RATE SENSITIVITY
The following table provides information about the Company's derivative
financial instruments and other financial instruments used for purposes other
than trading that are sensitive to changes in interest rates. For loans,
securities, and liabilities with contractual maturities, the table presents
principal cash flows and related weighted-average interest rates by contractual
maturities as well as any anticipated prepayments.
For core deposits (demand deposit accounts, interest checking, savings, and
money market deposits) that have no contractual maturity, the table was
constructed using published regulatory guidelines.
For interest rate swaps, caps, floors and collars, the table presents
notional amounts and, if applicable, weighted-average interest rates by
contractual maturity date or call date. Notional amounts are used to calculate
the contractual payments to be exchanged under the contracts.
Weighted-average variable rates are based on the implied forward rates in
the yield curve at the reporting date. See Note 5 for the fair value of the
financial instruments for 1998.
<TABLE>
<CAPTION>
THERE- FAIR
AT DECEMBER 31, 1999: 2000 2001 2002 2003 2004 AFTER TOTAL VALUE
- --------------------- ---------- -------- -------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed Interest Rate Loans......... $ 654,615 $406,076 $360,668 $256,941 $218,150 $163,619 $2,060,069 $2,112,610
Average Interest Rate........... 7.87% 8.22% 8.14% 7.99% 7.90% 7.50% 7.98%
Variable Interest Rate Loans...... 353,864 86,177 69,691 45,094 39,107 92,611 686,544 696,723
Average Interest Rate........... 8.98% 8.30% 8.47% 8.52% 8.45% 8.56% 8.73%
Fixed Interest Rate Securities.... 93,822 125,977 95,704 77,846 61,984 613,800 1,069,133 1,068,974
Average Interest Rate........... 6.26% 6.43% 6.26% 6.40% 6.27% 6.12% 6.21%
Variable Interest Rate
Securities...................... 12,459 6,297 6,320 8,087 7,358 131,719 172,240 172,240
Average Interest Rate........... 7.91% 10.53% 9.74% 8.71% 8.22% 6.92% 7.37%
Other Interest-Bearing Assets..... 6,039 -- -- -- -- -- 6,039 6,039
Average Interest Rate........... 5.43% -- -- -- -- -- 5.43%
RATE SENSITIVE LIABILITIES:
Non-Interest-bearing checking..... $ 127,017 $ -- $150,787 $ -- $ 75,666 $24,859 $ 378,329 $ 333,686
Average Interest Rate........... -- -- -- -- -- -- --
Savings & Interest-bearing
checking........................ 310,792 -- 502,988 -- 78,159 78,159 970,098 937,303
Average Interest Rate........... 4.35% -- 3.24% -- 1.71% 1.71% 3.35%
Time-deposits..................... 1,168,920 289,560 79,429 50,849 31,995 47,228 1,667,981 1,665,665
Average Interest Rate........... 5.47% 5.55% 5.86% 5.63% 5.86% 6.70% 5.55%
Fixed Interest Rate Borrowings.... 515,952 59,201 42,543 3,000 40,270 78,997 739,963 747,407
Average Interest Rate........... 5.91% 5.34% 5.98% 5.25% 5.50% 7.36% 6.00%
Variable Interest Rate
Borrowings...................... 194,705 50,000 -- -- -- -- 244,705 244,525
Average Interest Rate........... 5.27% 5.33% -- -- -- -- 5.28%
RATE SENSITIVE DERIVATIVE
FINANCIAL INSTRUMENTS
Pay variable/received fixed
swap............................ $ -- $ -- $ -- $ -- $ -- $40,000 $ 40,000 $ (569)
Average pay rate................ -- -- -- -- -- 5.96% 5.96%
Average receive rate............ -- -- -- -- -- 6.97% 6.97%
Index: 3 mo. libor-reset
quarterly
Callable semiannually
Pay fixed/received variable
swap............................ 25,000 -- -- -- -- -- 25,000 169
Average pay rate................ 8.52% -- -- -- -- -- 8.52%
Average receive rate............ 8.75% -- -- -- -- -- 8.75%
Index: Prime-resets monthly
Pay fixed/received variable
swap............................ -- 20,000 -- -- -- -- 20,000 27
Average pay rate................ -- 6.46% -- -- -- -- 6.46%
Average receive rate............ -- 6.07% -- -- -- -- 6.07%
Index: 3 mo. libor-resets
quarterly
Pay fixed/received variable
swap............................ 15,000 -- -- -- -- -- 15,000 22
Average pay rate................ 5.72% -- -- -- -- -- 5.72%
Average receive rate............ 6.17% -- -- -- -- -- 6.17%
Index: 3 mo. libor-resets
quarterly
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
THERE- FAIR
AT DECEMBER 31, 1999: 2000 2001 2002 2003 2004 AFTER TOTAL VALUE
- --------------------- ---------- -------- -------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE DERIVATIVE
FINANCIAL INSTRUMENTS
Interest rate caps................ $ -- $ -- $ 20,000 $ 20,000 $ -- $ -- $ 40,000 $ 724
Average strike rate............. -- -- 5.75% 5.75% -- -- 5.75%
Index: 3 mo. Treasury-resets
quarterly
Interest rate caps................ -- -- -- -- 20,000 -- 20,000 321
Average strike rate............. -- -- -- -- 8.00% -- 8.00%
Index: 3 mo. libor-resets
quarterly
Interest rate floors.............. -- -- -- 10,000 -- -- 10,000 14
Average strike rate............. -- -- -- 4.75% -- -- 4.75%
Index: 3 mo. libor-resets
quarterly
Interest rate floors.......... -- -- -- 10,000 -- -- 10,000 25
Average strike rate............. -- -- -- 5.25% -- -- 5.25%
Index: 10 year CMT-resets
quarterly
Interest rate collars............. -- 50,000 -- -- -- -- 50,000 397
Floor rate...................... -- 5.50% -- -- -- -- 5.50%
Cap rate........................ -- 5.90% -- -- -- -- 5.90%
Index: 1 mo. libor-resets
monthly
Interest rate collars............. 15,000 25,000 10,000 -- -- -- 50,000 270
Floor rate...................... 5.61% 5.61% 5.61% -- -- -- 5.61%
Cap rate........................ 6.31% 6.31% 6.31% -- -- -- 6.31%
Index: 3 mo. libor-resets
monthly
</TABLE>
<TABLE>
<CAPTION>
THERE-
AT DECEMBER 31, 1998: 1999 2000 2001 2002 2003 AFTER TOTAL
- --------------------- ---------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed interest rate loans.............. $ 588,990 $365,262 $342,241 $168,894 $181,485 $104,457 $1,751,329
Average interest rate................ 8.49% 8.42% 8.42% 8.33% 8.02% 8.18% 8.38%
Variable interest rate loans........... 331,862 72,287 41,460 26,780 16,979 210,821 700,189
Average interest rate................ 8.44% 7.80% 7.99% 7.98% 8.38% 7.95% 8.18%
Fixed interest rate securities......... 284,444 197,999 141,469 105,791 91,873 386,091 1,207,668
Average interest rate................ 6.05% 6.03% 6.06% 5.96% 5.96% 5.57% 5.88%
Variable interest rate securities...... 14,802 14,467 12,727 11,586 10,517 71,907 136,006
Average interest rate................ 6.48% 6.55% 6.58% 6.57% 6.63% 6.61% 6.59%
Other interest-bearing assets.......... 22,824 -- -- -- -- -- 22,824
Average interest rate................ 4.37% -- -- -- -- -- 4.37%
RATE SENSITIVE LIABILITIES:
Non interest-bearing checking.......... $ 34,600 $ -- $181,866 $ -- $ 96,103 $25,141 $ 337,710
Average interest rate................ -- -- -- -- -- -- --
Savings & interest-bearing checking.... 354,023 -- 484,616 -- 87,908 87,908 1,014,455
Average interest rate................ 3.65% -- 2.69% -- 1.73% 1.73% 2.86%
Time-deposits.......................... 1,024,813 325,310 124,243 34,470 45,963 40,760 1,595,559
Average interest rate................ 5.57% 5.75% 5.44% 5.87% 5.53% 7.37% 5.65%
Fixed interest rate borrowings......... 276,628 177,057 835 58,817 7,083 137,494 657,914
Average interest rate................ 5.43% 5.45% 7.26% 5.32% 5.20% 6.34% 5.61%
Variable interest rate borrowings...... 123,657 -- 5,000 -- -- 42,000 170,658
Average interest rate................ 4.93% -- 5.24% -- -- 5.13% 4.99%
RATE SENSITIVE DERIVATIVE FINANCIAL
INSTRUMENTS
Pay variable/received fixed swap....... $ 40,000 $ -- $ -- $ -- $ -- $ -- $ 40,000
Average pay rate..................... 5.15% -- -- -- -- -- 5.15%
Average receive rate................. 6.97% -- -- -- -- -- 6.97%
Pay fixed/received variable swap....... 25,000 25,000 130,000 -- -- -- 180,000
Average pay rate..................... 5.25% 8.52% 7.88% -- -- -- 7.60%
Average receive rate................. 5.59% 7.75% 7.11% -- -- -- 6.99%
Interest rate caps..................... 25,000 15,000 72,000 33,000 -- -- 145,000
Average strike rate.................. 6.31% 6.31% 6.02% 5.93% -- -- 6.08%
Forward rate......................... 5.10% 5.09% 5.16% 5.21% -- -- 5.15%
Interest rate floors................... 50,000 15,000 75,000 10,000 -- -- 150,000
Average strike rate.................. 5.31% 5.61% 5.54% 5.61% -- -- 5.47%
Forward rate......................... 5.10% 5.09% 5.16% 5.20% -- -- 5.14%
</TABLE>
34
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................................................... $ 179,113 $ 144,199
Interest earning deposits in banks............................................ 6,039 13,397
Federal funds sold and other short-term investments........................... -- 9,427
Loans and leases held for sale................................................ 13,974 46,836
Securities available for sale................................................. 1,227,396 1,327,532
Securities held to maturity (fair value of $13,818 in 1999; $16,371 in
1998)....................................................................... 13,977 16,142
---------- ----------
Total Securities............................................................ $1,241,373 $1,343,674
Loans and leases, net of unearned income...................................... 2,746,613 2,451,518
Allowance for loan and lease losses........................................... (28,377) (26,403)
---------- ----------
Net Loans and Leases........................................................ $2,718,236 $2,425,115
Premises and equipment, net................................................... 55,618 58,763
Intangible assets, net........................................................ 17,102 19,028
Foreclosed real estate........................................................ 2,675 2,321
Other assets.................................................................. 113,491 85,073
---------- ----------
TOTAL ASSETS................................................................ $4,347,621 $4,147,833
========== ==========
LIABILITIES
Deposits:
Demand deposits............................................................. $1,202,632 $1,169,835
Savings deposits............................................................ 145,795 182,330
Other time deposits......................................................... 1,667,981 1,595,559
---------- ----------
Total Deposits............................................................ $3,016,408 $2,947,724
Short-term borrowings....................................................... 699,398 498,211
Long-term borrowings........................................................ 285,270 330,361
Other liabilities........................................................... 52,817 55,454
---------- ----------
TOTAL LIABILITIES........................................................... $4,053,893 $3,831,750
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares; issued none...... $ -- $ --
Common stock, $.22 par value: authorized 45,000,000 shares;
1999
---------- 1998
------------------------------------------
Issued 29,648,571 29,593,495
Outstanding 27,949,431 28,837,698 6,585 6,572
Additional paid-in capital.................................................... 74,244 75,260
Retained earnings............................................................. 271,781 247,486
Deferred compensation non-employee directors.................................. (1,533) (1,706)
Treasury stock................................................................ (30,442) (8,263)
Accumulated other comprehensive loss.......................................... (26,907) (3,266)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................................. $ 293,728 $ 316,083
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................. $4,347,621 $4,147,833
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases..................... $215,173 $192,974 $164,520
Interest on securities:
Taxable................................................ 65,331 76,786 77,076
Tax-exempt............................................. 16,805 17,449 16,296
-------- -------- --------
Total Income from Securities......................... $ 82,136 $ 94,235 $ 93,372
Interest on federal funds sold and other short-term
investments............................................ 304 364 448
Interest and fees on loans and leases held for sale....... 1,913 2,923 1,529
Interest on deposits in banks............................. 796 365 90
-------- -------- --------
TOTAL INTEREST INCOME................................ $300,322 $290,861 $259,959
INTEREST EXPENSE
Interest on deposits...................................... $118,009 $116,604 $101,075
Interest on short-term borrowings......................... 32,573 34,855 38,998
Interest on long-term borrowings.......................... 18,301 16,668 8,887
-------- -------- --------
Total Interest Expense................................. $168,883 $168,127 $148,960
-------- -------- --------
NET INTEREST INCOME.................................... $131,439 $122,734 $110,999
Provision for loan and lease losses....................... 10,550 7,993 7,045
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES................................................. $120,889 $114,741 $103,954
NON-INTEREST INCOME
Trust and asset management income......................... $ 28,872 $ 23,721 $ 16,451
Service charges on deposits............................... 10,176 8,831 7,837
Mortgage revenues......................................... 6,930 10,560 5,827
Insurance revenues........................................ 1,735 1,875 1,584
Collection fee income..................................... -- -- 2,105
Other..................................................... 9,733 9,334 10,599
-------- -------- --------
TOTAL NON-INTEREST INCOME, EXCLUDING NET REALIZED
SECURITY GAINS....................................... $ 57,446 $ 54,321 $ 44,403
Net realized security gains............................... 530 4,427 4,198
-------- -------- --------
TOTAL NON-INTEREST INCOME.............................. $ 57,976 $ 58,748 $ 48,601
OPERATING EXPENSES
Compensation expense...................................... $ 55,598 $ 51,469 $ 47,199
Employee benefits......................................... 13,441 12,964 11,659
Net occupancy expense..................................... 6,711 6,750 6,490
Equipment expense......................................... 9,026 7,895 10,816
Data processing expense................................... 7,150 5,339 2,654
Professional fees......................................... 5,262 5,723 6,366
Advertising and business development...................... 3,597 3,771 2,827
Amortization of intangible assets......................... 1,991 2,536 2,212
Impairment on loans held for sale......................... -- -- 4,955
Other..................................................... 20,834 23,147 19,795
-------- -------- --------
TOTAL OPERATING EXPENSES............................... $123,610 $119,594 $114,973
-------- -------- --------
INCOME BEFORE INCOME TAXES................................ $ 55,255 $ 53,895 $ 37,582
Income taxes................................................ 15,106 14,314 8,918
-------- -------- --------
NET INCOME................................................ $ 40,149 $ 39,581 $ 28,664
======== ======== ========
Basic Earnings Per Common Share........................... $ 1.42 $ 1.39 $ 1.07
Diluted Earnings Per Common Share......................... 1.40 1.36 1.05
Dividends Per Common Share................................ 0.56 0.54 0.45
Average Common Shares Outstanding......................... 28,304 28,515 26,862
Average Diluted Shares Outstanding........................ 28,730 29,098 27,405
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 37
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
DEFERRED OTHER
ADDITIONAL COMPENSATION COMPREHENSIVE TOTAL
COMMON PAID-IN RETAINED NON-EMPLOYEE TREASURY INCOME STOCKHOLDERS'
STOCK CAPITAL EARNINGS DIRECTORS STOCK (LOSS) EQUITY
------ ---------- -------- ------------ -------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996........... $6,134 $68,047 $191,485 $(1,382) $ (4,908) $ (1,956) $257,420
------ ------- -------- ------- -------- -------- --------
Comprehensive Income:
Net Income............................ -- -- 28,664 -- -- -- 28,664
Unrealized holding gains on
securities available for sale
arising during the period......... -- -- -- -- -- 13,951 13,951
Less reclassification adjustment for
realized gains included in net
income............................ -- -- -- -- -- (4,198) (4,198)
Income tax expense related to items
of other comprehensive income..... -- -- -- -- -- 577 577
------ ------- -------- ------- -------- -------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- 10,330 10,330
------ ------- -------- ------- -------- -------- --------
Comprehensive Income................... -- -- 28,664 -- -- 10,330 38,994
------ ------- -------- ------- -------- -------- --------
Cash dividends on common stock-$.45
per share........................... -- -- (12,130) -- -- -- (12,130)
Purchase of AMCORE Bank Belleville
minority interest................... -- 1,768 (1,784) -- -- -- (16)
Purchase of 53,000 shares for the
treasury............................ -- -- -- -- (1,327) -- (1,327)
Three-for-two stock split fractional
share payments...................... -- (18) -- -- -- -- (18)
Reissuance of 18,486 treasury shares
for Non-Employee Directors stock
plan................................ -- 244 -- (356) 112 -- --
Issuance of 16,377 common shares for
directors stock plan................ 4 106 -- (110) -- -- --
Deferred compensation expense......... -- -- -- 370 -- -- 370
Reissuance of 267,057 treasury shares
for employee incentive plans........ -- 2,699 -- -- 1,054 -- 3,753
Issuance of 63,743 common shares for
employee incentive plan............. 14 416 -- -- -- -- 430
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997........... $6,152 $73,262 $206,235 $(1,478) $ (5,069) $ 8,374 $287,476
====== ======= ======== ======= ======== ======== ========
Comprehensive Income:
Net Income............................ -- -- 39,581 -- -- -- 39,581
Unrealized holding losses on
securities available for sale
arising during the period......... -- -- -- -- -- (5,441) (5,441)
Less reclassification adjustment for
realized gains included in net
income............................ -- -- -- -- -- (4,427) (4,427)
Income tax expense related to items
of other comprehensive income..... -- -- -- -- -- (1,950) (1,950)
------ ------- -------- ------- -------- -------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- (11,818) (11,818)
------ ------- -------- ------- -------- -------- --------
Comprehensive Income................... -- -- 39,581 -- -- (11,818) 27,763
------ ------- -------- ------- -------- -------- --------
Cash dividends on common stock-$.54
per share........................... -- -- (15,404) -- -- -- (15,404)
Issuance of 1,912,357 common shares
for Midwest Federal Financial
Corp. .............................. 420 2,314 17,074 -- -- 178 19,986
Reissuance of 340,471 treasury shares
for Investors Management Group...... -- 578 -- -- 7,944 -- 8,522
Purchase of 826,980 shares for the
treasury............................ -- -- -- -- (19,745) -- (19,745)
Reissuance of 27,174 treasury shares
for Non-Employee Directors stock
plan................................ -- 290 -- (692) 402 -- --
Deferred compensation expense......... -- -- -- 464 -- -- 464
Reissuance of 462,109 treasury shares
for employee incentive plans........ -- (1,366) -- -- 8,206 -- 6,840
Repayment of ESOP loan, 37 shares
returned to treasury................ -- 182 -- -- (1) -- 181
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998........... $6,572... $75,260 $247,486 $(1,706) $ (8,263) $ (3,266) $316,083
====== ======= ======== ======= ======== ======== ========
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
ACCUMULATED
DEFERRED OTHER
ADDITIONAL COMPENSATION COMPREHENSIVE TOTAL
COMMON PAID-IN RETAINED NON-EMPLOYEE TREASURY INCOME STOCKHOLDERS'
STOCK CAPITAL EARNINGS DIRECTORS STOCK (LOSS) EQUITY
------ ---------- -------- ------------ -------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive Income:
Net Income............................ -- -- 40,149 -- -- -- 40,149
Unrealized holding losses on
securities available for sale
arising during the period........... -- -- -- -- -- (44,289) (44,289)
Less reclassification adjustment for
realized gains included in net
income.............................. -- -- -- -- -- (530) (530)
Income tax expense related to items of
other comprehensive income.......... -- -- -- -- -- 21,178 21,178
------ ------- -------- ------- -------- -------- --------
Net unrealized gains (losses) on
securities available for sale......... -- -- -- -- -- (23,641) (23,641)
------ ------- -------- ------- -------- -------- --------
Comprehensive Income................... -- -- 40,149 -- -- (23,641) 16,508
------ ------- -------- ------- -------- -------- --------
Cash dividends on common stock-$.56
per share........................... -- -- (15,854) -- -- -- (15,854)
Purchase of 1,315,679 shares for the
treasury............................ -- -- -- -- (30,527) -- (30,527)
Reissuance of 14,393 treasury shares
for Non-Employee Directors stock
plan................................ -- (9) -- (321) 330 -- --
Deferred compensation expense......... -- -- -- 494 -- -- 494
Reissuance of 356,817 treasury shares
under incentive stock option
plans............................... -- -- -- -- -- -- --
Reissuance of 357,967 treasury shares
for employee incentive plans........ -- (1,967) -- -- 8,019 -- 6,052
Issuance of 55,076 common shares for
Employee Stock Plan................. 13 960 -- -- -- -- 973
Repayment of ESOP loan, 24 shares
returned to treasury................ -- -- -- -- (1) -- (1)
------ ------- -------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999........... $6,585... $74,244 $271,781 $(1,533) $(30,442) $(26,907) $293,728
====== ======= ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 39
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 40,149 $ 39,581 $ 28,664
Adjustments to reconcile net income to net income to net
cash provided by operating activities:
Depreciation and amortization of premises and
equipment............................................. 7,165 6,854 5,391
Amortization and accretion of securities, net........... 9,033 10,252 2,081
Provision for loan and lease losses..................... 10,550 7,993 7,045
Amortization of intangible assets....................... 1,991 2,536 2,212
Net gain on sale of securities available for sale....... (530) (4,427) (4,198)
Impairment on loans held for sale....................... -- -- 4,955
Impairment of long-lived assets......................... -- -- 2,081
Deferred income taxes................................... (596) (1,154) (3,817)
Originations of loans held for sale..................... (270,404) (478,921) (217,020)
Proceeds from sales of loans held for sale.............. 303,266 463,811 208,896
Other, net.............................................. (14,810) 7,711 (397)
--------- --------- ---------
Net cash provided by operating activities............. $ 85,814 $ 54,236 $ 35,893
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale... $ 324,914 $ 487,143 $ 205,772
Proceeds from maturities of securities held to maturity..... 3,162 2,425 9,982
Proceeds from sales of securities available for sale........ 153,935 405,906 487,813
Purchase of securities held to maturity..................... (1,003) (4,411) (14,197)
Purchase of securities available for sale................... (406,745) (777,576) (857,278)
Net decrease (increase) in federal funds sold and other
short-term investments.................................... 9,427 (8,794) 24,398
Net decrease (increase) in interest earning deposits in
banks..................................................... 7,358 (11,186) (1,373)
Proceeds from the sale of credit card receivables........... -- 5,815 15,457
Proceeds from the sale of loans and leases.................. 22,756 6,047 1,798
Loans and leases made to customers and principal collection
of loans and leases, net.................................. (348,827) (335,458) (194,449)
Proceeds from sale of collection agency..................... -- -- 700
Premises and equipment expenditures, net.................... (4,010) (6,515) (6,164)
Investment in company owned life insurance.................. (127) (10,798) (1,816)
Proceeds from the sale of foreclosed real estate............ 2,931 2,294 1,259
Net cash and cash equivalents acquired through
acquisitions.............................................. -- 5,763 --
--------- --------- ---------
Net cash used for investing activities................ $(236,229) $(239,345) $(328,098)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits and savings
accounts.................................................. $ (3,738) $ 191,183 $ 53,143
Net increase in other time deposits......................... 72,422 65,897 122,410
Net increase (decrease) in short-term borrowings............ 126,037 (178,948) 29,175
Proceeds from long-term borrowings.......................... 96,500 174,800 111,872
Payment of long-term borrowings............................. (66,535) (533) (15,250)
Dividends paid.............................................. (15,854) (15,404) (12,130)
Issuance of common stock for employee incentive plans....... 973 -- 430
Issuance of treasury stock for employee benefit incentive
plans..................................................... 6,051 6,840 3,753
Purchase of treasury stock.................................. (30,527) (19,745) (1,327)
--------- --------- ---------
Net cash provided by financing activities............. $ 185,329 $ 224,090 $ 292,076
--------- --------- ---------
Net change in cash and cash equivalents..................... $ 34,914 $ 38,981 $ (129)
Cash and cash equivalents:
Beginning of year......................................... 144,199 105,218 105,347
--------- --------- ---------
End of year............................................... $ 179,113 $ 144,199 $ 105,218
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors............................... $ 116,685 $ 115,003 $ 99,002
Interest paid on borrowings............................... 50,808 52,517 46,282
Income taxes paid......................................... 14,516 14,425 11,616
NON-CASH INVESTING AND FINANCING
Foreclosed real estate -- acquired in settlement of loans... 3,394 3,308 2,147
Transfer of securities held to maturity to available for
sale...................................................... -- -- 31,018
Transfer of short-term investments to securities available
for sale.................................................. -- -- 1,230
Transfer of loans and leases to loans held for sale......... -- -- 14,970
Transfer of long-term borrowings to short-term borrowings... 75,150 28,150 69,253
Common stock issued for Midwest Federal Financial Corp...... -- 19,986 --
Common stock issued for Investors Management Group, Ltd..... -- 8,522 --
Non-cash transfer of loans to securities.................... 19,174 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 40
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of AMCORE Financial, Inc. and
subsidiaries (Company) conform to generally accepted accounting principles. The
preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ from those estimates. The following is a
summary of the more significant accounting policies of the Company.
DESCRIPTION OF THE BUSINESS
The Company is a bank holding company headquartered in Rockford, Illinois,
and conducts its principal business activities with businesses and individuals
located within northern Illinois and south-central Wisconsin. The primary
business of the Company is the extension of credit and the collection of
deposits with commercial and industrial, agricultural, real estate and consumer
loan customers throughout northern Illinois and south-central Wisconsin.
Although the Company has a diversified loan portfolio, adverse changes in the
local economy would have a direct impact on the credit risk in the portfolio.
The Company also offers a variety of financial services through its
financial services subsidiaries. These include mortgage banking, personal and
employee benefit trust administration for individuals, estates and corporations,
consumer finance, investment management, brokerage and the reinsurance of credit
life and accident and health insurance in conjunction with the lending
activities of the Company's bank subsidiary.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash on hand,
amounts due from banks, and cash items in process of clearing to be cash and
cash equivalents. Cash flows for fed funds sold and other short-term
investments, interest earning deposits in banks, loans, demand deposits and
savings accounts, time deposits and short-term borrowings are reported net.
LOANS AND LEASES HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
recorded at the lower of cost or fair value in the aggregate. Gains and losses
on the sale of mortgage loans are included in other non-interest income.
The portfolio of satellite dish loans was transferred to loans held for
sale in 1997 in anticipation of the sale of these loans. The transfer of these
loans resulted in a $5.0 million impairment recorded in operating expenses for
1997. The loans were subsequently sold on January 28, 1998.
SECURITIES
Securities are classified into three categories: held to maturity,
available for sale and trading. Securities for which the Company has the ability
and the intent to hold to maturity are classified as held to maturity and are
reported at amortized cost. Securities held for resale are classified as trading
securities and are reported at fair value with unrealized gains and losses
recorded in earnings. Securities, which are neither held to maturity nor
trading, are classified as available for sale and are reported at fair value.
The level yield method is used for
40
<PAGE> 41
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the amortization and accretion of premiums and discounts. The cost of securities
sold is determined on a specific identification method. There were no trading
securities outstanding at December 31, 1999 and 1998.
When it is determined that securities are impaired and the impairment is
other than temporary, an impairment loss is recorded in earnings and a new cost
basis is established for the security.
LOANS AND LEASES
Loans and leases are carried at their principal amount outstanding plus any
unamortized net deferred origination costs or less any unamortized net deferred
origination fees less unearned income. Interest on commercial, real estate, and
certain installment and consumer loans is accrued and recognized as income based
upon the outstanding principal amount and the contractual interest rate of each
loan. Unearned interest on discounted installment loans has been recognized as
income using methods which approximate level rates of return over the terms of
the loans. Loan origination fees and certain direct origination costs on loans
retained in the portfolio are deferred and amortized over the expected life of
each loan as an adjustment of the related loan's yield. Certain financing leases
are originated and sold with limited recourse. A liability is recorded for the
estimated amount of recourse due to uncollectible leases and is a component of
the gain or loss recognized on sale.
Loans measured for impairment include commercial, financial, agricultural,
real estate commercial and commercial real estate construction loans. Loans are
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Impairment is measured based on the
present value of expected future cash flows, or alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral-dependent, and for which management has
determined foreclosure is probable, the measure of impairment is based on the
fair value of the collateral.
The accrual of interest income for impaired loans is discontinued when
management believes, after considering collection efforts and other factors that
the borrower's financial condition is such that collection of interest is
doubtful. Cash collections on impaired loans reduce the principal balance, and
no interest income is recognized until the remaining principal balance is fully
collectible. An impaired loan is returned to accrual status when management
determines that the borrower's financial condition has improved such that both
the remaining principal and interest are deemed collectible. In the event that
it is determined that collection of an impaired loan is remote, the loan is
charged-off.
The Company considers consumer loans, residential real estate and
residential construction real estate loans to be smaller balance, homogeneous
loans which are exempt from impairment measurement. These types of loans, except
for credit card and consumer finance receivables, are placed on non-accrual when
payment becomes 90 to 120 days past due. In most instances, a charge-off is
recorded when a consumer loan becomes 120 to 150 days past due. A charge-off is
recorded on residential real estate loans, if appropriate, when the Company
receives clear title to the mortgaged property. See Note 4 for a breakdown of
impaired and non-accrual loans.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is established through a provision
charged to expense. Loans and leases are charged against the allowance when
management believes the collectibility of principal is unlikely. The allowance
is an amount that management estimates will be adequate to absorb possible
losses on existing loans and leases. The evaluation of the allowance is
performed by management, credit administration, lending officers and the
corporate loan review staff and is based on past loan loss experience, overall
loan quality, the nature of and size of the portfolio, review of specific
problem loans, known and inherent risks in the portfolio, adverse situations
that may affect the borrowers' ability to repay, the estimated value of any
underlying
41
<PAGE> 42
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collateral, and current economic conditions. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions or other factors.
PREMISES AND EQUIPMENT
Premises and equipment including leasehold improvements are stated at cost
less accumulated depreciation and amortization. Depreciation is computed
principally on the straight-line method over the estimated useful life of the
assets. Leasehold improvements are being amortized using the straight-line
method over the terms of the respective leases or their useful lives, whichever
is shorter.
INTANGIBLE ASSETS
Certain intangible assets, such as core deposit intangibles and goodwill,
have arisen from the purchase of subsidiaries. Core deposit intangibles
represent a valuation of acquired deposit relationships and are being amortized
based on the present value of the future net income or cost savings derived from
the related deposits over an original period ranging from six to twelve years.
Goodwill represents the excess of the purchase price over the fair value of the
identifiable net assets acquired and is being amortized over a maximum of
fifteen years using the straight-line method.
FORECLOSED REAL ESTATE
Foreclosed real estate is comprised of real properties acquired in partial
or full satisfaction of loans. These properties are carried as other assets at
the lower of cost or fair value less estimated costs to sell the properties.
When the property is acquired through foreclosure, any excess of the related
loan balance over the fair value less expected sales costs, is charged against
the allowance for loan and lease losses. Subsequent write-downs or gains and
losses upon sale, if any, are charged to other operating expense.
MORTGAGE SERVICING RIGHTS
The value of mortgage servicing rights either attained through the
origination of mortgage loans or the purchase of a servicing rights portfolio
are recognized as separate capitalized assets. When the originated mortgage
loans are sold or securitized into the secondary market, the Company allocates
the total cost of the mortgage loans between mortgage servicing rights and other
retained interests, and the loans, based on their relative fair values. The cost
of mortgage servicing rights and other retained interests is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Mortgage servicing rights are periodically evaluated for impairment. For
purposes of measuring impairment, the servicing rights are stratified into pools
based on one or more predominant risk characteristics of the underlying loans
including loan type, interest rate, term and geographic location. Impairment
represents the excess of carrying value of a stratified pool over its fair
value, and is recognized through a valuation allowance. The fair value of each
servicing rights pool is evaluated based on the present value of estimated
future cash flows using a discount rate commensurate with the risk associated
with that pool, given current market conditions. Estimates of fair value include
assumptions about prepayment speeds, interest rates, and other factors which are
subject to change over time. Changes in these underlying assumptions could cause
the fair value of mortgage servicing rights, and the related valuation
allowance, to change significantly in the future.
Purchased mortgage servicing rights and deferred excess servicing rights
are periodically evaluated for impairment. A method similar to that used for
originated mortgage servicing rights is used for evaluation. Under this method,
the fair value is evaluated based on the present value of estimated future cash
flows using a discount rate commensurate with the associated risk.
42
<PAGE> 43
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets including certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. A review of these assets in
1997 resulted in an impairment charge of $2.1 million.
TRUST ASSETS
Assets that are held by subsidiaries in a fiduciary or agency capacity are
not included in the consolidated financial statements as they are not assets of
the Company. The total assets under management at December 31, 1999 were $4.4
billion.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk. Interest rate derivative
financial instruments (swap, floor and cap agreements) are used to manage
interest rate exposure by hedging certain assets and liabilities. Income and
expense are accrued under the terms of the agreements based on expected
settlement payments, and are recorded as a component of net interest income.
Fees paid on these financial contracts are amortized over their contractual life
as a component of the interest reported on the asset or liability hedged. If a
hedged asset or liability settles before maturity of the instruments used as a
hedge, the derivatives are used to hedge a similar asset or liability. Gains and
losses on sales or cancellation of derivative financial instruments which are
used to manage interest rate risk or which are considered cash flow hedges are
deferred and amortized into income or expenses over the original maturity period
of the financial instrument.
INCOME TAXES
Deferred taxes are provided on a liability method whereby net operating
losses, tax credit carryforwards, and deferred tax assets are recognized for
deductible temporary differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE
Basic earnings per share is based on dividing net income by the weighted
average number of shares of common stock outstanding during the periods. Diluted
earnings per share reflects the potential dilution that could occur if stock
options granted pursuant to incentive stock option plans were exercised or
converted into common stock, and any shares contingently issuable, that then
shared in the earnings of the Company. Basic and diluted earnings per share are
presented on the Consolidated Statements of Income, and a reconciliation of the
calculations are found in Note 14.
SEGMENT INFORMATION
The Company discloses operating segments based on the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. See Note 16 for further
information.
43
<PAGE> 44
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS
The FASB issued FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", in 1998, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. FAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an
amendment of FASB Statement No. 133" was issued in 1999, which delayed
implementation of FAS No. 133. Implementation of FAS No. 133 will be effective
for all fiscal years beginning after June 15, 2000. The Company has not yet
determined when it will implement the Statement nor has it completed the complex
analysis required to determine the impact on the financial statements.
NOTE 2 -- MERGERS AND ACQUISITIONS
Mergers occurred during the reported periods as follows:
On March 31, 1999, Wellmark Capital Value, Inc. (WCV) of Des Moines, Iowa
was acquired by the Company for $50,000. An additional $174,000 may be paid over
the next two years, contingent upon the level of customer assets under
management. The transaction was accounted for as a purchase.
On March 27, 1998, Midwest Federal Financial Corp. (Midwest), a one-bank
holding company, merged into the Company, which issued 1,912,357 common shares
in exchange for the 1,628,924 outstanding Midwest shares. At the date of the
merger, Midwest had total assets of approximately $211 million. This transaction
was accounted for as a pooling of interests, however, the size of the
transaction was not material to the Company's consolidated financial statements.
Therefore, results previous to the date of acquisition were not restated. The
results of Midwest's operations have been included in the Company's operating
results since March 27, 1998.
On February 17, 1998, Investors Management Group, LTD (IMG), an asset
management firm, was acquired by the Company. AMCORE issued 270,139 shares at
closing for an approximate value of $6.0 million. The issuance of additional
shares valued at $4.8 million are contingent upon IMG's performance from 1998
through 2000. Based on the attainment of performance targets in 1999 and 1998,
shares valued at $1.6 million each year were earned (65,595 and 70,284 shares,
respectively). At the date of the acquisition, IMG had approximately $1.6
billion in assets under management. This transaction was accounted for as a
purchase. The results of IMG's operations have been included in the Company's
operating results since February 17, 1998. Proforma net income and earnings per
share are not materially different from historical amounts. The excess of the
purchase price over the fair value of assets acquired was recorded as goodwill
in the amount of $7.2 million, and is being amortized over fifteen years using
the straight-line method.
On July 16, 1997, Country Bank Shares Corporation (Country), a five-bank
holding company, merged into the Company, which issued 2,469,417 common shares
in exchange for the 433,699 outstanding Country shares. At the date of the
merger, Country had total assets of approximately $310 million. This transaction
was account for as a pooling of interests and, accordingly, all financial
information of the Company has been restated to include Country.
On April 18, 1997, First National Bancorp, Inc. (FNB), a one-bank holding
company, merged into the Company, which issued 2,822,286 common shares in
exchange for the 249,539 outstanding FNB shares. At the date of the merger, FNB
had total assets of approximately $219 million. This transaction was account for
as a pooling of interests and, accordingly, all financial information of the
Company has been restated to include FNB.
44
<PAGE> 45
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations of the separate companies for the periods prior
to the mergers are summarized as follows:
<TABLE>
<CAPTION>
AMCORE COMBINED
FINANCIAL FNB COUNTRY TOTAL
--------- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Three months ended March 31, 1997:
Net interest income................................... $22,361 $1,935 * $24,296
Net income............................................ 6,857 664 * 7,521
Six months ended June 30, 1997:
Net interest income................................... $49,330 ** $5,828 $55,158
Net income............................................ 10,648 ** (378) 10,270
</TABLE>
- ---------------
* Not required since the merger with Country took place after FNB merger.
** The six month results of AMCORE Financial include FNB as the merger was
completed on April 18, 1997.
In connection with these mergers, the Company recorded charges of $3.3
million in 1998 and $3.8 million in 1997 for merger-related costs. The charges
include costs for data conversion expenses, professional fees, severance and
personnel related costs, and other miscellaneous costs. At December 31, 1999,
there was no remaining liability relating to the merger. At December 31, 1998,
the remaining liability was approximately $2.0 million relating primarily to
data processing expenses and contract termination costs. At December 31, 1997,
the remaining liability was approximately $750,000 relating primarily to data
conversion expenses.
45
<PAGE> 46
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SECURITIES
A summary of securities at December 31, 1999, 1998, and 1997 were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
Securities Available for Sale:
U.S. Treasury.............................. $ 61,466 $ 171 $ (258) $ 61,379
U.S. Government agencies................... 32,390 3 (847) 31,546
Agency mortgage-backed securities.......... 746,953 1,308 (31,951) 716,310
State and political subdivisions........... 299,304 1,254 (11,055) 289,503
Corporate obligations and other............ 131,572 85 (2,999) 128,658
---------- ------- -------- ----------
Total Securities Available for Sale...... $1,271,685 $ 2,821 $(47,110) $1,227,396
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury.............................. $ 1,053 $ -- $ (8) $ 1,045
U.S. Government agencies................... 25 -- -- 25
State and political subdivisions........... 12,898 53 (204) 12,747
Corporate obligations and other............ 1 -- -- 1
---------- ------- -------- ----------
Total Securities Held to Maturity........ $ 13,977 $ 53 $ (212) $ 13,818
---------- ------- -------- ----------
Total Securities...................... $1,285,662 $ 2,874 $(47,322) $1,241,214
========== ======= ======== ==========
AT DECEMBER 31, 1998
Securities Available for Sale:
U.S. Treasury.............................. $ 66,431 $ 1,047 $ (19) $ 67,459
U.S. Government agencies................... 82,814 701 (2) 83,513
Agency mortgage-backed securities.......... 727,506 4,645 (22,308) 709,843
State and political subdivisions........... 312,116 11,489 (374) 323,231
Corporate obligations and other............ 144,106 586 (1,206) 143,486
---------- ------- -------- ----------
Total Securities Available for Sale...... $1,332,973 $18,468 $(23,909) $1,327,532
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury.............................. $ 1,053 $ 15 $ -- $ 1,068
U.S. Government agencies................... 27 -- -- 27
State and political subdivisions........... 15,061 261 (47) 15,275
Corporate obligations and other............ 1 -- -- 1
---------- ------- -------- ----------
Total Securities Held to Maturity........ $ 16,142 $ 276 $ (47) $ 16,371
---------- ------- -------- ----------
Total Securities...................... $1,349,115 $18,744 $(23,956) $1,343,903
========== ======= ======== ==========
AT DECEMBER 31, 1997:
Securities Available for Sale:
U.S. Treasury.............................. $ 104,132 $ 836 $ (84) $ 104,884
U.S. Government agencies................... 267,696 938 (833) 267,801
Agency mortgage-backed securities.......... 586,285 5,651 (1,948) 589,988
State and political subdivisions........... 316,028 10,069 (189) 325,908
Corporate obligations and other............ 153,501 458 (947) 153,012
---------- ------- -------- ----------
Total Securities Available for Sale...... $1,427,642 $17,952 $ (4,001) $1,441,593
========== ======= ======== ==========
Securities Held to Maturity:
U.S. Treasury.............................. $ 1,554 $ 7 $ -- $ 1,561
State and political subdivisions........... 13,866 207 (26) 14,047
Corporate obligations and other............ 3 -- -- 3
---------- ------- -------- ----------
Total Securities Held to Maturity........ $ 15,423 $ 214 $ (26) $ 15,611
---------- ------- -------- ----------
Total Securities...................... $1,443,065 $18,166 $ (4,027) $1,457,204
========== ======= ======== ==========
</TABLE>
46
<PAGE> 47
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Realized gross gains resulting from the sale of securities available for
sale were $1.3 million, $4.7 million and $4.3 million for 1999, 1998 and 1997,
respectively. Realized gross losses were $736,000, $234,000 and $141,000 for
1999, 1998 and 1997, respectively.
The amortized cost and fair value of both securities available for sale and
securities held to maturity as of December 31, 1999, by contractual maturity are
shown below. Mortgage-backed security maturities may differ from contractual
maturities because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less.......................... $ 70,224 $ 69,864 $ 1,817 $ 1,821
Due after one year through five years............ 105,975 105,832 8,618 8,623
Due after five years through ten years........... 80,432 78,756 2,342 2,241
Due after ten years.............................. 181,125 172,275 1,200 1,133
Mortgage-backed securities (agency and
corporate)..................................... 833,929 800,669 -- --
---------- ---------- ------- -------
Total Securities............................ $1,271,685 $1,227,396 $13,977 $13,818
========== ========== ======= =======
</TABLE>
At December 31, 1999, 1998, and 1997, securities with a fair value of
approximately $906.4 million, $826.8 million and $927.8 million, respectively,
were pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes required by law.
NOTE 4 -- LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of the loan and lease portfolio at December 31, was as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 710,302 $ 659,946
Real estate-construction.................................... 121,216 105,574
Real estate-commercial...................................... 732,447 626,358
Real estate-residential..................................... 689,702 658,406
Installment and consumer.................................... 489,586 398,318
Direct lease financing...................................... 3,489 3,127
---------- ----------
Gross loans and leases.................................... $2,746,742 $2,451,729
Unearned income........................................... (129) (211)
---------- ----------
Loans and leases, net of unearned income.................. $2,746,613 $2,451,518
Allowance for loan and lease losses....................... (28,377) (26,403)
---------- ----------
Net Loans and Leases...................................... $2,718,236 $2,425,115
========== ==========
</TABLE>
47
<PAGE> 48
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Non-performing loan information as of and for the years ended December 31,
was as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Impaired Loans:
Non-accrual Loans:
Commercial............................................. $12,632 $11,139
Real estate............................................ 3,278 1,963
Other Non-performing:
Non-accrual loans(1)...................................... 2,509 5,077
------- -------
Total Non-performing Loans.................................. $18,419 $18,179
======= =======
Loans 90 days or more past due and still accruing......... $10,197 $ 7,272
</TABLE>
- ---------------
(1) These loans are not considered impaired since they are part of a small
balance homogeneous portfolio.
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Allowance provided for impaired loans, included in the
allowance for loan losses................................. $ 4,469 $ 3,854
Impaired loans with no specific allowance for loan losses
provided.................................................. 11,441 9,248
Average recorded investment in impaired loans............... 14,470 13,367
Interest income recognized from impaired loans.............. 796 493
</TABLE>
An analysis of the allowance for loan and lease losses for the years ended
December 31, follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 26,403 $19,908 $19,295
Allowance for loan and lease losses acquired through
merger.................................................... -- 2,146 --
Provision charged to expense................................ 10,550 7,993 7,045
Loans charged off........................................... (10,309) (5,064) (7,777)
Recoveries on loans previously charged off.................. 1,733 1,420 1,345
-------- ------- -------
Balance at end of Year.................................... $ 28,377 $26,403 $19,908
======== ======= =======
</TABLE>
The Company's subsidiaries have had, and are expected to have in the
future, banking transactions with directors, executive officers, their immediate
families and affiliated companies in which they are a principal stockholder
(commonly referred to as related parties). These transactions were made in the
ordinary course of business on substantially the same terms as comparable
transactions with other borrowers.
Related party loan transactions during 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $ 44,269 $ 44,691
New loans................................................... 39,280 116,959
Repayments.................................................. (74,932) (117,381)
-------- ---------
Balance at end of Year.................................... $ 8,617 $ 44,269
======== =========
</TABLE>
48
<PAGE> 49
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value amounts have been estimated by the Company using available
market information and appropriate valuation methodologies as discussed below.
Considerable judgement was required, however, to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented below
are not necessarily indicative of the amounts the Company could realize in a
current market exchange.
The following table shows the carrying amounts and fair values of financial
instruments at December 31, 1999 and 1998 that have liquid markets in which fair
value is assumed to be equal to the carrying amount, or have readily available
quoted market prices, or are based on quoted prices for similar financial
instruments:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 179,113 $ 179,113 $ 144,199 $ 144,199
Interest earning deposits in banks............ 6,039 6,039 13,397 13,397
Federal funds sold and other short-term
investments................................. -- -- 9,427 9,427
Loans and leases held for sale................ 13,974 14,533 46,836 48,455
Securities available for sale................. 1,227,396 1,227,396 1,327,532 1,327,532
Securities held to maturity................... 13,977 13,818 16,142 16,371
Mortgage servicing rights..................... 6,897 7,790 4,753 5,040
</TABLE>
The carrying amounts and fair values of accruing loans and leases at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural....... $ 697,670 $ 715,802 $ 648,807 $ 665,386
Real estate.................................. 1,540,087 1,596,992 1,388,374 1,428,237
Installment and consumer, net................ 486,621 492,318 393,030 397,535
Direct lease financing....................... 3,489 4,221 3,127 3,226
---------- ---------- ---------- ----------
Total loans and leases..................... $2,727,867 $2,809,333 $2,433,338 $2,494,384
========== ========== ========== ==========
</TABLE>
Fair values of loans were estimated for portfolios with similar
characteristics. The fair value of loans, excluding residential real-estate
loans, was calculated by discounting contractual cash flows using estimated
market discount rates which reflect the interest rate risk inherent in the loan.
The cash flows were further reduced by estimated prepayment assumptions. Fair
value for residential real-estate loans was estimated by discounting estimated
future cash flows, adjusted for prepayment estimates, using market discount
rates based on secondary market sources. The fair value of non-accrual loans
with a recorded book value of $18.4 million and $18.2 million in 1999 and 1998,
respectively, was included at carrying value because it was not practicable to
reasonably assess the credit risk adjustment that would be applied in the
marketplace for such loans. (See Note 4)
The carrying value of interest receivable and payable approximates fair
value due to the relatively short period of time between accrual and expected
realization. At December 31, 1999 and 1998, interest receivable was $31.3
million and $30.8 million, respectively, and interest payable was $25.0 million
and $23.7 million, respectively.
49
<PAGE> 50
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the carrying amounts and fair values of financial
instrument liabilities and other off-balance sheet financial instruments at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits and savings.................. $1,348,427 $1,348,427 $1,352,165 $1,352,165
Time deposits................................ 1,667,981 1,665,665 1,595,559 1,620,382
Short-term borrowings........................ 699,398 698,681 498,211 499,917
Long-term borrowings......................... 285,270 293,251 330,361 332,418
Standby letters of credit.................... (375) (1,242) (366) (1,019)
Interest rate swap agreements................ (541) (351) (666) (2,483)
Interest rate collar agreements.............. 465 667 635 (1,408)
Interest rate floor agreements............... 67 39 1 5
Interest rate cap agreements................. 473 1,045 -- 110
Forward contracts............................ -- (69) -- (264)
</TABLE>
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, NOW and money market accounts, is equal to the
carrying amount in accordance with FASB No. 107. There is, however, considerable
additional value to the core deposits of the Company, a significant portion of
which has not been recognized in the financial statements. This value results
from the cost savings of these core funding sources versus obtaining higher-rate
funding in the market. The fair value of time deposits was determined by
discounting contractual cash flows using currently offered rates for deposits
with similar remaining maturities. The estimated fair value of both accrued
interest receivable and accrued interest payable was considered to be equal to
the carrying value.
The fair value of off-balance sheet instruments was estimated based on the
amount the Company would pay or would be paid to terminate the contracts or
agreements, using current rates and, when appropriate, the current
creditworthiness of the counterparty. The off-balance sheet carrying amounts
shown above represent accruals or deferred fees arising from those unrecognized
financial instruments.
The above fair value estimates were made at a discrete point in time based
on relevant market information and other assumptions about the financial
instruments. As no active market exists for a significant portion of the
Company's financial instruments, fair value estimates were based on judgements
regarding current economic conditions, future expected cash flows and loss
experience, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and therefore cannot be
calculated with precision. There may be inherent weaknesses in calculation
technique, and changes in the underlying assumptions used, including discount
rates and estimates of future cash flows could significantly affect the results.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to assess the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Significant investments in subsidiaries,
specifically the trust, mortgage and brokerage operations, are not considered
financial instruments and the franchise values have not been included in the
fair value estimates. Similarly, premises and equipment and intangible assets
have not been considered.
50
<PAGE> 51
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 9,862 $ 10,345
Buildings and improvements.................................. 57,476 55,710
Furniture and equipment..................................... 52,465 47,975
Leasehold improvements...................................... 5,296 5,154
Construction in progress.................................... 1,359 1,300
-------- --------
Total premises and equipment................................ $126,458 $120,484
Accumulated depreciation and amortization................... (70,840) (61,721)
-------- --------
Premises and Equipment, net............................... $ 55,618 $ 58,763
======== ========
</TABLE>
NOTE 7 -- MORTGAGE SERVICING RIGHTS
The unpaid principal balance of mortgage loans serviced for others, which
are not included on the consolidated balance sheets, was $774.5 million and
$735.9 million at December 31, 1999 and 1998, respectively. Of this amount, the
Company has recorded originated capitalized mortgage servicing rights, as shown
below, on mortgage loans serviced balances of $659.3 million and $567.1 million
at December 31, 1999 and 1998, respectively. The remaining balance of originated
loans sold and serviced for others also have servicing rights associated with
them; however, these servicing rights arose prior to the adoption of FAS No.
122, as amended by FAS No. 125, and accordingly, have not been capitalized.
The carrying value and fair value of capitalized mortgage servicing rights
consisted of the following as of December 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
1999 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Unamortized cost of mortgage servicing rights............... $6,897 $ 5,934
Valuation allowance......................................... -- (1,181)
------ -------
Carrying value of mortgage servicing rights................. $6,897 $ 4,753
====== =======
Fair value of mortgage servicing rights..................... $7,790 $ 5,040
====== =======
</TABLE>
51
<PAGE> 52
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is an analysis of the mortgage servicing rights activity and
the related valuation allowance for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year................................ $ 5,934 $ 6,091
Additions of mortgage servicing rights...................... 2,286 3,915
Additions of mortgage servicing rights from acquisition..... -- 510
Sale of mortgage servicing rights........................... -- (2,146)
Amortization................................................ (1,323) (2,436)
------- -------
Balance at end of year.................................... $ 6,897 $ 5,934
======= =======
VALUATION ALLOWANCE
Balance at beginning of year................................ $ 1,181 $ 284
Addition of impairment allowance from acquisition........... -- 8
Impairment allowance charged to expense..................... -- 1,088
Reversal of impairment...................................... (1,181) (199)
------- -------
Balance at end of year.................................... $ -- $ 1,181
======= =======
</TABLE>
NOTE 8 -- SHORT TERM BORROWINGS
At December 31, short-term borrowings consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase.............. $456,227 $434,071 $528,607
Federal Home Loan Bank borrowings........................... 114,479 32,629 70,679
Federal funds purchased..................................... 118,000 29,200 44,550
U.S. Treasury tax and loan note accounts.................... 10,692 2,311 3,673
-------- -------- --------
Total Short-Term Borrowings............................... $699,398 $498,211 $647,509
======== ======== ========
</TABLE>
Additional details on securities sold under agreements to repurchase are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Average balance during the year............................. $465,343 $529,373 $559,344
Maximum month-end balance during the year................... 498,602 630,279 660,774
Weighted average rate during the year....................... 5.42% 5.73% 5.75%
Weighted average rate at December 31........................ 5.97% 5.38% 5.82%
</TABLE>
The Company has a commercial paper agreement with an unrelated financial
institution (Issuer) that provides for the Company to issue non-rated short-term
unsecured debt obligations at negotiated rates and terms, not to exceed $50.0
million. In the event the agent is unable to place the Company's commercial
paper on a particular day, the proceeds are provided by overnight borrowings on
a line of credit with the same financial institution. This agreement may be
terminated at any time by written notice of either the Issuer or the Company. As
of December 31, 1999, the entire $50.0 million was available.
52
<PAGE> 53
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG-TERM BORROWINGS
Long-term borrowings consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank borrowings........................... $244,018 $288,757
Capital Trust preferred securities.......................... 40,000 40,000
Other long-term borrowings.................................. 1,252 1,604
-------- --------
Total Long-Term Borrowings................................ $285,270 $330,361
======== ========
</TABLE>
The BANK periodically borrows additional funds from the Federal Home Loan
Bank in connection with the purchase of mortgage-backed securities. Certain
Federal Home Loan Bank borrowings have prepayment penalties and call features
associated with them. The ending balance of the borrowings was $244.0 million
and $288.8 million at December 31, 1999 and 1998, respectively. The average
maturity of these borrowings at December 31, 1999 is 6.38 years, with a weighted
average borrowing rate of 5.60%.
Reductions of Federal Home Loan Bank borrowings with call features,
assuming they are called at the earliest call date, are as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $111,000
2001........................................................ 75,000
2002........................................................ --
2003........................................................ 4,000
--------
Total..................................................... $190,000
========
</TABLE>
On March 25, 1997, the Company issued $40.0 million of capital securities
through AMCORE Capital Trust I ("Trust"), a statutory business trust. All of the
common securities of the Trust are owned by the Company. The capital securities
pay cumulative cash distributions semiannually at an annual rate of 9.35%. The
securities are redeemable from March 25, 2007 until March 25, 2017 at a
declining rate of 104.6750% to 100% of the principal amount. After March 25,
2017, they are redeemable at par until June 15, 2027 when redemption is
mandatory. Prior redemption is permitted under certain circumstances such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities were invested by the Trust in junior subordinated debentures which
represents all of the assets of the Trust. The Company fully and unconditionally
guarantees the capital securities through the combined operation of the
debentures and other related documents. The Company's obligations under the
guarantee are unsecured and subordinate to senior and subordinated indebtedness
of the company.
Other long-term borrowings include a non-interest bearing note requiring
annual payments of $444,000 through 2002. The note was discounted at an interest
rate of 8.0%.
53
<PAGE> 54
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled reductions of long-term borrowings are as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
2000........................................................ $ 470
2001........................................................ 2,020
2002........................................................ 41,785
2003........................................................ 2,092
2004........................................................ 65,327
Thereafter.................................................. 173,576
--------
Total..................................................... $285,270
========
</TABLE>
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to effectively manage its exposure to market risk.
Credit risk is the possibility that the Company will incur a loss due to
the other party's failure to perform under its contractual obligations. The
Company's exposure to credit loss in the event of non-performance by the other
party with regard to commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for actual extensions of credit. The credit risk involved for commitments
to extend credit and in issuing standby letters of credit is essentially the
same as that involved in extending loans to customers. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the customer. Collateral held varies, but
may include accounts receivable, securities, inventory, property and equipment
and income-producing commercial properties.
Market risk is the possibility that, due to changes in interest rates or
other economic conditions, the Company's net interest income will be adversely
affected. The financial instruments utilized by the Company to manage this risk
include interest rate swaps, collars, floors and caps, and forward contracts.
The contract or notional amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial instruments. The
contract or notional amount of interest rate swap, collar, floor and cap
agreements and forward contracts represent only limited exposure to credit risk.
A summary of the contract amount of the Company's exposure to off-balance
sheet risk as of December 31, 1999 and 1998, is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Financial instruments whose contract amount represent credit
risk only:
Commitments to extend credit.............................. $598,414 $446,833
Standby letters of credit................................. 99,393 81,495
Financial instruments whose contract or notional amount
represent market risk only:
Interest rate swap agreements............................. 100,000 220,000
Interest rate collar agreements........................... 100,000 125,000
Stand-alone interest rate cap agreements.................. 60,000 20,000
Stand-alone interest rate floor agreements................ 20,000 25,000
Forward contracts......................................... 10,930 33,211
Call option outstanding................................... 19,500 --
</TABLE>
54
<PAGE> 55
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitments to extend credit are contractual agreements entered into with
customers as long as there is no violation of any condition established on the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The Company has no derivative financial instruments held or issued for
trading purposes. The derivative financial instruments with which the Company is
involved are utilized for purposes of asset/liability management to modify the
existing market risk characteristics of certain hedged assets and liabilities
and are predominately comprised of interest rate swap and collar contracts. Most
of these instruments are designed to hedge exposure to floating rate
liabilities. An interest rate swap agreement is one financial instrument used
for these purposes and involves the exchange of fixed and floating rate interest
payment obligations based on the underlying notional principal amounts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the agreements and not the notional principal amounts
used only to express the volume of the transactions. The Company's credit risk
on a swap agreement is limited to nonperformance of the counterparty's
obligations under the terms of the swap agreement. The Company deals exclusively
with counterparties that have high credit ratings, and based on management's
assessments, all counterparties were expected to meet any outstanding
obligations as of December 31, 1999.
Following is a table outlining the nature and terms of each swap agreement
as of December 31, 1999:
<TABLE>
<CAPTION>
NOTIONAL MATURITY
TYPE OF SWAP AMOUNT (000'S) PAY RECEIVE DATE
- ------------ -------------- ------------------------- ------------- --------
<S> <C> <C> <C> <C>
Fixed Rate........... $20,000 Fixed (6.458%) 3 Month LIBOR 05/15/01
Fixed Rate........... 15,000 Fixed (5.720%) 3 Month LIBOR 10/11/01
Fixed Rate........... 25,000 Fixed (8.520%) PRIME 12/23/00
Fixed
Fixed to Floating.... 25,000 3 Month LIBOR minus 15 BP (7.000%) 08/06/07
Fixed
Fixed to Floating.... 10,000 3 Month LIBOR minus 15 BP (7.000%) 08/27/07
Fixed
Fixed to Floating.... 5,000 3 Month LIBOR minus 8 BP (6.750%) 10/22/07
</TABLE>
- ---------------
(BP=basis points)
The fixed rate swap agreements totaling $35.0 million where the Company
receives three month LIBOR, are used to hedge market risk associated with
repurchase agreements. The fixed rate swap agreement of $25.0 million where the
Company receives PRIME, is used to hedge market risk associated with fixed rate
loans. The fixed to floating swap agreements totaling $35.0 million where the
Company receives 7.000% and the fixed to floating rate swap for $5.0 million
where the Company receives 6.750% and are used to lower the Company's cost of
deposits.
The Company is also party to various collar, floor and cap contracts.
Interest rate collar agreements totaling $100.0 million provide the Company with
an interest rate risk hedge on floating rate debt. Interest rate floor contracts
totaling $20.0 million are used to manage the exposure to interest rate changes
of the originated mortgage servicing rights intangible asset. Interest rate caps
totaling $40.0 million provide the Company with a market risk hedge on the money
market deposit accounts while the remaining $20.0 million cap provides the
Company with a market risk hedge on repurchase agreements.
Each of the interest rate swap agreements require a quarterly cash
settlement of the net difference between the calculated pay and receive amounts
on each transaction. The net difference between the calculated pay and receive
amounts is accrued on a monthly basis and recorded as an adjustment of the
55
<PAGE> 56
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest income or expense of the asset or liability being hedged. Premiums paid
for the purchase of interest rate floor contracts are amortized over the
respective lives of the contracts. Each floor rate reprices quarterly and a cash
settlement is received from the counterparty and recorded as an adjustment to
interest income, if the indexed rate falls below the floor rate. Floors and caps
are similarly tied to the three month LIBOR.
Forward contracts provide for future delivery or purchase of securities or
interest rate instruments. The Company's affiliates enter into forward contracts
in connection with specific customer transactions and to minimize the market
risk exposure of mortgage banking activities.
The Company periodically will sell options for the right to purchase
certain securities held in its investment portfolio to a bank or dealer. These
call option transactions are designed to reduce the total return volatility
associated with holding these assets and to yield additional fee income. The
type of risk associated with these transactions is opportunity cost risk. Any
option premium income generated by these transactions is deferred and recorded
upon either the expiration or exercise date of the option. If the option is
exercised by the purchaser, the premium income is recognized as a component of
the gain or loss on the underlying security. If the option expires unexercised,
the premium income is recognized as other non-interest income. There was a call
option agreement outstanding at December 31, 1999, on a principal of $19.5
million and a deferred premium of $75,000.
NOTE 11 -- RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Under current banking law, the banking subsidiary of the Company is limited
in the amount of dividends it can pay without obtaining prior approval from bank
regulatory agencies. As of December 31, 1999, approximately $40.3 million was
available for payment to the Company without prior regulatory approval.
The banking subsidiary is also limited as to the amount it may loan to the
Company unless such loans are collateralized by U.S. Treasury or agency
securities, a segregated deposit with the subsidiary or other specified
obligations. At December 31, 1999, the maximum amount available for transfer
from the banking subsidiary to the Company in the form of loans approximated
$15.1 million.
NOTE 12 -- STOCK INCENTIVE AND EMPLOYEE BENEFIT PLANS
At December 31, 1999, the Company has three stock-based compensation plans,
which are described below. Grants under those plans are accounted for following
APB Opinion No. 25 and related interpretations.
STOCK INCENTIVE PLANS. In 1995, stockholders approved the adoption of the
1995 Stock Incentive Plan (Plan). The Plan provides for the ability to grant
stock options, stock appreciation rights, performance units, and stock awards to
key employees. The total number of shares approved and available for grant under
the Plan in its first year were 2.5% of the total shares of stock outstanding as
of the effective date and 1.5% of outstanding shares in each subsequent Plan
year not to exceed 525,000 in any year. Options to purchase shares of common
stock of the Company and performance units were granted to key employees
pursuant to both the Plan and previous stock incentive plans.
Stock Options. Non-Qualified Stock Options are issued at an option price
equal to the fair market value of the shares on the grant date and become
exercisable at 25% annually beginning one year from the date of
56
<PAGE> 57
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
grant. The following table presents certain information with respect to stock
options issued pursuant to these incentive plans.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year......................... 1,676,592 $15.58 1,405,423 $12.68 1,384,017 $11.04
Options granted................... 350,450 22.58 282,000 25.48 295,875 18.50
Options assumed in business
combinations.................... -- -- 349,422 8.58 -- --
Option reloads.................... 65,731 22.36 106,294 23.47 -- --
Options exercised................. (341,821) 11.55 (448,754) 10.25 (258,602) 10.42
Options lapsed.................... (58,838) 24.20 (17,793) 18.19 (15,867) 15.80
--------- ------ --------- ------ --------- ------
Options outstanding at end of
year............................ 1,692,114 $17.80 1,676,592 $15.58 1,405,423 $12.68
========= ====== ========= ====== ========= ======
Options exercisable at end of
year............................ 1,192,052 $15.37 1,394,592 $13.58 1,405,423 $12.68
========= ====== ========= ====== ========= ======
</TABLE>
Performance Units. Performance Units (Units) granted entitle holders to
cash or stock payments if certain long term performance targets are met. The
payout range on all Units granted is $4.45 to $11.11 per unit. In addition, a
dividend is paid on each Unit at a rate equivalent to the rate of dividends paid
on each share of the Company's common stock. The expense related to these Units
for the years ended December 31, 1999, 1998 and 1997 was approximately $1.12
million, $457,000 and $60,000, respectively. The following table presents
certain information with respect to issuances pursuant to these plans.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
AVERAGE AVERAGE AVERAGE
UNITS PRICE UNITS PRICE UNITS PRICE
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of
year................................ 340,443 -- 282,386 -- 336,568 --
Units granted......................... 167,563 -- 150,116 -- 113,253 --
Units paid............................ (82,098) $4.75 -- -- (113,883) $4.81
Units forfeited....................... (32,690) -- (92,059) -- (53,552) --
------- ----- ------- ----- -------- -----
Units outstanding at end of year...... 393,218 -- 340,443 -- 282,386 --
======= ===== ======= ===== ======== =====
</TABLE>
The following table presents a summary of issuances pursuant to these
incentive plans.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
YEAR-END BALANCES SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding............... 1,692,114 $17.80 1,676,592 $15.58 1,405,423 $12.68
Units outstanding................. 393,218 -- 340,443 -- 282,386 --
Available to grant under Plan..... 40,490 -- 75,269 -- 53,814 --
</TABLE>
In accordance with APB Opinion No. 25, no compensation cost has been
recognized for stock option grants issued during 1999 pursuant to all option
plans. Had compensation cost for these grants been determined based on the grant
date fair values of awards (the method described in FAS No. 123, "Accounting for
Stock-Based Compensation"), reported net income and earnings per common share
would have been reduced to the pro forma amounts shown below:
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1999, 1998 and 1997, respectively: dividend
57
<PAGE> 58
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates of 2.33%, 2.36% and 1.79%; price volatility of 25.81%, 30.99% and 69.95%;
risk-free interest rates of 5.77%, 5.73% and 6.64%; and expected lives of 6.5,
6.7 and 6.5 years.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Income:
As reported............................................... $40,149 $39,581 $28,664
Pro forma................................................. 38,327 37,350 26,690
Basic earnings per share:
As reported............................................... $ 1.42 $ 1.39 $ 1.07
Pro forma................................................. 1.35 1.31 0.99
Diluted earnings per share:
As reported............................................... $ 1.40 $ 1.36 $ 1.05
Pro forma................................................. 1.33 1.28 0.97
</TABLE>
DIRECTORS' STOCK PLANS. In 1989, the Company adopted the Restricted Stock
Plan for Non-Employee Directors (Stock Plan). The Stock Plan provides that each
current eligible non-employee director and each subsequently elected
non-employee director receive, in lieu of a cash retainer, shares of common
stock of the Company, the fair value of which is equal to three times the annual
retainer. The shares vest annually over a three-year period based upon the
anniversary date of the original award. The expense related to the Stock Plan
for the years ended December 31, 1999, 1998 and 1997 was approximately $494,000,
$464,000 and $370,000, respectively.
In addition, the Company pays a lifetime annual retainer to certain retired
directors. Effective January 1, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" to
account for these benefits. This statement requires employers to recognize
postretirement benefits on an accrual basis rather than on a cash basis. The
expense in 1999, 1998 and 1997 related to this plan was $77,000, $73,000 and
$82,000, respectively. The transition obligation, representing the present value
of future payments upon adoption of accrual basis accounting was approximately
$842,000 and is being amortized over a twenty year period.
In 1994, stockholders approved the 1994 Stock Option Plan for Non-Employee
Directors (Option Plan). The Option Plan provides that each current eligible
non-employee director and each subsequently elected non-employee director
receive Options to purchase common stock of the Company. Each option granted
under the Option Plan has a ten-year term. All options were exercisable at year
end at an option price equal to the fair market value of the shares on the grant
date. The following table presents certain information with respect to stock
options issued pursuant to the Option Plan.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................. 228,000 $17.40 192,750 $19.67 130,500 $13.11
Options granted........................ 49,000 21.84 56,500 25.50 69,000 18.50
Options exercised...................... (33,770) 14.64 (11,250) 14.44 (6,000) 13.06
Options lapsed......................... (2,750) 25.50 (10,000) 21.14 (750) 13.33
------- ------ ------- ------ ------- ------
Options outstanding at end of year..... 240,480 $18.56 228,000 $17.40 192,750 $19.67
======= ====== ======= ====== ======= ======
Options exercisable at end of year..... 240,480 $18.56 177,000 $15.06 123,750 $20.32
======= ====== ======= ====== ======= ======
Available to grant under Plan at year
end.................................. 8,500 -- 54,750 -- 101,250 --
======= ====== ======= ====== ======= ======
</TABLE>
58
<PAGE> 59
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS SUMMARY. The following table presents certain information with
respect to issuances of stock options pursuant to all plans discussed above.
<TABLE>
<CAPTION>
WEIGHTED-AVG
NUMBER REMAINING WEIGHTED-AVG
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ----------- ---------------- --------------
<S> <C> <C> <C>
$2.00-$10.00.................................... 108,980 3.0Years $ 5.53
10.00-12.50..................................... 108,855 3.8 10.51
12.50-14.00..................................... 491,183 5.0 13.10
14.00-19.00..................................... 392,208 7.0 17.24
19.00-23.50..................................... 467,444 8.5 22.41
23.50-25.50..................................... 363,924 7.3 25.18
--------- --- ------
Total Options Outstanding....................... 1,932,594 6.5 $17.90
========= === ======
</TABLE>
EMPLOYEE BENEFIT PLANS. All subsidiaries of the Company participate in the
AMCORE Financial Security Plan (Security Plan), a qualified profit sharing plan
under Section 401(a) of the Internal Revenue Code. The Security Plan offers
participants a personal retirement account, profit sharing payment and personal
savings account [401(k)]. In 1998, the Security Plan was amended to provide for
a higher match percent to employee contributions and the profit sharing portion
converted to a cash payment rather than contributed to employee accounts. The
expense related to the Security Plan and other similar plans from acquired
companies for the years ended December 31, 1999, 1998 and 1997 was approximately
$3.70 million, $3.56 million and $2.76 million, respectively.
The Company maintains non-qualified non-contributory pension plans that
cover senior executive management. One non-qualified plan provides pension
benefits that would have been provided under the qualified plans in the absence
of limits placed on qualified plan benefits by the Internal Revenue Service.
Another plan provides defined pension benefits to a select group of management
or highly compensated employees. The benefits payable under the plan are based
upon three percent of final base salary times number of years of service and
shall not exceed 70% nor be less than 45% of a participant's final base salary
less offsets for social security and other employer paid qualified plan
benefits. Benefits are funded as they are paid. The expense related to these
plans was approximately $341,000 $456,000, and $217,000 for 1999, 1998 and 1997,
respectively.
In addition to the Security Plan, certain health care and life insurance
benefits are made available to active employees. The cost of these benefits is
expensed as incurred. Group health benefits are offered to retirees with 100% of
the cost borne by the retiree.
NOTE 13 -- INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently paid or payable................................... $15,702 $15,468 $12,735
Deferred.................................................... (596) (1,154) (3,817)
------- ------- -------
Total..................................................... $15,106 $14,314 $ 8,918
======= ======= =======
</TABLE>
59
<PAGE> 60
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rates on income for 1999, 1998, and 1997 were 27.3%,
26.6% and 23.7%, respectively. Income tax expense was less than the amounts
computed by applying the federal statutory rate of 35% due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory rate................................ $19,339 $18,863 $13,154
Increase (decrease) resulting from:
Tax-exempt income......................................... (5,477) (5,479) (5,027)
State income taxes, net of federal benefit................ 278 24 (301)
Non-deductible expenses, net.............................. 1,061 1,395 1,581
Other, net................................................ (95) (489) (489)
------- ------- -------
Total.................................................. $15,106 $14,314 $ 8,918
======= ======= =======
</TABLE>
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred compensation..................................... $ 5,375 $ 4,807
Securities................................................ 17,249 2,277
Allowance for loan and lease losses....................... 11,182 9,630
Other..................................................... 1,830 643
------- -------
Total deferred tax assets.............................. $35,636 $17,357
------- -------
Deferred tax liabilities:
Premises and equipment.................................... 4,227 4,491
Other..................................................... 5,654 2,914
------- -------
Total deferred tax liabilities......................... $ 9,881 $ 7,405
------- -------
Net Deferred Tax Asset.................................... $25,755 $ 9,952
Less: Tax effect of net unrealized loss on securities
available for sale reflected in stockholders' equity...... 17,382 2,175
------- -------
Net Deferred Tax Asset Excluding Net Unrealized Loss on
Securities Available for Sale.......................... $ 8,373 $ 7,777
======= =======
</TABLE>
Net operating loss carryforwards for state income tax purposes were
approximately $7.05 million at December 31, 1999. The associated deferred asset
is $528,000 ($343,000 net of federal). The carryforwards expire beginning
December 31, 2005 through December 31, 2011. A valuation allowance of $343,000
has been established at December 31, 1999 against the deferred tax asset, due to
the uncertainty surrounding the utilization of state net operating loss
carryforwards. This compares to a valuation allowance of $798,000 as of December
31, 1998. The decrease in the valuation allowance is attributable to the
realization and expiration of state net operating loss carryforwards during
1999.
Realization of the deferred tax asset over time is dependent upon the
existence of taxable income in carryback periods or the Company generating
sufficient taxable earnings in future periods. In determining that realization
of the deferred tax asset was more likely than not, the Company gave
consideration to a number of
60
<PAGE> 61
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
factors including its taxable income during carryback periods, its recent
earnings history, its expectations for earnings in the future, and, where
applicable, the expiration dates associated with tax carryforwards.
Retained earnings at December 31, 1999 include $3.18 million for which no
provision for income tax has been made. This amount represents allocations of
income to thrift bad debt deductions for tax purposes only. This amount will
only be taxable upon the occurrence of certain events. At this time, management
does not foresee the occurrence of any of these events.
Tax benefits of $1.74 million, $2.29 million, and $830,000 have been
credited directly to paid in capital for non-qualified stock options exercised
during the years ended December 31, 1999, 1998, and 1997, respectively.
NOTE 14 -- EARNINGS PER SHARE
Earnings per share calculations are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Income............................................. $40,149 $ 39,581 $28,664
Basic earnings per share:
Weighted average shares outstanding.................. 28,304 28,515 26,862
Shares related to IMG earned not issued.............. 19 -- --
------- -------- -------
Average basic shares outstanding..................... 28,323 28,515 26,862
======= ======== =======
Earnings per share................................... $ 1.42 $ 1.39 $ 1.07
======= ======== =======
Diluted earnings per share:
Weighted average shares outstanding.................. 28,304 28,515 26,862
Net effect of the assumed purchase of stock under the
stock option and stock purchase plans -- based on
the treasury stock method using average market
price............................................. 340 583 543
Shares related to IMG earned not issued.............. 19 -- --
Contingently issuable shares under IMG purchase
agreement......................................... 67 -- --
------- -------- -------
Average diluted shares outstanding................... 28,730 29,098 27,405
======= ======== =======
Diluted Earnings per share........................... $ 1.40 $ 1.36 $ 1.05
======= ======== =======
</TABLE>
NOTE 15 -- RESTRUCTURING CHARGE
The components and activity of the restructuring charge were as follows:
<TABLE>
<CAPTION>
ORIGINAL ADDITIONAL TOTAL CASH ENDING
CHARGE(1) ADJUSTMENTS(2) CHARGE(3) REVERSAL(4) CHARGE PAYMENTS BALANCE
--------- -------------- ---------- ----------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation expense(5)......... $2,204 $ 0 $340 $ (609) $1,935 $ (963) $ 972
Employee benefits(6)............ 153 46 22 (34) 187 (104) 83
Data processing expense(7)...... 1,321 0 30 (227) 1,124 (665) 459
Professional fees(8)............ 1,441 0 145 (141) 1,445 (1,155) 290
Other(9)........................ 976 0 0 (380) 596 (521) 75
------ --- ---- ------- ------ ------- ------
Charge before income taxes...... $6,095 $46 $537 $(1,391) $5,287 $(3,408) $1,879
Income taxes.................... 2,328 19 213 (534) 2,026 (1,279) 747
------ --- ---- ------- ------ ------- ------
Charge after income taxes....... $3,767 $27 $324 $ (857) $3,261 $(2,129) $1,132
====== === ==== ======= ====== ======= ======
</TABLE>
61
<PAGE> 62
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(1) Second quarter adoption of plan to merge nine separate bank and thrift
charters into one and to centralize retail operations and corporate support
functions.
(2) Items related to restructuring that were expensed as incurred.
(3) Fourth quarter adoption of plan to centralize commercial loan operations and
restructure Trust and Asset Management segment operations.
(4) Fourth quarter reversal of items included in the original charge that are no
longer expected to be paid.
(5) Amounts include severance benefits for planned termination of 187 employees
in operations and corporate support functions. Through December 31, 1999, 55
employees had terminated and been paid severance benefits. An additional 86
employees had transferred to other open positions due to attrition, or had
voluntarily left the company prior to the time severance benefits became
payable. As of December 31, 1999, 46 employees remained to be severed.
Amount also includes incentives.
(6) Social security and medicare taxes on severance and incentives.
(7) Amounts represent costs to convert data processing records of nine separate
banks into one.
(8) Amounts represent legal fees for regulatory filings and advice as well as
consulting fees for process review, systems redesign and implementation.
(9) Amounts include outplacement services for terminated employees; replacement
of forms, checks and supplies; and customer notifications.
NOTE 16 -- 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 65 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. 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 65 banking locations. The Mortgage Banking segment originates
residential mortgage loans for sale to AMCORE's banking affiliate and the
secondary market, as well as providing servicing of these mortgage loans.
The Company's three reportable segments are strategic business units that
are separately managed as they offer different products and services. The
Company evaluates financial performance based on several factors, of which the
primary financial measure is segment profit before remittances to the banking
affiliates. The accounting policies of the three segments are the same as those
described in the summary of significant accounting policies (Note 1). The
Company accounts for intersegment revenue, expenses and transfers at current
market prices.
62
<PAGE> 63
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TRUST AND ASSET MORTGAGE TOTAL
BANKING MANAGEMENT BANKING SEGMENTS
---------- --------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BUSINESS SEGMENTS
1999
Net interest income.......................... $ 130,684 $ 248 $ 2,155 $ 133,087
Provision for loan and lease losses.......... 10,550 -- -- 10,550
Non-interest income.......................... 22,402 31,001 8,525 61,928
Operating expenses........................... 93,099 21,193 7,404 121,696
Depreciation and amortization................ 6,652 951 106 7,709
Income taxes................................. 12,079 4,413 1,314 17,806
Segment profit............................... $ 37,358 $ 5,643 $ 1,962 $ 44,963
After tax restructuring charges.............. 3,053 208 -- 3,261
---------- ------- ------- ----------
Segment profit before merger related
charges.................................... $ 40,411 $ 5,851 $ 1,962 $ 48,224
========== ======= ======= ==========
Segment assets............................... $4,357,237 $19,722 $24,216 $4,401,175
========== ======= ======= ==========
1998
Net interest income.......................... $ 122,542 $ 131 $ 2,551 $ 125,224
Provision for loan and lease losses.......... 7,993 -- -- 7,993
Non-interest income.......................... 25,435 26,022 11,472 62,929
Operating expenses........................... 87,324 18,293 11,396 117,013
Depreciation and amortization................ 7,285 811 89 8,185
Income taxes................................. 13,150 3,388 1,054 17,592
Segment profit............................... $ 39,510 $ 4,472 $ 1,573 $ 45,555
After tax merger related and information
systems charges............................ 1,245 -- -- 1,245
---------- ------- ------- ----------
Segment profit before merger related
charges.................................... $ 40,755 $ 4,472 $ 1,573 $ 46,800
========== ======= ======= ==========
Segment assets............................... $4,227,050 $23,944 $54,656 $4,305,650
========== ======= ======= ==========
1997
Net interest income.......................... $ 110,778 $ 64 $ 1,578 $ 112,420
Provision for loan and lease losses.......... 7,045 -- -- 7,045
Non-interest income.......................... 23,618 18,417 5,583 47,618
Operating expenses........................... 84,745 13,601 6,366 104,712
Depreciation and amortization................ 6,117 299 89 6,505
Income taxes................................. 10,211 1,999 320 12,530
Segment profit............................... $ 32,395 $ 2,881 $ 475 $ 35,751
After tax merger related and information
systems charges............................ 2,833 -- -- 2,833
---------- ------- ------- ----------
Segment profit before merger related
charges.................................... $ 35,228 $ 2,881 $ 475 $ 38,584
========== ======= ======= ==========
Segment assets............................... $3,738,080 $ 6,322 $28,298 $3,772,700
========== ======= ======= ==========
</TABLE>
63
<PAGE> 64
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILEMENT OF SEGMENT INFORMATION TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET INTEREST INCOME AND NON-INTEREST INCOME
Total for segments....................................... $ 195,015 $ 188,153 $ 160,038
Unallocated revenues:
Holding company revenues............................... 24,687 20,931 19,919
Other.................................................. 50 55 3,309
Elimination of intersegment revenues..................... (30,337) (27,657) (23,666)
---------- ---------- ----------
Consolidated total revenues.............................. $ 189,415 $ 181,482 $ 159,600
========== ========== ==========
PROFIT
Total for segments....................................... $ 44,963 $ 45,555 $ 35,751
Unallocated profit:
Holding company loss................................... (4,630) (5,999) (6,234)
Other.................................................. (241) (219) (674)
Elimination of intersegment profit (loss)................ 57 244 (179)
---------- ---------- ----------
Consolidated net income.................................. $ 40,149 $ 39,581 $ 28,664
========== ========== ==========
ASSETS
Total for segments....................................... $4,401,175 $4,305,650 $3,772,700
Unallocated assets:
Holding company assets................................. 44,351 53,110 46,128
Other.................................................. 42,495 42,701 43,675
Elimination of intersegment assets....................... (140,400) (253,628) (194,813)
---------- ---------- ----------
Consolidated assets...................................... $4,347,621 $4,147,833 $3,667,690
========== ========== ==========
</TABLE>
NOTE 17 -- CAPITAL REQUIREMENTS
The Company and its banking subsidiary (Regulated Companies) are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Regulated Companies must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Their capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Regulated Companies to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital to risk-weighted assets,
and of Tier I capital to average assets. Management believes, as of December 31,
1999, that the Regulated Companies meet all capital adequacy requirements to
which it is subject.
As of December 31, 1999, the most recent notification from the Company's
regulators categorized the Regulated Companies as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized a company must maintain minimum total risk-based, Tier I risk based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Regulated Companies category.
64
<PAGE> 65
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's and its banking subsidiary's actual capital amounts and
ratios are presented in the table.
<TABLE>
<CAPTION>
FOR CAPITAL ADEQUACY PURPOSES
--------------------------------------
ACTUAL MINIMUM WELL CAPITALIZED
----------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital (to Risk Weighted Assets):
CONSOLIDATED $371,835 12.54% $237,181 >8.00% N/A N/A
-
AMCORE Bank, N.A. 328,159 11.19% 234,564 >8.00% $293,205 >10.00%
- -
Tier 1 Capital (to Risk Weighted
Assets):
CONSOLIDATED $343,458 11.58% $118,591 >4.00% N/A N/A
-
AMCORE Bank, N.A. 300,361 10.24% 117,282 >4.00% $175,923 >6.00%
- -
Tier 1 Capital (to Average Assets):
CONSOLIDATED $343,458 8.03% $171,036 >4.00% N/A N/A
-
AMCORE Bank, N.A. 300,361 6.94% 173,222 >4.00% $216,528 >5.00%
- -
AS OF DECEMBER 31, 1998:
Total Capital (to Risk Weighted Assets):
CONSOLIDATED $366,121 13.43% $218,078 >8.00% N/A N/A
-
AMCORE Bank, N.A. 315,540 11.40% 221,414 >8.00% $276,768 >10.00%
- -
Tier 1 Capital (to Risk Weighted
Assets):
CONSOLIDATED $339,718 12.46% $109,039 >4.00% N/A N/A
-
AMCORE Bank, N.A. 289,917 10.48% 110,707 >4.00% $166,061 >6.00%
Tier 1 Capital (to Average Assets): - -
CONSOLIDATED $339,718 8.31% $163,485 >4.00% N/A N/A
-
AMCORE Bank, N.A. 289,917 6.93% 167,330 >4.00% $209,163 >5.00%
- -
</TABLE>
65
<PAGE> 66
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 205 $ 1,343
Securities available for sale............................... 3,729 2,865
Short-term investments...................................... -- 3,000
Due from subsidiaries....................................... 925 1,020
Loans to subsidiaries....................................... 17,924 19,808
Investment in bank subsidiary............................... 295,712 307,322
Investment in financial services subsidiaries............... 3,648 5,783
Premises and equipment, net................................. 4,720 4,788
Other assets................................................ 16,848 17,747
-------- --------
TOTAL ASSETS.............................................. $343,711 $363,676
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Long-term borrowings........................................ $ 42,490 $ 42,842
Other liabilities........................................... 7,493 4,751
-------- --------
TOTAL LIABILITIES......................................... $ 49,983 $ 47,593
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock............................................. $ -- $ --
Common stock................................................ 6,585 6,572
Additional paid-in capital.................................. 74,244 75,260
Retained earnings........................................... 271,781 247,486
Treasury stock and other.................................... (31,975) (9,969)
Accumulated other comprehensive loss........................ (26,907) (3,266)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................ $293,728 $316,083
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $343,711 $363,676
======== ========
</TABLE>
66
<PAGE> 67
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries................................. $38,739 $37,923 $17,749
Interest income............................................. 1,694 2,064 2,284
Management fees and other................................... 27,405 23,372 21,436
------- ------- -------
TOTAL INCOME.............................................. $67,838 $63,359 $41,469
------- ------- -------
EXPENSES:
Interest expense............................................ $ 4,352 $ 4,204 $ 3,801
Compensation expense and employee benefits.................. 16,979 14,615 14,455
Professional fees........................................... 2,638 2,316 2,540
Other....................................................... 16,188 11,152 12,388
------- ------- -------
TOTAL EXPENSES............................................ $40,157 $32,287 $33,184
------- ------- -------
Income before income tax benefits and equity in
undistributed net income of subsidiaries.................. $27,681 $31,072 $ 8,285
Income tax benefits......................................... (4,191) (2,751) (3,231)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries.............................................. $31,872 $33,823 $11,516
Equity in undistributed net income of subsidiaries.......... 8,277 5,758 17,148
------- ------- -------
NET INCOME................................................ $40,149 $39,581 $28,664
======= ======= =======
</TABLE>
67
<PAGE> 68
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 40,149 $ 39,581 $ 28,664
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 1,509 1,032 1,531
Non-employee directors compensation expense............... 494 464 370
Equity in undistributed net income of subsidiaries........ (8,277) (5,758) (17,148)
Decrease (increase) in due from subsidiaries.............. 95 (87) 255
Decrease (increase) in other assets....................... 1,073 2,503 (1,119)
Increase (decrease) in other liabilities.................. 2,742 (2,006) 2,011
Other, net................................................ 94 298 560
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 37,879 $ 36,027 $ 15,124
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities...................................... $ (981) $ (2,428) $(14,071)
Proceeds from maturities of securities...................... -- -- 14,197
Net decrease (increase) in short term investments........... 3,000 7,000 (8,000)
Dissolution of less-active state banking charters........... -- -- 96
Proceeds from sale of collection agency..................... -- -- 700
Net investment made in subsidiaries......................... (1,550) (681) (10,788)
Loans to subsidiaries....................................... (38,850) (74,035) (13,470)
Payments received on loans to subsidiaries.................. 40,734 76,990 16,916
Transfer of premises and equipment to (from) affiliates..... 34 (23) (114)
Premises and equipment expenditures, net.................... (1,475) (2,909) (1,514)
Investment in company owned life insurance.................. (127) (10,798) (1,816)
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES...... $ 785 $ (6,884) $(17,864)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings............ $ -- $ -- $(14,455)
Proceeds from long-term borrowings.......................... -- -- 41,238
Payment of long-term borrowings............................. (445) (444) (14,044)
Dividends paid.............................................. (15,854) (15,406) (12,130)
Proceeds from the sale of common stock...................... 973 -- 430
Proceeds from exercise of incentive stock options........... 6,051 6,840 3,753
Purchase of treasury stock.................................. (30,527) (19,745) (1,327)
-------- -------- --------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES...... $(39,802) $(28,755) $ 3,465
-------- -------- --------
Net change in cash and cash equivalents..................... $ (1,138) $ 388 $ 725
Cash and cash equivalents:
Beginning of year......................................... 1,343 955 230
-------- -------- --------
End of year............................................... $ 205 $ 1,343 $ 955
======== ======== ========
</TABLE>
68
<PAGE> 69
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- CONTINGENCIES
Management believes that no litigation is threatened or pending in which
AMCORE faces potential loss or exposure which will materially affect AMCORE's
financial position or results of operations, other than noted below. Since
AMCORE's subsidiaries act as depositories of funds, trustee and escrow agents,
they are named as defendants in lawsuits involving claims to the ownership of
funds in particular accounts. This and other litigation is incidental to
AMCORE's business.
On August 26, 1999, Willie Parker and five other plaintiffs filed a civil
action in the Circuit Court of Humphreys County, Mississippi against AMCORE
Consumer Finance Company, Inc., a subsidiary of AMCORE, and other defendants
containing twelve separate counts related to the sale and financing of
residential satellite dish systems. Though the actual purchase price for each of
these systems involves a principal amount of less than $3,000, the complaint
prays for economic loss and compensatory damages in the amount of $5 million for
each plaintiff and punitive damages in the amount of $100 million for each
plaintiff. AMCORE has denied the plaintiffs' allegations and has removed the
case to the United States District Court for the Northern District of
Mississippi. The proceedings are currently stayed pending resolution of the
plaintiffs' motion to remand the case to the state court. Although at this early
date the ultimate disposition of the case cannot be predicted with certainty,
based on information currently available, AMCORE believes that the plaintiffs'
damage claims are disproportionate and that the final outcome of the case will
not have a materially adverse effect on AMCORE's consolidated financial
condition, though it could have a materially adverse affect on AMCORE's
consolidated results of operations in a given year. AMCORE has not recorded an
accrual for payment of the damages in this case because, in management's
opinion, an unfavorable outcome in this litigation is not probable.
CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $72,892 $73,902 $75,670 $77,858 $68,315 $74,520 $74,979 $73,047
Interest expense....................... 41,109 41,240 42,232 44,302 39,362 43,302 43,593 41,870
------- ------- ------- ------- ------- ------- ------- -------
Net interest income.................... $31,783 $32,662 $33,438 $33,556 $28,953 $31,218 $31,386 $31,177
Provision for loan losses.............. 2,226 2,151 2,613 3,560 2,145 1,642 2,226 1,980
Other income........................... 13,762 15,074 14,725 14,415 12,939 13,898 14,586 17,325
Other expense.......................... 29,358 36,488 29,812 27,952 31,906 27,932 28,997 30,759
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes............. $13,961 $9,097 $15,738 $16,459 $7,841 $15,542 $14,749 $15,763
Income taxes........................... 3,925 1,971 4,501 4,709 1,742 4,306 3,871 4,395
------- ------- ------- ------- ------- ------- ------- -------
Net Income............................. $10,036 $7,126 $11,237 $11,750 $6,099 $11,236 $10,878 $11,368
======= ======= ======= ======= ======= ======= ======= =======
Per share data:
Basic earnings......................... $ 0.35 $ 0.25 $ 0.40 $ 0.42 $ 0.23 $ 0.39 $ 0.37 $ 0.39
Diluted earnings....................... 0.35 0.25 0.39 0.41 0.22 0.38 0.37 0.39
Dividends.............................. 0.14 0.14 0.14 0.14 0.12 0.14 0.14 0.14
Stock price ranges -- high............. 23.56 23.06 24.25 25.25 27.50 27.75 26.25 24.50
-- low................. 20.69 19.50 19.75 19.88 21.75 23.38 20.38 19.13
-- close............... 20.69 23.06 21.88 24.00 27.00 24.00 22.75 22.89
</TABLE>
The financial information contains all normal and recurring
reclassifications for a fair and consistent presentation.
Quotes have been obtained from the National Association of Security
Dealers. These quotes do not reflect retail mark-ups, mark-downs or commissions
nor are they necessarily representative of actual transactions.
69
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AMCORE Financial, Inc.
We have audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMCORE Financial,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG LLP
January 19, 2000
Chicago, Illinois
70
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. The Proxy Statement and Notice of 2000 Annual
Meeting dated March 24, 2000 is incorporated herein by reference.
(b) Executive Officers of the Registrant. The information is presented in Item 1
of this document.
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement and Notice of 2000 Annual Meeting dated March 24, 2000
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Proxy Statement and Notice of 2000 Annual Meeting dated March 24, 2000
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement and Notice of 2000 Annual Meeting dated March 24, 2000
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of AMCORE are filed as a
part of this document under Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets -- December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
<TABLE>
<CAPTION>
(A)3. EXHIBITS
- ----- --------
<C> <S>
3 Amended and Restated Articles of Incorporation of AMCORE
Financial, Inc. dated May 1, 1990 (Incorporated by reference
to Exhibit 23 of AMCORE's Annual Report on Form 10-K for the
year ended December 31, 1989).
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
(A)3. EXHIBITS
- ----- --------
<C> <S>
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990
(Incorporated by reference to Exhibit 3.1 of AMCORE's Annual
Report on Form 10-K for the year ended December 31, 1994).
4 Rights Agreement dated February 21, 1996, between AMCORE
Financial, Inc. and Firstar Trust Company (Incorporated by
reference to AMCORE's Form 8-K as filed with the Commission
on February 28, 1996).
10.1 1995 Stock Incentive Plan (Incorporated by reference to
Exhibit 22 of AMCORE's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.2 AMCORE Financial, Inc. 1994 Stock Option Plan for
Non-Employee Directors (Incorporated by reference to Exhibit
23 of AMCORE's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.3 AMCORE Stock Option Advantage Plan (Incorporated by
reference to AMCORE's 1999 Proxy Statement, Attachment A,
filed as part of AMCORE's Annual Report on Form 10-K for
year ended December 31, 1999).
10.4A Amended and Restated Transitional Compensation Agreement
dated June 1, 1996 between AMCORE Financial, Inc. and Robert
J. Meuleman. (Incorporated by reference to Exhibit 10.3A of
AMCORE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.)
10.4B Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and Charles E. Gagnier.
(Incorporated by reference to Exhibit 10.3C of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.)
10.4C Transitional Compensation Agreement dated June 1, 1996
between AMCORE Financial, Inc. and the following
individuals: William J. Hippensteel and James F. Warsaw.
(Incorporated by reference to Exhibit 10.3D of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.)
10.4D Transitional Compensation Agreement dated November 18, 1998
between AMCORE Financial, Inc. and the following
individuals: Kenneth E. Edge, John R. Hecht, and James S.
Waddell (Incorporated by reference to Exhibit 10.3E of
AMCORE's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.4E Transitional Compensation Agreement dated January 1, 1999
between AMCORE Financial, Inc. and the following
individuals: Lewis R. Jones and Joseph McGougan
(Incorporated by reference to Exhibit 10.1 of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.)
10.4F Transitional Compensation Agreement dated May 1, 1999
between AMCORE Financial, Inc. and the following
individuals: Gregory Sprawka and Bruce W. Lammers
(Incorporated by reference to Exhibit 10.1 of AMCORE's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.)
10.4G Transitional Compensation Agreement dated February 22, 2000
between AMCORE Financial, Inc. and James M. Hansberry.
10.4H Transitional Compensation Agreement dated March 6, 2000
between AMCORE Financial, Inc. and Patricia M. Bonavia.
10.4I Transitional Compensation Agreement dated March 15, 2000
between AMCORE Financial, Inc. and David W. Miles.
10.5 Executive Insurance Agreement dated March 1, 1996 between
AFI and Robert J. Meuleman (Incorporated by reference to
Exhibit 10.6 of AMCORE's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
10.6 Indenture, dated as of March 25, 1997, between the Company
and The First National Bank of Chicago (incorporated herein
by reference to Exhibit 4.1 of the Company's registration
statement on Form S-4, Registration No. 333-25375).
</TABLE>
72
<PAGE> 73
<TABLE>
<CAPTION>
(A)3. EXHIBITS
- ----- --------
<C> <S>
10.7 Form of New Guarantee between the Company and The First
National Bank of Chicago (incorporated herein by reference
to Exhibit 4.7 of the Company's registration statement on
Form S-4, Registration No. 333-25375).
10.8 Executive Insurance Agreement dated August 10, 1998 between
AMCORE Financial, Inc. and the following executives: Kenneth
E. Edge, John R. Hecht, and James S. Waddell. (Incorporated
by reference to Exhibit 10.10 of AMCORE's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.)
10.9 Supplemental Executive Retirement Plan dated May 20, 1998
10.10 Loan Agreement with M & I Marshall and Ilsley Bank dated
December 31, 1999.
13 1999 Summary Annual Report to Stockholders
21 Subsidiaries of the Registrant
22 Proxy Statement and Notice of 2000 Annual Meeting
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
73
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rockford, State of
Illinois, on this 24th day of March 2000.
AMCORE FINANCIAL, INC.
JOHN R. HECHT
By:
--------------------------------------
John R. Hecht
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 24th day of March, 2000 by the following persons on
behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
ROBERT J. MEULEMAN President and Chief Executive Officer
- --------------------------------------------- (principal executive officer)
Robert J. Meuleman
JOHN R. HECHT Executive Vice President and Chief Financial
- --------------------------------------------- Officer (principal financial officer and principal
John R. Hecht accounting officer)
</TABLE>
Directors: Paula A. Bauer, Milton R. Brown, Carl J. Dargene, Richard C. Dell,
Paul Donovan, Lawrence E. Gloyd, John A. Halbrook, Frederick D. Hay,
William R. McManaman, Robert J. Meuleman, Jack D. Ward and Gary L.
Watson
<TABLE>
<S> <C>
ROBERT J. MEULEMAN
- ---------------------------------------------
Robert J. Meuleman*
JOHN R. HECHT
- ---------------------------------------------
John R. Hecht*
Attorney in Fact*
</TABLE>
74
<PAGE> 1
Exhibit 10.4 G
TRANSITIONAL COMPENSATION AGREEMENT
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation
(the "Company"), and JAMES HANSBERRY (the "Executive"), dated as of the 22nd day
of February, 2000. 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> 2
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 February 22, 2001;
provided, however, that on February 22, 2001, 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> 3
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> 4
(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> 5
(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> 6
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> 7
(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> 8
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
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<PAGE> 9
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> 10
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
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<PAGE> 11
(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> 12
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
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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
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(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
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<PAGE> 15
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
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<PAGE> 16
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:
-------------------
James Hansberry
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1224 Revere Ridge Road
Rockford, IL 61108
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 Company is, and shall remain
during the Effective Period, "at will" and may, subject to Section 5,
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<PAGE> 18
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
--------------------------------------------------------------
James Hansberry
("Executive")
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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> 1
Exhibit 10.4H
TRANSITIONAL COMPENSATION AGREEMENT
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation
(the "Company"), and PAT BONAVIA (the "Executive"), dated as of the 6th day of
March, 2000. 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> 2
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 March 6, 2001;
provided, however, that on March 6, 2001, 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
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<PAGE> 3
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> 4
(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
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<PAGE> 5
(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> 6
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> 7
(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> 8
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
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<PAGE> 9
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> 10
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
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<PAGE> 11
(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> 12
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
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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
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<PAGE> 14
(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
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<PAGE> 15
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
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<PAGE> 16
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:
-------------------
Pat Bonavia
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<PAGE> 17
2332 Silverthorn Drive
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 Company is, and shall remain
during the Effective Period, "at will" and may, subject to Section 5,
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<PAGE> 18
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
-----------------------------------------------------------
Pat Bonavia
("Executive")
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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> 1
Exhibit 10.4I
TRANSITIONAL COMPENSATION AGREEMENT
AGREEMENT by and between Amcore Financial, Inc., a Nevada corporation
(the "Company"), and DAVE MILES (the "Executive"), dated as of the 15TH day of
March, 2000. 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> 2
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 March 15, 2001;
provided, however, that on March 15, 2001, 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> 3
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> 4
(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
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<PAGE> 5
(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> 6
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> 7
(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
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<PAGE> 8
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> 9
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> 10
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> 11
(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> 12
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> 13
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> 14
(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> 15
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> 16
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:
-------------------
David Miles
16
<PAGE> 17
221 38TH Place
Des Moines, Iowa 50312
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 Company is, and shall remain
during the Effective Period, "at will" and may, subject to Section 5,
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<PAGE> 18
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
------------------------------------------------------------
David Miles
("Executive")
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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> 20
AMCORE FINANCIAL, INC.
MEMORANDUM OF UNDERSTANDING
The following memo of understanding dated February 24, 2000 and effective March
15, 2000, reflects the intent of management of AMCORE Financial, Inc. ("AMCORE")
and David W. Miles ("Miles"). The term of this agreement shall be for one year
concluding on March 14, 2001.
As Miles has accepted the position of Executive Vice President of
AMCORE Financial, Inc. and as President and CEO of AMCORE Investment Group
effective March 15, 2000, he is covered by the terms and conditions of the
Transitional Compensation Agreement dated March 15, 2000. This document serves
as an alternative agreement for Miles during the one year period. In the event
of a change of control of AMCORE Financial, Inc., such that the Transitional
Compensation Agreement would be triggered, this document would also be
triggered.
During this period, if a Change of Control occurs, Miles would have the
option of the terms and conditions of the Transitional Compensation Agreement or
the following. It would be solely the decision of Miles as to whether he
continues his employment with AMCORE. If he chooses to leave, he will be assured
his base compensation until March 14, 2001.
In witness whereof, the parties have executed this agreement on the
date indicated below.
AMCORE Financial, Inc. David W. Miles
- ------------------------ -----------------------
James S. Waddell
Executive Vice President Date:
And CAO ------------------
Date:
-------------------
<PAGE> 1
EXHIBIT 10.9
AMCORE FINANCIAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE AS OF
MAY 20, 1998
1
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
GENERAL
Section 1.1 Effective Date.......................................1
Section 1.2 Intent...............................................1
ARTICLE II
DEFINITIONS AND USAGE
Section 2.1 Definitions..........................................1
Section 2.2 Usage................................................4
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility..........................................4
Section 3.2 Participation........................................4
ARTICLE IV
RETIREMENT BENEFITS
Section 4.1 Normal Retirement Benefit............................4
Section 4.2 Early Retirement Benefit.............................5
Section 4.3 Termination of Employment............................5
Section 4.4 Disability...........................................6
Section 4.5 Death................................................6
Section 4.6 Change in Control....................................6
Section 4.7 Vesting and Forfeiture of Retirement Benefit.........7
Section 4.8 Valuation Method.....................................8
Section 4.9 Payment Procedure....................................8
Section 4.10 Designation of Beneficiary...........................8
2
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ARTICLE V
ADMINISTRATION
Section 5.1 General..............................................8
Section 5.2 Administrative Rules.................................8
Section 5.3 Duties...............................................8
Section 5.4 Fees.................................................9
ARTICLE VI
CLAIMS PROCEDURE
Section 6.1 General..............................................9
Section 6.2 Denials..............................................9
Section 6.3 Notice...............................................9
Section 6.4 Appeals Procedure...................................10
Section 6.5 Review..............................................10
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment and Termination...........................10
Section 7.2 No Assignment.......................................10
Section 7.3 Successors and Assigns..............................10
Section 7.4 Governing Law.......................................11
Section 7.5 No Guarantee of Employment..........................11
Section 7.6 Severability........................................11
Section 7.7 Notification of Addresses...........................11
Section 7.8 Participating Employers.............................11
Section 7.9 Bonding.............................................11
Section 7.10 Taxes...............................................11
ARTICLE VIII
FUNDING
Section 8.1 Employer Liability..................................11
Section 8.2 Unfunded Plan.......................................12
Section 8.3 Trust...............................................12
3
<PAGE> 4
AMCORE FINANCIAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
WHEREAS, Amcore Financial, Inc. (the "Company") has established (and may
establish in the future) one or more qualified retirement plans to provide
retirement benefits to its employees under such plan or plans; and
WHEREAS, the Company recognizes the unique qualifications of certain key
management or highly compensated employees and the valuable services they
provide, and desires to provide such employees with a target level of retirement
income payable from contributions by the Company by supplementing, through an
unfunded, nonqualified plan, such retirement benefits; and
WHEREAS, the Company has determined that the implementation of such a plan will
best serve its interest in attracting and retaining key employees;
NOW, THEREFORE, the Company hereby establishes the Amcore Financial, Inc.
Supplemental Executive Retirement Plan as hereinafter provided:
ARTICLE I
GENERAL
SECTION 1.1 EFFECTIVE DATE. This Plan shall be effective as
of May 20, 1998. An employee of any Employer who has been terminated prior to
the Effective Date of this Plan shall have no rights pursuant to this Plan. The
rights, if any, of such a terminated employee shall be determined pursuant to
the plan or plans, if any, in effect on the date of such employee's
termination.:
SECTION 1.2 INTENT. The Plan is intended to be an unfunded
plan maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees, as such group is
described under Section 201(2), 301(a)(3), and 401(a)(1) of ERISA. Benefits
provided under this Plan shall be funded solely from the general assets of the
Employer and no participant or beneficiary hereunder shall have any interest or
right to such assets.
ARTICLE II
DEFINITIONS AND USAGE
SECTION 2.1 DEFINITIONS. Wherever used in the Plan, the
following words and phrases shall have the meaning set forth below unless the
context plainly requires a different meaning:
2
<PAGE> 5
"Account" means the account established on behalf of the Participant immediately
before any distribution of Retirement Benefits hereunder, as described in
Section 4.7.
"Administrator" means the Company, acting through its Board, or such other
person or persons as designated by the Board.
"Board" means the Board of Directors of the Company.
"Change in Control" means a change in the control of the Company, as defined in
Section 4.6.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
Any reference to a particular Code section shall include any provision which
modifies, replaces or supersedes it.
"Company" means Amcore Financial, Inc. and any successor entity.
"Disability" or "Disabled" means a physical or mental condition of a Participant
resulting from a bodily injury, disease, or mental disorder that renders him
incapable of continuing in the employment of the Employer for a period of 180
continuous days. Such Disability shall be determined by the Administrator based
upon appropriate medical advice and examination, and taking into account the
ability of the Participant to continue in his same, or similar, position with
the Employer.
"Early Retirement Date" means any date on or after the date on which the
Participant has attained age 62 and prior to the date on which the Participant
attains age 65.
"Employer" means the Company and any other entity related to the Company in a
manner described in Code Sections 414(b), (c), (m) or (o) that adopts the Plan
with the Company's consent pursuant to Section 7.8.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time. Any reference to a particular ERISA section shall include any
provision which modifies, replaces, or supersedes it.
"Final Base Salary" means, with respect to any Participant, his regular annual
base salary (excluding bonuses and other variable payments) paid or payable in
the calendar month immediately preceding his or her retirement or termination of
employment.
"Normal Retirement Date" means the date on which a Participant attains age sixty
five (65).
"Office of the President" means those individuals who hold any one of the
following positions with the Company: Chief Financial Officer, Chief Operating
Officer, Chief Administrative Officer, Chief Executive Officer, or as otherwise
determined by the Board.
"Offsets" means (i) fifty percent (50%) of a Participant's Social Security
Benefit; (ii) vested amounts paid or payable to or in respect of a Participant
attributable to the Employer's contributions
3
<PAGE> 6
to the Company's Financial Security Plan (or any successor plan thereto) and
earnings associated with such contributions; and (iii) vested amounts paid or
payable to or in respect of the Participant attributable to the Employer's
contributions to the Amcore Financial, Inc. Top Hat Plan (or any successor plan
thereto) and earnings associated with such contributions.
"Participant" means an eligible employee of an Employer who is participating in
the Plan in accordance with Section 3.2.
"Plan" means The Amcore Financial, Inc. Supplemental Executive Retirement Plan,
as set forth herein and as it may be amended from time to time.
"Plan Year" means the calendar year.
"Retirement Benefit" means the benefit payable under this Plan, as determined
under Article IV.
"Social Security Benefit" means the annual benefit payable under the Social
Security Act, relating to Old-Age and Disability benefits, as of the
Participant's Normal Retirement Date, or upon actual retirement if later.
"Termination for Cause" means the termination of a Participant's employment due
to, in the Administrator's discretion, (i) serious, willful failure to perform
the duties of his employment, which continues after notice of deficiency from
the Employer, (ii) conviction of a felony, (iii) willful failure to comply with
applicable laws with respect to the execution of the Employer's business
operations, or (iv) theft, fraud, embezzlement, dishonesty or other conduct
which has resulted or is likely to result in material economic damage to the
Company or any Employer; provided, however, that following a Change in Control
"Termination for Cause" shall not include clauses (i) - (iii) above.
"Valuation Date" means December 31 of each calendar year.
"Years of Service" means the total number of years (measured in full and partial
years, in increments of one-twelfth years) of active employment with the
Employer during which services were rendered as an employee, commencing on the
date the Participant was first employed by the Employer and ending on the date
he ceases to perform services of the Employer (including employment before the
effective date of the Plan specified in Section 1.1 hereof), provided, however,
that in no event shall less than fifteen (15) years be credited to any
Participant regardless of his actual period of service with the Employer. At the
discretion of the Board, Participants may be granted additional Years of Service
that relate to employment with another employer for purposes of determining
Retirement Benefits under this Plan, upon such terms and conditions as the Board
may require (which conditions may include, but not be limited to, completion of
a period of future service with the Company and reducing the Participant's
Retirement Benefit hereunder by the pension benefits provided by such other
employer). At the discretion of the Board, Participants may also be granted
additional Years of Service in the event of Disability, up to the number of
Years of Service that are reasonably expected to have been earned absent the
Participant's disability.
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<PAGE> 7
SECTION 2.2 USAGE. Except where otherwise indicated by the
context, any masculine terminology used herein shall also include the feminine
and vice versa, and the definition of any term herein in the singular shall also
include the plural and vice versa.
ARTICLE III
ELIGIBILITY AND PARTICIPANT
SECTION 3.1 ELIGIBILITY. An employee of an Employer shall be
eligible to participate in the Plan only to the extent, and for the period, that
on or after the Effective Date of the Plan, said employee is a member of the
Office of the President or otherwise is designated by the Board as a member of a
select group of management or highly compensated employees (consistent with the
terms of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA). The Board shall
make all determinations of eligibility in its sole and absolute discretion.
SECTION 3.2 PARTICIPATION. An employee who is eligible to
participate in the Plan pursuant to Section 3.1 shall become a Participant on
the first day of the month immediately following the date the employee becomes a
member of the Officer of the President or is otherwise determined to be eligible
to participate in the Plan.
ARTICLE IV
RETIREMENT BENEFITS
SECTION 4.1 NORMAL RETIREMENT BENEFIT.
(a) Amount. The Retirement Benefit for a Participant who
retires on or after his Normal Retirement Date shall be an annual Retirement
Benefit in an amount equal to (1) multiplied by (2) and reduced by the Offsets
as of the Valuation Date:
(1) three percent (3%) of such Participant's Final
Base Salary;
(2) Participant's Years of Service;
The Retirement Benefit paid at Normal Retirement Age shall not
exceed seventy (70%) percent of a Participant's Final Base Salary and shall be
no less than forty five (45%) percent of a Participant's Final Base Salary.
(b) Time and Form of Payment. A Participant who retires under
this Plan on or after his Normal Retirement Date shall receive a Retirement
Benefit, determined in accordance with Section 4.1(a), which shall commence to
be paid not later than sixty (60) days after the Participant's retirement from
the Employer becomes effective.
The Retirement Benefit shall be payable in the form of an
installment payment for the remainder of the Participant's life, but in no event
less than ten years, with payment
5
<PAGE> 8
continuing to the Participant's beneficiary designated in accordance with
Section 4.9 for the remaining period of such ten years certain in the event of
the Participant's death after payments have commenced but prior to the
expiration of such ten-year period.
SECTION 4.2 EARLY RETIREMENT BENEFIT.
(a) Amount. The Retirement Benefit for a Participant who
retires on or after his Early Retirement Date (but before his Normal Retirement
Date) shall be equal to the Retirement Benefit determined under Section 4.1(a)
hereof and payable within 60 days after termination for early retirement, using
an assumed interest rate and other assumptions that are reasonable and
appropriate in the Administrator's sole discretion in light of commercial
practices.
(b) Time and Form of Payment. A Participant who retires under
this Plan on or after his early Retirement Date (but before his Normal
Retirement Date) shall receive a Retire-ment Benefit, determined in accordance
with Section 4.2(a), which shall commence to be paid not later than sixty (60)
days after the Participant's retirement from the Employer becomes effec-tive,
subject to reduction in accordance with Section 4.2(a) for payment before the
Participant's Normal Retirement Date.
The Retirement Benefit shall be payable in the form of an
installment payment for the re-mainder of the Participant's life, but in no
event less than ten years, with payment continuing to the Participant's
beneficiary designated in accordance with Section 4.9 for the remaining period
of such ten years certain in the event of the Participant's death after payments
have commenced but prior to the expiration of such ten-year period.
SECTION 4.3 TERMINATION OF EMPLOYMENT.
(a) Amount. If a Participant incurs a termination of
employment with the Employer for reasons other than Termination for Cause before
the attainment of his Early Retirement Date or his Normal Retirement Date, he
shall receive a Retirement Benefit equal to the actuarial present value of the
Retirement Benefit determined under Section 4.1(a) hereof, using an assumed
interest rate and other assumptions that are reasonable and appropriate in the
Administrator's sole discretion, in light of commercial practices. No Retirement
Benefit shall be payable hereunder if a Participant incurs a Termination for
Cause.
(b) Time and Form of Payment. A participant who is entitled to
a Retirement Benefit under Section 4.3(a) shall receive a Retirement Benefit,
determined in accordance with Section 4.1(a), which shall be paid in a lump sum
not later than sixty (60) days after termination of employment.
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<PAGE> 9
SECTION 4.4 DISABILITY.
(a) Amount. If a Participant becomes Disabled while in the
employment of the Employer, he or his beneficiary or beneficiaries shall receive
a Retirement Benefit determined under Section 4.1(a), but any such payment shall
be reduced by the actuarial present value of any disability benefit payable to
or on behalf of such Participant pursuant to any disability benefit programs
sponsored by the Employer.
(b) Time and Form of Payment. A participant who is entitled to
a Retirement Benefit under Section 4.4(a) shall receive a Retirement Benefit,
determined in accordance with Section 4.4(a), which shall be paid in a lump sum
not later than sixty (60) days after termination of employment for Disability.
The amount of such lump sum payment shall be the present value of the Retirement
Benefit determined under Section 4.1(a) hereof, using an assumed interest rate
and other assumptions that are reasonable and appropriate, in the
Administrator's sole discretion, in light of commercial practices.
SECTION 4.5 DEATH. If a Participant dies while in the
employment of the Employer but prior to his Early Retirement Date, his
beneficiary or beneficiaries shall not be entitled to, and shall not receive,
payment of any Retirement Benefit under any provision of this Plan. If a
Participant dies after his employment has terminated or on or after his Early
Retirement Date, the remaining Retirement Benefit otherwise payable with respect
to the Participant shall be paid or continue to be paid to the beneficiary or
beneficiaries designated in accordance with Section 4.9 for a period of ten
years certain.
SECTION 4.6 CHANGE IN CONTROL.
(a) Amount. In the event that there is a Change in Control
involving a Participant's Employer, each Participant employed by such Employer
shall be entitled to receive his benefit, calculated under Section 4.1(a) as of
his Normal Retirement Date.
(b) Time and Form of Payment. Any Retirement Benefit payable
under this Section 4.6 shall be paid in the form of an immediate lump sum
distribution within sixty (60) days of his termination of employment (other than
a Termination for Cause) following the Change in Control. The amount of such
lump sum payment shall be the present value of the Retirement Benefit determined
under Section 4.6(a) hereof, using an assumed interest rate and other
assumptions that are reasonable and appropriate, in the Administrator's sole
discretion, in light of commercial practices.
(c) "Change in Control" Defined. For purposes of this
subsection, a "Change in Control" shall mean a change in control of any Employer
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, whether or not such Employer is then subject to such reporting
requirement; provided that, without limitation, such a Change in Control shall
be deemed to have occurred upon the occurrence of any of the following:
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<PAGE> 10
(i) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than
a trustee or other fiduciary holding securities
under an employee benefit plan of the Company is
or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company
representing 30% or more of the combined voting
power of the Company's then outstanding securities
regardless of whether or not the Board of
Directors (the "Board") shall have approved such
Change in Control;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board and any new director (other
than a director designated by a person who shall
have entered into an agreement with the Company to
effect a transaction described in clauses (A)
above or (C) below) whose election by the Board of
nomination for election by the Company's
stockholders was approved by a vote of at least
two-thirds of the directors then still in office
who either were directors at the beginning of the
period or whose election or nomination for
election was previously so approved, cease for any
reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve (1) a
merger or consolidation of the Company with any
other corporation regardless of which entity is
the surviving company, other than a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at
least 66 2/3% of the combined voting power of the
voting securities of the Company or such merger or
consolidation, or (2) a plan of complete
liquidation of the Company or an agreement for the
sale or disposition by the Company of all or
substantially all the Company's assets.
SECTION 4.7 VESTING AND FORFEITURE OF RETIREMENT BENEFIT.
(a) Vested Benefits . Except as provided in subsection (b)
below, a Participant who is in the active employ of an Employer shall be fully
vested in his Account for each year of service and every year thereafter, but in
any event not less than fifteen years.
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<PAGE> 11
(b) Forfeiture. Notwithstanding subsection (a), upon the
occurrence of a Termination for Cause a Participant's Retirement Benefit
hereunder shall be forfeited, and no such benefit shall be payable hereunder.
SECTION 4.8 VALUATION METHOD. The valuation method used by the
Company shall be Financial Accounting Statement Number 87 or any other
appropriate methodology that systematically recognizes the annual accrued
liability of the Employer to the Participant.
SECTION 4.9 PAYMENT PROCEDURE. Immediately before any
distribution hereunder, the Employer shall establish and maintain an Account for
each Participant and beneficiary receiving Retirement Benefits under the Plan,
and shall credit the amount of such distribution to such Account and then
immediately distribute the amount so credited to the Participant, or as
applicable, to his beneficiary. Neither the Participant nor his beneficiary(s)
shall have any interest or right in any such Account at any time. All amounts
credited to the Accounts established under the Plan shall be credited solely for
the purpose of effecting distributions hereunder and shall remain assets of the
Employer subject to the claims of such Employer's general creditors.
SECTION 4.10 DESIGNATION OF BENEFICIARY. A Participant may,
by written instruction delivered to the Administrator during the Participant's
lifetime, designate one or more primary and contingent beneficiaries to receive
the Retirement Benefit which may be payable hereunder following the
Participant's death, and may designate the proportions in which such
beneficiaries are to receive such payments. A Participant may change such
designations from time to time, and the last written designation filed with the
Administrator prior to the Participant's death shall control. If a Participant
fails to specifically designate a beneficiary, or if no designated beneficiary
survives the Participant, payment shall be made by the Administrator in the
following order of priority:
(i) to the Participant's surviving spouse; or if none,
(ii) to the Participant's children; or if none,
(iii) to the Participant's estate.
ARTICLE V
ADMINISTRATION
SECTION 5.1 GENERAL. Except as otherwise specifically
provided in the Plan, the Administrator shall be responsible for administration
of the Plan. The Administrator shall be the "named fiduciary" within the meaning
of Section 402(c)(2) of ERISA.
SECTION 5.2 ADMINISTRATIVE RULES. The Administrator may adopt
such rules of procedure as it deems desirable for the conduct of its affairs,
except to the extent that such rules conflict with the provisions of the Plan.
SECTION 5.3 DUTIES. The Administrator shall have the
following rights, powers and duties:
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(a) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the Employers and upon
any person affected by such decision subject to the claims procedure hereinafter
set forth.
(b) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Plan, to determine eligibility for
Retirement Benefits and the appropriate amount of any Retirement Benefits, to
decide any question which may arise regarding the rights of employees and to
exercise such powers as the Administrator may deem necessary for the
administration of the Plan, and to exercise any other rights, powers or
privileges granted to the Administrator by the terms of the Plan.
(c) The Administrator shall maintain full and complete records
of its decisions. Its records shall contain all relevant data pertaining to the
Participant and his rights and duties under the Plan. The Administrator shall
have the duty to main Account records of all Participants.
(d) The Administrator shall cause the principal provisions of
the Plan to be communicated to the Participants, and a copy of the Plan and
other documents shall be available at the principal office of the Employers for
inspection by the Participants at reasonable times determined by the
Administrator.
(e) The Administrator shall periodically report to the Board
with respect to the status of the Plan.
SECTION 5.4 FEES. No fee or compensation shall be paid to any
person for services as the Administrator.
ARTICLE VI
CLAIMS PROCEDURE
SECTION 6.1 GENERAL. Any claim for Retirement Benefits under
the Plan shall be filed by the Participant or beneficiary ("claimant") in the
manner prescribed by the Administrator.
SECTION 6.2 DENIALS. If a claim for Retirement Benefits under
the Plan is wholly or partially denied, notice of the decision shall be
furnished to the claimant by the Administrator within a reasonable period of
time after receipt of the claim by the Administrator.
SECTION 6.3 NOTICE. Any claimant who is denied a claim for
Retirement Benefits shall be furnished written notice setting forth:
(i) the specific reason or reasons for the denial;
(ii) specific reference to the pertinent provision of
the Plan upon which the denial is based;
(iii) a description of any additional material or
information necessary of the claimant to perfect
the claim; and
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<PAGE> 13
(iv) an explanation of the claim review procedure under
the Plan.
SECTION 6.4 APPEALS PROCEDURE. In order that a claimant may
appeal a denial of a claim, the claimant or the claimant's duly authorized
representative may:
(a) request a review by written application to the
Administrator, or its designate, no later than 60 days after receipt by the
claimant of written notification of denial of a claim;
(b) review pertinent documents; and
(c) submit issues and comments in writing.
SECTION 6.5 REVIEW. A decision on review of a denied claim
shall be made not later than 60 days after receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered within a reasonable period of time, but
not later than one hundred twenty (120) days after receipt of a request for a
review. The decision on review shall be in writing and shall include the
specific reason(s) for the decision and the specific reference(s) to the
pertinent provisions of the Plan on which the decision is based.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1 AMENDMENT AND TERMINATION. The Company reserves
the right to amend or terminate the Plan in any manner that it deems advisable,
by a resolution of the Company's Board. Notwithstanding the preceding, no
amendment or termination of the Plan shall, without a Participant's consent,
reduce the Retirement Benefit of any Participant determined as of the day
immediately preceding the effective date of such amendment or termination.
SECTION 7.2 NO ASSIGNMENT. The Participant shall not have the
power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or
dispose of in advance any interest in amounts payable hereunder of any of the
payments provided for herein, nor shall any interest in amounts payable
hereunder or in any payments be subject to seizure for payments of any debts,
judgments, alimony or separate maintenance, or be reached or transferred by
operation of law in the event of bankruptcy, insolvency or otherwise.
SECTION 7.3 SUCCESSORS AND ASSIGNS. The provisions of the
Plan are binding upon and inure to the Retirement Benefit of each Employer, its
successors and assigns, and the Participant, his beneficiaries, heirs and legal
representatives.
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SECTION 7.4 GOVERNING LAW. The Plan shall be subject to and
construed in accordance with the laws of the State of Illinois to the extent not
preempted by the provisions of ERISA.
SECTION 7.5 NO GUARANTEE OF EMPLOYMENT. Nothing contained in
the Plan shall be construed as a contract of employment or deemed to give any
Participant the right to be retained in the employ of an Employer or any equity
or other interest in the assets, business or affairs of an Employer. No
Participant hereunder shall have a security interest in assets of an Employer
used to make contributions or pay Retirement Benefits.
SECTION 7.6 SEVERABILITY. If any provision of the Plan shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining provisions of the Plan, but the Plan shall be construed
and enforced as if such illegal or invalid provision had never been included
herein.
SECTION 7.7 NOTIFICATION OF ADDRESSES. Each Participant and
each beneficiary shall file with the Administrator, from time to time, in
writing, the post office address of the Participant, the post office address of
each beneficiary, and each change of post office address. Any communication,
statement or notice addressed to the last post office address filed with the
Administrator (or if no such address was filed with the Administrator, then to
the last post office address of the Participant or beneficiary as shown on the
Employer's records) shall be binding on the Participant and each beneficiary for
all purposes of the Plan and neither the Administrator nor the Employer shall be
obliged to search for or ascertain the whereabouts of any Participant or
beneficiary.
SECTION 7.8 PARTICIPATING EMPLOYERS. Any other entity that is
affiliated with the Company in a manner described in Code Sections 414(b), (c),
(m) or (o) may become an Employer under the Plan by adopting the Plan, effective
as of the date specified in such adoption, and by the Company's execution of a
written consent evidencing the Company's consent to said adoption.
SECTION 7.9 BONDING. The Administrator and all agents and
advisors employed by it shall not be required to be bonded, except as otherwise
required by ERISA.
SECTION 7.10 TAXES. The Company shall have the right to
withhold from any cash or other amounts due or to become due from the Company to
a Participant (including by reducing the amount of any Retirement Benefit
payable in the future) the amount of any federal, state and local taxes required
to be withheld or otherwise deducted and paid by the Company with respect to the
vesting or payment of any Retirement Benefit hereunder.
ARTICLE VIII
FUNDING
SECTION 8.1 EMPLOYER LIABILITY. The entire cost of this Plan
shall be paid from the general assets of the Employer. No liability for the
payment of Retirement Benefits under the Plan shall be imposed upon any officer,
trustee, employee, or agent of an Employer.
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SECTION 8.2 UNFUNDED PLAN. Notwithstanding the remaining
sections in this Article, the Plan, at all times, shall be entirely unfunded and
shall constitute merely the unsecured promise of the Employer to make the
payments as provided for herein. No Participant nor any beneficiary nor any
other person shall have, by reason of this Plan, any rights, title or interest
of any kind in or to any property of the Employer, all of which shall be subject
to the claims of general creditors of the Employer, nor any beneficial interest
in any trust which may be established by the Employer in connection with this
Plan nor any guarantee that assets of the Employer will be sufficient to pay
Retirement Benefits under the Plan. If the Employer transfers any property to a
trust in connection with this Plan such trust shall not be held for the
exclusive benefit of Participants and any assets held in such trust shall be
subject to the claims of the Employer's general creditors in the event of the
Employer's insolvency.
SECTION 8.3 TRUST. A trust may be established by the
execution of a Trust Agreement with one or more trustees, to be known as The
Amcore Financial, Inc. Trust (the "Trust"). If a Trust is established, the
following provisions shall be applicable:
(a) The Trust shall be maintained as a "grantor trust" under
Section 677 of the Code, with the assets of the Trust being held, invested and
disposed of by the trustee, in accordance with the terms of the Trust, for the
exclusive purpose of providing Retirement Benefits for Participants.
Notwithstanding any provision of the Plan or the Trust to the contrary, all
assets held in the Trust shall at all times be subject to the claims of the
Employer's general creditors in the event of insolvency or bankruptcy.
(b) The Employer, in its sole discretion, and from time to
time, may make contributions (which may consist of either cash or assets in
kind) to the Trust. All Retirement Benefits under the Plan and expenses
chargeable to the Plan, to the extent not paid directly by the Employer, shall
be paid from the Trust.
(c) The powers, duties and responsibilities of the trustee
shall be as set forth in the Trust Agreement and nothing contained in the Plan,
either expressly or by implication, shall impose any additional powers, duties
or responsibilities upon the trustee.
(d) The Employer shall have no beneficial interest in the
Trust and no part of the Trust shall ever revert or be repaid to the Employer,
directly or indirectly, except as otherwise provided in subsection (a) above or
in the Trust Agreement.
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EXECUTION
The undersigned, pursuant to the approval of the Board on May 20, 1998,
does herewith execute this Amcore Financial, Inc. Supplemental Executive
Retirement Plan.
Amcore Financial, Inc.
By:
-----------------------------
Title:
-----------------------------
14
<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
BY AND BETWEEN
M&I MARSHALL & ILSLEY BANK
AND
AMCORE FINANCIAL, INC.
DATED AS OF DECEMBER 31, 1999
<PAGE> 2
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of December __, 1999 by and between
AMCORE FINANCIAL, INC, and M&I MARSHALL & ILSLEY BANK.
IN CONSIDERATION of the mutual covenants, conditions and agreements
set forth herein, it is hereby agreed that:
ARTICLE I
DEFINITIONS
1.1 Definitions. When used in this Loan Agreement, the following
terms shall have the meanings specified:
"Affiliate" shall mean any Person: (a) that directly or indirectly
controls, or is controlled by, or is under common control with, the Company or
any Subsidiary; (b) that directly or indirectly beneficially owns or holds
twenty percent (20%) or more of any class of voting stock of the Company or any
Subsidiary; (c) twenty percent (20%) or more of the voting stock of which Person
is directly or indirectly beneficially owned or held by the Company or any
Subsidiary; (d) that is an officer or director of the Company or any Subsidiary;
(e) of which an Affiliate is an officer or director; or (f) who is related by
blood, adoption or marriage to an Affiliate. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Automatic Event of Default" shall mean any one or more of the
following:
(a) The Company or any of its Subsidiaries shall: (i) have an order
for relief entered with respect to it under the federal bankruptcy laws as now
or hereafter in effect; (ii) make an assignment for the benefit of creditors;
(iii) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it or
any Substantial Portion of its Property; (iv) institute any proceeding seeking
an order for relief under the federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it; (v) take any corporate action to authorize or effect any of the foregoing
actions set forth in this paragraph (a) or (vi) fail to contest in good faith
any appointment or proceeding described in paragraph (b) below; or
(b) without the application, approval or consent of the Company or
any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in paragraph
(a)(iv) above shall be instituted against the Company or any of its Subsidiaries
and such appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of thirty (30) consecutive days.
<PAGE> 3
"Banking Subsidiary means any Subsidiary which is a bank or thrift
organized under the laws of the United States or any state thereof.
"Business Day" shall mean any day other than a Saturday, Sunday,
public holiday or other day when commercial banks in Wisconsin are authorized or
required by Law to close.
"Capital Commitment" means any commitment by the Company or any of
its Subsidiaries to the Federal Deposit Insurance Corporation, the Resolution
Trust Corporation, the Director of the Office of Thrift Supervision, the
Comptroller of the Currency or the Board of Governors of the Federal Reserve
System, or any of their predecessors or successors, to maintain the capital of
an insured depository institution in a required amount, within the meaning of
Section 365(o) of Title 11, United States Code, as amended or supplemented from
time to time.
"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock
of the Company.
"Closing Date" shall mean the date of the consummation of the
transactions evidenced by this Loan Agreement.
"Commercial Paper" means the interest bearing or discounted
short-term unsecured debt obligations issued by the Company under the Commercial
Paper Agreement.
"Commercial Paper Agreement" means the Commercial Paper Placement
Agreement dated as of November 10, 1995 between the Company and M&I, together
with the Exhibits attached thereto, as the same shall be amended from time to
time in accordance with the terms thereof.
"Company" shall mean AMCORE Financial, Inc., a Nevada corporation.
"Compliance Certificate" means a compliance certificate, in
substantially the form of Exhibit A hereto, signed by the Company's chief
financial officer, stating, among other things, that no Default or Event of
Default exists, or if any Default or Event of Default exists, stating the nature
and status thereof.
"Consolidated Financial Statements" means the Consolidated
Financial Statements for Bank Holding Companies With Total Consolidated Assets
of $150 Million or More, or With More Than One Subsidiary Bank--FR Y-9 C, as
such report may be amended or modified from time to time, and any similar report
required to be filed by the Company.
"Default" shall mean any event which would constitute an Event of
Default but for the requirement that notice be given or time elapse or both.
"Environmental Laws" means all Laws, judgments, decrees, permits,
licenses, agreements and other governmental restrictions, now
2
<PAGE> 4
or at any time hereafter in effect, relating to: (a) the emission, discharge or
release of pollutants, petroleum or petroleum products, chemicals or industrial,
toxic or hazardous substances, materials or wastes into the environment; or (b)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes; or (c) the
investigation, clean-up or remediation thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and as in effect from time to time.
"Event of Default" shall mean any Automatic Event of Default or any
Notice Event of Default.
"FRB" shall mean the Board of Governors of the Federal Reserve
System.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America, applied by the Company
and its Subsidiaries on a basis consistent with the preparation of the Company's
most recent financial statements furnished to M&I pursuant to Section 6.2
hereof.
"Indebtedness" shall mean all liabilities or obligations of the
relevant Person, whether primary or secondary or absolute or contingent: (a) for
borrowed money or for the deferred purchase price of property or services
(excluding trade obligations incurred in the ordinary course of business, which
are not the result of any borrowing); (b) as lessee under leases that have been
or should be capitalized according to GAAP; (c) evidenced by notes, bonds,
debentures or similar obligations; (d) under any guaranty or endorsement (other
than in connection with the deposit and collection of checks in the ordinary
course of business), and other contingent obligations to purchase, provide funds
for payment, supply funds to invest in any Person, or otherwise assure a
creditor against loss; or (e) secured by any Liens on assets of such Person,
whether or not the obligations secured have been assumed by such Person.
"Law" shall mean any federal, state, local or other law, rule,
regulation or governmental requirement of any kind, and the rules, regulations,
interpretations and orders promulgated thereunder.
"LIBOR" shall mean an annual rate of interest equal to the Adjusted
Interbank Rate (as defined immediately below), which rate shall change on the
first day of each calendar month. Each change in any rate of interest computed
by reference to LIBOR shall take effect on the first day of each calendar month.
"Adjusted Interbank Rate" means an annual rate for any calendar month
(rounded upwards, if necessary, to the nearest 1/100 of 1%), determined
pursuant to the following formula:
Adjusted Interbank Rate = Interbank Rate
---------------------
1 - Interbank Reserve
Requirement
"Interbank Rate" means with respect to any Loan, the rate per annum
equal to the rate (rounded upwards, if necessary, to the
3
<PAGE> 5
nearest 1/16 of 1%) quoted as the rate at which dollar deposits in
immediately available funds are offered on the first day of each
calendar month in the interbank Eurodollar market on or about 9:00 A.M.
Milwaukee time for a period of one (1) calendar month and in an amount
equal to or comparable to the amount of such Loan. If the first day of
any calendar month is not a Business Day, the Interbank Rate shall be
established on the preceding Business Day. Each such determination
shall be conclusive and binding upon the parties hereto in the absence
of demonstrable error. M&I currently uses the Knight Ridder Information
Service to provide information with respect to the interbank Eurodollar
market, but M&I may change the service providing such information at
any time.
"Interbank Reserve Requirement" means a percentage (expressed as a
decimal) equal to the aggregate reserve requirements in effect on the
first day of each calendar month (including all basic, supplemental,
marginal and other reserves and taking into account any transitional
adjustments or other scheduled changes in reserve requirements during
each calendar month) specified for "Eurocurrency Liabilities" under
Regulation D of the FRB, or any other regulation of the FRB which
prescribes reserve requirements applicable to "Eurocurrency
Liabilities" as presently defined in Regulation D, as then in effect,
as applicable to the class or classes of banks of which M&I is a
member. As of the date of this Loan Agreement, the Interbank Reserve
Requirement is 0%.
"Lien" shall mean, with respect to any asset: (a) any mortgage,
pledge, lien, charge, security interest or encumbrance of any kind; and (b) the
interest of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.
"Line of Credit Commitment" shall mean the commitment of M&I to
make Line of Credit Loans to the Company up to a maximum aggregate principal
amount outstanding from time to time equal to Fifty Million Dollars
($50,000,000) minus the aggregate outstanding principal amount owing under the
Company's Commercial Paper.
"Line of Credit Loans" shall mean the loans made from time to time
to the Company by M&I pursuant to Section 2.1 of this Loan Agreement.
"Line of Credit Note" shall mean a promissory note issued by the
Company and payable to the order of M&I evidencing the Line of Credit Loans and
in substantially the form of Exhibit B attached hereto, as such note may be
amended or amended and restated from time to time and all extensions, renewals
or refinancings thereof and all substitutions therefor and replacements thereof.
"Line of Credit Termination Date" shall mean the earlier of: (a)
April 30, 2000; or (b) the date that the Line of Credit Commitment is terminated
pursuant to Section 7.1 of this Loan Agreement.
"Loan" or "Loans" shall mean the Line of Credit Loans.
"Loan Agreement" shall mean this Loan Agreement, together with the
Exhibits and any Schedules attached hereto, as the same shall be amended from
time to time in accordance with the terms hereof.
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"M&I" shall mean M&I Marshall Ilsley Bank, a Wisconsin banking
corporation.
"Non-Performing Loans" means: (i) the total of loans which are
placed on a nonaccrual status; (ii) the total of loans which are past due 90
days or more and are still accruing; and (iii) the total of loans and leases
restructured and in compliance with modified terms, in each case determined in a
manner consistent with that used in preparing the Company's Consolidated
Financial Statements.
"Note" shall mean the Line of Credit Note.
"Notice Event of Default" shall mean any one or more of the
following:
(a) the Company shall fail to pay any installment of the principal
of or interest upon the Note within five (5) business days of the date when due;
or
(b) there shall be a default in the performance or observance of
any of the covenants and agreements contained in Section 3.3, Article V or
Sections 6.1(a), 6.2, 6.4, 6.5, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, 6.14 or 6.15
of this Loan Agreement; or
(c) there shall be a default in the performance or observance of
any of the other covenants, agreements or conditions contained in this Loan
Agreement, the Note or any other document, agreement or instrument delivered in
connection with this Loan Agreement and such default shall have continued for a
period of thirty (30) calendar days after notice thereof from M&I to the
Company; or
(d) any representation or warranty made by the Company in this Loan
Agreement or in any document or financial statement delivered pursuant to this
Loan Agreement shall prove to have been false in any material respect as of the
time when made or given; or
(e) final judgments shall be entered against the Company or any
Subsidiary which, when added to other final judgments against the Company and
all Subsidiaries exceeds the aggregate amount of $1,000,000 and such final
judgments shall remain outstanding and unsatisfied, unbonded or unstayed after
thirty (30) days from the date of entry thereof; provided that no final judgment
shall be included in the calculation under this subsection to the extent that
the claim underlying such judgment is covered by insurance and defense of such
claim has been tendered to and accepted by the insurer without reservation; or
(f) (i) any Reportable Event (as defined in ERISA) shall have
occurred which constitutes grounds for the termination of any Plan by the PBGC
or for the appointment of a trustee to administer any Plan, or any Plan shall be
terminated within the meaning of Title IV of ERISA, or a trustee shall be
appointed by the appropriate court to administer any Plan, or the PBGC shall
institute proceedings to terminate any Plan or to appoint a trustee to
administer any Plan, or the Company or any trade or business which together with
the Company would be treated as a single employer under Section 4001 of ERISA
shall withdraw in whole or in part from a multi-employer Plan; and (ii) the
aggregate amount of the Company's liability for all such occurrences, whether to
a Plan, the PBGC or otherwise, may exceed
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$1,000,000 and such liability is not covered, for the benefit of the Company, by
insurance; or
(g) the Company or any Subsidiary shall: (i) fail to pay any amount
of principal or interest when due (whether by scheduled maturity, required
prepayment, acceleration or otherwise) under any Indebtedness (other than the
Note) in an aggregate amount of $1,000,000 or more and such failure shall
continue after the applicable grace period, if any, specified in any agreement
or instrument relating to such Indebtedness; or (ii) fail to perform or observe
any term, covenant or condition on its part to be performed or observed under
any agreement or instrument relating to any such Indebtedness when required to
be performed or observed, and such failure shall not be waived and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such failure to perform or observe is to
accelerate, or to permit acceleration of, with the giving of notice if required,
the maturity of such Indebtedness; or
(h) the occurrence of any default or event of default under any
other loan agreement, credit agreement, letter of credit application or other
document or instrument evidencing obligations of the Company or any Subsidiary
to M&I or otherwise in respect of any credit accommodation extended to the
Company or any Subsidiary by M&I;
(i) any Change in Control shall occur; or
(j) any conservator or receiver shall be appointed for the Company
or any Banking Subsidiary under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as it may be amended or supplemented from time to time;
or
(k) any Banking Subsidiary shall cease to be insured under the
Federal Deposit Insurance Act of 1959, as amended, or a cease and desist order
shall be issued against the Company or any Subsidiary pursuant to 12 U.S.C.
1818(b) or (c) or any similar applicable provision of state law; or
(1) the Company or any Subsidiary shall enter into any Capital
Commitment with any federal or state regulator or any such regulator shall
require the Company or any Subsidiary to submit a capital maintenance or
restoration plan or the Company or any Subsidiary shall cease to be in
compliance with any such Capital Commitments or plans existing on the date of
this Loan Agreement; or
(m) the Company shall default in the payment of any Commercial
Paper or shall breach any term of the Commercial Paper Agreement.
"PBGC" shall mean the PBGC or any entity succeeding to any or all
of its functions under ERISA.
"Permitted Indebtedness" shall mean: (a) Indebtedness to M&I (b)
Indebtedness of any Subsidiary which is a bank incurred in the ordinary course
of its business to depositors or customers as such or in connection with
transactions in Federal funds and interbank credit facilities, including
Indebtedness or obligations by reason of any deposits with it or funds collected
by it, any banker's acceptance
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or letter of credit, check, note, certificate of deposit, money order, receipt,
draft or bill of exchange issued, accepted or endorsed by it, any discount with,
borrowing from, or other obligation to, any Federal Reserve Bank, any borrowing
from the Federal Home Loan Bank, any agreement made by it, to purchase or
repurchase securities, loans or Federal funds or any interest or participation
in any thereof, any transaction in the nature of an extension of credit, whether
in the form of a commitment, guarantee or otherwise, undertaken for the account
of a third party with the application of the same banking considerations that
would be applicable if the transaction were a loan to such party, and any
transaction in which it acts solely in a fiduciary or agency capacity; (c)
Indebtedness of any Subsidiary which is not a bank incurred in the ordinary
course of its business; and (d) unsubordinated Indebtedness for borrowed money
not to exceed $25,000,000 in the aggregate.
"Person" shall mean and include an individual, partnership, limited
liability entity, corporation, trust, incorporated organization and a government
or any department or agency thereof.
"Plan" shall mean each pension, profit sharing, stock bonus,
thrift, savings and employee stock ownership plan established or maintained, or
to which contributions have been made, by the Company or any trade or business
which together with the Company would be treated as a single employer under
Section 4001 of ERISA.
"Prime Rate" shall mean the prime rate of interest adopted by M&I
from time to time as the base rate for interest rate determinations. Each change
in any rate of interest computed by reference to the Prime Rate shall take
effect on the effective date of any change in the Prime Rate.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Subsidiary" shall mean any Person at least fifty percent (50%) of
the outstanding ownership interest of which (of any class or classes, however
designated, having ordinary voting power for the election of at least a majority
of the members of the board of directors or other managing body of such Person,
other than ownership interests having such power only by reason of the happening
of a contingency) shall at the time be owned by the Company directly or through
one or more Subsidiaries.
"Substantial Portion" means, with respect to the Property of the
Company and its Subsidiaries, Property which: (i) represents more than 10% of
the consolidated assets of the Company and its Subsidiaries as would be shown in
the consolidated financial statements of the Company and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Company and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
1.2 Interpretation. The foregoing definitions are equally applicable to
both the singular and plural forms of the terms defined. The words "hereof",
"herein", and "hereunder" and words of like import
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when used in this Loan Agreement shall refer to this Loan Agreement as a whole
and not to any particular provision of this Loan Agreement. Where the character
or amount of any asset or liability or item of income or expense is required to
be determined or any consolidation or other accounting computation is required
to be made for the purposes of this Loan Agreement, it shall be done in
accordance with GAAP except that the terms used in Sections 6.10, 6.11, 6.12,
6.13 and 6.14 shall be defined as provided for in those sections.
ARTICLE II
THE LOAN
2.1 Line of Credit Loans. (a) From time to time prior to the Line of
Credit Termination Date, M&I agrees to make Line of Credit Loans to the Company
subject to the terms and conditions set forth in this Loan Agreement. The amount
of Line of Credit Loans outstanding at any one time shall never exceed an amount
equal to the Line of Credit Commitment. All Line of Credit Loans shall be
evidenced by the Line of Credit Note, the Company being obligated, however, to
pay the amount of Line of Credit Loans actually made (including any
over advances), together with interest on the amount which remains outstanding
from time to time. The Company may borrow, repay and reborrow under this Section
subject to the terms and conditions of this Loan Agreement. The Line of Credit
Note shall mature on the Line of Credit Termination Date.
(b) The initial Line of Credit Loan shall be in an integral
multiple of One Hundred Thousand Dollars and not less than Five Hundred Thousand
Dollars ($500,000). Each subsequent Line of Credit Loan shall be in an integral
multiple of One Hundred Thousand Dollars ($100,000).
(c) The proceeds of the Line of Credit Loans shall be used as a
back-up line of credit to support the issuance of the Company's Commercial Paper
or in the event that the Company or its agent is unable to place the Company's
Commercial Paper.
2.2 Interest. (a) The unpaid principal of all Line of Credit Loans
shall bear interest at either: (i) LIBOR quoted for each calendar month plus
1.375%; or (ii) the Prime Rate, as selected the Company upon written or
telephonic notice at least one (1) Business Day prior to the end of any calendar
month. Each such notice shall be effective upon receipt by M&I, and must be
received by 12:30 P.M., Milwaukee time, to be considered as received on the day
given. Any interest rate conversion for all Line of Credit Loans shall be
effected only on the first day of any calendar month. Absent receipt by M&I of a
notice of interest rate conversion, all Line of Credit Loans shall continue to
bear interest at the interest rate option previously selected by the Company. If
the Line of Credit Loans bear interest at the Prime Rate, such rate shall
automatically change on the effective date of each change in the Prime Rate, and
if the Line of Credit Loans bear interest by reference to LIBOR, such rate shall
automatically change on the first day of each calendar month in accordance with
the terms hereof.
(b) In the event that any amount of the principal of, or interest
on, the Note is not paid on the date when due (whether at stated maturity, by
acceleration or otherwise), the entire principal amount outstanding under the
Note shall bear interest, in addition to
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the interest otherwise payable under the Note and to the extent permitted by
Law, at the annual rate of two percent (2.0%) from the day following the due
date until all such overdue amounts have been paid in full.
(c) All interest and other amounts due under this Loan Agreement
and the Note shall be computed for the actual number of days elapsed on the
basis of a 360 day year.
2.3 Payments. (a) The outstanding unpaid principal balance of the Line
of Credit Loans shall be paid in full on the Line of Credit Termination Date.
(b) Interest accrued on the Line of Credit Loan through the last
day of each month (including in the case of the first interest payment, interest
accrued from the Closing Date) shall be paid on the fifth day of the next month,
commencing on January 5, 2000 and continuing thereafter until all principal of
and accrued interest on the Line of Credit Loans is repaid in full.
(c) All payments of principal and interest on account of the Note
and all other payments made pursuant to this Loan Agreement shall be delivered
to M&I, 770 North Water Street, Milwaukee, Wisconsin 53202, Attention:
Correspondent Banking or at such other place as M&I or any holder of the Note
shall designate in writing to the Company, in immediately available funds by
12:00 noon, Milwaukee time on the date when due, and if received after such time
on any day shall be deemed to have been made on the next Business Day. Whenever
any payment to be made under this Loan Agreement or under the Note shall be
stated to be due on a day which is not a Business Day, the day for such payment
shall be extended to the next succeeding Business Day, and such extension of
time shall be included in the computation of interest. The Company hereby
authorizes M&I to debit its deposit accounts at M&I, if any, for all payments of
principal and interest due and owing on the Loans and for all other payments due
and owing under this Loan Agreement.
(d) All payments owed by the Company to M&I under this Loan
Agreement and the Note shall be made without any counterclaim and free and clear
of any restrictions or conditions and free and clear of, and without deduction
for or on account of, any present or future taxes, levies, imposts, duties,
charges, fees, deductions or withholdings of any nature now or hereafter imposed
on the Company by any governmental or other authority. If the Company is
compelled by Law to make any such deductions or withholdings it will pay such
additional amounts as may be necessary in order that the net amount received by
M&I after such deductions or withholdings, shall equal the amount M&I would have
received had no such deductions or withholdings been required to be made, and it
will provide M&I with evidence satisfactory to M&I that it has paid such
deductions or withholdings.
2.4 Prepayments. The Company may, from time to time and without premium
or penalty, prepay the Line of Credit Loans in whole or in part.
2.5 Commitment Fee. On the last day of January, April, July and October
in each year, beginning on January 31, 2000 and continuing until the Line of
Credit Termination Date (with a proportionate fee due on the Line of Credit
Termination Date), the Company agrees to pay
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to M&I a commitment fee, computed at the rate of 0.1875% per annum, on the daily
average amount by which the Line of credit commitment exceeds the daily average
amount of Line of Credit Loans outstanding during the previous fiscal quarter.
2.6 Recordkeeping. M&I shall record in its records the date and amount
of each Loan and each repayment of the Loans. The aggregate amounts so recorded
shall be rebuttable presumptive evidence of the principal and interest owing and
unpaid on the Note. The failure to so record any such amount or any error in so
recording any such amount shall not, however, limit or otherwise affect the
obligations of the Company under this Loan Agreement or under the Note to repay
the principal amount of the Loans together with all interest accruing thereon.
2.7 Increased Costs. If Regulation D of the FRB, or the adoption of any
applicable law, rule or regulation of general application, or any change
therein, or any interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by M&I with any request or directive of
general application (whether or not having the force of law) or any such
authority, central bank or comparable agency:
(a) shall subject M&I to any tax, duty or other charge with respect to
the Loans or the Note, or shall change the basis of taxation of payments to M&I
of the principal of or interest on the Loans or any other amounts due under this
Loan Agreement in respect of the Loans (except for changes in the rate of tax on
the overall net income of M&I) or
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the FRB, but excluding any reserve
included in the determination of interest rates pursuant to this Loan
Agreement), special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, M&I or
(c) shall affect the amount of capital required or expected to be
maintained by M&I or any corporation controlling M&I; or
(d) shall impose on M&I any other condition affecting the Loans or the
Note;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) M&I of making or
maintaining any Loan hereunder, or to reduce the amount of any sum received or
receivable by M&I under this Loan Agreement or under the Note with respect
thereto, then within ten (10) days after demand by M&I (which demand shall be
accompanied by a statement setting forth the basis of such demand), the Company
shall pay directly to M&I such additional amount or amounts as will compensate
M&I for such increased cost or such reduction. Determinations by M&I for
purposes of this Section of the effect of any change in applicable laws or
regulations or of any interpretations, directives or requests thereunder on its
costs of making or maintaining the Loans hereunder, or sums receivable by it in
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respect of Loans, and of the additional amounts required to compensate M&I in
respect thereof, shall be conclusive, absent manifest error.
2.8 Warranty. Each notice of borrowing or conversion shall
automatically constitute a warranty by the Company to M&I that, on the requested
date of such Loan or continuation or conversion, as the case may be: (a) all of
the representations and warranties of the Company contained in this Loan
Agreement shall be true and correct on such date as though made on such date;
and (b) no Default or Event of Default shall exist on such date.
2.9 Deposits Unavailable or Interest Rate Unascertainable.
(a) If M&I is advised that deposits in dollars (in the applicable
amount) are not being offered to banks in the relevant market for a period of
one (1) calendar month, or M&I otherwise determines (which determination shall
be binding and conclusive on all parties) that by reason of circumstances
affecting the interbank Eurodollar market adequate and reasonable means do not
exist for ascertaining the applicable Interbank Rate; or
(b) If lenders similar to M&I have determined that the Interbank Rate
will not adequately and fairly reflect the cost to such lenders of maintaining
or funding loans based on the Interbank Rate, or that the making or funding of
such Interbank Rate loans has become impracticable as a result of an event
occurring after the date of this Loan Agreement which in the opinion of M&I
materially affects such Interbank Rate loans;
then so long as such circumstances shall continue, M&I shall not be under any
obligation to make or continue Loans based on the Interbank Rate and on the
first Business Day of the next calendar month, such Loans shall bear interest at
the Prime Rate.
2.10 Change in Law Rendering Interbank Rate Loans Unlawful. In the
event that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it unlawful for M&I to make, maintain or
fund Loans based on the Interbank Rate, then: (a) M&I shall promptly notify the
Company; (b) the obligation of M&I to make or continue Loans based on the
Interbank Rate shall be suspended for the duration of such unlawfulness; and (c)
on the first Business Day of the next calendar month, such Loans shall bear
interest at the Prime Rate.
ARTICLE III
CONDITIONS
3.1 General Conditions. The obligation of M&I to make any Loan is
subject to the satisfaction on the date hereof and on the date of each Loan, of
the following conditions:
(a) the representations and warranties of the Company contained
in this Loan Agreement shall be true and accurate on and as of such date;
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(b) there shall not exist on such date any Default or Event of
Default;
(c) the making of the relevant Loan shall not be prohibited by
any applicable Law and shall not subject M&I to any penalty under or pursuant on
any applicable Law; and
(d) M&I shall have received all documents required by this Loan
Agreement to be delivered to M&I.
3.2 Deliveries at Closing. The obligations of M&I to make any Loan is
further subject to the condition precedent that M&I shall have received each of
the following (each to be properly executed, dated and completed) on or before
the Closing Date:
(a) this Loan Agreement;
(b) the Line of Credit Note;
(c) a Compliance Certificate, in the form of Exhibit A attached
to this Loan Agreement, containing information as of the Closing Date;
(d) a certificate of the Secretary of State of Nevada as to the
good standing of the Company, dated as of a recent date;
(e) opinion of counsel;
(f) a certificate of the Secretary or Assistant Secretary of the
Company, dated the Closing Date and in the form of Exhibit C attached to this
Loan Agreement, as to: (i) the incumbency and signature of the officers of the
Company who have signed or will sign this Loan Agreement, the Note, and any
other documents or materials to be delivered by the Company to M&I pursuant to
this Loan Agreement; (ii) the adoption and continued effect of resolutions of
the board of directors of the Company authorizing the execution, delivery and
performance of this Loan agreement; (iii) the accuracy and completeness of
copies of the articles or certificate of incorporation and bylaws of the Company
I as amended to date; and (iv) the name, title and signature of each authorized
officer; and
(g) such additional supporting documents and materials as M&I or
its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to M&I as follows:
4.1 Organization and Qualification. The Company is a corporation duly
and validly organized and existing and in good standing under the laws of the
State of Nevada and has the corporate power and all necessary licenses, permits
and franchises to own its assets and properties and to carry on its business and
has received all necessary approvals to conduct its business as a registered
bank holding company, as that phrase is defined in the Bank Holding Company Act
of 1956, as amended, and has made all filings presently required
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or contemplated by such act and will make all filings required in the future by
such act and is not in violation of such act. The Company is duly licensed or
qualified to do business in all jurisdictions in which failure to do so would
have a material adverse effect on its business or financial condition.
4.2 Subsidiaries. Each of the Subsidiaries is a corporation duly and
validly organized and existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and all necessary
licenses, permits and franchises to own its assets and properties and to carry
on its business. Each Subsidiary is duly licensed or qualified to do business in
all jurisdictions in which failure to do so would have a material adverse effect
on its business or financial condition.
4.3 Financial Statements. All of the financial statements of the
Company and its Subsidiaries heretofore furnished to M&I are accurate and
complete, were prepared in accordance with GAAP consistently applied throughout
all periods and fairly present the financial condition and the results of
operation of the relevant Person for the periods and as of the relevant dates
thereof. There has been no material adverse change in the business, properties
or condition, financial or otherwise, of the Company and its Subsidiaries since
the date of the latest of such financial statements.
4.4 Authorization; Enforceability. The making, execution, delivery and
performance of this Loan Agreement and the Note by the Company and compliance
with their respective terms by the Company have been duly authorized by all
necessary corporate action. This Loan Agreement and the Note are the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws generally affecting the rights of creditors and subject to general
equity principles.
4.5 Absence of Conflicting Obligations. The making, execution, delivery
and performance of this Loan Agreement and the Note and compliance with their
respective terms do not violate any presently existing provision of Law or the
articles of incorporation or bylaws of the Company or any Subsidiary or any
agreement to which the Company or any Subsidiary is a party or by which it is
bound.
4.6 Taxes. The Company and each Subsidiary have filed all federal,
state, foreign and local tax returns which were required to be filed (subject to
any valid extensions of the time for filing), and have paid or made provision
for the payment of all taxes owed by them, and no tax deficiencies have been
assessed or, to the Company's knowledge, proposed against the Company or any
Subsidiary.
4.7 Absence of Litigation. Neither the Company nor any Subsidiary is a
party to, nor so far as is known to the Company is there any threat of, any
litigation or administrative proceeding which would, if adversely determined,
cause any material adverse change in the assets and properties of, or any
material impairment of the right to carry on the business as now conducted by,
or would cause any material adverse effect on the financial condition of, the
Company or any Subsidiary.
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4.8 Guarantees; Undisclosed Liabilities. Except pursuant to the deposit
and collection of checks in the ordinary course of business, neither the Company
nor any Subsidiary has guaranteed or become a surety or is otherwise
contingently liable for the obligations of any other Person, except for
Permitted Indebtedness. Neither the Company nor any Subsidiary has any
liabilities of any nature not disclosed in the financial statements supplied by
the Company to M&I.
4.9 Accuracy of Information. All information, certificates or
statements by the Company or any Subsidiary given in, or pursuant to, this Loan
Agreement shall be accurate, true and complete when given.
4.10 Title to Property. The Company and each Subsidiary have good and
marketable title to their respective assets and properties and there are no
Liens on any of the stock of the Company's Subsidiaries.
4.11 Federal Reserve Regulations. The Company will not, directly or
indirectly, use the proceeds of the Loans for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U of the FRB, or
otherwise take or permit any action which would involve a violation of any
regulation of the FRB.
4.12 Offering of Note. Neither the Company nor any agent acting for it
has offered the Note or any similar obligation of the Company for sale to or
solicited any offers to buy the Note or any similar obligation of the Company
from any Person other than M&I, and neither the Company nor any agent acting for
it will take any action which would subject the sale of the Note to the
registration provisions of the Securities Act of 1933, as amended.
4.13 Banker's Blanket Bond. Each Subsidiary that is a bank has a
current and valid banker's blanket bond covering it and its operations, officers
and employees.
4.14 ERISA. The Company has no knowledge that any Plan is in
noncompliance in any material respect with the applicable provisions of ERISA or
the Internal Revenue Code. The Company has no knowledge of any pending or
threatened litigation or governmental proceeding or investigation against or
relating to any Plan, and has no knowledge of any reasonable basis for any
material proceedings, claims or actions against or relating to any Plan. The
Company has no knowledge that the Company has incurred any "accumulated funding
deficiency" within the meaning of Section 302 (a)(2) of ERISA in connection with
any Plan. The Company has no knowledge that there has been any Reportable Event
or Prohibited Transaction (as such terms are defined in ERISA) with respect to
any Plan, the occurrence of which would have a material adverse effect on the
business or condition (financial or otherwise) of the Company, or that the
Company has incurred any liability to the PBGC under Section 4062 of ERISA in
connection with any Plan.
4.15 Compliance With Laws. Each of the Company and each Subsidiary: (a)
is in material compliance with all applicable Environmental Laws; and (b) is in
compliance in all material respects with all other Laws applicable to the
Company or any Subsidiary, their respective assets or operations.
4.16 Investment Company Act. Neither the Company nor any Subsidiary is
an "investment company" or a company "controlled" by an
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"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.17 Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a holding company", within the meaning of the Public Utility Holding any
Act of 1935, as amended.
4.18 Subsidiaries. Schedule 4.18 hereto contains an accurate list of
all of the presently existing Subsidiaries of the Company, setting forth their
respective jurisdictions of incorporation and the percentage of their respective
capital stock owned by the Company or other Subsidiaries as well as an accurate
list of all investments in existing Subsidiaries. All of the issued and
outstanding shares of capital stock of such Subsidiaries have been duly
authorized and issued and are fully paid and non-assessable.
ARTICLE V
NEGATIVE COVENANTS
From and after the date of this Loan Agreement and until the entire
amount of principal of and interest due on the Loans, and all other amounts of
fees and payments due under this Loan Agreement and the Note, are paid in full,
without the prior written consent of M&I:
5.1 Liens. The Company shall not incur, create, assume or permit to be
created or allow to exist any Lien upon, in or on any of the stock of the
Company's Subsidiaries.
5.2 Indebtedness. The Company shall not, and shall cause each of its
Subsidiaries to not, incur, create, assume or otherwise become primarily or
secondarily liable, or absolutely or contingently liable, permit to exist, any
Indebtedness, except for Permitted Indebtedness, unless such Indebtedness, in
the case of the Company, is subordinated to the Indebtedness created under this
Loan Agreement and the Note in a written subordination agreement in form and
substance satisfactory to M&I.
5.4 Pension Plans. The Company shall not, and shall cause each of its
Subsidiaries to not, take, permit or omit any action with respect to any of its
private pension plans which would give rise to a liability to the PBGC under the
provisions of ERISA.
5.5 Transactions with Affiliates. The Company shall not engage in any
transaction with affiliate on terms materially less favorable to the Company
than would be available at the time from a Person who is not an Affiliate.
ARTICLE VI
AFFIRMATIVE COVENANTS
From and after the date of this Loan Agreement and until the entire
amount of principal of and interest due on the Loans, and all other amounts of
fees and payments due under this Loan Agreement and the Note, are paid in full:
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6.1 Corporate Existence, Properties. The Company shall, and shall cause
each Subsidiary to: (a) maintain its corporate existence; it being understood
by the parties that mergers of current and future Subsidiaries into one another
and into the Company do not constitute a violation of this Section 6.1(a); (b)
comply with all applicable Laws; (c) conduct its business substantially as now
conducted; (d) maintain all assets in good repair, working order and condition;
and (e) maintain a standard and (e) modern system of accounting in accordance
with GAAP consistently applied throughout all accounting periods.
6.2 Reporting Requirements. The Company shall, and shall cause each
Subsidiary to, furnish to M&I such information respecting the business, assets
and financial condition of the Company and the Subsidiaries as M&I may
reasonably request and, without request furnish to M&I:
(a) Within 120 days after the close of each of its fiscal years,
an unqualified (except for qualifications relating to changes in accounting
principles or practices reflecting changes in generally accepted principles of
accounting and required or approved by the Company's independent certified
public accountants) audit report certified by independent certified public
accountants, acceptable to M&I, prepared in accordance with generally accepted
accounting principles on a consolidated and consolidating basis (consolidating
statements need not be certified by such accountants) for itself and the
Subsidiaries, including balance sheets as of the end of such period, related
profit and loss and reconciliation of surplus statements, and a statement of
cash flows, accompanied by: (i) any management letter prepared by said
accountants; and (ii) a certificate of said accountants that, in the course of
their examination necessary for their certification of the foregoing, they have
obtained no knowledge of any Default or Event of Default, or if, in the opinion
of such accountants, any Default or Event of Default shall exist, stating the
nature and status thereof.
(b) Within 45, plus a reasonable time for delivery (not to exceed
15 days), days after the close of the first three quarterly periods of each of
its fiscal years, for itself and the Subsidiaries, consolidated and
consolidating unaudited balance sheet as at the close of each such period and a
consolidated profit and loss and reconciliation of surplus statements and a
statement of cash flows for the period from the beginning of such fiscal year to
the end of such quarter, all certified by its chief financial officer.
(c) Together with the financial statements required hereunder, a
duly completed Compliance Certificate.
(d) Simultaneously with the preparation thereof, and not more
than 45 days after the close of each of the first three fiscal quarters of the
Company and not more than 60 days after the close of the last fiscal quarter of
the Company in each fiscal year: (i) call reports for each Banking Subsidiary in
the form delivered to (A) the Federal Reserve District Bank, the Comptroller of
the Currency or The Federal Deposit Insurance Corporation, as the case may be,
such reports, to include the applicable Consolidated Reports of Condition and
Income required by regulators and all schedules thereto; and (B) the Office of
Thrift Supervision, such reports to include the applicable Thrift Financial
Reports and all schedules thereto, and (ii) the Consolidated Financial
Statements and the applicable Parent
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Company Only Financial Statements of the Company as at the end of such quarter,
each in the form delivered to the appropriate Federal Reserve District Bank and
each to include all schedules thereto. The Company may transmit the information
required by this paragraph (d) to M&I electronically if and when such means are
readily available and as agreed to at such time by acknowledged letter between
M&I and the Company.
(e) Promptly upon the furnishing thereof to the shareholders of
the Company, copies of all financial statements, reports and proxy statements so
furnished.
(f) Promptly upon the filing thereof, copies of all registration
statements an annual, quarterly, monthly or other regular reports which the
Company or any of its Subsidiaries files with the Securities and Exchange
Commission.
(g) Promptly upon the receipt or execution thereof: (i) notice by
the Company or any Subsidiary that (A) it has received a request or directive
from any federal or state regulatory agency which requires it to submit a
capital maintenance or restoration plan or restricts the payment of dividends by
any Subsidiary to the Company or any other subsidiary or (B) it has submitted a
capital maintenance or restoration plan to any federal or state regulatory
agency or has entered into an agreement with any such agency, including, without
limitation, any agreement which restricts the payment of dividends by any
Subsidiary to the Company or any other Subsidiary; and (ii) copies of any such
plan or agreement, unless disclosure is prohibited by the terms thereof and
after the Company or such Subsidiary has in good faith attempted to obtain the
consent of such regulatory agency, such agency will not consent to the
disclosure of such plan or agreement to M&I.
(h) Such other information (including non-financial information
and examination reports to the extent permitted by applicable regulatory
authorities) as M&I may from time to time reasonably request.
6.3 Taxes. The Company shall, and shall cause each Subsidiary to, pay
all taxes and assessments prior to the date on which penalties attach thereto,
except for any tax or assessment which is either not delinquent or which is
being contested in good faith and by proper proceedings and against which
adequate reserves have been provided.
6.4 Inspection of Properties and Records. The Company shall, and shall
cause each Subsidiary to, permit representatives of M&I to visit any of its
properties and examine any of its books and records at any reasonable time and
as often as may be reasonably desired and facilitate such inspection and
examination.
6.5 Insurance. The Company shall, and shall cause each Subsidiary to,
maintain insurance coverage (including public liability, larceny, forgery,
embezzlement or other criminal misappropriation insurance and banker's blanket
bonds) by financially sound and reputable insurers in such forms and amounts and
against such risks as are customary in the case of corporations of established
reputation engaged in the same or similar business and owning similar
properties.
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6.6 Compliance with Laws. (a) The company shall, and shall cause each
Subsidiary to, comply with the requirements of all applicable Environmental
Laws, all applicable health, safety and sanitation Laws and orders of regulatory
and administrative authorities with respect thereto, and without limiting the
generality of the foregoing, promptly undertake and diligently pursue to
completion appropriate and legally authorized remedial containment and clean-up
action in the event of any release of oil or hazardous material or substance on,
upon or into any real property owned, operated or in the control of the Company
or any Subsidiary.
(b) The Company shall, and shall cause each Subsidiary to, comply
in all material respects with all other applicable Laws.
6.7 Compliance with Agreements. The Company shall, and shall cause
each Subsidiary to, perform and comply in all respects with the provisions of
any agreement binding upon the Company, any Subsidiary or their respective
assets or properties, if the failure to so perform or comply would have a
material adverse effect on the condition (financial or otherwise) of the
business, assets or properties of the Company or any Subsidiary.
6.8 Notices. The Company shall:
(a) as soon as possible and in any event within five (5) business
days after the occurrence of any Default or Event of Default, notify M&I in
writing of such Default or Event of Default and set forth the details thereof
and the action which is being taken or proposed to be taken by the Company with
respect thereto;
(b) promptly notify M&I of the commencement of any litigation or
administrative proceeding that would cause the representation and warrant of the
Company contained in Section 4.7 of this Loan Agreement to be untrue;
(c) promptly notify M&I (i) of the occurrence of any Reportable
Event or Prohibited Transaction (as such terms are defined in ERISA) that has
occurred with respect to any Plan, and (ii) of the institution by the PBGC or
the Company of proceedings under Title IV of ERISA to terminate any Plan, if
either of the foregoing could reasonably be expected to have an adverse effect
on the financial condition of the Company in excess of $1,000,000; and
(d) promptly notify M&I of the commencement of any investigation,
litigation, or administrative or regulatory proceeding by, or the receipt of any
notice, citation, pleading, order, decree or similar document issued by, any
federal, state or local governmental agency or regulatory authority that results
in, or may result in, the termination or suspension for any license or permit
necessary to the Company's or any Subsidiary's business, or that imposes, or may
result in the imposition of, a material fine or penalty on the Company or any
Subsidiary.
6.9 Use of Proceeds. The Company shall use the proceeds of the Loans
solely for the purposes set forth in Section 2.1(c) of this Loan Agreement.
6.10 Risk-Based Capital/Risk-weighted Assets. The Company and its
Banking Subsidiaries shall maintain as of the last day of each
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fiscal quarter a consolidated ratio of risk-based capital to weighted-risk
assets, as defined by Regulatory agencies having jurisdiction over the Company
and its Banking Subsidiaries or in guidelines published by the FRB, of not less
than 10.0%. In the event that the Company's and its Banking Subsidiaries' ratio
is less than 10%. but 9.34% or higher, it shall not constitute an Event of
Default hereunder if the Company and its Banking Subsidiaries shall achieve a
ratio of at least 10% within ninety days after the occurrence of the Default. In
the event that the Company's and its Banking Subsidiaries, ratio is less than
9.34% but 8.67% or higher, it shall not constitute an Event of Default hereunder
if the Company and its Banking Subsidiaries shall achieve a ratio of at least
10% within sixty days after the occurrence of the Default. In the event that the
Company's and its Banking Subsidiaries' ratio is less than 8.67% but 8% or
greater, then it shall not constitute an Event of Default hereunder if the
Company and its Banking Subsidiaries sha11 achieve a ratio of at least 10%
within thirty days after the occurrence of the Default. It shall constitute an
immediate Event of Default hereunder in the event that the Company's and its
Banking Subsidiaries' ratio is less than 8%. It shall constitute an Event of
Default hereunder in the event that the Company and its Banking Subsidiaries
have not achieved a ratio of at least 10% within the applicable grace period
provided by this Section 6.10.
6.11 Tier 1 Capital/Risk-Weighted Assets. The Company and its Banking
Subsidiaries shall maintain as of the last day of each fiscal quarter a
consolidated ratio of tier 1 capital to weighted-risk assets, as defined by
regulatory agencies having jurisdiction over the Company and its Banking
Subsidiaries or in guidelines published by the FRB, in an amount not less than
6.0%. In the event that the Company's and its Banking Subsidiaries' ratio is
less than 6% but 5.34% or higher, it shall not constitute an Event of Default
hereunder if the Company and its Banking Subsidiaries shall achieve a ratio of
at least 6% within ninety days after the occurrence of the Default. In the event
that the Company's and its Banking Subsidiaries' ratio is less than 5.34% but
4.67%; or higher, it shall not constitute an Event of Default hereunder in the
event that the Company and its Banking Subsidiaries shall achieve a ratio of at
least 6% within sixty days after the occurrence of the Default. In the event
that the Company's and its Banking Subsidiaries' ratio is less than 4.67% but
equal to or greater than 4%, it shall not constitute an Event of Default
hereunder if the Company and its Banking Subsidiaries shall achieve a ratio of
at least 6% within thirty days after the occurrence of the Default. It shall
constitute an immediate Event of Default hereunder in the event that the
Company's and its Banking Subsidiaries' ratio is less than 4%. It shall
constitute an Event of Default hereunder in the event that the Company and its
Banking Subsidiaries have not achieved a ratio of at least 6% within the
applicable grace period provided by this Section 6.11.
6.12 Tier 1 Capital/Average Total Assets. The Company and its Banking
Subsidiaries shall maintain as of the last day of each fiscal quarter a
consolidated ratio of tier 1 capital to average total assets, as defined by
regulatory agencies having jurisdiction over the Company and its Banking
Subsidiaries or in guidelines published by the FRB, in an amount not less than
5%. In the event that the Company's and its Banking Subsidiaries' ratio is less
than 5% but 4.66% or higher, it shall not constitute an Event of Default
hereunder if the Company and its Banking Subsidiaries shall achieve a ratio of
not less
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than 5% within ninety days after the occurrence of the Default. In the event
that the Company's and its Banking subsidiaries' ratio is less than 4.66% but
4.33% or higher, it shall not constitute an Event of Default hereunder if the
Company and its Banking Subsidiaries shall achieve a ratio of not less than 5%
within sixty days after the occurrence of the Default. In the event that the
Company's and its Banking Subsidiaries' ratio is less than 4.33% but 4.0% or
higher, it shall not constitute an Event of Default hereunder if the Company and
its Banking Subsidiaries shall achieve a ratio of at least 5% within thirty days
after the occurrence of the Default. It shall constitute an immediate Event of
Default hereunder in the event that the Company's and its Banking Subsidiaries'
ratio is less than 4%. It shall constitute an Event of Default hereunder in the
event that the Company and its Banking Subsidiaries have not achieved a ratio of
at least 5% within the applicable grace period provided by this Section 6.12.
6.13 Non-Performing Loans/Total Loans. The Company and its Banking
Subsidiaries shall maintain as of the last day of each fiscal quarter a
consolidated ratio of Non-Performing Loans to total loans, as defined by
regulatory agencies having jurisdiction over the Company and its Banking
Subsidiaries or in guidelines published by the FRB or other applicable regulator
agency, of not greater than 3.0%.
6.14 Return on Average Assets. The Company and its Subsidiaries shall
maintain as of the last day of each fiscal quarter a consolidated return on
average assets (excluding non-recurring charges to expense), as defined by
regulatory agencies having jurisdiction over the Company and its Subsidiaries or
in guidelines published by the FRB or other applicable regulatory agency, in an
amount not less than 0.75% for the two just-ended consecutive fiscal quarters.
6.15 Consolidation or Merger. The Company shall not consolidate with or
merge into any other person, or permit another Person to merge into it, or
acquire substantially all of the assets of any other Person, whether in one or a
series of transactions, unless (a) at the time of any such proposed transaction
no Default or Event of Default has occurred and is then existing hereunder and
after taking into account any such merger or consolidation, no Default or Event
of Default would exist, without giving effect to any grace periods provided
herein, and (b) the Company or any Subsidiary is the surviving entity.
6.16 Calculation of Covenants. For purposes of determining compliance
with Sections 6.10, 6.11 and 6.12 hereof, the Company may take advantage of only
one grace period as provided in the relevant Section. That is, for example, if
the Company is in default of Section 6.10 because its ratio of risk-based
capital to weighted-risk assets is less than 8.67% but 8% or greater, the
Company must achieve a ratio of not less than 10% within the 30-day cure period
provided in Section 6.10 and the Company shall not be provided an additional
cure period in the event that the Company achieves a higher ratio but such
higher ratio is not at least 10%.
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ARTICLE VII
REMEDIES
7.1 Acceleration. (a) Upon the occurrence of an Automatic Event of
Default, then, without notice, demand or action of any kind by M&I: (i) the
obligation of M&I to make any Loans under this Loan Agreement shall
automatically and immediately terminate; and (ii) the entire amount of unpaid
principal of, and accrued and unpaid interest on, the Note, and the entire
amount of unpaid fees and expenses under this Loan Agreement, shall be
automatically and immediately due and payable.
(b) Upon the occurrence of a Notice Event of Default, M&I may, upon
written notice and demand to the Company: (i) terminate its obligation to make
any Loans under this Loan Agreement; and (ii) declare the entire amount of
unpaid principal of, and accrued and unpaid interest on, the Note, and the
entire amount of unpaid fees and expenses under this Loan Agreement, immediately
due and payable.
7.2 Remedies Not Exclusive. No remedy herein conferred upon M&I is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given under
this Loan Agreement or the Note or now or hereafter existing at law or in
equity. No failure or delay on the part of M&I in exercising any right or remedy
shall operate as a waiver thereof nor shall any single or partial exercise of
any right preclude other or further exercise thereof or the exercise of any
other right or remedy.
7.3 Setoff. The Company agrees that M&I shall have all rights of
set-off and bankers' Lien provided by applicable Law, and in addition thereto,
the Company agrees that if at any time any payment or other amount owing by the
Company under the Note or this Loan Agreement is then due to M&I, M&I may apply
to the payment of such payment or other amount any and all balances, credits,
deposits, accounts or moneys of the Company then or thereafter with M&I.
7.4 M&I's Right to Cure Default. In case of failure by the Company
to procure or maintain insurance, M&I shall have the right, but shall not he
obligated, to effect such insurance, and, in that event, the cost thereof shall
be payable by the Company to M&I immediately upon demand together with interest
at an annual rate equal to the Prime Rate plus two percent (2%) (to the extent
permitted by applicable Law) from the date of disbursement by M&I to the date of
payment by the Company.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses and Attorneys' Fees. The Company shall pay all
reasonable fees and expenses incurred by M&I and any loan participant, including
the reasonable fees of counsel, in connection with the preparation, issuance,
maintenance and amendment of this Loan Agreement and the Note and the
consummation of the transactions contemplated by this Loan Agreement, and the
administration (including, without limitation, matters related to waivers),
protection and enforcement of M&I's rights under this Loan Agreement and the
Note, including without limitation the protection and
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enforcement of such rights (before and after judgment) in any bankruptcy,
reorganization or insolvency proceeding involving the Company or any Subsidiary.
The Company further agrees to pay on demand all reasonable internal fees and
accountants' fees incurred M&I in connection with the enforcement of this Loan
Agreement, the Note, or any other documents or materials to be delivered by the
Company to M&I pursuant to this Loan Agreement.
8.2 Assignability; Successors. The Company's rights and liabilities
under this Loan Agreement are not assignable or delegable, in whole or in part,
without the prior written consent of M&I. The provisions of this Loan Agreement
shall inure to the benefit of M&I and its successors and assigns and shall be
binding upon the Company and its permitted successors and assigns.
8.3 Survival. All agreements, representations and warranties made
in this Loan Agreement or in any document delivered pursuant to this Loan
Agreement shall survive the execution and delivery of this Loan Agreement, the
issuance of the Note and the delivery of any such document.
8.4 Governing Law. This Loan Agreement, the Note and the other
instruments, agreements and documents issued pursuant to this Loan Agreement
shall be governed by, and construed and interpreted in accordance with, the Laws
of the State of Wisconsin applicable to agreements made and wholly performed
within such state.
8.5 Counterparts; Headings. This Loan Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same agreement. The table
of contents and article and section headings in this Loan Agreement are inserted
for convenience of reference only and shall not constitute a part of this Loan
Agreement.
8.6 Entire Agreement. This Loan Agreement and the Note and the
other documents referred to herein and therein contain the entire understanding
of the parties with respect to the subject matter hereof. There are no
restrictions, promises, warranties, covenants or undertakings other than those
expressly set forth in this Loan Agreement. This Loan Agreement supersedes all
prior negotiations, agreements and undertakings between the parties with respect
to such subject matter.
8.7 Notices. All communications or notices required or permitted by
this Loan Agreement shall be in writing and shall be deemed to have been given:
(a) upon delivery if hand delivered, or (b) upon deposit in the United States
mail, postage prepaid, or with a nationally recognized overnight commercial
carrier, air bill prepaid, or (c) upon transmission if by facsimile, provided
that such transmission is promptly confirmed by hand delivery, mail or courier
as provided above, and each such communication or notice shall be addressed as
follows, unless and until any party notifies the other in accordance with this
Section 8.7 of a change of address:
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If to the Company: AMCORE Financial, Inc.
501 Seventh Street
P.O. Box 1537
Rockford, Illinois 61110-0037
Attention: John R. Hecht
Executive VP & CFO
If to M&I: M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, Wisconsin 53202
Attention: Mr. Douglas Gallun
8.8 Amendment. No amendment of this Loan Agreement shall be
effective unless in writing and signed by the Company and M&I.
8.9 Taxes. If any transfer or documentary taxes, assessments or
charges levied by any governmental authority shall be payable by reason of the
execution, delivery or recording of this Loan Agreement, the Note or any other
document or instrument issued or delivered pursuant to this Loan Agreement, the
Company shall pay all such taxes, assessments and charges, including interest
and penalties, and hereby indemnifies M&I against any liability therefor.
8.10 Accounting Terms. All accounting terms used in this Loan
Agreement shall be construed in accordance with GAAP consistent with those used
in the preparation of the financial statements referred to in Section 6.2 of
this Loan Agreement.
8.11 Severability. Any provision of this Loan Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Loan Agreement in such
jurisdiction or affecting the validity or enforceability of any provision in any
other jurisdiction.
8.12 Indemnification. The Company hereby indemnifies, agrees to
defend and holds M&I harmless from and against all loss, liability, damage and
expense, including costs associated with administrative and judicial proceedings
and attorneys', fees, suffered or incurred by M&I on account of: (i) the
Company's or any Subsidiary's failure to comply with any Environmental Law, or
any order of any regulatory or administrative authority with respect thereto;
(ii) any release of petroleum products or hazardous materials or substances on,
upon or into real property owned, operated or controlled by the Company or any
Subsidiary; and (iii) any and all damage to natural resources or real property
or harm or injury to Persons resulting or alleged to have resulted from any
failure to comply or any release of petroleum products or hazardous materials or
substances as described in clauses (i) and (ii) above. All indemnities set forth
in this Loan Agreement shall survive the execution and delivery of this Loan
Agreement and the Note and the making and repayment of the Loans.
8.13 WAIVER OF RIGHT TO JURY TRIAL. M&I AND THE COMPANY ACKNOWLEDGE
AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS LOAN AGREEMENT OR THE
NOTE OR WITH RESPECT TO THE TRANSACTION CONTEMPLATED HEREBY AND THEREBY WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT
ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
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8.14 SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. AS A MATERIAL
INDUCEMENT TO M&I TO ENTER INTO THIS LOAN AGREEMENT:
(a) THE COMPANY AGREES THAT ALL ACTIONS OR PROCEEDINGS IN ANY MANNER
RELATING TO OR ARISING OUT OF THIS LOAN AGREEMENT OR THE NOTE MAY BE BROUGHT
ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MILWAUKEE COUNTY OR THE
FEDERAL COURT FOR THE EASTERN DISTRICT OF WISCONSIN, AND THE COMPANY CONSENTS
TO THE JURISDICTION OF SUCH COURTS. THE COMPANY WAIVES ANY OBJECTION IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH COURT AND ANY RIGHT IT MAY HAVE NOW
OR HEREAFTER HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN AN
INCONVENIENT COURT; and
(b) The Company consents to the service of process in any such
action or proceeding by certified mail sent to the address specified in Section
8.7.
(c) Nothing contained herein shall affect the right of M&I to serve
process in any other manner permitted by law or to commence an action or
proceeding in any other jurisdiction.
8.15 Participation. M&I may grant a silent participation in any part of
the Loans to any bank or banks; provided that such participants shall have no
direct relationship with the Company and shall not have approval rights with
respect to the terms of the relationship or the Loans between M&I and the
Company. M&I will provide the Company with notice of any participation in the
Loans it has made.
8.16 Prior Loan Agreements. This Loan Agreement replaces in their entirety
any prior loan agreements executed by the Company and M&I and all such other
loan agreements are hereby terminated.
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Exhibit B
LINE OF CREDIT NOTE
$50,000,000 Milwaukee, Wisconsin
December 31, 1999
FOR VALUE RECEIVED, AMCORE FINANCIAL, INC., a Nevada corporation (the
"Company") hereby promises to pay to the order of M&I MARSHALL & ILSLEY BANK
("M&I"), the principal sum of FIFTY MILLION DOLLARS ($50,000,000), or such
lesser amount of loans which remain outstanding under this Note, on April 30,
2000.
The unpaid principal shall bear interest from the date hereof until
paid at an annual rate, computed on the basis of a 360-day year, as provided in
the Loan Agreement referenced below. Interest accrued on the outstanding
principal balance shall be payable on the fifth day of each month, commencing on
January 5, 2000, and continuing thereafter until the outstanding principal
balance is repaid in full, with all accrued interest paid with the final payment
of principal.
In the event that any amount of the principal of, or interest on, this
Note is not paid when due (whether at stated maturity, by acceleration or
otherwise), the entire principal amount outstanding under this Note shall bear
interest, in addition to the interest otherwise payable hereunder, at an annual
rate of two percent (2%) from the day following the due date until all such
overdue amounts have been paid in full.
Payments of principal, interest and other amounts due hereunder are to
be made in lawful money of the United States of America to M&I at 770 N. Water
Street, Milwaukee, Wisconsin 53202, Attention: Correspondent Banking, or at such
other place as the holder shall designate in writing to the Company.
The maker and all endorsers hereby severally waive presentment for
payment, protest and demand, notice of protest, demand and of dishonor and
nonpayment of this Note. The Company hereby agrees to pay all reasonable fees
and expenses incurred by M&I or any subsequent holder, including the reasonable
fees of counsel, in connection with the protection and enforcement of the rights
of M&I or any subsequent holder under this Note, including without limitation
the collection of any amounts due under this Note and the protection and
enforcement of such rights (before or after judgment) in any bankruptcy,
reorganization or insolvency proceeding involving the Company.
This Note constitutes the Line of Credit Note issued pursuant to a Loan
Agreement (the "Loan Agreement") dated as of December 31, 1999, as amended from
time to time, by and between M&I and the Company, to which Loan Agreement
reference is hereby made for a statement of the terms and conditions under which
the Line of Credit Loans evidenced hereby may be made and a description of the
terms and conditions upon which this Note may be prepaid in whole or in part. In
case an Event of Default, as defined in the Loan Agreement, shall occur, the
entire unpaid principal and accrued interest may be automatically due and
payable or may be declared due and payable as provided in the Loan Agreement.
<PAGE> 27
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Wisconsin applicable to contracts
made and wholly performed within such state.
AMCORE FINANCIAL, INC.
By: /s/ JOHN R. HECHT
---------------------------------
Name: John R. Hecht
-------------------------------
Title: EVP & CFO
------------------------------
2
<PAGE> 28
SCHEDULE 4.18
SUBSIDIARIES AND OTHER INVESTMENTS
<PAGE> 29
AMCORE FINANCIAL, INC.
CUSTOMER FOCUSED ORGANIZATIONAL STRUCTURE
<TABLE>
<S> <C> <C> <C>
----------------------------------
MID-STATES TITLE
COMPANY, INC.
----------------------------------
(Illinois)
---------------------------------- ---------------------------------- ----------------------------------
AMCORE BANK, N.A. ARP HOLDINGS, AMCORE REAL PROPERTIES,
---------------------------------- LLC LLC
2098 (National) 36-1256873 ---------------------------------- ----------------------------------
2927 (Delaware) 36-4286368 2801 (Delaware) 36-4286365
----------------------------------
AMCORE
MORTGAGE, INC.
----------------------------------
2095 (Nevada) 36-3509557
----------------------------------
AFI NEVADA, INC.
----------------------------------
2051 (Nevada) 88-0273424
----------------------------------
AIG LIQUIDATION, CORP.
----------------------------------
2082 (Illinois) 36-3950761
----------------------------------
BF FINANCIAL SERVICES, INC.
----------------------------------
2027 (Wisconsin) 39-1647501
- ---------------------------------- ----------------------------------
AMCORE AMCORE INVESTMENT
FINANCIAL, INC. SERVICES, INC.
- ---------------------------------- ----------------------------------
2096 (Nevada) 36-3183870 2088 (Illinois) 36-3732482
----------------------------------
INVESTORS MANAGEMENT
---------------------------------- GROUP, LTD.
AMCORE INVESTMENT ----------------------------------
GROUP, N.A. 2079 (Iowa) 42-1181760
----------------------------------
2085 (National) 36-3711688 ----------------------------------
INVESTORS MANAGEMENT
GROUP, LTD.
----------------------------------
2087 (Illinois) 36-3849299
----------------------------------
AMCORE CAPITAL
VALUE, INC.
----------------------------------
2085 (Iowa) 42-1391737
----------------------------------
AMCORE CONSUMER
FINANCE COMPANY, INC.
----------------------------------
2098 (Nevada) 36-3664396
---------------------------------- -----------------------------------------
AMCORE INVESTMENT Footnotes
BANKING, INC. -----------------------------------------
---------------------------------- (1) Inactive.
2088 (Illinois) 36-3860810 (2) RC 5015
(3) RC 8911
---------------------------------- (4) Statutory business ("Grantor") trust.
AMCORE FINANCIAL -----------------------------------------
LIFE INSURANCE CO.
----------------------------------
2083 (Arizona) 86-0482859
----------------------------------
AMCORE CAPITAL
TRUST I
----------------------------------
2800 (Delaware) 36-7185946
</TABLE>
<PAGE> 1
EXHIBIT 13
Consolidated FInancial Statements and Financial Review
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except share data)
As of December 31,
ASSETS 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 179,113 $ 144,199
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds sold and other short-term investments 6,039 22,824
- ----------------------------------------------------------------------------------------------------------------------------
Loans held for sale 13,974 46,836
- ----------------------------------------------------------------------------------------------------------------------------
Securities available for sale 1,227,396 1,327,532
- ----------------------------------------------------------------------------------------------------------------------------
Securities held to maturity (fair value of $13,818 in 1999; $16,371 in 1998) 13,977 16,142
============================================================================================================================
Total Securities 1,241,373 1,343,674
- ----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income 2,746,613 2,451,518
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan and lease losses (28,377) (26,403)
============================================================================================================================
Net Loans and Leases 2,718,236 2,425,115
- ----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 55,618 58,763
- ----------------------------------------------------------------------------------------------------------------------------
Intangible assets, net 17,102 19,028
- ----------------------------------------------------------------------------------------------------------------------------
Foreclosed real estate 2,675 2,321
- ----------------------------------------------------------------------------------------------------------------------------
Other assets 113,491 85,073
============================================================================================================================
Total Assets $ 4,347,621 $ 4,147,833
============================================================================================================================
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------
Deposits:
Demand deposits $ 1,202,632 $ 1,169,835
- ----------------------------------------------------------------------------------------------------------------------------
Savings deposits 145,795 182,330
- ----------------------------------------------------------------------------------------------------------------------------
Other time deposits 1,667,981 1,595,559
============================================================================================================================
Total Deposits 3,016,408 2,947,724
- ----------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 699,398 498,211
- ----------------------------------------------------------------------------------------------------------------------------
Long-term borrowings 285,270 330,361
- ----------------------------------------------------------------------------------------------------------------------------
Other liabilities 52,817 55,454
============================================================================================================================
Total Liabilities $ 4,053,893 $ 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;
issued 29,648,571 in 1999, 29,593,495 in 1998;
outstanding 27,949,431 in 1999, 28,837,698 in 1998 6,585 6,572
- ----------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 74,244 75,260
- ----------------------------------------------------------------------------------------------------------------------------
Retained earnings 271,781 247,486
- ----------------------------------------------------------------------------------------------------------------------------
Treasury stock and other (31,975) (9,969)
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss) (26,907) (3,266)
============================================================================================================================
Total Stockholders' Equity $ 293,728 $ 316,083
============================================================================================================================
Total Liabilities and Stockholders' Equity $ 4,347,621 $ 4,147,833
============================================================================================================================
</TABLE>
21
<PAGE> 2
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
(In thousands, except per share data)
Years ended December 31,
INTEREST INCOME 1999 1998
=============================================================================================================================
<S> <C> <C>
Interest and fees on loans and leases $ 215,173 $ 192,974
- -----------------------------------------------------------------------------------------------------------------------------
Interest on securities 82,136 94,235
- -----------------------------------------------------------------------------------------------------------------------------
Interest on federal funds sold and other short-term investments 1,100 729
- -----------------------------------------------------------------------------------------------------------------------------
Interest and fees on loans held for sale 1,913 2,923
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest Income $ 300,322 $ 290,861
=============================================================================================================================
INTEREST EXPENSE
=============================================================================================================================
Interest on deposits $ 118,009 $ 116,604
- -----------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 32,573 34,855
- -----------------------------------------------------------------------------------------------------------------------------
Interest on long-term borrowings 18,301 16,668
=============================================================================================================================
Total Interest Expense $ 168,883 $ 168,127
=============================================================================================================================
=============================================================================================================================
Net Interest Income $ 131,439 $ 122,734
=============================================================================================================================
Provision for loan and lease losses 10,550 7,993
=============================================================================================================================
Net Interest Income After Provision for Loan and Lease Losses $ 120,889 $ 114,741
=============================================================================================================================
NON-INTEREST INCOME
=============================================================================================================================
Trust and asset management income $ 28,872 $ 23,721
- -----------------------------------------------------------------------------------------------------------------------------
Service charges on deposits 10,176 8,831
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage revenues 6,930 10,560
- -----------------------------------------------------------------------------------------------------------------------------
Insurance revenues 1,735 1,875
- -----------------------------------------------------------------------------------------------------------------------------
Other 9,733 9,334
=============================================================================================================================
Total Non-Interest Income, Excluding Net Realized Security Gains $ 57,446 $ 54,321
=============================================================================================================================
Net realized security gains 530 4,427
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
=============================================================================================================================
Personnel expense $ 69,039 $ 64,433
- -----------------------------------------------------------------------------------------------------------------------------
Net occupancy expense 6,711 6,750
- -----------------------------------------------------------------------------------------------------------------------------
Equipment expense 9,026 7,895
- -----------------------------------------------------------------------------------------------------------------------------
External data processing expense 7,150 5,339
- -----------------------------------------------------------------------------------------------------------------------------
Professional fees 5,262 5,723
- -----------------------------------------------------------------------------------------------------------------------------
Amortization of intangible assets 1,991 2,536
- -----------------------------------------------------------------------------------------------------------------------------
Other 24,431 26,918
=============================================================================================================================
Total Operating Expenses $ 123,610 $ 119,594
=============================================================================================================================
Income Before Income Taxes $ 55,255 $ 53,895
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 15,106 14,314
=============================================================================================================================
Net Income $ 40,149 $ 39,581
=============================================================================================================================
Basic Earnings per Common Share $ 1.42 $ 1.39
- -----------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Common Share 1.40 1.36
- -----------------------------------------------------------------------------------------------------------------------------
Dividends per Common Share 0.56 0.54
- -----------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 28,304 28,515
- -----------------------------------------------------------------------------------------------------------------------------
Average Diluted Shares Outstanding 28,730 29,098
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 3
<TABLE>
<CAPTION>
December 31, 1999
CAPITAL (in thousands) AMOUNT RATIO
=================================================================================================
<S> <C> <C>
Tier 1 Capital $ 343,458 11.58%
- -------------------------------------------------------------------------------------------------
Tier 1 Capital Minimum 118,591 4.00
- -------------------------------------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $ 224,867 7.58%
=================================================================================================
AMOUNT RATIO
=================================================================================================
Total Capital $ 371,835 12.54%
- -------------------------------------------------------------------------------------------------
Total Capital Minimum 237,181 8.00
- -------------------------------------------------------------------------------------------------
AMOUNT IN EXCESS OF REGULATORY MINIMUM $ 134,654 4.54%
=================================================================================================
</TABLE>
Independent Auditors' Report
The Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of AMCORE Financial, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended (not presented
herein); and in our report dated January 19, 2000, we expressed an unqualified
opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheets as of December 31, 1999 and 1998 and the condensed
consolidated statements of income for the years then ended appearing on pages 21
and 22 are fairly stated, in all material respects, in relation to the
consolidated financial statements from which they have been derived.
/s/ KPMG LLP
January 19, 2000
Chicago, Illinois
Annual Meeting & Stock Listing
The annual meeting of the stockholders will be held at 5:30 p.m. on Tuesday,
May 9, 2000 at the Clock Tower, 7801 East State Street, Rockford, Illinois.
Common stock of AMCORE Financial, Inc. is traded on the National Market System
of NASDAQ under the symbol "AMFI."
The stock transfer agent for AMCORE Financial, Inc. is:
Firstar Trust Company
1555 N. RiverCenter Drive
Suite 301
Milwaukee, Wisconsin 53212
1-800-637-7549
A comprehensive presentation of the financial statements and management's
presentation of the analysis of financial condition and results of operations
can be found in the 1999 Annual Report on Form 10-K filed with the Securities
Exchange Commission, which can be referenced at www.SEC.gov. All shareholders
have been provided the 2000 Notice of Annual Meeting, 1999 Proxy and 1999 Annual
Report on Form 10-K along with this Summary Annual Report.
AMCORE is an equal opportunity employer and participates in affirmative action.
23
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Percent of Common
Name of Subsidiary Organization Stock Owned
- ------------------ --------------- ---------------
<S> <C> <C>
AMCORE Bank, N.A. United States 100%
AMCORE Investment Group, N.A. United States 100%
AMCORE Consumer Finance Company, Inc. Nevada 100%
AMCORE Investment Banking, Inc. Illinois 100%
AMCORE Financial Life Insurance Company Arizona 100%
AMCORE Capital Trust I Delaware 100%
Central States Title Company, Inc. Illinois 100%
ARP Holdings, LLC Delaware 100%
AMCORE Mortgage, Inc. Nevada 100%
AFI Nevada, Inc. Nevada 100%
AIG Liquidating Corp. Illinois 100%
AMCORE Investment Services, Inc. Illinois 100%
Investors Management Group, Ltd. - Rockford Illinois 100%
Investors Management Group, Ltd. - Des Moines Iowa 100%
AMCORE Capital Value, Inc. Iowa 100%
AMCORE Real Properties, LLC Delaware 100%
</TABLE>
<PAGE> 1
AMCORE LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 2000
TO THE STOCKHOLDERS OF AMCORE FINANCIAL, INC.:
The Annual Meeting of Stockholders of AMCORE Financial, Inc., a Nevada
corporation, will be held at Clock Tower, 7801 East State Street, Rockford,
Illinois on May 9, 2000, at 5:30 p.m., Rockford time, for the following
purposes:
1. To elect three directors;
2. To ratify the appointment of KPMG LLP as auditors;
3. To approve the AMCORE Financial, Inc. 2000 Stock Incentive Plan, as set
forth in Exhibit A of the Proxy Statement appended to this Notice; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on March 15, 2000 are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting.
Stockholders are cordially invited to attend the Annual Meeting. Whether or
not you are able to attend the meeting, we would appreciate if you would
complete and deliver your proxy as promptly as convenient. This year we are
pleased to be able to offer you the option of delivering your proxy by telephone
or by Internet transmission in addition to the traditional method of completing,
signing and mailing a proxy card. Further information about delivering your
proxy via telephone or the Internet can be found on the enclosed proxy card. The
proxy may be revoked at any time before it is voted, provided that written
notice thereof has been given to the Secretary of the Company. If you are
present at the meeting, you may vote your shares in person and the proxy will
not be used.
For further information concerning individuals nominated as directors, the
appointment of KPMG LLP as auditors, approval of the 2000 Stock Incentive Plan,
and the use of the proxy, you are respectfully urged to read the Proxy Statement
on the following pages.
By order of the Board of Directors,
/s/ JAMES S. WADDELL
James S. Waddell
Secretary
March 24, 2000
Rockford, Illinois
<PAGE> 2
AMCORE FINANCIAL, INC.
501 SEVENTH STREET
ROCKFORD, ILLINOIS 61104
MARCH 24, 2000
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of AMCORE Financial,
Inc. (Company), a Nevada corporation, to be held on May 9, 2000 at 5:30 p.m.,
Rockford time, at Clock Tower, 7801 East State Street, Rockford, Illinois and
any adjournment thereof, and further to inform the stockholders concerning the
use of the proxy and the business to be transacted at the meeting.
The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy may be revoked at any time before it is voted. Proxies may be revoked
by filing written notice of revocation with the Secretary of the Company before
the meeting or by attending the meeting and voting in person. The items
enumerated herein constitute the only business which the Board of Directors
intends to present or is informed that others will present at the meeting. The
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Stockholders are entitled to one vote for each
share. Only stockholders of record at the close of business on March 15, 2000
are entitled to notice of and to vote at the meeting.
Pursuant to the Bylaws of the Company, a majority of the outstanding shares
of the Company entitled to vote, represented in person or by proxy, shall
constitute a quorum at the meeting. Directors shall be elected by a plurality of
the votes cast in the election of directors. Any action to be taken by a vote of
the stockholders, other than the election of directors, must be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Under applicable Nevada law, in tabulating the vote,
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may in some cases also be
made by telephone or personal call by officers, directors or regular employees
of the Company who will not be specially compensated for such solicitation. This
proxy statement and the accompanying proxy are first being mailed or delivered
to stockholders on or about March 24, 2000.
ITEM 1 -- ELECTION OF DIRECTORS
In the election of the Board of Directors, stockholders are entitled to one
vote for each common share owned by them for each of the three nominees. They
may not cumulate their votes. As of March 15, 2000, the Company had outstanding
27,098,080 shares of common stock. Proxy votes not limited to the contrary will
be cast for the election of the nominees named below, but should any of such
individuals unexpectedly become unavailable for election, the proxies reserve
the right to nominate and vote for such other person or persons as they shall
designate.
The following sets forth the names, ages, principal occupations and other
information regarding the director nominees and those directors whose terms
continue after the meeting.
There are three Class II directors to be elected at the 2000 Annual
Meeting. Nominees for Class II directors whose terms will expire in 2003 are:
Milton R. Brown, Richard C. Dell, and William R. McManaman.
1
<PAGE> 3
CLASS II (TERMS EXPIRE 2000)
Milton R. Brown -- Director since 1989
Mr. Brown, age 68, is Chairman, President and Chief Executive Officer of
Suntec Industries Incorporated (manufacturer of fuel unit components). He is a
Director of CLARCOR (diversified manufacturer).
Carl J. Dargene -- Director since 1982
Mr. Dargene, age 69, is Chairman of the Board of Directors of the Company.
He was previously President and Chief Executive Officer of the Company. He is
Vice Chairman and Director of AMCORE Investment Group, N.A. He is a Director of
Woodward Governor Company (manufacturer of controls for various types of
engines) and of CLARCOR (diversified manufacturer). He was previously Chairman
of the Board of Directors for AMCORE Bank N.A., Rockford until December 1996.
Richard C. Dell -- Director since 1994
Mr. Dell, age 54, is Group President of Newell Rubbermaid Corporation
(diversified manufacturer).
William R. McManaman -- Director since 1997
Mr. McManaman, age 52, has been Vice President -- Finance and Chief
Financial Officer of Dean Foods Company since October 1995. He was previously
Vice President -- Finance of Brunswick Corporation.
Those directors whose terms do not expire this year are:
CLASS III (TERMS EXPIRE 2001)
Paula A. Bauer -- Director since 1999
Ms. Bauer, age 45, has been Vice President of Supply Chain Management at
RAYOVAC Corporation since June 1997. She was previously Director of Supply Chain
at RAYOVAC Corporation from July 1994 to June 1997.
Paul Donovan -- Director since 1998
Mr. Donovan, age 52, has been Senior Vice President and Chief Financial
Officer of Wisconsin Energy Corporation since August 1999. He was previously
Executive Vice President and Chief Financial Officer of Sundstrand Corporation
(manufacturer of industrial and aerospace products) until August 1999. He was
previously a Director of AMCORE Bank N.A., Rockford until August 1998.
Jack D. Ward -- Director since 1995
Mr. Ward, age 47, is an Attorney at Law and Partner with the law firm of
Reno, Zahm, Folgate, Lindberg & Powell, and was previously a Director of AMCORE
Mortgage, Inc. until May 1995.
Gary L. Watson -- Director since 1987
Mr. Watson, age 54, is President of Newspaper Division, Gannett Co., Inc.
CLASS I (TERMS EXPIRE 2002)
Lawrence E. Gloyd -- Director since 1987
Mr. Gloyd, age 67, is Chairman and Chief Executive Officer of CLARCOR
(diversified manufacturer) and is a Director of CLARCOR. He is a Director of
Thomas Industries, Inc. (manufacturer of lighting, fixtures, pumps and
compressors) and a Director of Woodward Governor Company (manufacturer of
controls for various types of engines).
2
<PAGE> 4
John A. Halbrook -- Director since 1997
Mr. Halbrook, age 54, is Chairman and CEO of Woodward Governor Company
(manufacturer of controls for various types of engines) and is a director of
Woodward Governor Company. Mr. Halbrook served as a Director of AMCORE
Investment Group, N.A. until November 1997.
Frederick D. Hay -- Director since 1997
Mr. Hay, age 55, has been Senior Vice President -- Operations of Snap-on
Incorporated (manufacturer of tools) since September 1998. He was Senior Vice
President -- Transportation of Snap-On Incorporated from February 1996 to
September 1998, and previous to that was President of Interior Systems and
Components Division at United Technologies Automotive.
Robert J. Meuleman -- Director since 1995
Mr. Meuleman, age 60, has been President and Chief Executive Officer of the
Company since January 1996. He was previously Executive Vice President and Chief
Operating Officer, Banking Subsidiaries. He is a director of AMCORE Bank, N.A.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company has an Executive Committee whose members are Messrs. Brown,
Dargene, Gloyd, Halbrook, McManaman and Meuleman. The Executive Committee
exercises those powers of the Board of Directors in the management of the
Company, which have been delegated to it by the Board of Directors. The
Executive Committee met once during 1999.
The Company has an Audit Committee whose members are Messrs. Brown,
Halbrook, McManaman, Ward and Watson. Mr. Dargene serves as an ex-officio member
of this Committee. The Audit Committee is appointed by the Board to assist the
Board in monitoring (1) the integrity of the financial statements of the
Company, (2) the compliance by the Company with legal and regulatory
requirements, and (3) the independence and performance of the Company's internal
and external auditors. The Audit Committee met three times during 1999.
The Company has an Investment Committee whose members are Ms. Bauer,
Messrs. Donovan, Halbrook, McManaman and Meuleman. Messrs. Kenneth E. Edge,
Executive Vice President and Chief Operating Officer of the Company, John R.
Hecht, Executive Vice President and Chief Financial Officer of the Company,
James F. Warsaw, President and Chief Operating Officer of AMCORE Bank, N.A.,
serve as ex-officio members of the committee. The Investment Committee
establishes the investment policies of the Company and its subsidiaries. During
1999, the Investment Committee met four times.
The Company has a Compensation Committee whose members are Messrs. Dell,
Donovan, Gloyd and Hay. Messrs. Dargene and Meuleman serve as ex-officio members
of this committee. The Compensation Committee advises the Company concerning its
employee compensation and benefit policies and administers employee stock,
retirement and deferred compensation plans. The Compensation Committee also
administers the Restricted Stock Plan for Non-Employee Directors of the Company
and its Participating Subsidiaries and the 1994 Stock Option Plan for
Non-Employee Directors. During 1999, the Compensation Committee met five times.
A report of the Compensation Committee is set forth on page 10 of this Proxy
Statement.
The Company has a Directors Affairs Committee whose members are Messrs.
Brown, Dell, Hay and Ward. Messrs. Dargene and Meuleman serve as ex-officio
members of this Committee. The primary duties of the Directors Affairs Committee
are to provide nominations to the Board of Directors, make recommendations
regarding directors' remuneration, recommend policies for the retirement of
directors and fulfill other responsibilities as may be delegated to it by the
Board of Directors. The Directors Affairs Committee met one time during 1999.
As of December 31, 1999, the Company had no other committees of the Board
of Directors.
3
<PAGE> 5
The Board of Directors met six times during 1999. All directors attended at
least 75% of the Board meetings and meetings held by all committees of the Board
on which they served during the period they were directors in 1999.
Directors of the Company, other than Messrs. Dargene and Meuleman, earned
an annual retainer of $10,000 of the Company's common stock, pursuant to the
Non-Employee Director's Stock Plan, for services rendered to the Company as a
member of its Board of Directors. All non-employee directors earned a fee of
$1,000 for each Board and committee meeting attended during 1999. All
non-employee committee chairmen earned a one-time fee of $1,500. Mr. Dargene was
paid $225,000 for services rendered as Chairman of the Board of Directors of the
Company in 1999. Messrs. David A. Carlson, Thomas L. Clinton, and C. Roger
Greene, as Director Emeriti, receive a lifetime retainer of $7,000 per year. Mr.
Robert A. Doyle, Dr. Robert A. Henry and Mr. Ted Ross, as Director Emeriti,
receive a lifetime retainer of $10,000 per year. All non-employee directors were
granted 1,000 common stock options on May 19, 1999 at $21.84 per share pursuant
to the 1994 Stock Option Plan for Non-Employee Directors.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following tabulation sets forth the number of shares of common stock of
the Company beneficially owned by each of the directors and nominees for
election to the Board of Directors, by each named executive officer, and by all
directors and officers as a group as of March 1, 2000 and the percentage that
these shares bear to the total common stock outstanding on that date.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
- ------------------------ ------------------------------ ----------
<S> <C> <C> <C>
Paula A. Bauer...................................... 1,932 (2) *
Milton R. Brown..................................... 29,950 (2)(3)(4) *
Carl J. Dargene..................................... 234,015 (3)(4)(5)(6) 0.86%
Richard C. Dell..................................... 11,461 (2)(4) *
Paul Donovan........................................ 6,752 (2)(4) *
Kenneth E. Edge..................................... 64,665 (2)(4)(5)(6) *
Lawrence E. Gloyd................................... 30,240 (2)(4)(7) *
John A. Halbrook.................................... 7,329 (2)(4) *
Frederick D. Hay.................................... 5,312 (2)(4) *
John R. Hecht....................................... 51,498 (2)(4)(5)(6) *
William R. McManaman................................ 7,596 (2)(4) *
Robert J. Meuleman.................................. 240,749 (2)(3)(4)(5) 0.88%
James S. Waddell.................................... 105,172 (2)(4)(5)(6) *
Jack D. Ward........................................ 13,824 (2)(4) *
James F. Warsaw..................................... 66,152 (2)(4)(5) *
Gary L. Watson...................................... 22,868 (2)(4)(7) *
All executive officers and directors (24 persons)... 1,216,640 (2)(3)(4)(5)(6)(7) 4.47%
</TABLE>
- ---------------
* The amount shown is less than 1/2% of the outstanding shares of such class.
1. The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company. The nature of beneficial ownership for shares shown in this column
is sole voting and investment power unless otherwise indicated herein.
2. Includes shares of restricted stock granted by the company as follows: Paula
A. Bauer -- 1,932 shares, Milton R. Brown -- 775 shares, Richard C.
Dell -- 1,163 shares, Paul Donovan -- 977 shares, Kenneth E. Edge -- 2,627
shares, Lawrence E. Gloyd -- 775 shares, John A. Halbrook -- 1,110 shares,
Frederick D. Hay -- 1,172 shares, John R. Hecht -- 2,189 shares, William R.
McManaman -- 650 shares, Robert J. Meuleman -- 4,378 shares, James S.
Waddell -- 2,189 shares, Jack D. Ward -- 947 shares, James F. Warsaw -- 2,189
shares, Gary L. Watson -- 775 shares and all executive officers and
directors -- 28,885 shares.
4
<PAGE> 6
3. Includes shares held individually by certain family members of the directors
and officers as follows: Milton R. Brown -- 1,369 shares, Carl J.
Dargene -- 22,870 shares, Robert J. Meuleman -- 23,587 shares, and all
executive officers and directors -- 48,476 shares.
4. Includes shares which such person has a right to acquire within sixty days
through the exercise of stock options as follows: Milton R. Brown -- 8,000
shares, Carl J. Dargene -- 111,329 shares, Richard C. Dell -- 6,500 shares,
Paul Donovan -- 3,750 shares, Kenneth E. Edge -- 32,204 shares, Lawrence E.
Gloyd -- 8,000 shares, John A. Halbrook -- 4,250 shares, Frederick D.
Hay -- 2,000 shares, John R. Hecht -- 35,906 shares, William R.
McManaman -- 3,500 shares, Robert J. Meuleman -- 148,880 shares, James S.
Waddell -- 58,401 shares, Jack D. Ward -- 6,500 shares, James F.
Warsaw -- 40,922 shares, Gary L. Watson -- 8,000 shares and all executive
officers and directors -- 570,827 shares.
5. Includes shares held in trust with power to vote but without investment
authority as follows: Carl J. Dargene -- 10,513 shares, shares, Kenneth E.
Edge -- 8,937 shares, John R. Hecht -- 5,843 shares, Robert J.
Meuleman -- 12,340 shares, James S. Waddell -- 3,439 shares, James F.
Warsaw -- 2,045 shares, and all executive officers and directors -- 120,965
shares.
6. Includes shares held in joint tenancy with the spouses of certain of the
directors and executive officers as to which voting and investment power is
shared as follows: Carl J. Dargene -- 1,732 shares, Kenneth E. Edge -- 20,897
shares, John R. Hecht -- 7,049 shares, James S. Waddell -- 4,500 shares, and
all executive officers and directors -- 49,585 shares.
7. Includes shares held in trusts of which such persons are trustees having sole
voting and investment power as follows: Lawrence E. Gloyd -- 5,424 shares,
Gary L. Watson -- 703 shares and all executive officers and
directors -- 6,227 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Exchange Act, the Company's officers,
directors and holders of more than ten percent of the Company's Capital Stock
are required to file reports of their trading in equity securities of the
Company with the Commission, the Company and the NASDAQ Stock Market. Based
solely on its review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports on Form 5 were
required for those persons, the Company believes that during 1999 all filing
requirements applicable to its officers, directors and more than ten percent
shareholders were complied with. James F. Warsaw had two unfiled transactions
from September 1997 that the Company became aware of in 1999. William R.
McManaman had one incorrect filing from September 1997 that the Company became
aware of in 1999.
BENEFICIAL OWNERSHIP BY CERTAIN PERSONS
The following table lists the beneficial ownership of the Company's common
stock with respect to all persons, other than those listed above, known to the
Company as of March 1, 2000 to be the beneficial owner of more than five percent
of such common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL INTEREST(1) OF CLASS
- ------------------------------------ ---------------------- --------
<S> <C> <C>
AMCORE Investment Group, N.A. .............................. 2,133,330(2)(3) 7.83%
501 Seventh Street, Rockford, IL 61104
</TABLE>
- ---------------
1. The information contained in this column is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company.
2. Includes 2,133,330 shares held by nominees acting on behalf of AMCORE
Investment Group, N.A. Excludes 955,788 shares held as trustee of various
trusts over which AMCORE Investment Group, N.A. has neither voting nor
investment power, and as to which beneficial ownership is disclaimed on these
shares. The nature of beneficial ownership for the shares shown in this
column is as follows: sole voting power -- 1,901,906 shares, shared voting
power -- 1,550 shares, no voting power -- 229,874 shares, sole
5
<PAGE> 7
investment power -- 1,682,978 shares, shared investment power -- 435,477
shares and no investment power -- 14,875 shares.
3. Although there is no affirmative duty or obligation to do so, it is the
general practice of AMCORE Investment Group, N.A. to solicit the direction of
trust beneficiaries or grantors with regard to the voting of shares held in
trust on all issues which are subject to vote by proxy. The shares are then
voted as directed by the trust beneficiary or grantor.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
chief executive officer and each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the year
ended December 31, 1999:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ----------
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) COMPENSATION(3) OPTIONS PAYOUTS(4) COMPENSATION(5)
- --------------------------- ---- --------- ----------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman............ 1999 $380,000 $127,464 $5,770 40,079 $184,953 $255,621
President & Chief 1998 360,000 90,146 8,622 18,000 183,099 210,638
Executive Officer 1997 320,000 17,336 9,182 60,000 35,608 334,691
Kenneth E. Edge............... 1999 260,000 59,186 335 24,756 57,843 51,462
Executive Vice President & 1998 230,000 51,479 394 21,448 50,138 26,457
Chief Operating Officer 1997 180,000 24,447 254 15,000 6,820 68,759
James S. Waddell.............. 1999 230,000 54,519 437 17,000 85,747 68,664
Executive Vice President & 1998 215,000 46,451 613 22,401 84,251 55,367
Chief Administrative Officer 1997 200,000 22,580 785 15,000 17,986 80,706
John R. Hecht................. 1999 200,000 58,382 1,231 17,000 47,247 30,688
Executive Vice President & 1998 170,000 44,756 1,309 15,406 41,626 17,994
Chief Financial Officer 1997 135,000 12,480 2,542 9,000 7,266 18,213
James F. Warsaw............... 1999 185,000 57,451 176 24,965 14,774 22,892
President and Chief
Operating 1998 172,500 36,078 53 16,094 9,155 18,226
Officer, AMCORE Bank, N.A. 1997 160,000 31,432 163 10,500 3,699 20,048
</TABLE>
- ---------------
1. Compensation deferred pursuant to the Company's deferred compensation plan
is included in Salary and Bonus totals.
2. Reflects bonus and profit sharing earned during the year which was paid
during the following year.
3. These amounts represent reimbursements during the year for taxes.
4. Reflects long term incentive plan payouts earned during the year and
dividend equivalent payments made on all outstanding Performance Units.
5. Amounts shown for 1999 consist of the following:
<TABLE>
<CAPTION>
MEULEMAN EDGE WADDELL HECHT WARSAW
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Imputed income life insurance............................... $ 2,590 $ 3,686 $ 3,545 $ 1,256 $ 841
Above market interest on deferred compensation.............. 191 42 59 42 25
AMCORE Financial Security Plan.............................. 11,200 8,967 11,200 11,200 11,200
Company's contributions to Top Hat Plan..................... 82,561 38,767 25,478 18,190 10,826
Accrued Supplemental Executive
Retirement Plan benefits.................................... 159,079 0 28,382 0 0
-------- ------- ------- ------- -------
Total other compensation.................................... $255,621 $51,462 $68,664 $30,688 $22,892
======== ======= ======= ======= =======
</TABLE>
6
<PAGE> 8
Prior year reported amounts include contributions to the security plan, top
hat plan, above market interest on deferred compensation, life insurance imputed
income and the value of life insurance premiums. The value of life insurance for
Messrs. Meuleman, Edge, Waddell and Hecht include the reportable income under a
split-dollar life insurance agreement with the Company. For further discussion
of these agreements, see "Employee Agreements" on page eight.
OPTION GRANTS
The following table provides information related to options granted to the
named executive officers during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL NET REALIZABLE
SECURITIES TOTAL OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED(2)(3) FISCAL YEAR SHARE(2)(3)(4) DATE OPTION TERM(1)
- ---- ------------- ------------- -------------- ---------- -------------------------
5% 10%
-------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman...... 35,000 10.0% $23.407 8/13/2009 $515,219 $1,305,666
Kenneth E. Edge......... 20,000 5.7 23.407 8/13/2009 294,411 746,095
James S. Waddell........ 17,000 4.9 23.407 8/13/2009 250,249 634,180
John R. Hecht........... 17,000 4.9 23.407 8/13/2009 250,249 634,180
James F. Warsaw......... 17,000 4.9 23.407 8/13/2009 250,249 634,180
Reload Options Granted
Robert J. Meuleman...... 5,079 N/A $20.813 12/31/2001 $ 66,480 $ 168,473
Kenneth E. Edge......... 4,756 N/A 22.657 5/9/2005 67,768 171,736
James S. Waddell........ -- -- -- -- -- --
John R. Hecht........... -- -- -- -- -- --
James F. Warsaw......... 7,965 N/A 20.813 5/15/2006 104,255 264,204
</TABLE>
- ---------------
1. Values are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
conditions and the optionholders' continued employment.
2. Reflects options granted on August 13, 1999 to acquire shares of Common Stock
pursuant to the 1995 Stock Incentive Plan.
3. Options granted pursuant to the 1995 Stock Incentive Plan have an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of the grant. Options generally become fully exercisable in four
years (25% per year) following the date of grant and remain exercisable until
ten years from the date of the grant unless the optionee ceases to be an
employee of the Company or its subsidiaries. The option exercise price may be
paid in cash, shares of Common Stock having a fair market value equal to the
exercise price, stock withholding or any combination of the above.
4. Reload options granted pursuant to the 1995 Stock Incentive Plan have an
exercise price of not less than 100% of the fair market value of the Common
Stock on the date of the exercise of the option that created the reload.
Reload options become exercisable immediately and remain exercisable until
the expiration date of the original grant unless the optionee ceases to be an
employee of the Company or its subsidiaries. The option exercise price may be
paid in cash, shares of Common Stock having a fair market value equal to the
exercise price, stock withholding or any combination of the above.
7
<PAGE> 9
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last year and
unexercised options held as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR END(1) OPTIONS AT YEAR END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Meuleman............ 9,000 $118,998 148,880 48,500 $1,261,961 $20,773
Kenneth E. Edge............... 6,750 66,869 32,204 29,000 88,890 11,870
James S. Waddell.............. -- -- 58,401 26,000 414,049 10,090
John R. Hecht................. -- -- 35,906 26,000 271,937 10,090
James F. Warsaw............... 10,500 77,874 42,809 23,000 241,576 10,090
</TABLE>
- ---------------
1. Options granted to acquire shares of Common Stock pursuant to various stock
incentive plans.
2. The amounts shown reflect the value of unexercised options calculated by
determining the difference between the closing price of the Company's Common
Stock on the last day of the year ($24.00) and the applicable exercise price
of such options.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth information with respect to the named
executives concerning Performance Unit Awards granted during 1999 pursuant to
the Company's 1995 Stock Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF PERFORMANCE ----------------------------------
PERFORMANCE PERIOD UNTIL THRESHOLD TARGET OUTSTANDING
NAME UNITS(1) PAYOUT 13.5% 14.5% 16%
- ---- ------------ ------------ --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Robert J. Meuleman.................. 38,171 3 years $169,861 $254,601 $424,080
Kenneth E. Edge..................... 19,490 3 years 86,731 129,998 216,534
James S. Waddell.................... 17,241 3 years 76,722 114,997 191,548
John R. Hecht....................... 14,993 3 years 66,719 100,003 166,572
James F. Warsaw..................... 9,430 3 years 41,964 62,898 104,767
</TABLE>
- ---------------
1. Performance units were granted to certain executive officers on January 1,
1999 pursuant to the 1995 Stock Incentive Plan. The holders of these
performance units will be entitled to cash or stock payments, or a
combination thereof, if certain performance targets are met during the
three-year period ending December 31, 2001. The holders are also entitled to
dividend equivalent payments on these Performance Units. The target levels
applicable to the Performance Units as shown in the table above are achieved
if the average consolidated return on stockholders' equity (ROE) for the
performance period is as shown above for each of the performance levels. Each
Performance Unit shall be of no value unless at least the minimum level is
achieved. If the Company achieves an average ROE in excess of the minimum
performance level set forth above, each Performance Unit shall have the
following values: $4.45 per unit for threshold performance, $6.67 per unit
for target performance and $11.11 per unit for outstanding performance. It is
the Company's intention to make incremental payments to executive officers
for performance levels that are between these specified target levels.
EMPLOYEE AGREEMENTS
The Company has entered into individual Transitional Compensation
Agreements with current executive officers, including Messrs. Robert J.
Meuleman, Kenneth E. Edge, James S. Waddell, and John R. Hecht. If, during the
three-year period following a change of control of the Company (as defined in
the agreements), the
8
<PAGE> 10
executive officer's employment is ended through (1) termination by the Company
without cause (as defined in the agreements) or (2) termination by the executive
officer for good reason (as defined in the agreements) based upon a breach of
the agreement by the Company or a significant adverse change in the executive
officer's responsibilities, compensation or benefits, then a termination payment
will be made to the executive. The agreements provide that such payment will
equal three times the sum of the executive's then current annual salary and
annual bonus. In addition, the agreements provide that, if any portion of the
termination payment is subject to an excise tax as an excess parachute payment,
as defined in the Internal Revenue Code Section 4999, the Company shall pay the
executive the amount necessary to offset the excise tax and any applicable taxes
on this additional payment. Additional provisions provide for the continuation,
for three years after termination, of welfare and other benefits to the
executive and his family unless termination is for cause. Upon a change of
control of the Company, the executive is entitled to a lump sum cash payment
equivalent to the present value of the projected benefits under certain
supplemental retirement plans.
The Company also entered into Transitional Compensation Agreements with
James F. Warsaw and five other executive officers. These agreements provide that
if such executive's employment is terminated within one year after a change in
control of the Company either (i) by the Company other than for "cause" or other
than as a consequence of disability or retirement (all as defined in such
agreements) or (ii) by such executive for reasons relating to a diminution of
responsibilities, compensation or benefits or relocation requiring a change in
residence or a significant increase in travel, he will receive: (a) lump sum
payment equal to his monthly salary in effect at the date of termination for a
period of time determined pursuant to each agreement based upon his salary,
years of service and age at the time of his termination, and a prorata portion
of his annual bonus; (b) life, disability, accident and health insurance as
provided in the Company's insurance programs for a period of 24 months after
termination of employment; and (c) certain perquisites and outplacement
services. The agreements provide for a commensurate reduction in the amount of
cash payments to be made to an executive under the agreement in the event that
the payments fail to be deductible by the Company as a result of Section 280G of
the Internal Revenue Code of 1986, as amended. If these severance agreements had
become operative in December 1999, the maximum number of monthly payments
payable to the following individual (subject to reduction as described in the
previous sentence) would have been approximately: James F. Warsaw, 23 months.
On August 10, 1998, the Company entered into Endorsement Split Dollar
Insurance Agreements (Agreement(s)) with Robert J. Meuleman, Kenneth E. Edge,
James S. Waddell, and John R. Hecht, replacing prior agreements. The Company
purchased split-dollar and/or bank-owned life insurance policies for the named
executives pursuant to each Agreement in conjunction with the Supplemental
Executive Retirement Plan. The Company may terminate any such Agreement and
receive its interest in the life insurance policy under certain conditions,
including termination of employment (other than due to death, disability or
retirement, unless such terminated employee becomes affiliated with a competitor
following any such termination due to disability or retirement), provided the
Company may not terminate any of the Agreements if such termination of
employment or affiliation occurs after a "change in control" of the Company.
The Company has also adopted a non-qualified, unfunded supplemental pension
program for Messrs. Meuleman, Edge, Waddell, and Hecht (the "Supplemental
Executive Retirement Plan" (SERP)), which provides retirement benefits in excess
of the maximum benefit accruals for qualified plans which are permitted under
the Code. The benefits under the SERP are provided by the Company on a
non-contributory basis. The Company has not funded these supplemental retirement
benefits other than accruing a liability in the amount of the actuarially
determined present value of the retirement benefits.
A participant's annual retirement benefits payable under the SERP are based
upon three percent of such participant's final base salary times the number of
years of service and shall not exceed 70% of a participant's final base salary
and shall be no less than 45% of a participant's final base salary. The benefits
payable shall be reduced by any other AMCORE provided benefits and also reduced
by 50% of applicable Social Security benefits. The benefits shall be payable in
the form of installment payments for the remainder of the participant's life,
but in no event less than ten years, with payment continuing to the
participant's designated
9
<PAGE> 11
beneficiary for the remaining period of such ten years in the event of the
participant's death after payments have commenced but prior to the expiration of
the ten-year period.
The Company provides a Top Hat plan (entitled "AMCORE Top Hat Plan") for
senior executive officers to maintain certain levels of retirement benefits and
maximize the effectiveness and flexibility of compensation arrangements for
participants in the AMCORE Financial Security Plan (Security Plan). This is
accomplished by crediting each participating executive with contributions that
would be made to the Security Plan, but for certain limitations imposed by the
Internal Revenue Code.
In August 1997, the Company adopted a Transitional Compensation policy
(Policy) to provide severance pay for substantially all of the Company's
employees whose employment is terminated within one year following a change in
control (as defined in the Policy). The Policy provides for semi-monthly
payments, depending on employment status, equal to such employee's current
weekly or monthly salary for a period of time determined pursuant to the Policy
based upon his or her salary, years of service and age.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carl J. Dargene serves as an ex-officio member of the Company's
Compensation Committee and is the Company's Chairman of the Board. Mr. Dargene
also serves as Chairman of the Compensation Committee of Woodward Governor
Company. John A Halbrook is Chairman and CEO of Woodward Governor Company and is
a director of the Company. Mr. Dargene also serves as a Director of CLARCOR and
Lawrence E. Gloyd, Chairman and Chief Executive Officer of CLARCOR serves on the
Company's Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews the Company's
compensation and benefit policies, including individual salaries of the
executive officers, and submits recommendations to the Board of Directors.
During 1999, the Compensation Committee, with the assistance of an outside
compensation consulting firm, completed an extensive review of AMCORE's
executive total compensation offerings to ensure such offerings are
market-competitive, attractive to AMCORE's executives and supportive of the
Company's short-and long-term goals. With the exception of a change to AMCORE's
1999 long-term incentive plan implemented during 1999, all other changes to the
executive compensation program are effective in 2000.
AMCORE believes that base compensation should be competitive in the
marketplace, but that incentive opportunities should increase the amount of
compensation available to key personnel. Incentive opportunities should be tied
directly to Company performance using quantitative measures designed to enhance
short and long term shareholder value.
It is the philosophy of management, supported by the Compensation
Committee, that senior management cash compensation (base pay plus annual
incentive) should be at or near the median for similar positions in the
industry, and that incentives for meeting long-term business objectives should
provide the opportunity for total rewards to reach the 65th percentile and
beyond based on performance relative to industry and peer applicable
comparisons.
EXECUTIVE OFFICER COMPENSATION
Consistent with this philosophy, the Compensation Committee has established
a compensation program consisting of an annual base salary and the opportunity
to earn incentive compensation competitive with comparable external pay levels
and tied directly to performance of the Company, personal performance and
increases in stockholder value. The Company's executive officer compensation
program in 1999 consisted of the following components:
- Base Salary
- Short-Term Incentive Plan
10
<PAGE> 12
- Intermediate-Term Incentive Plan
- Long-Term Incentive Plan
BASE SALARY
The Compensation Committee, working with the compensation consulting firm,
determines a range for the executive officers' base salaries in order to be
competitive and consistent with amounts paid to executives performing similar
functions in comparable companies. The amount of each executive's base salary is
set within the range based upon performance of the Company, performance of
particular business units, the personal performance of such executive officers,
market base salary increases and such other factors as the Compensation
Committee and the Board of Directors deem appropriate.
SHORT-TERM INCENTIVE
The short-term incentive component of each executive officer's compensation
is based upon participation in the Company's cash profit sharing plan, generally
available to all of the Company's employees, and an annual cash incentive plan.
Amounts payable under the Company's profit sharing plan range between 0%
and 5% of the executive officer's total eligible wages, and are based upon the
profitability of the Company. The cash profit sharing payout earned in 1999 was
2% of total eligible wages.
Annual incentive amounts are payable contingent upon the attainment of
financial targets such as consolidated or affiliate earnings, which are
established at the beginning of the year; the personal performance of the
executive; and, where appropriate, attainment of earnings goals of the operating
unit(s) for which the executive has responsibility. The targets may be adjusted
from time to time to take into account unforeseen or extraordinary events.
Generally, if certain minimum financial results are not achieved, no annual
incentive will be paid. The opportunity under the annual incentive plan is
expressed as a maximum opportunity percentage tied to the participant's base
salary range midpoint, or salary, whichever is higher. The plan has a threshold
at 86% of target performance and a maximum at 110% of target performance. Each
1% increment above the threshold performance increases the percentage of the
maximum opportunity paid by 4%. Thus, at 90% of target performance, 20% of the
maximum incentive is paid. At 100% of target performance, 60% of the maximum
incentive is paid. At 110% of target performance, 100% of the maximum incentive
is paid. For the executive officers, the maximum incentive opportunities range
from 40% to 70% of the respective base pay range midpoint. At target
performance, the incentive opportunities range from 24% to 42% of the respective
base pay range midpoint, or salary, whichever is higher.
In 1999, the consolidated earnings objective was $45.5 million, an increase
of 5% over the prior year, whereas affiliate earnings goals varied by company.
In 1999, the total short-term incentive payouts to the executive officers were
approximately 53% of the maximum levels established under the plan.
In 1999, the Compensation Committee decided to increase the target
incentive opportunity for the senior executive team over a three-year period
starting in 2000 and to express the target opportunity as a percentage of actual
base salary instead of a percentage of base salary range midpoint. This increase
in the targets reflects the opportunities available to comparable positions of
peer organizations, the elimination of executive management participation in the
cash profit sharing plan and the elimination of the intermediate incentive plan,
which is discussed below. Also in 1999, the Committee decided to pro-rate the
1999 restructuring charge as it relates to the intermediate incentive plan over
a three-year period. The Committee feels that the restructuring charge related
to the consolidation of AMCORE's bank charters into one charter will have a
significant positive impact on AMCORE in the future and that the related
negative impact on the annual incentive plan and intermediate incentive plan
should be amortized against the benefits and should not be entirely realized in
1999.
11
<PAGE> 13
INTERMEDIATE-TERM INCENTIVE
The intermediate-term incentive component of each executive officer's
compensation is based upon the award of performance units which provide for cash
or stock payouts, or a combination thereof, based upon the achievement of
targeted average consolidated returns on stockholders' equity (ROE) by the
Company over a three-year performance period. The holders are also entitled to
dividend equivalent payments on these performance units. A grant was made in
1999 to the executive officer team. For the 1999 grant, the three target levels
applicable to the performance units granted are: Threshold at 13.5% ROE; Target
at 14.5% ROE; and Outstanding at 16.0% ROE. Each performance unit shall be of no
value unless at least the minimum performance level is achieved. If the Company
achieves an average ROE in excess of the minimum performance level set forth
above, each performance unit shall have the following values: $4.45 per unit for
Threshold performance; $6.67 per unit for Target performance; and $11.11 per
unit for Outstanding performance. Average return on equity in excess of 13% but
less than 14% was obtained for the 1997 units expiring in 1999. Therefore,
payouts of $536,857 were made in January 2000 pursuant to these units.
The Compensation Committee felt that this plan diluted management's focus
and decided to stop granting performance units after 1999 and replace the
opportunity with higher annual incentive opportunities, larger stock option
grants and moderate restricted stock grants. If performance threshold are met or
exceeded, the performance unit grants made in 1998 will be cashed out in 2000
and the grants made in 1999 will be cashed out in 2001.
LONG-TERM INCENTIVE
The long-term incentive component of each executive officer's compensation
involves the award of restricted stock and stock options pursuant to the AMCORE
Long-Term Incentive Plan and the 1992 and 1995 Stock Incentive Plans. Long-term
incentives are provided to award executives for achieving long-term strategic
goals and to provide a balance against overemphasis on short-term results.
Through stock ownership, executives' long-term incentives are tied to
stockholder value.
In 1999, the Compensation Committee has recommended annual stock option
grant targets for AMCORE's top five executives that have an approximate present
value of 70% to 85% of base salary. (This estimate was derived using the
Black-Scholes valuation methodology.) This enhanced earnings opportunity
reflects AMCORE's shift toward a longer term value creation focus and the
elimination of the Intermediate-Term Plan effective January 1, 2000.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation package for Mr. Robert J. Meuleman, who was the Chief
Executive Officer of the Company during 1999, was determined in the same manner
as for all other executive officers, except that Mr. Meuleman's short-term
incentive was based 100% on the Company's total performance without reference to
any particular business unit of the Company or personal objectives. For this
purpose, Company performance was measured by comparing the consolidated
operating earnings of the Company to earnings goals established by the
Compensation Committee. Consolidated operating earnings were $43.4 million in
1999 and represented 95% of the earnings goal of $45.5 million.
Mr. Meuleman's base salary in 1999 was $380,000, which was in the first
quartile of his salary range; his short-term incentive bonus was $124,264, a
payout of 40% of the maximum, for a combined total cash compensation of
$504,264. During 1998, Mr. Meuleman earned a base salary of $360,000 and
short-term incentive of $90,146 for a total of $450,146.
12
<PAGE> 14
The Compensation Committee believes that the executive team of the Company
will receive appropriate rewards under this program of corporate incentives, but
only if they achieve the performance goals established for them and the Company
and if they succeed in increasing stockholder value.
Paul Donovan, Chairman
Richard C. Dell
Lawrence E. Gloyd
Frederick D. Hay
Carl J. Dargene, ex-officio member
Robert J. Meuleman, ex-officio
member
COMPANY PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the cumulative total
returns on the NASDAQ Stock Market Index and a selected peer group index.
Cumulative total returns have been measured by dividing the sum of the
cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and the difference between the share price at the end and the
beginning of the measurement period by the share price at the beginning of the
measurement period.
During 1999, the Company's Compensation Committee modified the short term
incentive plan for executive officers to reflect opportunities available to
comparable positions of peer organizations. A group of fourteen banks with
similar revenue characteristics, including income from fiduciary activities, and
located in one of the ten North Central states was selected as peer
organizations and consists of the following companies:
1st Source (SRCE), Chemical Financial Corp. (CHFC), Citizens Banking
Corp. (CBCF), Community First Bankshares, Inc. (CFBX), First Financial
Bancorp (FFBC), First Midwest Bancorp (FMBI), Firstmerit Corp. (FMER),
Fulton Financial Corp. (FULT), Old National Bancorp (OLDB), One Valley
Bancorp, Inc. (OV), Park National Corp. (PRK), Provident Financial
Group, Inc. (PFGI), Susquehanna Bancshares, Inc. (SUSQ), USBancorp. Inc.
(UBAN).
Comparison of the yearly percentage change in the cumulative shareholder
return with this peer group was determined to be more representative due
primarily to similar revenue profiles and geographic markets and the use of this
group for evaluating financial performance for incentive purposes. The NASDAQ
Bank Stocks index which had previously been used for comparison reflected a
12/31/99 index of 314.6.
13
<PAGE> 15
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(AMCORE FINANCIAL, INC., NASDAQ STOCK MARKET INDEX, BANK PEER GROUP)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
AMCORE NASDAQ STOCK PEER GROUP
------ ------------ ----------
<S> <C> <C> <C>
12/31/94 100.000 100.000 100.000
101.333 100.527 99.340
108.810 105.809 101.337
103.437 108.951 101.096
103.437 112.381 102.195
94.817 115.288 103.454
100.235 124.622 107.517
108.362 133.775 110.120
111.071 136.490 115.056
124.112 139.634 115.647
122.748 138.830 118.562
121.516 142.086 121.925
12/31/95 111.218 141.335 123.316
115.337 142.042 123.338
119.457 147.456 125.629
115.514 147.952 126.661
110.672 160.208 126.370
111.364 167.558 127.600
110.163 160.005 129.355
107.374 145.762 127.244
111.558 153.938 132.623
115.256 165.704 138.724
116.661 163.870 141.047
125.095 174.037 152.928
12/31/96 151.476 173.892 157.791
135.196 186.232 161.794
141.566 175.932 169.046
160.984 164.463 165.310
152.436 169.582 171.964
162.408 188.791 184.716
156.157 194.590 195.892
166.185 215.098 206.827
170.483 214.787 204.826
196.723 227.521 223.855
203.208 215.666 222.070
205.370 216.809 225.622
12/31/97 218.316 213.073 244.417
212.885 219.818 233.891
222.660 240.486 248.985
235.729 249.365 260.522
225.907 253.567 261.541
214.993 239.491 252.241
210.746 256.214 248.832
223.918 253.213 242.000
188.793 203.152 209.153
200.960 231.347 222.008
211.450 241.334 228.034
208.137 265.721 234.261
12/31/98 203.388 300.184 235.394
204.360 343.848 226.514
207.414 313.013 220.931
184.914 336.019 226.090
187.707 345.423 236.587
189.383 337.595 237.862
207.500 367.463 238.616
206.938 361.742 234.195
196.816 376.003 226.515
186.764 375.966 216.717
213.930 403.775 229.538
228.644 447.425 227.593
12/31/99 218.542 545.673 210.905
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The index level for all series was set to 100.0 as of December 31, 1994.
14
<PAGE> 16
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Company and their associates were
customers of, and had transactions with, the Company's subsidiaries in the
ordinary course of business during 1999. Comparable transactions may be expected
to take place in the future. All outstanding loans, commitments to loan,
transactions in repurchase agreements and certificates of deposit, and
depository relationships in the ordinary course of business, were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for transactions with other persons, and, in the opinion
of management of the Company, did not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 1999,
various directors and officers of the Company were indebted to the Company's
subsidiaries in the amount of approximately $4.09 million. This amount
represents 0.15 percent of the Company's subsidiaries' outstanding loans and
1.39 percent of the Company's stockholders' equity as of that date. The maximum
aggregate amount of their indebtedness to the Company's subsidiaries during 1999
was $6.20 million. As of December 31, 1999, associates of directors and officers
of the Company were indebted in the amount of $1.17 million to the Company's
subsidiaries. Further, the Company's subsidiaries have additional committed, but
unfunded, lines of credit of $5.71 million to associates of directors and
officers of the Company. The maximum aggregate amount of such associates'
indebtedness to the Company's subsidiaries during 1999 was $3.21 million.
The Board of Directors, on February 22, 1984, authorized the Executive
Committee to negotiate such agreements as may be necessary to accomplish stock
redemptions pursuant to Section 303 of the Internal Revenue Code to pay death
taxes of certain stockholders. Such redemptions will be conditioned upon any
requisite bank regulatory agency or debt covenant approvals. Bank holding
companies, such as the Company, are required to notify the Federal Reserve Board
prior to paying 10% or more of consolidated net worth to redeem shares over a
twelve-month period.
ITEM 2 -- APPOINTMENT OF INDEPENDENT AUDITORS
KPMG LLP has been appointed to serve as the independent auditors for the
Company and subsidiaries for the fiscal year ending December 31, 2000. This
appointment is being submitted to the stockholders for ratification.
Representatives of the firm are expected to be present at the Annual Meeting to
respond to appropriate questions from stockholders and to have the opportunity
to make any statements they consider appropriate. In the event the stockholders
do not ratify the appointment of KPMG LLP, the selection of independent auditors
will be determined by the Audit Committee and the Board of Directors after
careful consideration of all information submitted by the stockholders.
Accounting services rendered by KPMG LLP during 1999 included the
examination of the annual consolidated financial statements, review of unaudited
quarterly statements, assistance with Securities and Exchange Commission
filings, legally required special audits of subsidiaries, and consultations in
connection with various tax and accounting-related matters.
During 1999, the Board of Directors reviewed and approved in advance or
ratified the engagement of all of KPMG LLP's professional services rendered to
the Company and related entities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF
KPMG LLP AS AUDITORS FOR THE YEAR 2000.
15
<PAGE> 17
ITEM 3 -- APPROVAL OF THE AMCORE FINANCIAL, INC. 2000 STOCK INCENTIVE PLAN
On February 16, 2000, the Board of Directors adopted the AMCORE Financial,
Inc. 2000 Stock Incentive Plan (the "Plan"), subject to stockholder approval.
The Plan will replace the AMCORE Financial, Inc. 1995 Stock Incentive Plan
adopted by the Company in February 1995. Nearly all of the shares of common
stock reserved for issuance under the AMCORE Financial, Inc. 1995 Stock
Incentive Plan have been issued or reserved for issuance pursuant to outstanding
grants. The Board of Directors has determined that a new incentive plan is
needed in order to continue to attract and retain outstanding individuals as
officers and key employees and to increase their proprietary interest in, and
their identification with, the Company and its subsidiaries. The Plan will
become effective (The "Effective Date") immediately upon approval by the
stockholders and, if approved, will continue in effect until all awards under
the Plan have been satisfied by the issuance of shares or the payment of cash,
but no award may be granted more than five years after the Effective Date. There
shall be reserved and available for issuance under the Plan (i) during the first
year of the Plan, 2.5% of the total number of shares of the Company's common
stock outstanding at the Effective Date and (ii) during each subsequent year of
the Plan, an additional 1.5% of the total number of shares of the Company's
common stock outstanding as of the first day of each subsequent year of the
Plan, not to exceed 425,000 shares in any such year. Available shares not used
during any year of the Plan will be available for issuance in the subsequent
years.
The summary of the Plan which follows is qualified in its entirety by
reference to the complete text of the Plan as set forth in Exhibit A attached
hereto.
GENERAL DESCRIPTION
The Plan will be administered by a committee (the "Committee") of the Board
of Directors, provided that each member of the Committee shall be (i) a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and (ii) an "outside
director" within the meaning of Section 162 (m) of the Internal Revenue Code of
1986, as amended (the "Code"). It is currently contemplated that the Committee
would consist of the members of the Compensation Committee described herein.
Eligible participants in the Plan will consist of such officers and other key
employees of the Company and its subsidiaries as the Committee may select from
time to time. Non-officer directors of the Company are not eligible to
participate in the Plan. In the discretion of the Committee, participants may
receive stock options, stock appreciation rights, restricted stock awards,
performance unit awards or stock bonus awards, either singly or in combination.
The amount of any grant or award, whether measured by shares of common stock or
otherwise, is subject to the discretion of the Committee; provided, that no
participant may receive in any Plan Year awards of stock options, stock
appreciation rights, stock bonus awards or performance unit awards payable in
shares of stock covering more than 20% of the shares of stock reserved for
issuance in such plan year; and provided, further, that no participant may be
granted in any Plan Year performance unit awards payable other than in shares of
stock in an amount in excess of such individual's base compensation for the
first year of the Plan. Shares to be issued under the Plan may be authorized and
unissued shares of common stock, treasury shares of common stock, or any
combination thereof. Any shares subject to a grant of award which terminates,
expires or is cancelled prior to its vesting or exercise may again be available
for future grants under the Plan. Awards under the plan may be evidenced by an
agreement or instrument which may contain such terms, provisions and conditions,
not inconsistent with the Plan, as may be determined by the Committee in its
discretion.
The Committee has general authority to administer the Plan. The Committee
may amend the Plan in any respect, provided that no amendment may be made which
would increase the maximum number of shares available for issuance pursuant to
the Plan, extend the maximum period during which any award may be exercised,
extend the term of the Plan, decrease the minimum option price to less than the
fair market value of the common stock on the date of the grant of the option or
change the employees or class of employees eligible to participate in the Plan
without stockholder approval as required by Rule 16b-3 under the Exchange Act.
In addition, the Committee may amend the terms of any award previously granted
to an employee, provided that no such amendment may adversely affect the rights
of a holder without his or her consent. Notwithstanding
16
<PAGE> 18
the foregoing, stockholder approval of any material amendment to the Plan will
be required only at such time as Rule 16b-3 under the Exchange Act shall require
such approval.
The maximum number of shares of common stock issuable under the Plan and
the number, kind and option price of shares or other consideration subject to
any outstanding award granted under the Plan may be adjusted, as deemed
appropriate by the Committee, to reflect changes in the capitalization of the
Company by reason of stock dividends or distributions, recapitalizations,
reorganizations, mergers, consolidations, combinations, spin-offs, exchanges or
other relevant changes in capitalization or corporate structure.
No award granted under the Plan will be assignable or transferable except
by will, by the laws of descent and distribution or pursuant to a "qualified
domestic relations order" and by such other means as the Committee may approve
from time to time for participants whose transactions in the Company's common
stock are not subject to Section 16(b) of the Exchange Act.
STOCK OPTIONS
Options granted under the Plan may be (i) options which are intended to
qualify under particular provisions of the Code as incentive stock options
("Incentive Stock Options") or (ii) options which are not intended to so qualify
("Non-Qualified Stock Options"). The Committee will determine the number of
shares subject to each stock option and the manner and time of exercise. No
option however will be exercisable more than ten years after the date of grant.
The per-share option price will not be less than 100% of the fair market value
of a share of common stock as of the date of grant. Upon exercise, the option
price may be paid in cash, in shares of common stock having a fair market value
equal to the option price or by a combination thereof. Options may, unless
otherwise determined by the Committee, be exercised by means of a cashless
exercise procedure involving successive transfers of newly issued shares of
common stock to the Company. The Plan sets forth conditions for the exercise of
options under certain circumstances upon termination of employment by reason of
death, disability, retirement or otherwise.
RELOAD OPTIONS
Reload Options are additional options that are granted to eligible officers
of the Company. An officer is eligible to receive a Reload Option if Company
policy requires the officer to meet minimum ownership requirements in Company
stock and the officer sells or tenders mature shares of Company stock that the
officer already owns to pay the cost of exercising an existing stock option. A
Reload Option will be either an Incentive Stock Option or a Non-Qualified Stock
Option, depending upon the type of existing option that is exercised. Only one
Reload Option grant is permitted per existing stock option grant and only one
Reload Option grant is permitted per year. Reload Options are granted only when
the existing stock option is exercised and will have the same expiration date as
the existing stock option. The exercise price of a Reload Option will be no less
than the fair market value of Company stock on the date the Reload Option is
granted.
STOCK APPRECIATION RIGHT
Stock appreciation rights ("SARs") may be granted either alone or in tandem
with a related stock option. The Committee will determine the manner and time of
exercise of SARs, but no such right will be exercisable less than six months or
more than ten years after the date of grant. The Plan sets forth conditions for
the exercise of SARs upon termination of employment by reason of death,
disability, retirement or otherwise.
Upon exercise of a SAR, the grantee will be paid the excess of the then
fair market value of the number of shares of common stock to which the right
relates over a specified price, which may not be less than the fair market value
of such number of shares at the date of grant of the right, or the fair market
value, at the time of grant, of the related stock options, as the case may be.
Such amount may be paid in cash or in shares of common stock having a fair
market value equal to such excess, or in such combination thereof, as the
Committee shall determine upon exercise of the right. The number of shares which
may be issued pursuant to all grants under the Plan will be reduced upon the
exercise of any SAR by the number of shares covered by the SAR.
17
<PAGE> 19
PERFORMANCE UNITS
Performance unit awards may be made from time to time and shall be
contingent on the achievement over a period of not less than two nor more than
five years of such corporate, division, subsidiary, group or other objectives as
shall be established by the Committee. Such objectives will be established by
the Committee prior to the beginning of the performance period but may be
revised by the Committee from time to time during the performance period to take
into account significant unforeseen events or changes in circumstances.
Performance targets will relate to corporate, division, subsidiary, group or
unit performances and may be established in terms of growth in gross revenue,
earnings per share, ratios of earnings to equity or assets, or, with respect to
participants not subject to Section 162(m) of the Code, such other measures or
standards determined by the Committee in its discretion.
Except as may otherwise be determined by the Committee, a performance unit
award shall terminate if the holder of the award will not remain continuously in
the employ of the Company and its subsidiaries at all times during the
applicable performance period, provided that if a participant ceases to be
employed by the Company prior to the end of the performance period by reason of
death, disability or retirement, with the consent of the Company, any
performance unit award, to the extent earned under the applicable performance
targets, will be payable at the end of the performance period according to the
length of time employed.
Following the end of the performance period, the holder of a performance
unit award will be entitled to receive payment of an amount, not exceeding the
maximum value of the performance unit award established by the Committee, based
on the level of achievement of the objectives for the performance period as
determined by the Committee. Payment will be made in a lump sum or installments,
as determined by the Committee, commencing as promptly as practicable following
the end of the performance period unless deferred in such form as may be
prescribed by the Committee.
RESTRICTED STOCK
Restricted stock awards consisting of shares of common stock may be made
from time to time and shall be contingent on the employee continuing employment
with the Company or its subsidiaries for a period to be specified in the award.
The Committee may, in its sole discretion, provide for the lapse of any
restrictions on the shares of common stock in installments and may accelerate or
waive restrictions in whole or in part based on such factors and circumstances
as the Committee may determine. The holder of a restricted stock award will have
the right to vote the restricted shares and to receive dividends thereon, unless
and until such shares are forfeited. If all conditions to which such award is
subject have been satisfied, the holder will be entitled to such shares free
from all restrictions.
STOCK BONUSES
Stock bonus awards consisting of shares of common stock may be made from
time to time and will be (i) based on the achievement of performance objectives
which are established by the Committee based on the same criteria as with
respect to performances unit awards described above, and which may be adjusted
to take into account unforeseen events or changes in circumstances, or (ii) in
lieu of some or all of a cash bonus payable under the Company's bonus
compensation policy. Shares of common stock subject to a stock bonus award may
be granted directly to an employee free of any restrictions or issued pursuant
to a stock bonus award agreement.
CHANGE IN CONTROL OF THE COMPANY
In the event of a "Change in Control" of the Company, unless otherwise
determined by the Committee of the Board of Directors prior to the occurrence of
such "Change in Control", (i) any SARs outstanding for at least six months and
any stock options awarded under the Plan not previously exercisable and vested
will become fully exercisable and vested; and (ii) the restrictions applicable
to any restricted stock, performance unit or stock bonus awards will lapse, and
such shares and awards will be deemed fully vested.
18
<PAGE> 20
Generally, a "Change in Control" is defined under the Plan as: (i) the
acquisition by any person or group of 30% or more of the combined voting power
of the Company's then outstanding securities; (ii) the removal, by election or
any other means, of a majority of the members of the Board of Directors in any
period of two consecutive years; or (iii) stockholder approval of a (a) merger
of the Company with any other corporation, other than a merger whereby the
voting securities of the Company outstanding immediately prior to the merger
would represent at least 66 2/3% of the combined voting power of the voting
securities of the surviving entity immediately after such merger; (b) plan of
complete liquidation of the Company; or (c) sale of all or substantially all of
the Company's assets.
FEDERAL TAX CONSEQUENCES
The following is a general summary of certain Federal income tax
consequences under current laws to participants in the Plan. It does not purport
to be a complete discussion of all relevant aspects of Federal income taxation
and does not discuss state, local or foreign tax consequences. Each employee is
urged to consult his personal tax advisor as to the precise Federal, state,
local, foreign and other tax consequences of participation in the Plan.
Non-Qualified Stock Options. An employee will not recognize any income, and
the Company will not be entitled to a deduction, upon the grant of a
Non-Qualified Stock Option. Upon the exercise of a Non-Qualified Stock Option,
an employee generally will recognize ordinary income in an amount equal to the
excess of the fair market value of the shares acquired over the option price,
and the Company will be entitled to a corresponding deduction.
An employee's aggregate basis in shares acquired upon the cash exercise of
a Non-Qualified Stock Option will be equal to the fair market value of such
shares on the date of exercise, and the holding period of such shares will begin
on such date. Upon a sale of shares acquired pursuant to the exercise of a Non-
Qualified Stock Option, an employee generally will recognize capital gain or
loss in an amount equal to the difference between the amount realized on such
sale and the employee's basis in such shares. Such gain or loss generally will
be long-term capital gain or loss if the employee has held such shares for more
than one year.
Incentive Stock Options. An employee will not recognize any income, and the
Company will not be entitled to any deduction, upon the grant or timely exercise
of an Incentive Stock Option. Exercise of an Incentive Stock Option will be
timely if made while the optionee is employed by the Company or within three
months after the cessation of such employment (three years if the optionee is
disabled within the meaning of Section 22(e) (3) of the Code). The timely
exercise of an Incentive Stock Option may, however, affect the computation of
the employee's alternative minimum tax. An employee's aggregate basis of shares
acquired upon cash exercise of an Incentive Stock Option will be equal to the
option price paid for such shares. The holding period for such shares will begin
on the date of exercise.
If an employee disposes of shares acquired pursuant to the exercise of an
Incentive Stock Option more than two years after the date of grant and more than
one year after the exercise of such Incentive Stock Option, any gain or loss
recognized upon such disposition generally will be treated as a long-term
capital gain or loss, and the Company will not be entitled to any deduction. If,
however, shares acquired pursuant to the exercise of an Incentive Stock Option
are disposed of prior to the expiration of either holding period described above
(a "disqualifying disposition"), generally (i) the employee will recognize
ordinary income at the time of the disposition in an amount equal to the excess
(if any) of the fair market value of the shares at the time of exercise (or, if
less, the amount realized on the deposition of the shares) over the option price
thereof, and (ii) the Company will be entitled to a corresponding deduction. Any
additional gain recognized by the employee on the disqualifying disposition of
such shares generally will be taxed as a short-term or long-term capital gain,
as the case may be, and will not result in any deduction by the Company.
Payment in Shares. The Treasury Department has issued proposed regulations
and the Internal Revenue Service has issued a published ruling that would appear
to apply the following rules with respect to the exercise of a Non-Qualified
Stock Option by the surrender of previously owned shares of company stock. An
employee who pays the option price upon exercise of a Non-Qualifying Stock
Option, in whole or in part, with shares of common stock already owned by him
will recognize no gain or loss on the shares surrendered, but
19
<PAGE> 21
otherwise will be taxed on the options according to the rules described above
for Non-Qualified Stock Options. The number of shares acquired upon exercise
that is equal in number to the shares surrendered will have a basis equal to the
basis of the shares surrendered, and the holding period for such shares will
include the holding period for the shares surrendered. Any additional shares
received will have a basis equal to the fair market value of such shares when
received, and the holding period for such shares will begin on such date. If the
shares delivered in payment of the option price were previously acquired by the
employee through the exercise of an Incentive Stock Option ("ISO Stock"), then
the shares acquired in exchange for such ISO Stock will be treated as ISO Stock.
The Treasury Department has issued proposed regulations that if adopted in
their current form, would appear to provide for the following rules with respect
to the exercise of an Incentive Stock Option by the surrender of previously
owned shares of Company stock. If an employee exercises an Incentive Stock
Option with shares of common stock or ISO Stock for which the applicable holding
period requirements have been met, in general, (i) no gain or loss will be
recognized as a result of the exchange, (ii) the number of shares acquired upon
exercise that is equal in number to the shares surrendered will have a basis
equal to the shares surrendered and (except for purposes of determining whether
a disposition will be a disqualifying disposition) will have a holding period
that includes the holding period for the shares surrendered, and (iii) any
additional shares acquired will have a zero basis and will have a holding period
that begins on the date of exchange. If the shares surrendered in payment of the
option price are statutory option stock (including ISO Stock) and the applicable
holding period for such statutory stock has not been met, such surrender will
constitute a "disqualifying disposition" and any gain realized on such transfer
will be taxable to the employee, as discussed above. If any of the shares so
acquired are disposed of within two years from the date of the grant of the
Incentive Stock Option or within one year after exercise, the shares with the
lowest basis will be deemed to be disposed of first, and such disposition will
be a disqualifying disposition that may give rise to ordinary income as
discussed above.
SARs Performance Units. An employee will not recognize any income, and the
Company will not be entitled to a deduction, upon the grant of a SAR or a
performance unit award. Upon exercise of a SAR or upon payment of a performance
unit award, the amount of any cash and the fair market value as of the date of
exercise of any shares of Company stock received by the employee will be taxable
to the employee as ordinary income, and the Company will be entitled to a
corresponding deduction. Upon a sale of shares of Company stock acquired
pursuant to the exercise of SARs or on payment of a performance unit, an
employee generally will recognize capital gain or loss in an amount equal to the
difference between the amount realized on such sale and the employee's basis in
such shares.
Restricted Stock. An employee generally will not recognize any income upon
the receipt of a restricted stock award unless the employee elects under Section
83(b) of the Code, within thirty days of acquiring the restricted stock, to
recognize ordinary income in an amount equal to the excess of the fair market
value of such shares at the time of receipt (determined without regard to any
restriction on such shares other than a restriction which by its terms will
never lapse) over the amount, if any, paid for such shares. The Company will be
entitled to a corresponding deduction at the time when, and in the amount that,
the employee recognizes ordinary income. If shares in respect of which such
election was made are later forfeited, no tax deduction is allowable to the
employee for the amount previously included in income, and the Company will be
deemed to recognize ordinary income equal to the amount of the deduction taken
by the Company at the time of the election in respect of such forfeited shares.
If the election is not made, the employee generally will recognize ordinary
income, when the shares are no longer subject to a substantial risk of
forfeiture (as defined in the Code), in an amount equal to the excess of the
fair market value of the shares on such date over the amount, if any, paid for
such shares. The Company will be entitled to a corresponding deduction at the
time when, and in the amount that, the employee recognizes ordinary income.
Stock Bonus. An employee who receives shares pursuant to a stock bonus
award, that are not subject to a substantial risk of forfeiture, generally will
recognize ordinary income upon the receipt of such shares in an amount equal to
the fair market value of the shares received, and the Company will be entitled
to a corresponding deduction. If shares received pursuant to a stock bonus award
are subject to a substantial risk of forfeiture, the rules described above for
Restricted Stock may apply.
20
<PAGE> 22
General. The Plan provides that the Committee shall set grants, targets and
objectives under the Plan so as to protect against the loss of deductibility
pursuant to Section 162(m) of the Code, and allows the Committee to amend the
Plan so as to comply with the requirements of Section 162(m). The foregoing
summary of federal tax consequences assumes that the disposition of shares
received pursuant to the Plan would not subject he employee to liability under
Section 16(b) of the Exchange Act. Section 1(b) of the Exchange Act generally
does not impose Section 16(b) liability upon the sale of shares following
exercise of an option, SAR or performance unit award if the sale of such shares
took place more than six months following the date of grant of the option, SAR
or performance unit award (provided no other purchases have been made six months
before or after such sale).
OTHER INFORMATION
The Committee may, in its sole discretion, provide for supplemental cash
payments or loans to individuals in connection with all or any part of an award
under the Plan. Supplemental cash payments shall be subject to such terms and
conditions as shall be prescribed by the Committee at the time of grant,
provided that in no event shall the amount of payment exceed: (i) in the case of
an option, the excess of the fair market value of a share of common stock on the
date of exercise over the option price, multiplied by the number of shares of
common stock for which such option is exercised plus any applicable taxes; or
(ii) in the case of a SAR, performance unit, restricted stock or stock bonus
award, the value of the shares and other consideration issued in payment of such
award. Each loan issued by the Committee must comply with all applicable laws,
regulations and rules of the Board of Governors of the Federal Reserve System
and any other governmental agency having jurisdiction.
No grants or awards have been made under the Plan, and none will be made
unless the Plan is approved by the stockholders. In view of the discretionary
authority vested in the Committee, it is not possible to estimate the number of
shares in respect of which grants and awards will be made.
Approval of the Plan will require the favorable vote by the holders of a
majority of the shares present in person or represented by proxy at the Annual
Meeting of Stockholders or any adjournment thereof. Shares of AMCORE Financial,
Inc. are traded on the NASDAQ Stock Market's National Market under the symbol
AMFI. As of March 15, 2000, the closing bid and ask prices were $18.75 and
$18.8125 per share, respectively.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMCORE
FINANCIAL, INC. 2000 STOCK INCENTIVE PLAN.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
NOMINATIONS FOR THE BOARD OF DIRECTORS
The Company's Bylaws provide that the notice of proposed stockholder
nominations for the election of directors must be timely and given to the
Secretary of the Company prior to the meeting at which directors are to be
elected. To be timely, notice must be received by the Company not less than 50
days nor more than 75 days prior to the meeting. The date of an annual meeting
of stockholders may be obtained from the Secretary of the Company when
determined by the Board of Directors.
Notice to the Company from a stockholder who proposes to nominate a person
at the meeting for election as a director must contain certain information about
that person, including age, business and residence addresses and principal
occupation, the class and number of shares of the Company's stock beneficially
owned and such other information as would be required to be included in a proxy
statement soliciting proxies to nominate that person. The Company may also
require any proposed nominee to furnish other information reasonably required by
the Company to determine the proposed nominee's eligibility to serve as
director. If the chairman of the meeting of stockholders determines that a
person was not nominated in accordance with the foregoing procedures, such
person shall not be eligible for election as a director.
21
<PAGE> 23
OTHER PROPOSALS
Stockholders may submit proposals appropriate for stockholder action at the
Company's Annual Meeting consistent with the regulations of the Securities and
Exchange Commission. For proposals to be considered for inclusion in the Proxy
Statement for the 2001 Annual Meeting, they must be received by the Company no
later than November 30, 2000. Such proposals should be directed to AMCORE
Financial, Inc., Attention: Corporate Secretary, 501 Seventh Street, Rockford,
Illinois 61104.
By order of the Board of Directors,
/S/ JAMES S. WADDELL
James S. Waddell
Secretary
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APPENDIX A
AMCORE FINANCIAL, INC.
2000 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the AMCORE Financial, Inc. 2000 Stock
Incentive Plan (the "Plan") is to foster and promote the long-term financial
success of the Company and thereby increase stockholder value. The Plan provides
for the award of long-term incentives to those officers and other key employees
who make substantial contributions to the Company by their loyalty, industry and
invention. The Company intends that the Plan will thereby facilitate securing,
retaining and motivating management employees of high caliber and potential. The
Plan was adopted by the Board on February 16, 2000, subject to the approval of
the Company stockholders at the annual meeting on May 9, 2000.
2. Certain Definitions.
"Board" means the Board of Directors of the Company.
"Change in Control" means a transaction whereby (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then-outstanding securities; or (B)
during any period of two consecutive years (not including any period prior to
the execution of this Plan), individuals who at the beginning of such period
constitute the Board and any new director (other than a director designated by a
person who shall have entered into an agreement with the Company to effect a
transaction described in clause (A) or (C) of this definition) whose election by
the Board or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (C) the shareholders of the Company
approve (i) a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 66 2/3% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"Committee" shall have the meaning provided in Section 3 of the Plan.
"Company" means AMCORE Financial, Inc., a Nevada corporation, its
subsidiaries and other affiliates (or any successor to AMCORE Financial, Inc.).
"Disability" means permanent and total disability as determined under the
Company's disability program or policy.
"Effective Date" means the date the Plan is approved by the stockholders of
the Company.
"Fair Market Value" means for any day the average of the high and low price
or, in the event that no such sale takes place on such day, the average of the
reported closing bid and asked prices, in either case as reported on the
principal national securities exchange on which the Stock is listed or admitted
to trading or, if not listed or admitted to trading on any national securities
exchange, on the Nasdaq Stock Market's National Market ("Nasdaq"), or if the
Stock is not quoted on such National Market System, the average of the high and
low prices on each such day in the over-the-counter market as reported by Nasdaq
or, high and low prices for the Stock on each such day shall not have been
reported through Nasdaq, the average of the high and low prices for such day as
furnished by any New York Stock Exchange member firm regularly making a market
in
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the Stock selected for such purpose by the Board or a committee thereof, or, if
the Stock is not publicly traded, the fair market value of the Stock as
determined in good faith by the Committee.
"Incentive Stock Option" means any stock option intended to be designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any stock option that is not intended to
be an Incentive Stock Option, including any stock option that provides (as of
the time such option is granted) that it will not be treated as an Incentive
Stock Option.
"Parent Corporation" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than the Company owns
stock possessing 50% or more of the combined voting power of all classes of
stock in one of the other corporations in the chain.
"Plan Year" means the 12-month period beginning on the Effective Date (or
any anniversary thereof) during the Term of the Plan.
"Retirement" means retirement according to Company guidelines.
"Stock" means the common stock, par value of $.22 per share, of the
Company.
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of the granting
of the option, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
"Term of the Plan" means the five-year period beginning on the Effective
Date.
3. Administration. The Plan shall be administered by a committee of two or
more members of the Board ("the "Committee"), who shall be selected by the
Board. Each member of the Committee must, in addition, be an "outside director"
within the meaning of Section 162(m) of the Code and regulations pursuant
thereto and a non-employee director as defined by Rule 16(b) the Exchange Act.
The Committee shall have the power and authority to grant to eligible employees
of the Company, pursuant to the terms of the Plan: (a) stock options, (b) stock
option reloads, (c) stock appreciation rights, (d) restricted stock, (e) stock
bonus awards or (f) such additional forms of awards as the Committee may in its
discretion deem appropriate, including, without limitation, any combination of
the foregoing.
The Committee shall have authority in its discretion to interpret the
provisions of the Plan and to decide all questions of fact arising in its
applications; to determine the employees to whom awards shall be made under the
Plan; to determine the types of award to be made and the amount, size, terms and
conditions of each such award; to determine the time when the awards shall be
granted; to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable; and
to make all other determinations necessary or advisable for the administration
of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and the
officers and employees who participate in the Plan.
4. Stock Subject to the Plan. There shall be reserved and available for
issuance under the Plan (a) for the first Plan Year, that number of shares equal
to 2.5% of the total number of shares of Stock outstanding as of the Effective
Date and (b) for each subsequent Plan Year, (i) that number of shares equal to
1.5% of the total number of shares of Stock outstanding as of the first day of
each respective Plan Year, not to exceed 425,000 shares in any such Plan Year,
plus (ii) that number of shares of Stock reserved and available for issuance but
unissued during any prior Plan Year during the Term of the Plan; provided,
however, in no event shall the number of shares of Stock available for issuance
under the Plan as of the beginning of any Plan Year plus the number of shares of
Stock reserved for outstanding awards under the AMCORE Financial, Inc. 2000
Stock Incentive Plan and other similar plans previously adopted exceed twelve
percent of the total number of shares of Stock outstanding at that time. Such
shares may consist in whole or in part of authorized and unissued shares or
treasury shares or any combination thereof. The number of shares subject to
awards of
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(i) Stock Options, (ii) Stock appreciation rights or (iii) Stock bonus awards
made to any individual in any Plan Year may not exceed 20% of the shares of
Stock reserved and available for issuance in such Plan Year. Except as otherwise
provided herein, any shares subject to an option or right which for any reason
expires or is terminated unexercised as to such shares shall again be available
under the Plan. If any shares of stock have been pledged as collateral for
indebtedness incurred by an optionee in connection with the exercise of a stock
option and such shares are returned to the Company in satisfaction of such
indebtedness, such shares shall again be available for issuance in connection
with future awards under the Plan. No awards may be granted following the end of
the Term of the Plan.
5. Eligibility to Receive Awards. Persons eligible to receive awards under
the Plan shall be limited to those officers and other key employees of the
Company who are responsible for or contribute to the management, growth and/or
success of the Company. Directors of the Company who are not otherwise officers
or employees of the Company shall not be eligible to participate in the Plan.
6. Stock Options. A stock option may be an Incentive Stock Option or a
Non-Qualified Stock Option. To the extent that any stock option does not qualify
as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option. Stock options may be granted alone or in addition to other awards
granted under the Plan. Stock options for the purchase of Stock shall be
evidenced by agreements in such form as the Committee shall approve from time to
time. The agreements shall contain in substance the following terms and
conditions and may contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
Each option granted under the Plan will have a ten-year term and will become
exercisable as stipulated under the option agreement.
(a) Type of Option. Each option agreement shall identify the options
represented thereby as an Incentive Stock Option or a Non-Qualified Stock
Option, as the case may be.
(b) Option Price. The purchase price of the Stock subject to option
shall not be less than the Fair Market Value of such Stock at the time the
option is granted, as determined by the Committee, but in no event less
than the par value of the Stock.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the option may be exercised, in whole or in
part, which shall be such period or periods of time as may be determined by
the Committee, provided that no option shall be exercisable after ten years
from the date of grant thereof. The Committee shall have the power to
permit an acceleration of previously established exercise terms, subject to
the requirements set forth herein, upon such circumstances and subject to
such terms and conditions as the Committee deems appropriate.
(d) Payment for Shares. The purchase price of the Stock with respect
to which an option is exercised shall be payable in full at the time of
exercise in cash, cash equivalent, in Stock at the Fair Market Value of
such Stock on the exercise dates, a promissory note, or in a combination
thereof, as the Committee may determine and subject to such terms and
conditions prescribed by the Committee for such purpose.
(e) Rights upon Termination of Employment. In the event that an
optionee ceases to be an employee of the Company for any reason, other than
death, Disability or retirement meeting the Company's guidelines, the
optionee shall have the right to exercise the option during its term within
a period of three months after such termination to the extent that the
option was exercisable at the time of termination, or within such other
period, and subject to such terms and conditions as may be specified by the
Committee. In the event that an optionee dies or suffers a Disability prior
to the expiration of the option and without having fully exercised the
option, the optionee or his successor or legal representative shall have
the right to exercise the option during its term, within a period of
thirty-six months after termination of employment due to death or
Disability, to the extent that the option was exercisable at the time of
termination, or within such other period, and subject to such terms and
conditions as may be specified by the Committee.
In the event an optionee who has been terminated due to Disability
dies within twelve months of such termination and prior to the expiration
of the stated term of such stock option, any unexercised stock
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option held by such optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of thirty-six
months from the time of death or until the expiration of the stated term of
such Stock Option, whichever period is shorter. In the event of a
termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such stock option will thereafter
be treated as a Non-Qualified Stock Option.
If the optionee ceases to be employed by the Company or its
subsidiaries due to retirement meeting the Company's guidelines for normal
retirement, the optionee or his or her legal representative may exercise
the option at any time within the period, beginning on the date of his or
her voluntary retirement and ending on the earlier of three years from the
date of such retirement by the optionee or the expiration of the stated
term of the option.
(f) Incentive Stock Option. Notwithstanding the foregoing, in the
case of an Incentive Stock Option, each option agreement shall contain such
other terms, conditions and provisions as the Committee determines
necessary or desirable in order to qualify such option as an Incentive
Stock Option under the Code including, without limitation, the following:
(i) To the extent that the aggregate Fair Market Value (determined
as of the time the option is granted) of the Stock, with respect to
which Incentive Stock Options granted under this Plan (and all other
plans of the Company and its Parent and subsidiary corporations) become
exercisable for the first time by any individual in any calendar year,
exceeds $100,000, such options shall be treated as Non-Qualified Stock
Options; and
(ii) No Incentive Stock Option shall be granted to any employee
if, at the time the option is granted, the individual (by reason of the
attribution rules applicable under Section 424(d) of the Code) owns more
than 10 percent of the combined voting power of all classes of stock of
the Company or any Parent Corporation or Subsidiary unless at the time
such option is granted the option price is at least 110 percent of the
Fair Market Value of the Stock subject to option and such option by its
terms is not exercisable after the expiration of five years from the
date of its grant.
(g) Stock Option Reload Program. Additional stock option grants (the
"Reload Option") are permitted where an eligible optionee delivers, swaps
or sells Company stock that they own in order to pay the cost of exercising
a stock option that was previously granted (the "Original Option").
(i) Optionees eligible to receive a Reload Option grant (the
"Eligible Optionee") shall be limited to officers of the Company that
are subject to Company policies providing for minimum ownership
requirements in Company Stock.
(ii) A Reload Option may be either an Incentive Stock Option or
a Non-Qualified Stock Option. If the Original Option that is exercised
is an Incentive Stock Option, the Reload Option shall also be an
Incentive Stock Option. If the Original Option that is exercised is a
Non-Qualified Stock Option, the Reload Option shall also be a
Non-Qualified Stock Option.
(iii) The number of shares underlying the grant of a Reload
Option shall be the number of shares delivered or sold in order to pay
the cost of exercising the Original Option.
(iv) Reload Options will not be granted unless the shares sold
or delivered to pay the cost of exercising the Original Option have been
held for more than six months.
(v) Reload Options will not be granted if the Original Option is
exercised via a "cashless" or "same-day sale" exercise.
(vi) The cost of exercising an Original Option is the sum of the
Original Option's exercise price plus all applicable withholding taxes.
Withholding taxes shall not exceed the mandated minimum tax withholding.
(vii) Only one Reload Option grant is permitted per each
Original Option grant.
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(viii) Only one Reload Option grant is permitted per year.
(ix) The grant date of the Reload Option will be the date of the
exercise of the Original Option.
(x) The exercise price of a Reload Option shall not be less than
the fair market value of the Stock at the time the Reload Option is
granted.
(xi) The Reload Option shall have the same expiration date as
the Original Option.
7. Stock Appreciation Rights. Stock appreciation rights shall be
evidenced by stock appreciation rights agreements in such form as the Committee
shall approve from time to time. The agreements shall contain in substance the
following terms and conditions and may contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(a) Award. Stock appreciation rights shall entitle the grantee,
subject to such terms and conditions determined by the Committee, to
receive upon exercise thereof all or a portion of the excess of (i) the
Fair Market Value of a specified number of shares of Stock at the time of
exercise, as determined by the Committee, over (ii) a specified price which
shall not be less than 100 percent of the Fair Market Value of the Stock at
the time the option was granted. Such excess may be paid by the Company in
cash, Stock (valued at its then Fair Market Value) or any combination
thereof, as the Committee may determine. Stock appreciation rights may be
granted in connection with a previously or contemporaneously granted stock
option, or not in connection with a stock option. In the event of the
exercise of a stock appreciation right, the number of shares reserved for
issuance hereunder shall be reduced by the number of shares covered by the
stock appreciation right.
(b) Term. Each agreement shall state the period or periods of time
within which the stock appreciation right may be exercised subject to such
terms and conditions prescribed for such purpose by the Committee, in whole
or in part, which shall be such period or periods of time as may be
determined by the Committee, provided that no stock appreciation right
shall be exercisable ten years from the date of grant thereof. The
Committee shall have the power to permit an acceleration of previously
established exercise terms, subject to the requirements set forth herein,
upon such circumstances and subject to such terms and conditions as the
Committee deems appropriate.
(c) Rights upon Termination of Employment. In the event that a
grantee ceases to be an employee of the Company for any reason, other than
death or Disability, the grantee shall have the right to exercise the stock
appreciation right during its term within a period of three months after
such termination to the extent that the stock appreciation right was
exercisable at the time of termination, or within such other period, and
subject to such terms and conditions as may be specified by the Committee.
In the event that a grantee dies or suffers a Disability prior to the
expiration of his stock appreciation right and without having fully
exercised his stock appreciation right, the grantee or his successor or
legal representative shall have the right to exercise the right during its
term, within a period of thirty-six months after termination of employment
due to death or Disability, to the extent that the stock appreciation right
was exercisable at the time of termination, or within such other period,
and subject to such terms and conditions as may be specified by the
Committee.
In the event a grantee who has been terminated due to Disability dies
within twelve months of such termination and prior to the expiration of the
stated term of such stock appreciation right, any unexercised stock
appreciation right held by such grantee shall thereafter be exercisable to
the extent to which it was exercisable at the time of death for a period of
thirty-six months from the time of death or until the expiration of the
stated term of such stock appreciation right, whichever period is shorter.
If the grantee ceases to be employed by the Company or its
subsidiaries due to retirement meeting the Company's guidelines for normal
retirement, the grantee or his or her legal representative may exercise any
unexercised stock appreciation rights held by such grantee at any time
within the period beginning on the date of his or her voluntary retirement
and ending on the earlier of thirty-six months from the date of such
retirement by the grantee or the expiration of the stated term of such
stock appreciation right.
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(d) Other Terms. Stock appreciation rights shall be granted in such
manner and such form, and subject to such additional terms and conditions,
as the Committee in its sole discretion deems necessary or desirable,
including without limitation: (i) if in connection with an Incentive Stock
Option, in order to satisfy any requirements set forth under the Code; or
(ii) in order to avoid any insider-trading liability in connection with a
stock appreciation right under Section 16(b) of the Exchange Act.
8. Restricted Stock Awards. Restricted stock awards under the Plan shall
consist of shares of Stock, restricted against transfer, subject to forfeiture
and other terms and conditions intended to further the purpose of the Plan, and
shall be evidenced by restricted stock agreements in such form as the Committee
shall approve from time to time. The agreements shall contain in substance the
following terms and conditions and may contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(a) Restriction Period. Shares awarded pursuant to this Plan shall be
subject to forfeiture to the Company either in whole or in part upon either
the termination of employment of a participant during the three year period
following a grant hereunder if the Company has not met both annual and
cumulative earnings and return on equity goals established by the Committee
or the termination of employment of a participant during the four to nine
year period following a grant hereunder without regard to the achievement
of the established performance goals. Such shares shall also be subject to
such additional terms, conditions and restrictions, including without
limitation prohibitions against transfer, substantial risks of forfeiture
and attainment of performance objectives, and for such period or periods as
shall be determined by the Committee. In addition, each participant, as a
condition of any restricted stock award, shall have delivered a stock
power, endorsed in blank, relating to the stock covered by such award. The
Committee shall have the power to permit, in its discretion, an
acceleration of the expiration of the applicable restrictions period with
respect to any part or all of the shares awarded to a participant.
(b) Restriction upon Transfer. Shares awarded, and the right to vote
such shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated or otherwise encumbered,
except as herein provided or as provided in any agreement entered into
between the Company and a participant in connection with the Plan, during
the restriction period applicable to such shares. Notwithstanding the
foregoing, and except as otherwise provided in the Plan, the participant
shall have all the other rights of a stockholder including, but not limited
to, the right to receive dividends and the right to vote such shares.
(c) Certificates. Each certificate issued in respect of shares awarded
to a participant shall be registered in the name of the participant and
deposited with the Company, or its designee, and shall bear the following
legend:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture provisions
and restrictions against transfer) contained in the AMCORE Financial,
Inc. 2000 Stock Incentive Plan and a Restricted Stock Award Agreement
entered into between the registered owner and AMCORE Financial, Inc.
Release from such terms and conditions shall be obtained only in
accordance with the provisions of the Plan and Agreement, a copy of
each of which is on file in the office of the Secretary of AMCORE
Financial, Inc."
(d) Lapse of Restrictions. The Committee may, in its sole
discretion, provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part based on such
factors and such circumstances as the Committee may determine. Upon the
lapse of such restrictions, shares of Stock, free of restrictive legend,
shall be issued to the participant or his legal representative.
(e) Termination Prior to Lapse Restrictions. In the event that a
recipient of a restricted stock award ceases to be employed by the Company
prior to the lapse of restrictions applicable to any shares awarded to such
recipient, unless provided otherwise in the event of a recipient's death,
Disability, retirement or other occurrence as prescribed by the Committee,
all shares as to which there still remain
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unlapsed restrictions shall be forfeited to the Company without payment of
any consideration by the Company and neither the recipient nor any
successors, heirs, assigns or personal representatives of such recipient
shall thereafter have any further rights or interests in such shares or
certificates.
9. Stock Bonus Awards. The Committee may, in its sole discretion, grant a
stock bonus award (i) based upon corporate, division, subsidiary, group or unit
performance and such award may be established in terms of growth in gross
revenue, earnings per share or ratios of earnings to equity or assets or, with
respect to participants not subject to Section 162(m) of the Code, such other
measures or standards determined by the Committee in its discretion; provided
that such objectives may be adjusted to take into account unforeseen events or
changes in circumstances, or (ii) in lieu of some or all of a cash bonus payable
under the Company's bonus compensation policies as may be in effect from time to
time. To the extent the Committee deems necessary or appropriate to protect
against loss of deductibility pursuant to Section 162(m) of the Code, such
objectives shall be established in conformity with the requirements of Section
162(m) of the Code.
Shares of Stock subject to a stock bonus award may be (i) granted directly
to an employee free of any restrictions or (ii) issued pursuant to a stock bonus
award agreement which may contain such terms and conditions (including, without
limitation, restrictions on transfer), not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
10. Loans and Supplemental Cash. The Committee may, in its sole
discretion to further the purpose of the Plan, provide for supplemental cash
payments or loans to individuals in connection with all or any part of an award
under the Plan. Supplemental cash payments shall be subject to such terms and
conditions as shall be prescribed by the Committee at the time of grant,
provided that in no event shall the amount of payment exceed:
(a) in the case of an option, the excess of the Fair Market Value of
a share of Stock on the date of exercise over the option price multiplied
by the number of shares of Stock for which such option is exercised plus
any Federal, state or local income tax attributable to such exercise, or
(b) in the case of a stock appreciation right restricted stock award
or stock bonus award, the value of the shares of Stock and other
consideration issued in payment of such award.
In the case of loans, any such loan shall be evidenced by loan agreements,
promissory notes or other instruments in such form and which shall contain such
terms and conditions (including, without limitation, provisions for interest,
payment, schedules, collateral, forgiveness, acceleration of such loans or parts
thereof or acceleration in the event of termination) as the Board shall
prescribe from time to time. Notwithstanding the foregoing, each loan shall
comply with all applicable laws, regulations and rules of the Board of Governors
of the Federal Reserve System and any other governmental agency having
jurisdiction.
11. Change in Control. In the event of a "Change in Control," unless
otherwise determined by the Committee or the Board in writing at or after grant
(including under any individual agreement) but prior to the occurrence of such
Change in Control:
(a) any stock appreciation rights outstanding for at least six months
and any stock option awarded under the Plan not previously exercisable and
vested shall become fully exercisable and vested; and
(b) the restrictions applicable to any restricted stock or stock bonus
award under the Plan shall lapse, and such shares and awards shall be
deemed fully vested.
12. General Restrictions. Each award under the Plan shall be subject to
the requirement that if at any time the Committee shall determine that (i) the
listing, registration or qualification of the shares of Stock subject or related
thereto upon any securities exchange or under any state or federal law, (ii) the
consent or approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of shares of Stock is
necessary or desirable as a condition of, or in connection with, the granting of
such award or the issue or purchase of shares of Stock thereunder, such award
may not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
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13. Single or Multiple Agreements. Multiple forms of awards or
combinations thereof may be evidenced by a single agreement or multiple
agreements, as determined by the Committee.
14. Rights of a Stockholder. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a stockholder
with respect thereto unless and until certificates for shares of Stock are
issued to him.
15. Rights to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such participant with or
without cause.
16. Withholding. The Company's obligation to (i) deliver shares of Stock
or to pay cash upon the exercise of any Non-Qualified Stock Option or any stock
appreciation right granted under the Plan, (ii) deliver stock certificates or to
pay cash upon the vesting of restricted shares, and (iii) deliver shares of
Stock upon the grant of any stock bonus award shall be subject to applicable
Federal, state and local tax withholding requirements. Federal, state and local
withholding tax due upon the exercise of any Non-Qualified Stock Option, the
vesting of restricted shares and the granting of any stock bonus award may be
paid in shares of Stock (either through the surrender of previously held shares
of Stock or the withholding of shares of Stock otherwise issuable upon the
exercise of such award) having a Fair Market Value equal to the required
withholding and upon such other terms and conditions as the Committee shall
determine; provided, however, that the Committee, in its sole discretion, may
disapprove such payment and require that such taxes be paid in cash; and
provided, further, that the election by a holder, whose transaction in Stock are
subject to Section 16(b) of the Exchange Act, to pay in shares of Stock shall be
subject to and must comply with Rule 16b-3(e) of the Exchange Act.
17. Indemnification. No member of the Board or the Committee, nor any
officer or employee of the Company acting on behalf of the board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
18. Non-Assignability. No award under the Plan shall be assignable or
transferable by the recipient thereof except by will, by the laws of descent and
distribution or pursuant to a qualified domestic relations order and by such
other means as the Committee may approve from time to time with respect to
holders whose transaction in the Stock are not subject to Section 16(b) of the
Exchange Act. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefit.
19. Nonuniform Determinations. The Committee's determinations under the
Plan (including without limitation determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the agreements evidencing same, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.
20. Adjustments. In the event of any change in the outstanding shares of
Stock, by reason of a stock dividend or distribution, recapitalization, merger,
reorganization, consolidation, split-up, spin-off, combination, exchange of
shares or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in (i) the aggregate number of shares
of Stock reserved for issuance under the Plan and (ii) the kind, number and
option price of shares subject to outstanding stock options under the Plan as
may be determined by the Committee, in its sole discretion, which judgment shall
be conclusive, provided that the number of shares subject to any award shall
always be a whole number. Such other substitutions or adjustments shall be made
as may be determined by the Committee, in its sole discretion. An adjusted
option price shall be used to determine the amount payable by the Company upon
the exercise of any stock appreciation right.
30
<PAGE> 32
21. Amendment. The Committee may terminate or amend the Plan or any
portion thereof at any time, including but not limited to amendments to the Plan
necessary to comply with the requirements of Section 16(b) of the Exchange Act,
except that the Committee may not increase the maximum number of shares which
may be issued under the Plan (other than increases pursuant to Section 20
hereof), extend the maximum period during which any award may be exercised,
extend the term of the Plan, decrease the minimum option price to less than the
Fair Market Value on the date of the grant of the option or change the employees
or class of employees eligible to participate in the Plan without stockholder
approval as required by Rule 16b-3 of the Exchange Act. The termination or any
modification or amendment of the Plan shall not, without the consent of a
participant, adversely affect his rights under an award previously granted. The
Committee may amend the terms of any award therefore granted, prospectively or
retroactively, but, subject to Section 20 above, no such amendment shall
adversely affect the rights of any holder without such Holder's consent.
Notwithstanding the foregoing, stockholder approval under this Section 21 shall
be required only at such time as Rule 16b-3 of the Exchange Act, and as such
Rule may be amended from time to time, shall require the approval of the
stockholders of the Company of any material amendment to any employee benefit
plan of the Company or as necessary to qualify compensation payable under the
Plan for purposes of Section 162(m) of the Code.
22. Separability. If any of the terms or provisions of this Plan conflict
with the requirements of Rule 16b-3 of the Exchange Act and/or Sections 162(m)
and 422 of the Code, then such terms or provisions shall be deemed inoperative
to the extent they so conflict with the requirements of said Rule 16b-3, and/or
with respect to Section 162(m) or 422 of the Code. With respect to an Incentive
Stock Option, if this Plan does not contain any provision required to be
included herein under Section 422 of the Code (as the same shall be amended from
time to time), such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set out at length herein.
23. Effect on Other Plans. Participation in this Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan of
the Company and any awards made pursuant to this Plan shall not be used in
determining the benefits provided under any other plan of the Company unless
specifically provided.
24. Duration of the Plan. The Plan shall remain in effect until all
awards under the Plan have been satisfied by the issuance of shares or the
payment of cash, but no award shall be granted more than five years after the
date the Plan is adopted by the Company.
25. Governing Law. This Plan shall be governed by, and construed in
accordance with, the laws of the State of Nevada.
31
<PAGE> 33
AMCORE FINANCIAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMCORE FINANCIAL, INC.
FOR THE ANNUAL MEETING ON MAY 9, 2000
The Undersigned Holder of Common Stock of AMCORE Financial, Inc. hereby
appoints Robert J. Meuleman and James S. Waddell or each of them, with full
power of substitution, to act as proxy for and to vote the stock of the
undersigned at the Annual Meeting of Stockholders of AMCORE Financial, Inc. to
be held at Clock Tower, 7801 East State Street, Rockford, Illinois, at 5:30
p.m., Rockford time, on May 9, 2000 or any adjournment thereof.
In their discretion, the proxies are authorized to vote upon other
business as may properly come before the meeting. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
(SEE REVERSE SIDE TO VOTE)
<PAGE> 34
AMCORE FINANCIAL, INC. OFFERS THREE WAYS FOR YOU TO VOTE YOUR PROXY
As a shareholder you can now help us save both time and expense
by voting this proxy by touch tone phone or on the Internet.
OPTION 1: Call toll free 1-877-482-6154 using a touch tone phone 24 hours
VOTE BY a day, 7 days a week. You will be asked to enter the information
TELEPHONE listed below. Then, if you wish to vote as recommended by the
Board of Directors, simply press 1. That's all there is to
it...End of call. If you do not wish to vote as the Board
recommends, you need only respond to a few simply prompts. THERE
IS NO CHARGE FOR THIS CALL. (Do not return your proxy card if you
vote by phone.)
YOUR CONTROL NUMBER IS:
OPTION 2: Access https://www.css2.sungard.com/Firstar/InterLink?pb
VOTE ON THE ProxyVoting=1 Follow the simple instructions. (Do not return
INTERNET your proxy card if you vote on the internet.)
YOUR PROXY NUMBER IS:
YOUR ISSUE NUMBER IS:
YOUR ACCOUNT NUMBER IS:
OPTION 3: If you do not wish to vote by touch tone phone or the Internet,
MAIL YOUR please complete and return the proxy card.
PROXY CARD
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
<TABLE>
AMCORE FINANCIAL, INC. 2000 ANNUAL MEETING
<S> <S> <S> <S>
1. ELECTION OF DIRECTORS: 1 - Milton R. Brown [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
2 - Richard C. Dell listed to the left (except to vote for all nominees
3 - William R. McManaman as specified below). listed to the left.
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) ------------------------------
of the nominee(s) in the box provided to the right.) ------- | |
------------------------------
2. Ratification of the appointment of KPMG LLP as independent auditors [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the AMCORE Financial, Inc. 2000 Stock Incentive Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
Check appropriate box Date
Indicate changes below: -----------------------------
Address Change? [ ] Name Change? [ ]
------------------------------------
| |
| |
| |
------------------------------------
Signature(s) in Box Please sign
exactly as your name appears hereon.
When shares are held by joint owners,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by an
authorized person.
</TABLE>
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of AMCORE Financial, Inc., a Nevada corporation, which is about to file
an annual report for the year ended December 31, 1999 pursuant to Section 13 of
15(d) of the Securities Act of 1934 on Form 10-K with the Securities and
Exchange Commission, Washington, D.C., 20549 hereby constitutes and appoints
ROBERT J. MEULEMAN and JOHN R. HECHT, and each of them, his true and lawful
attorney-in-fact and agents with power of substitution and resubstitution, from
them and in their name, place and stead, in any and all capacities, to sign the
Company's Form 10-K and other documents in connection therewith with the
Securities and Exchange Commission, granting unto the attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or their substitutes, may lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, know that the undersigned as a director or officer has
hereunto set their hand as of this ___________________ day of March, 2000.
------------------------------
Signature
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 179,113
<INT-BEARING-DEPOSITS> 6,039
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,227,396
<INVESTMENTS-CARRYING> 13,977
<INVESTMENTS-MARKET> 13,818
<LOANS> 2,760,587
<ALLOWANCE> (28,377)
<TOTAL-ASSETS> 4,347,621
<DEPOSITS> 3,016,408
<SHORT-TERM> 699,398
<LIABILITIES-OTHER> 52,817
<LONG-TERM> 285,270
0
0
<COMMON> 6,585
<OTHER-SE> 287,143
<TOTAL-LIABILITIES-AND-EQUITY> 4,347,621
<INTEREST-LOAN> 215,173
<INTEREST-INVEST> 82,136
<INTEREST-OTHER> 3,013
<INTEREST-TOTAL> 300,322
<INTEREST-DEPOSIT> 118,009
<INTEREST-EXPENSE> 168,883
<INTEREST-INCOME-NET> 131,439
<LOAN-LOSSES> 10,550
<SECURITIES-GAINS> 530
<EXPENSE-OTHER> 123,610
<INCOME-PRETAX> 55,255
<INCOME-PRE-EXTRAORDINARY> 40,149
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,149
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 3.55
<LOANS-NON> 18,419
<LOANS-PAST> 10,197
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 28,171
<ALLOWANCE-OPEN> 26,403
<CHARGE-OFFS> 10,309
<RECOVERIES> 1,733
<ALLOWANCE-CLOSE> 28,377
<ALLOWANCE-DOMESTIC> 23,384
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,993
</TABLE>
