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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1995
COMMISSION FILE NUMBER 0--13393
AMCORE FINANCIAL, INC.
NEVADA 36-3183870
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
501 Seventh Street, Rockford, Illinois
61104
Telephone Number (815) 968-2241
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.33 par value
Common Stock Purchase Rights
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 18, 1996, 14,197,747 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 $279,038,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1996 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
PAGE
NUMBER
------
PART I
Item 1 Business................................................................. 3
Item 2 Properties............................................................... 8
Item 3 Legal Proceedings........................................................ 8
Item 4 Submission of Matters to a Vote of Security Holders...................... 8
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholder
Matters.................................................................. 9
Item 6 Selected Financial Data.................................................. 9
Item 7 Management's Discussion and Analysis of the Results of Operations
and Financial Condition.................................................. 10
Item 8 Financial Statements and Supplementary Data.............................. 26
Item 9 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure................................................. 55
PART III
Item 10 Directors and Executive Officers of the Registrant....................... 55
Item 11 Executive Compensation................................................... 55
Item 12 Security Ownership of Certain Beneficial Owners and Management........... 55
Item 13 Certain Relationships and Related Transactions........................... 55
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 56
SIGNATURES.......................................................................... 58
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PART I
ITEM 1. BUSINESS
GENERAL
AMCORE Financial, Inc. (AMCORE) is a registered multi-bank holding company
incorporated under the laws of the State of Nevada in 1982. The corporate
headquarters are located at 501 Seventh Street in Rockford, Illinois. AMCORE
owns directly or indirectly all of the outstanding common stock of each of its
eight subsidiary banks, three subsidiary bank holding companies and nine
financial service subsidiaries. AMCORE provides the subsidiaries, among other
things, with advice and counsel on policies and operating matters.
BANK SUBSIDIARIES
AMCORE directly owns three second tier bank holding companies, First State
Bancorp of Princeton, Illinois, Inc. (FSB), NBA Holding Company (NBA) and NBM
Bancorp, Inc. (NBM). FSB owns two state chartered banks, AMCORE Bank Princeton
(PRINCETON) and AMCORE Bank Gridley. In August 1995, another FSB subsidiary,
AMCORE Bank Ashton, was merged into PRINCETON. NBA is a one-bank holding company
and owns AMCORE Bank Aledo, a state chartered bank. In May 1995, NBM, a two-bank
holding company which owns AMCORE Bank N.A., Mendota and AMCORE Bank N.A., Peru,
both nationally chartered banks, merged into AMCORE. AMCORE also directly owns
AMCORE Bank N.A., Rockford (ROCKFORD), AMCORE Bank N.A., Rock River Valley (ROCK
RIVER VALLEY), and AMCORE Bank N.A., Northwest, all nationally chartered banks.
In February 1995, AMCORE merged Dixon Bancorp, Inc. and its AMCORE Bank N.A.,
Dixon subsidiary into ROCK RIVER VALLEY. Two less-active state chartered banks,
AMCORE Bank Ogle County and AMCORE Bank Carpentersville, were dissolved in 1995.
The affiliate banks conduct business at 41 locations throughout northern
Illinois, excluding Cook county and the far northwestern counties. The primary
service region includes the Illinois cities of Rockford, Elgin, Woodstock,
Carpentersville, Crystal Lake, Sterling, Dixon, Princeton, Aledo, Rochelle,
Ashton, Gridley, Mt. Morris, Mendota, Peru and the surrounding communities.
Through its bank affiliates, AMCORE provides various personal banking,
commercial banking and related financial services. AMCORE also conducts banking
business through eight supermarket branches, which gives the customer convenient
access to bank services seven days a week.
Personal Banking--Personal banking services to individuals include demand,
savings and time deposit accounts. Loan services include installment loans,
mortgage loans, overdraft protection, personal credit lines and credit card
programs. AMCORE Vintage Funds, a proprietary family of mutual funds, are also
marketed through each affiliate location. The Pinnacle private banking division
also markets Vintage Funds and meets other special needs of high net worth
individuals. Automated teller machines located throughout AMCORE's market area
make banking transactions available to customers when the bank facilities and
hours are not convenient.
Commercial Banking--A wide range of financial services are provided to
commercial and governmental organizations. These services include, among others,
lending, deposits, letters of credit and cash management services.
Other Financial Services--The bank affiliates provide various services to
consumers, commercial customers and correspondent banks. Services available
include safe deposit box rental, securities safekeeping, foreign currency
exchange, lock box and other services.
AMCORE also offers three electronic banking services to commercial and
retail customers. AMCORE Data Bank facilitates access to commercial customers'
accounts via personal computers. It also permits the transfer of funds between
accounts and the initiation of wire transfers and ACH activity to accounts at
other 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
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get balance and other information on their checking and savings accounts,
certificates of deposit, or mortgage loan, all from a completely automated
system.
FINANCIAL SERVICE SUBSIDIARIES
AMCORE Mortgage, Inc. (AMI), a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada in 1987. Through AMI, AMCORE provides each
bank affiliate and correspondent lenders with a variety of mortgage lending
products to meet their customer needs. All fixed rate long-term loans originated
by AMI are sold in the secondary market primarily to governmental agencies and
financial institutions. AMI also originates adjustable rate and balloon loans
for sale to affiliate banks and other investors. AMI continues to service most
of the loans that are sold.
AMCORE Trust Company (ATC), a wholly-owned subsidiary, was incorporated
under the laws of the State of Illinois in May 1990, and began operations in
August 1990. ATC includes the former trust departments of most bank affiliates
and provides personal trust services, employee benefit plan and estate
administration and various other services to corporations and individuals.
AMCORE Consumer Finance Company, Inc. (FINANCE), (f/n/a Mid-American
Financial Services Company), a wholly-owned consumer finance company, was
incorporated under the laws of the State of Nevada in September 1989 and was
acquired by AMCORE in February 1990. Through FINANCE, AMCORE provides
installment and real estate loans to a segment of the market not served by
AMCORE's affiliate banks. FINANCE has also focused its efforts with a "second
chance" lending program for loan applicants that have been rejected by the
mortgage and banking affiliates. It has also been developing financing programs
for several national satellite dish distributors.
AMCORE Financial Life Insurance Company (AFLIC), a wholly-owned subsidiary,
was incorporated under the laws of the State of Arizona in 1984. Through AFLIC,
AMCORE is engaged in reinsuring credit life and accident and health insurance in
conjunction with the lending activities of the affiliate banks.
AMCORE Investment Services, Inc. (AIS), a wholly-owned subsidiary of
ROCKFORD, 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 Fund family. AIS services customers throughout the affiliate
bank locations.
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.
AMCORE Capital Management, Inc. (ACMI) was incorporated under the laws of
the State of Illinois as a wholly-owned subsidiary of ROCKFORD in December 1992.
ACMI is comprised of the former ROCKFORD Investment department staff, and
manages the assets of AMCORE's Vintage Fund family, which were introduced in
December 1992. In addition to serving as investment advisor to these funds, ACMI
manages the investment portfolios for ATC and other unaffiliated institutions.
Rockford Mercantile Agency, Inc. (RMA), a local collection agency, was
acquired in January 1993. RMA has been in business in the Rockford area since
1908 and works with many nationally-known clients. RMA was incorporated under
the laws of the State of Illinois in January 1993 as a wholly-owned subsidiary
of AMCORE.
AMCORE Insurance Group, Inc. (AIG) was incorporated under the laws of the
State of Illinois as a wholly-owned subsidiary of ROCKFORD in March 1994. AIG's
main office is in South Beloit, Illinois. AIG obtained approval from the Office
of the Comptroller of the Currency to engage in the insurance agency business,
and offers a complete line of commercial and individual insurance products
including life,
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homeowners and automobile insurance. In August 1994, AIG acquired the Weller
Agency, a well established local insurance agency.
COMPETITION
Active competition exists in 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, collection agencies, 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, furthering
increased 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 becomes 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 1,186 full-time equivalent employees as of December 31, 1995.
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, incentive
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 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 bound 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
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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.
Federal and state laws and regulations of general application to banks
regulate, among other things, the scope of business, investments, reserves
against deposits, capital levels relative to assets and risk, the nature and
amount of collateral for loans, the establishment of branches, mergers,
consolidations and the payment of dividends.
In late 1992, Congress passed the Federal Deposit Insurance Corporation
Improvement Act of 1992 which included many provisions that have had significant
effects on the cost structure and operational and managerial standards of
commercial banks. In addition to provisions for recapitalization of the Bank
Insurance Fund, the Act contains provisions that revise bank supervision and
regulation, including, among many other things, the monitoring of capital
levels, outline additional management reporting and external audit requirements,
and add consumer provisions that include Truth in Savings disclosures.
The foregoing references to applicable statutes and regulations are brief
summaries thereof and do not purport to be complete and are qualified in their
entirety to be referenced to such statutes and regulations.
AMCORE, FSB, NBA and NBM are supervised and examined by the FRB.
Nationally-chartered affiliate banks are supervised and regularly examined by
the Office of the Comptroller of the Currency (OCC) and are subject to
examination by the FRB. The state-chartered affiliate banks are supervised and
regularly examined by the Illinois Commissioner of Banks. In addition, all
affiliate banks are subject to periodic examination by the Federal Deposit
Insurance Corporation (FDIC).
AMI is supervised and examined by the FRB and is also licensed and
regulated by the Office of the Commissioner of Savings and Loan Associations of
the State of Illinois. ATC is regulated by the Illinois Commissioner of Banks
and Trust Companies, while 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 and ACMI are supervised and examined by the NASD and are
regulated by the Securities and Exchange Commission (SEC). RMA is subject to the
Fair Debt Collection Practice Act and also various state collection agency acts
in the states in which RMA is licensed to conduct business. RMA is supervised
and examined by the Illinois Secretary of State Office--Department of
Professional Regulation and various state agencies in other states. AIG is
supervised and examined by the Department of Insurance of the State of Illinois,
and is regulated by the OCC.
SUBSIDIARY DIVIDENDS AND CAPITAL
Legal limitations exist as to the extent to which the bank subsidiaries can
lend or pay dividends to AMCORE. The payment of dividends by national banks
without prior regulatory approval is limited to the current year's net income
plus the adjusted retained net income for the two preceding years. The payment
of dividends by any bank or bank holding company is affected by the requirement
to maintain adequate capital pursuant to the capital adequacy guidelines issued
by the FRB and regulations issued by the FDIC and the OCC (collectively
"Agencies"). As of December 31, 1995, approximately $29.9 million was available
for payment to AMCORE in the form of dividends without prior regulatory
approval. The bank subsidiaries are also limited as to the amount they may lend
to AMCORE. At December 31, 1995, the maximum amount available to AMCORE in the
form of loans approximated $9.1 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, 1995 and 1994.
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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 7 and Note 11 included under
Item 8 for additional discussion of interest rate sensitivity and related
derivative activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains certain information about the executive
officers of AMCORE. There are no family relationships between any director or
executive officer of AMCORE.
NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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Carl J. Dargene............ 65 Chairman of the Board of Directors of AMCORE. Retired
in December 1995 as President and Chief Executive
Officer of AMCORE. Chairman of the Board of Directors
of ROCKFORD and Vice Chairman and a Director of ATC. He
is also a director of CLARCOR and Woodward Governor
Company.
Robert J. Meuleman......... 56 Became President and Chief Executive Officer of AMCORE
in January 1996. Previously Executive Vice President
and Chief Operating Officer--Banking Subsidiaries of
AMCORE since December 1991. President and Chief
Operating Officer of ROCKFORD from January 1990 to
December 1991.
F. Taylor Carlin........... 59 Executive Vice President and Chief Operating
Officer--Diversified Financial Services Group of AMCORE
since December 1991. Executive Vice President and Chief
Financial Officer of AMCORE from December 1991 to June
1992. Senior Vice President and Chief Financial Officer
of AMCORE from July 1990 to December 1991. President of
the Carlin Company (Consulting Firm) from 1989 to June
1990.
James S. Waddell........... 51 Executive Vice President, Chief Administrative Officer
and Corporate Secretary of AMCORE since January 1994.
Senior Vice President of Administration of AMCORE from
July 1992 to January 1994. Group Vice President of
CLARCOR from 1987 to July 1992.
Charles E. Gagnier......... 62 President and Chief Executive Officer of ROCKFORD since
January 1992. President and Chief Executive Officer of
AMCORE Bank N.A., Sterling from January 1991 to January
1992. President and Chief Executive Officer of AMCORE
Bank N.A., Pekin from 1978 to January 1991.
Kenneth E. Edge............ 50 Group Vice President, Banking Subsidiaries since June
1995. Executive Vice President of ROCKFORD from July
1992 to June 1995. Senior Vice President of ROCKFORD
from April 1989 to July 1992.
Gerald W. Lister........... 44 Group Vice President, Diversified Financial Service
Subsidiaries since April 1993. President and Chief
Executive Officer of AMI from 1987 to April 1993.
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NAME AGE PRINCIPAL OCCUPATION WITHIN THE LAST FIVE YEARS
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John R. Hecht.............. 37 Senior Vice President and Chief Financial Officer of
AMCORE since July 1992. Vice President and Controller
of AMCORE from January 1991 to June 1992. Vice
President and Manager of Corporate Accounting from 1988
to December 1990.
William T. Hippensteel..... 39 Senior Vice President and Corporate Marketing Director
since January 1993. Vice President and Marketing
Director from 1984 to December 1992.
ITEM 2. PROPERTIES
On December 31, 1995, AMCORE had 52 locations, of which 35 were owned and
17 were leased. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. See Notes 6 and 7 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
stockholders' equity or financial position. Since AMCORE's subsidiaries act as
depositories of funds, trustee and escrow agents, they are named as defendants
in lawsuits involving claims to the ownership of funds in particular accounts.
This and other litigation is incidental to AMCORE's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
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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 were approximately 4,500 holders of record of
AMCORE's common stock.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR:
Net interest income........................ $ 79,406 $ 77,760 $ 77,556 $ 73,399 $ 65,866
Provision for loan and lease losses........ 2,692 628 2,124 5,547 7,932
Other income............................... 34,013 31,034 29,605 25,695 21,417
Other expenses............................. 87,440 78,690 76,136 67,132 60,098
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Income before income taxes................. 23,287 29,476 28,901 26,415 19,253
Income taxes............................... 5,016 7,675 7,461 7,859 4,304
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Net income................................. $ 18,271 $ 21,801 $ 21,440 $ 18,556 $ 14,949
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Return on average assets(1)................ 0.97% 1.06% 1.08% 1.06% 0.89%
Return on average equity(1)................ 11.17 11.90 12.71 12.25 10.77
Net interest margin........................ 4.18 4.51 4.62 4.78 4.49
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AVERAGE FOR THE YEAR:
Total assets............................... $2,245,895 $2,062,597 $1,977,407 $1,754,653 $1,686,229
Loans and leases, net of unearned income... 1,228,175 1,088,206 1,000,759 927,354 955,786
Earning assets............................. 2,060,272 1,880,320 1,805,356 1,612,949 1,542,959
Deposits................................... 1,764,427 1,706,175 1,665,807 1,501,006 1,464,383
Long-term borrowings....................... 29,458 27,598 33,724 16,384 16,322
Stockholders' equity....................... 194,546 183,171 168,739 151,469 138,860
---------- ---------- ---------- ---------- ----------
FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end
loans.................................... 1.02% 1.14% 1.40% 1.41% 1.13%
Allowance to non-performing loans.......... 101.07 103.66 111.27 135.14 97.87
Net charge-offs to average loans........... 0.24 0.17 0.17 0.32 0.79
Non performing loans to net loans.......... 1.00 1.10 1.26 1.05 1.15
Average long-term borrowings to average
equity................................... 15.14 15.07 19.99 10.82 11.75
Average equity to average assets........... 8.66 8.88 8.53 8.63 8.23
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' DATA:
Earnings per share......................... $ 1.30 $ 1.55 $ 1.53 $ 1.36 $ 1.10
Book value per share....................... 14.81 13.26 12.68 11.59 10.60
Dividends per share........................ 0.58 0.55 0.41 0.35 0.30
Dividend payout ratio...................... 44.6% 35.4% 26.9% 25.6% 27.4%
Weighted average shares outstanding........ 14,083 14,023 13,972 13,659 13,604
========== ========== ========== ========== ==========
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(1) The 1995 ratios exclude the impact of the $3.5 million, or $.25 per share,
after-tax impairment and merger-related charges.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis focuses on the significant factors
which affected AMCORE's financial statements during 1995, with comparisons to
1994 and 1993 where appropriate. All prior year financial statements and
information have been restated to reflect the May 19, 1995 merger with NBM
Bancorp, Inc. (NBM) and the 1994 mergers with First State Bancorp of Princeton,
Illinois, Inc. (FSB) and NBA Holding Company of Aledo, Illinois (NBA). Each
transaction was accounted for as a pooling of interests.
EARNINGS SUMMARY
AMCORE's net earnings in 1995 totaled $18.3 million, a 16.2% decline from
the $21.8 million in 1994. The decline was principally caused by a $3.5 million
after-tax charge for the impairment of certain long-lived assets required by a
new accounting standard and costs associated with increased merger activity.
Excluding these charges, net earnings would have totaled $21.7 million, a
$65,000 or .3% decline from 1994. Statement of Financial Accounting Standards
(FAS) No. 121--"Accounting for the Impairment of Long-Lived Assets" requires the
revaluation of long-lived and certain intangible assets whenever events or
changes in circumstances indicate the carrying value may not be fully
recoverable. See the Operating Expenses section of this narrative for a more
detailed discussion of these charges. During 1994, net earnings increased
$361,000 or 1.7% over 1993.
On a per share basis, net earnings in 1995 were $1.30 versus $1.55 in 1994.
Excluding the impairment and merger-related charges, earnings per share in 1995
would have been $1.55, no change from the 1994 total. In 1994, earnings per
share improved $.02 or 1.3% over the $1.53 earned in 1993. The following table
highlights the major factors that impacted earnings per share over the past two
years:
CHANGES IN EARNINGS PER SHARE:
1995 VS. 1994 1994 VS. 1993
------------- -------------
Prior period net income.................................... $ 1.55 $ 1.53
Changes due to:
Net interest income...................................... 0.09 --
Provision for loan and lease losses...................... (0.15) 0.11
------------- -------------
Net Interest Income After Provision for Loan and Lease
Losses.............................................. ($ 0.06) $ 0.11
------------- -------------
Trust revenues........................................... 0.03 0.05
Service charges on deposits.............................. 0.02 0.02
Mortgage revenues........................................ (0.01) (0.03)
Collection fee income.................................... 0.01 (0.02)
Other.................................................... 0.06 0.09
------------- -------------
Total Other Income, Excluding Net Realized Security
Gains............................................... $ 0.11 $ 0.11
Net realized security gains.............................. 0.10 (0.02)
Personnel expense........................................ (0.29) (0.03)
Net occupancy expense.................................... (0.02) (0.03)
Equipment expense........................................ (0.13) (0.09)
Insurance expense........................................ 0.12 --
Professional fees........................................ 0.05 (0.07)
Advertising and business development..................... -- (0.02)
Amortization of intangible assets........................ 0.01 0.07
Impairment of long-lived assets.......................... (0.23) --
Other.................................................... (0.10) --
------------- -------------
Total Operating Expenses.............................. ($ 0.59) ($ 0.17)
------------- -------------
Income taxes............................................. 0.19 (0.01)
------------- -------------
Current period net income................................ $ 1.30 $ 1.55
========== ==========
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Higher personnel costs due to the merger-related charge and the expansion
of branch facilities and information system staffing negatively impacted
earnings by $.29 per share. Offsetting this decline were reductions in FDIC
insurance premiums, improvements in net interest income, and growth in trust,
credit card, insurance and other fee revenues. Gains from the sale of securities
also added $.10 per share during 1995. Steady loan growth and higher net
charge-offs necessitated an increase in loan loss provisions, which negatively
impacted earnings by $.15 per share. Other expenses also negatively impacted
earnings by $.10 per share primarily due to increased loan processing costs
resulting from loan growth and higher other real estate expense.
During 1994, growth in trust revenues and reduced loan loss provisions were
the major factors contributing to the increase in earnings per share over 1993.
Other contributions included higher credit card, insurance and brokerage
revenues, which were offset by additional professional fees in connection with
increased merger activity. Lower core deposit intangible amortization improved
earnings by $.07 per share. Higher equipment expense negatively impacted per
share earnings in 1994 due to a combination of conversion-related data
processing costs and the opening of six new branches.
The return on average equity for 1995 was 9.39% versus 11.90% in 1994 and
12.71% in 1993. Return on average assets was .81% in 1995 compared with 1.06% in
1994 and 1.08% in 1993. The declines in these ratios in 1995 were primarily due
to the impairment and merger-related charges. Excluding the impact of these
charges, returns on average equity and assets would have been 11.17% and .97%,
respectively.
NET INTEREST INCOME AND INTEREST RATE SENSITIVITY
Net interest income, AMCORE's primary source of earnings, totaled $79.4
million in 1995, a $1.6 million or 2.1% increase over 1994. In 1994, net
interest income totaled $77.8 million, an increase of $204,000, or .3% over
1993. Net interest income is affected by a number of factors including the
level, pricing and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations and asset quality. AMCORE's asset/liability
management program is designed to minimize earnings volatility caused by
fluctuations in interest rates. Interest rate sensitivity analysis is performed
monthly using various simulations with an asset/liability modeling system. These
analyses, as well as repricing gap reports, are reviewed by Asset and Liability
Committees (ALCO) at affiliate banks and at the corporate level, whose actions
attempt to minimize any negative impact interest rate movements may have on net
interest income. Each ALCO committee reviews the impact of liquidity, loan and
deposit pricing compared to its competition, capital adequacy and rate
sensitivity, among other things, and determines appropriate policy direction to
maintain or meet established ALCO guidelines.
Gap is defined as the repricing difference between rate sensitive assets
and liabilities within a given time period. A positive gap, or asset sensitive
position, indicates there are more rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specified time frames, which generally
has a favorable impact on net interest income in periods of rising interest
rates. Conversely, a negative gap, or liability sensitive position, would
generally imply a favorable impact on net interest income in periods of
declining interest rates. In periods of changing interest rates, net interest
margin is not only impacted by the amounts of repricing assets and liabilities,
but also impacted by the rate at which repricings occur. Earnings may also be
impacted by variances in prepayment of loans and securities. The internal gap
and rate sensitivity analysis is adjusted to quantify these and other factors.
Table 7 shows AMCORE's unadjusted repricing differences as of December 31, 1995.
Management also uses off-balance sheet derivative contracts to manage its
exposure to interest rate risk by modifying the existing interest rate risk
characteristics of on-balance sheet assets and liabilities. AMCORE does not have
any derivatives that are held or issued for trading purposes. The derivatives
utilized in the asset/liability management program predominantly comprise
interest rate swap and floor contracts. The swap contracts are primarily
utilized to hedge the spread between deposit rates and earning assets with
floating rate characteristics. The floor contracts are utilized to provide
protection in the event of a decline in interest rates.
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The swap contracts involve the exchange of fixed and floating interest rate
payments and are based on the notional amount of the contract. The floor
contracts are also based on the notional amount of the contract. These floor
contracts are purchased at a premium, which is amortized over the lives of the
contracts. The notional amount of the swap and floor contracts only identify the
size of the contracts and are used to calculate the interest payment amounts.
The only credit risk exposure AMCORE has is in relation to the counterparty's
interest payment obligation and not the notional amount. Management only deals
with counterparties that have high credit ratings and as of December 31, 1995,
all counterparties were expected to meet any outstanding interest payment
obligations.
The total notional amount of swap contracts outstanding was $28.1 million
and $42.5 million as of December 31, 1995 and 1994, respectively. As of the end
of 1995, these contracts had an aggregate negative fair value of $68,000. The
total notional amount of floor contracts outstanding was $75.0 million at
December 31, 1995, with no outstanding contracts as of the end of 1994. These
contracts had a net positive fair value of $829,000 as of the end of 1995. For
further discussion of derivative contracts, see Notes 5 and 11 to the
Consolidated Financial Statements.
In the following analysis, net interest income is presented on a tax
equivalent basis, which adjusts reported net interest income on tax-exempt loans
and securities to compare with other sources of fully taxable interest income.
Unlike changes in volume, or rates paid or earned, it has no effect on actual
net interest income or net income, as reported in the Consolidated Financial
Statements.
As shown in Table 1, the increase in tax equivalent interest income in
1995, as compared with 1994, was $1.3 million, or 1.6%, and was due to a $3.5
million increase from volume, less a $2.2 million unfavorable rate impact. The
net interest margin, which is computed by dividing the tax equivalent net
interest income by average earning assets, declined to 4.18% in comparison with
4.51% in 1994 and 4.62% in 1993. The reduction in margin during 1995 was mainly
due to the rising rate environment, which caused funding costs to increase at a
faster pace than yields on earning assets. A shift in the deposit mix to higher
rate time deposits also contributed to the drop in net interest margin. A growth
in total average loans helped to mitigate some of the interest margin
compression.
Another factor contributing to the net interest margin decline was the
impact of an investment leveraging program, which is designed to increase
financial leverage and the return on equity at affiliate banks with excess
capital. While this program results in additional net interest income, it also
lowers the net interest margin due to the smaller interest rate spread
associated with these transactions. This program added approximately $2.2
million and $432,000 to net interest income in 1995 and 1994, respectively. It
reduced, however, the net interest margin by 22 basis points in 1995 and 10
basis points in 1994.
Total average earning assets in 1995 were $2.06 billion, an increase of
$180.0 million or 9.6% over 1994. Average earning assets as a percentage of
total assets was 91.7% in 1995, a slight increase over the 91.2% in 1994.
Average loans totaled $1.23 billion, an increase of $140.0 million or 12.9% over
1994. This increase was primarily the result of strong commercial and real
estate loan growth. Total average loans were 59.6% of total average earning
assets in 1995, an increase from 57.9% in 1994. Average total securities
increased $47.4 million during 1995 to $812.2 million, an increase of 6.2%.
Other earning assets, which include interest-bearing deposits in banks, federal
funds sold and other short-term investments, averaged $8.7 million in 1995, a
decline of $6.7 million when compared to 1994.
In 1995, average total interest-bearing liabilities were $1.79 billion and
increased $174.9 million over 1994, or 10.8%. This increase was caused by a
$107.3 million increase in short-term borrowings and a $112.3 million increase
in time deposits. The increase in short-term borrowings was due to the use of
repurchase agreements in connection with the funding for the investment
leveraging program. Higher rates on certificates of deposit caused a shift in
the deposit mix resulting in higher average time deposits, which were utilized
to fund loan growth. Average long-term borrowings increased $1.9 million due to
the impact of Federal Home Loan Bank advances in late 1995. These advances were
utilized to purchase mortgage-backed securities in connection with the
leveraging program (See Note 10 of the Notes to the Consolidated Financial
Statements for further discussion of long-term borrowings).
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The proportion of average interest-bearing liabilities to average earning
assets in 1995 was 86.9% versus 85.9% in 1994. The average yield on earning
assets in 1995 increased 55 basis points to 8.31% and the average rate paid on
interest-bearing liabilities increased 96 basis points to 4.75%, resulting in a
41 basis point drop in the net interest spread to 3.56%. In 1994, the net
interest spread declined 14 basis points from 4.11% in 1993.
The average yield on loans increased 57 basis points in 1995 to 8.93% and,
in 1994 was down 17 basis points from 1993. The rise in the 1995 yield was the
result of increases in the prime and other market rates. Yields on securities
increased 43 basis points during 1995 to 7.14% and declined 22 basis points in
1994 as compared to 1993. The yield increase in 1995 was due to a change in
overall market rates, combined with a portfolio mix shift to higher-yielding
mortgage-backed securities. The average yield on other earning assets was 5.93%
in 1995 and 4.97% in 1994 versus 3.26% in 1993. The increases were the result of
higher short-term market rates and an increased mix of higher yielding other
investments.
The yield on mortgage loans held for sale increased 55 basis points to
7.94% in 1995, resulting from higher long-term mortgage rates during most of
1995. In 1994, the yield was 7.39%, an increase of 7 basis points when compared
to 1993. Yield-related loan fee income on the origination of these mortgage
loans increased $72,000 in 1995 and totaled $2.1 million. In 1994, mortgage loan
fee income declined by $1.5 million due to increased mortgage rates, which
curtailed refinancing volumes.
The average rate paid on interest-bearing deposits increased 82 basis
points to 4.47% in 1995. In 1994, the rate was 3.65%, a 14 basis point decline
when compared to 1993. The rate increase in 1995 was indicative of new
certificate of deposit volumes at higher market rates, rollovers of existing
deposits into higher rate deposits, and increased competition.
The average rate paid on short-term borrowings during 1995 was 6.26%, an
increase of 181 basis points over 1994. In 1994, the average rate paid was
4.45%, a 122 basis point increase over 1993. Earlier actions taken by the
Federal Reserve to raise the discount rate have increased short-term borrowing
costs during 1994 and most of 1995.
Long-term borrowings had an average rate of 6.96%, a 50 basis point decline
over 1994. This decline was mainly caused by the impact of two long-term fixed
interest rate swap agreements that have been utilized to hedge the floating rate
portion of the term loan. As the term loan amortizes, a higher percentage of the
principal is hedged, providing protection against future rate increases. Refer
to Notes 10 and 11 of the Notes to Consolidated Financial Statements for further
discussion of the term debt and related swap agreements. In early 1995, the
shorter-term interest rate swap agreement was terminated resulting in a deferred
gain of approximately $200,000. This gain is being recognized as an adjustment
to interest expense ratably over the remaining 22 months of the original
agreement. The decision to liquidate this particular swap agreement was based on
an economic analysis of the position and the existing interest term rate
structure.
NON-INTEREST INCOME
Total non-interest income primarily comprises fee-based revenues derived
from mortgage, trust, brokerage, asset management and collection agency
services. Also included in this category is fee income from bank-related
services such as credit card, deposit and other customer services. Total
non-interest income increased 5.3% in 1995 and totaled $31.7 million. This
follows a 5.9% increase in 1994.
Trust revenues are the largest source of fee-based revenues and totaled
$11.4 million in 1995, a 4.5% increase over 1994. This increase followed trust
revenue growth of 7.4% in 1994. The growth in both years was primarily due to
the favorable performance of trust assets under administration, which totaled
$2.3 billion at the end of 1995. While trust revenues have been growing, it is
difficult to predict future income trends as asset market values, plan
terminations and corporate profit-sharing contributions, among other things,
impact the level of these fees.
Another major contributor to non-interest income is mortgage revenues,
which includes income generated from underwriting and servicing fees on mortgage
loans and gains realized on the sale of these loans. Mortgage revenues totaled
$3.6 million in 1995, a 2.8% decline from 1994. In 1994, mortgage revenues
totaled $3.7 million and declined 8.9% from 1993 due to a rise in long-term
mortgage rates, which caused a significant
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reduction in mortgage loan volumes. Excluding $1.1 million of gains recognized
from the sale of mortgage servicing rights in 1994, mortgage revenues would have
declined 38.7% when compared to 1993. Effective January 1, 1995, the mortgage
company adopted FAS No. 122--"Accounting for Mortgage Servicing Rights", which
had a $1.1 million positive impact on mortgage revenues in 1995. This new
accounting standard allows for the recognition of the value of servicing rights
on originated mortgage loans and results in an asset that is amortized over the
remaining estimated lives of the serviced loans. While the new standard 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 write-down 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 write-downs.
A reduction in long-term mortgage rates would create an upward trend in
origination volumes, particularly with refinancing activity. This has a positive
impact on mortgage revenues; however, the impact could be partially offset with
possible write-downs of existing mortgage servicing rights, as explained
earlier.
One component of mortgage revenues is servicing income, which totaled $2.2
million in 1995, an increase of 28.7% over 1994. Total serviced loans were $874
million at December 31, 1995 versus $620 million at the end of 1994, an increase
of 41.0%. These increases were the result of loan originations over the past
year and the purchase of a mortgage servicing rights portfolio.
Service charges generated from deposit account relationships are another
major contributor to fee-based revenue. These revenues totaled $7.0 million in
1995, a 3.6% increase over 1994, and followed a 4.4% increase over 1993. The
increases were primarily due to an increase in the number of deposit accounts.
Collection agency fee income totaled $1.8 million in 1995, an increase of
$131,000 or 7.7% over 1994. This increase followed a $213,000 or 11.1% decline
in 1994 when compared to 1993. The improvement in 1995 was primarily due to the
addition of new accounts. The decline in 1994 was mainly due to a drop in
account placements and a turnover of collection staff.
Other non-interest income, which includes fee-based income from various
banking services, brokerage, insurance and investment advisory services, among
other things, increased $826,000, or 11.7% in 1995, after a $1.2 million or
20.8% increase in 1994. Customer service fees totaling $1.9 million and credit
card fees totaling $1.8 million produced increases of 16.2% and 9.3%,
respectively, over 1994. Insurance commissions totaled $1.0 million in 1995, a
20.1% increase over 1994. Commissions from the insurance group, which was formed
in early 1994, accounted for much of this increase. The insurance group offers a
full range of insurance products and has focused on cross-selling opportunities
with mortgage, commercial and retail customers, in addition to marketing their
products to the area communities. The increase in other non-interest income in
1994 of $1.2 million was primarily the result of $354,000 in additional
brokerage commissions, $351,000 of insurance commissions and $195,000 of
investment advisory revenues.
Net security gains totaled $2.3 million in 1995 as compared to $908,000 and
$1.2 million in 1994 and 1993, respectively. The increase in 1995 was primarily
the result of a higher level of sales from the larger available for sale
portfolio. Included in 1994 net security gains were $100,000 of gross gains and
$40,000 of gross losses from the sale of held to maturity securities at FSB,
shortly after the merger. These sales were completed in conjunction with the
restructuring of FSB's investment portfolio, in order to conform with AMCORE's
interest rate risk position.
OPERATING EXPENSES
Total operating expenses for 1995 were $87.4 million, an $8.7 million or
11.1% increase over 1994. Without the $5.6 million impairment and merger-related
charges, total operating expenses would have increased $3.2 million or 4.0%. In
1994, total operating costs rose $2.6 million or 3.4% over 1993. The impairment
charge caused by the early adoption of FAS 121 totaled $3.3 million and included
write-downs of intangibles from the acquisition of a collection agency, and
reductions of the carrying values assigned to bank facilities (See Note 7 of the
Notes to Consolidated Financial Statements). The remaining $2.3 million charge
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comprised merger-related costs from the May 1995 merger with NBM, the remaining
costs from two 1994 bank mergers, and other costs in connection with significant
upgrades to information systems technology. The merger-related costs were
included within the applicable operating expense categories on the Consolidated
Statements of Income, and primarily consisted of severance and other personnel
costs, equipment expenses, and professional fees.
As a percentage of average assets, total operating expense was 3.89% in
1995 versus 3.82% in 1994 and 3.85% in 1993. The efficiency ratio, which
measures the level of non-interest expense to total tax equivalent net revenues,
was 72.2% in 1995 as compared to 68.0% in 1994 and 67.2% in 1993. Without the
$5.6 million of impairment and merger-related charges in 1995, the operating
expense to average assets ratio would have been 3.64% and the efficiency ratio
would have been 67.6%.
Personnel costs, which includes compensation expense and employee benefits,
is the largest component of operating expense. Exclusive of the merger-related
charge, this category totaled $44.9 million in 1995 and increased $3.5 million
or 8.4% over 1994, followed by a 1.4% increase in 1994. The higher costs in 1995
were primarily caused by an increase in employees due to the expansion of branch
facilities and data processing activities, as well as normal salary increases.
Personnel costs in 1994 had a minimal increase over 1993 due to a drop in
commissions paid at the mortgage company and collection agency, and lower
incentive and profit sharing expense. As a percent of average assets, total
personnel costs were 2.03%, 2.01% and 2.06% in 1995, 1994 and 1993,
respectively. Employee benefits were 25.4% of compensation expense in 1995
compared with 26.7% in both 1994 and 1993.
Total occupancy and equipment expense in 1995, exclusive of $1.2 million in
merger-related charges, was $12.1 million, an increase of $1.1 million or 10.2%
over 1994. In 1994, total occupancy and equipment expense was $11.0 million, an
increase of $1.6 million, or 16.8% over 1993. The increase in 1995 was due to
expenses associated with the upgrade in information systems hardware and
software, as well as the expansion of branch facilities in supermarket
locations. The 1994 increase was caused by a number of factors including the
construction of a full service branch in Elgin, Illinois, the opening of
supermarket branches, and the completion of additions to the corporate training
and operations centers.
In late 1995, a new teller automation product delivery system was installed
within the bank teller lines. Plans are underway in 1996 to expand this delivery
system throughout the entire customer service platform. This will initially
increase equipment-related costs in 1996, but is expected to improve the
day-to-day efficiencies of employees, enhance customer service and improve
cross-selling effectiveness.
Insurance expense declined $1.8 million or 38.9% due to the FDIC's decision
to reduce deposit insurance premiums from $.23 to $.03 per $100 of deposit,
effective June 1995. In 1996, the premium has been eliminated for well
capitalized banks, which includes all AMCORE banks. As a result, additional
expense reduction in 1996 is expected to be approximately $1.6 million.
Professional fees, exclusive of $263,000 in merger-related charges, totaled
$2.5 million in 1995, a decline of $900,000 or 26.7% from 1994 as the majority
of legal and accounting fees associated with the FSB and NBA mergers were
incurred in 1994.
Intangibles amortization expense totaled $2.3 million in 1995, a decline of
$254,000 or 9.8% from 1994, which followed a $976,000 or 27.4% decline in 1994
when compared to 1993. These declines were due to the roll-off of core deposit
intangibles from earlier bank acquisitions. In addition, the 1995 impairment
charge of $3.3 million, as separately disclosed in the Consolidated Statements
of Income, included $1.7 million of intangibles amortization expense. The
recognition of these charges in 1995 will have the impact of lowering future
amortization expense.
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The amortization of intangible assets, which includes goodwill, core
deposit and other intangibles, are being amortized over various time periods and
have reduced reported earnings as presented in the following table:
HISTORICAL EFFECTS OF INTANGIBLE AMORTIZATION
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net income, as reported.......................... $18,271 $21,801 $21,440 $18,556 $14,949
Net income, as adjusted.......................... 21,132 23,969 24,158 20,175 16,393
------- ------- ------- ------- -------
Effect of intangible amortization................ $(2,861) $(2,168) $(2,718) $(1,619) $(1,444)
======= ======= ======= ======= =======
Earnings per share, as reported.................. $ 1.30 $ 1.55 $ 1.53 $ 1.36 $ 1.10
Earnings per share, as adjusted.................. 1.50 1.71 1.73 1.48 1.21
------- ------- ------- ------- -------
Effect of intangible amortization................ $ (0.20) $ (0.16) $ (0.20) $ (0.12) $ (0.11)
======= ======= ======= ======= =======
Approximately $8.0 million of intangibles are scheduled to be amortized
during the next five years and the projected impact on net income is as follows:
PROJECTED EFFECTS OF INTANGIBLE AMORTIZATION
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
Projected effect on net income................... $(1,620) $(1,603) $(1,496) $(1,065) $(1,011)
Projected effect on earnings per share using 1995
average outstanding shares..................... $ (0.12) $ (0.11) $ (0.11) $ (0.08) $ (0.07)
======= ======= =======
Exclusive of the merger-related charges, other operating expenses increased
$1.4 million, or 10.7% during 1995 and totaled $14.9 million. In 1994, the
increase was only $69,000, or .5% over 1993. This category includes loan
processing costs, printing and supplies, communication expense, credit card
expense, other real estate expense, external data processing costs,
correspondent bank fees, and other miscellaneous expenses. The increase in 1995
was caused by higher loan processing costs in relation to loan growth, and
increased other real estate expense. As a percentage of average assets, these
expenses were .67%, .65% and .68% in 1995, 1994 and 1993, respectively.
INCOME TAXES
Income tax expense totaled $5.0 million in 1995 compared with $7.7 million
and $7.5 million in 1994 and 1993, respectively. The effective tax rates were
21.5%, 26.0% and 25.8% in 1995, 1994 and 1993, respectively. The effective tax
rate was less than the statutory tax rates due primarily to investments in
tax-exempt municipal bonds and loans. The lower rate in 1995 was caused by
favorable tax rates on a lower level of pre-tax earnings and $300,000 of tax
credits, which resulted from the upgrades to information systems software. Refer
to Note 14 of the Notes to Consolidated Financial Statements for a more detailed
discussion.
BALANCE SHEET SUMMARY
Total assets at December 31, 1995 were $2.42 billion, an increase of $266.5
million or 12.4% over 1994. As shown in Table 4, average total assets for 1995
increased $183.3 million, or 8.9% over 1994. Loan growth and the purchase of
securities in connection with the investment leveraging program accounted for
much of the increase in total assets.
LOANS
Loans represent the largest component of AMCORE's earning asset base. At
the end of 1995, total loans outstanding were $1.29 billion, a $124.1 million,
or 10.7% increase as compared to a year ago, caused mainly
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by steady commercial and real estate loan growth. Additional details can be
found in Table 2, which presents a comparison of the year-end loan portfolios
for the last five years.
Commercial, financial, and agricultural loan balances totaled $348.0
million at December 31, 1995, an increase of $43.2 million or 14.2% when
compared to the end of 1994. Total real estate loans were $655.1 million at the
end of 1995, an increase of $64.2 million or 10.9% over the previous year-end.
The source of this loan growth was mainly in commercial and commercial real
estate lending as a result of active economic development in the Rockford area.
Residential mortgage loans are originated by AMCORE's mortgage affiliate,
of which conforming adjustable rate and balloon residential mortgages are
normally sold to affiliate banks. The fixed-rate residential mortgage loans are
sold in the secondary market to eliminate interest rate risk and generate gains
on the sale of these loans, as well as servicing income. All loans originated by
the mortgage affiliate are considered held for sale and are recorded at the
lower of cost or market value. Installment and consumer balances, net of
unearned income, totaled $282.0 million at December 31, 1995, an increase of
$16.3 million or 6.1%, in comparison with the end of 1994.
For information on the analysis of non-performing loans and other potential
problem loans, refer to the Allowance for Loan and Lease Losses and Credit Risk
section of this narrative.
SECURITIES
Total securities at December 31, 1995 were $908.7 million, an increase of
$124.2 million, or 15.8% over the prior year-end balance. At December 31, 1995
and 1994, the total securities portfolio comprised 41.4% and 40.0%,
respectively, of total earning assets. On January 1, 1994, AMCORE adopted FAS
No. 115--"Accounting for Certain Investments in Debt and Equity Securities".
This accounting standard requires financial institutions to classify securities
into the following three categories: held to maturity, available for sale and
trading. Securities held to maturity are recorded at amortized cost using the
level yield method. Securities available for sale must be recorded at fair value
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related income tax effect. Trading securities
must be recorded at fair value with unrealized gains and losses recorded in
earnings.
In December 1995, substantially all securities classified as held to
maturity were reclassified into the available for sale category. This transfer
was done in response to the Financial Accounting Standards Board's (FASB)
decision to allow companies a one-time opportunity to reclassify their
investment portfolios. This reclassification will significantly improve the
flexibility in managing interest and liquidity risks. While this may cause
additional fluctuations in the unrealized gain or loss component of total
stockholders' equity, it has no impact on regulatory risk-based capital
calculations.
At December 31, 1995, securities held to maturity totaled $24.6 million,
while securities available for sale were $884.0 million. There were no trading
securities at the end of 1994 or 1995. As of December 31, 1995, the held to
maturity securities portfolio included $368,000 of gross unrealized gains and
$26,000 of gross unrealized losses. The securities available for sale portfolio
at the end of 1995 includes gross unrealized gains of $12.0 million and gross
unrealized losses of $2.4 million, of which the combined effect, net of tax, is
included as an unrealized gain in stockholders' equity. For comparative
purposes, at December 31, 1994 gross unrealized gains of $731,000 and gross
unrealized losses of $8.5 million were included in securities available for sale
portfolio. For further analysis of the securities portfolio see Table 5 and Note
3 of the Notes to Consolidated Financial Statements.
SOURCES OF FUNDS
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 $1.51 billion at the end of 1995, a
$12.2 million or .8% decline from the prior year-end. At December 31, 1995, core
deposits were 68.8% of total earning assets, a decline from 77.6% at the end of
1994. This decline was
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partially intentional, as the commencement of the investment leveraging program
elevates earning assets without a corresponding increase in core deposits.
Core deposits are supplemented by large certificates of deposit, brokered
deposits, other time deposits from governmental entities, repurchase agreements
and Federal Home Loan Bank borrowings. The use of repurchase agreements
increased during 1995 in conjunction with the investment leveraging program,
resulting in an $83.5 million increase in short-term borrowings to $292.0
million. Total long-term borrowings at the end of 1995 were $107.8 million, an
increase of $81.3 million over the 1994 total. Included in this total were $88.3
million of Federal Home Loan Bank borrowings with a weighted average maturity of
2.9 years. These borrowings were being utilized to fund the purchase of
mortgage-backed securities in connection with the leveraging program. See Note
10 of the Notes to Consolidated Financial Statements for further discussion of
long-term borrowings.
LIQUIDITY
The liquidity position, as it relates to AMCORE's banking subsidiaries, is
important to ensure that sufficient funds are available to meet the customers'
need for borrowings and deposit withdrawals. Sources of liquidity for banking
subsidiaries include cash received from interest and fees, maturing investments
and loans, short-term liquid assets that can be converted to cash and the
ability to attract funds from the growth of deposits and other external sources.
Tables 3 and 5 show the maturity schedule of loans and investments. Core
deposits of subsidiary banks are relatively stable and generally do not require
the maintenance of significant levels of short-term, liquid assets to meet
withdrawal needs of customers. The growth of deposits, including time deposits
over $100,000, provides a substantial amount of liquidity. Table 6 shows the
maturities of time deposits over $100,000. Short-term borrowings provide a
source of liquidity for subsidiary banks and for the funding of mortgage loans
held for sale and other consumer finance receivables.
The parent company requires adequate liquidity to pay its expenses, repay
debt when due and pay stockholder dividends. Liquidity is provided to the parent
from subsidiaries in the form of dividends and fees for services. In 1995,
dividends and fees from subsidiaries amounted to $25.7 million, compared to
$25.9 million in 1994. Other liquidity is provided by cash balances in banks,
maturing investments, interest on investments, commercial paper borrowings and
borrowings on a line of credit. While subsidiary banks are limited in the amount
of dividends they can pay, as of December 31, 1995, approximately $29.9 million
was available for payment to the parent in the form of dividends which do not
require prior regulatory approval.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT RISK
The provision for loan and lease losses and the level of the allowance for
loan and lease losses are based upon historical loss experience, regular
evaluation of collectibility by management, lending officers and corporate loan
review staff, overall loan quality, and the nature and size of the loan
portfolio. Other factors include current and anticipated economic conditions
that may affect the borrower's ability to pay, the composition of problem loans,
and other considerations necessary to maintain the allowance at an adequate
level to absorb possible future charge-offs of existing loans and leases.
Effective January 1, 1995, AMCORE adopted FAS No. 114--"Accounting by
Creditors for Impairment of a Loan" and FAS No. 118--"Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures". These new
standards require that loans be considered impaired when, based on current
information and events, it is probable that the organization will not collect
all principal and interest due. A portion of the allowance for loan and lease
losses must be set aside for impaired loans and is calculated based on the
present value of the estimated future cash flows of principal and interest,
discounted at the loan's effective rate, or on the fair value of the collateral
for collateral dependent loans. See Note 4 of the Notes to Consolidated
Financial Statements for required disclosures in relation to impaired loans.
The provision for loan and lease losses totaled $2.7 million in 1995, an
increase of $2.1 million when compared to 1994. In 1994, loan loss provisions
declined $1.5 million from the $2.1 million provided in 1993. The increased
provisions in 1995 were necessary to maintain the allowance for loan and lease
losses at a level to support the growth in loans and the level of charge-offs.
In addition, provisions were discontinued in 1994 at
18
19
many of the banking affiliates due to improvements in overall credit quality.
Higher provisions were made, however, at the consumer finance affiliate during
1994 to cover increased levels of charge-offs. In December 1994, four of the
five consumer finance branches were sold due to a strategic redirection of this
affiliate. In 1995, the consumer finance affiliate has focused its lending
efforts with the initiation of a "second-chance" program for loan applications
that have been rejected by mortgage and banking affiliates. It has also been
developing financing programs for several regional wholesale satellite dish
distributors.
As shown in Table 2, total net charge-offs in 1995 were $2.9 million versus
$1.8 million in 1994, and $1.7 million in 1993. The increased net charge-offs in
1995 were primarily caused by write-downs of two non-performing commercial real
estate loans. One of these loans was subsequently transferred into other real
estate owned prior to the end of 1995. Total real estate loan net charge-offs
were $1.0 million in 1995 versus $119,000 and $115,000 in 1994 and 1993,
respectively. Commercial loan net charge-offs totaled $414,000 in 1995 versus
$349,000 in 1994 and $690,000 in 1993. In 1995, installment and consumer loan
net charge-offs rose $170,000 and totaled $1.5 million. The 1994 installment and
consumer loan net charge-offs totaled $1.3 million, which was a $424,000
increase over the 1993 charge-off level due to the higher consumer finance
charge-offs, as mentioned earlier.
The ratio of net charge-offs to average total loans outstanding rose during
1995 to .24% compared with .17% in both 1994 and 1993. Recoveries were 27.4% of
charge-offs in 1995 compared with 39.1% and 41.2% in 1994 and 1993,
respectively, the decline due to the larger commercial real estate charge-offs
in 1995.
Non-performing assets consist of loans not accruing interest, loans with
renegotiated terms, and other real estate owned. Total non-performing loans at
December 31, 1995 were $12.9 million, an increase of $91,000 or 0.7% from a year
earlier. Non-accrual loans totaled $10.4 million, a decline of $104,000 when
compared to the end of 1994. Restructured loans totaled $2.5 million at the end
of 1995 as compared to $2.3 million at December 31, 1994. Non-performing loans
comprised 1.00% of the loan portfolio at the end of 1995, an improvement from
the 1.10% at December 31, 1994. The other real estate owned balance at December
31, 1995, was $2.1 million, an increase of $1.0 million from the prior year due
to the addition of a commercial property as mentioned earlier. The ratio of
non-performing assets to total loans and other real estate owned was 1.17% at
December 31, 1995 versus 1.19% a year earlier. In addition to the non-performing
loans described in Table 2, loans totaling approximately $22.3 million were
identified as potential problem loans at the end of 1995 in comparison to $22.4
million as of December 31, 1994.
The coverage of the allowance for loan and lease losses to non-performing
loans was 101.1% at the end of 1995 versus 103.7% a year earlier. The allowance
for loan and lease losses as a percentage of loans and leases was 1.02% in
comparison to 1.14% at December 31, 1994. Management determines the adequacy of
each affiliate bank's allowance by calculating the allocated and unallocated
portions of the allowance using a combination of internal loan classifications,
weighted historical charge-off experience and an evaluation of estimated losses
on existing problem credits. The allowance is maintained to cover the allocated
requirement plus an unallocated portion, which considers current and anticipated
economic conditions, industry concentrations or concerns and other risk factors.
See Note 4 of the Notes to Consolidated Financial Statements for the allocation
of the allowance for loan and lease losses.
Commercial loans represented 41.0% of non-performing loans at December 31,
1995 compared to 46.7% a year earlier. Non-performing commercial real estate
loans increased slightly to 36.6% of total non-performing loans versus 36.3% a
year ago. Installment, consumer and residential real estate non-performing loans
rose to 22.4% of the total compared with 17.0% in 1994. Loans that were past due
90 days or more and still accruing interest totaled $1.3 million at the end of
1995 in comparison to $846,000 a year earlier.
CAPITAL
Total stockholders' equity increased 12.7% to $209.9 million at December
31, 1995. Total equity as a percent of assets was 8.68% at the end of 1995
versus 8.65% a year earlier. Included in total stockholders' equity is the net
unrealized gain on securities classified as available for sale, which amounted
to $5.8 million at the end of 1995. At the end of 1994, there was an unrealized
loss of $6.3 million. Therefore, the improvement
19
20
during 1995 resulted in a $12.1 million increase in total stockholders' equity.
Without the impact of this component of stockholders' equity, total
stockholders' equity would have increased 6.0% in 1995.
AMCORE paid $8.2 million in cash dividends during 1995, representing $.58
per share and a payout ratio of 37.4%, adjusted to eliminate the $.25 per share
after-tax impact of the impairment and merger-related charges. This compares to
1994 dividends of $7.7 million, or $.55 per share, a payout ratio of 35.4%. In
1993, cash dividends were $.41 per share, a payout ratio of 26.9%.
Federal banking guidelines require banking organizations to maintain
minimum capital levels on a risk-adjusted basis. As of December 31, 1995, Tier 1
capital was 12.40% and total risk-based capital was 13.26%, well above the
required minimum ratios of 4% and 8%, respectively. AMCORE is considered a "well
capitalized" institution based on regulatory guidelines, which is the highest
category. The following table shows a comparison of 1995 and 1994 year-end
capital ratios ($ in 000's):
1995 1994
---------------- MINIMUM ----------------
AMOUNT RATIO REQUIRED AMOUNT RATIO
-------- ----- -------- -------- -----
RISK-BASED CAPITAL RATIOS
Tier 1 Capital......................... $189,730 12.40% 4.00% $174,142 12.68%
Total Capital.......................... 202,790 13.26% 8.00% 187,444 13.65%
SUPPLEMENTAL RATIO
Leverage Ratio......................... 189,730 8.14% 4.00% 174,142 8.94%
Risk-weighted Assets..................... 1,529,688 N/A N/A 1,373,093 N/A
IMPACT OF INFLATION
The impact of inflation on a banking organization is difficult to assess.
Unlike a commercial entity, a banking organization's assets and liabilities are
primarily monetary in nature. Therefore, a banking organization will not
necessarily benefit or experience adverse effects when moderate changes in the
rate of inflation occur. Moreover, interest rates, which are a major determinant
of a banking organization's profitability, do not necessarily follow changes in
the prices of goods and services. An analysis of a banking organization's asset
and liability structure provides the best indication of how it is positioned to
respond to changing interest rates and to maintain profitability. In that
regard, your attention is directed to various data encompassing the net interest
margin and interest sensitivity analysis contained in Tables 1, 3, 5 and 7.
OTHER DEVELOPMENTS
In October 1995, the FASB issued FAS No. 123--"Accounting for Stock Based
Compensation", which must be adopted in 1996. This new standard encourages, but
does not require, companies to account for stock based compensation awards on
the basis of fair value at the date the awards are granted. The fair value of
the awards would be shown as an expense item on the income statement. If this
new accounting method is not adopted, additional footnote disclosures will be
necessary to show the impact this new accounting would have on net earnings and
earnings per share. It is expected AMCORE will elect to only provide the
required footnote disclosures in relation to this new standard.
On February 28, 1996, AMCORE filed a Form 8-K with the Securities and
Exchange Commission to announce the Board of Director's adoption of a new
shareholder rights plan. This plan replaces the existing rights plan, which
expired on February 27, 1996 and is intended to promote continuity and
stability, deter coercive or partial offers which will not provide fair value to
all shareholders, and enhance the Board's ability to represent all shareholders
and thereby maximize shareholder values. Pursuant to this new plan, one right,
with an exercise price of $70, was issued for each outstanding share of common
stock upon expiration of the previous plan. Each new right will not become
exercisable unless and until any party acquires 15% or more of the outstanding
common stock, or acquires 10% or more of the outstanding common stock and is
determined to be an adverse party by the Board. Upon either such event, each
right would entitle the holder to purchase common stock having a market value
equal to twice the exercise price. These rights are redeemable under certain
circumstances at $.01 per right and will expire, unless earlier redeemed, on
February 27, 2006.
20
21
TABLE 1
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
INTEREST EARNED
AVERAGE BALANCE AVERAGE RATE OR PAID
- ------------------------------------ -------------------- -------------------
1995 1994 1993 1995 1994 1993 1995 1994
- ---------- ---------- ---------- ---- ---- ---- -------- --------
INTEREST EARNING ASSETS:
$ 583,372 $ 520,507 $ 542,636 6.78% 6.15% 6.41% Taxable securities........................... $ 39,530 $ 32,030
228,802 244,251 186,118 8.06 7.91 8.44 Tax-exempt securities(1)..................... 18,437 19,311
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$ 812,174 $ 764,758 $ 728,754 7.14% 6.71% 6.93% Total securities............................. $ 57,967 $ 51,341
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
11,267 12,033 31,747 7.94 7.39 7.32 Mortgage loans held for sale................. 895 889
1,228,175 1,088,206 1,000,759 8.93 8.36 8.53 Loans and leases(1)(2)....................... 109,725 90,958
8,656 15,323 44,096 5.93 4.97 3.26 Other earning assets......................... 513 761
Fees on mortgages held for sale(3)........... 2,076 2,004
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$2,060,272 $1,880,320 $1,805,356 8.31% 7.76% 7.93% TOTAL EARNING ASSETS (FTE)................... $171,176 $145,953
========== ========== ========== ===== ===== ===== ======== ========
INTEREST BEARING LIABILITIES:
Interest-bearing demand and savings
$ 597,764 $ 645,017 $ 631,860 2.58% 2.31% 2.36% deposits..................................... $ 15,397 $ 14,894
924,580 812,324 800,106 5.70 4.72 4.91 Time deposits................................ 52,665 38,308
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$1,522,344 $1,457,341 $1,431,966 4.47% 3.65% 3.79% Total interest-bearing deposits.............. $ 68,062 $ 53,202
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
232,997 125,662 92,995 6.26 4.45 3.23 Short-term borrowings........................ 14,574 5,595
29,458 27,598 31,489 6.96 7.46 6.73 Long-term borrowings......................... 2,050 2,058
5,122 4,413 3,216 7.69 7.70 9.17 Other........................................ 394 340
---- ---- ----
- - -
- ---------- ---------- ---------- -------- --------
$1,789,921 $1,615,014 $1,559,666 4.75% 3.79% 3.82% TOTAL INTEREST-BEARING LIABILITIES........... $ 85,080 $ 61,195
---- ---- ----
========== ========== ========== - - -
-------- --------
3.56% 3.97% 4.11% INTEREST RATE SPREAD (FTE)...................
NET INTEREST MARGIN/
4.18% 4.51% 4.62% NET INTEREST INCOME (FTE).................... $ 86,096 $ 84,758
===== ===== ===== ======== ========
1995/1994 1994/1993
CHANGE CHANGE
DUE TO DUE TO
----------------- ------------------
1993 VOLUME RATE VOLUME RATE
-------- ------- ------- ------- --------
$ 34,788 $ 4,081 $ 3,419 $(1,390) $ (1,368)
15,707 (1,239) 365 4,648 (1,044)
-------- ------- ------- ------ -------
$ 50,495 $ 2,842 $ 3,784 $ 3,258 $ (2,412)
-------- ------- ------- ------ -------
2,324 (59) 65 (1,456) 21
85,317 12,223 6,544 7,336 (1,695)
1,439 (375) 127 (1,211) 533
3,530 (182) 254 (2,739) 1,213
-------- ------- ------- ------ -------
$143,105 $14,449 $ 10,774 $ 5,188 $ (2,340)
======== ======= ======= ====== =======
$ 14,921 $(1,140) $ 1,643 $ 308 $ (335)
39,284 5,733 8,624 593 (1,569)
-------- ------- ------- ------ -------
$ 54,205 $ 4,593 $ 10,267 $ 901 $ (1,904)
-------- ------- ------- ------ -------
3,008 6,092 2,887 1,249 1,338
2,119 134 (142) (277) 216
295 55 (1) 97 (52)
-------- ------- ------- ------ -------
$ 59,627 $10,874 $ 13,011 $ 1,970 $ (402)
-------- ------- ------- ------ -------
$ 83,478 $ 3,575 $(2,237) $ 3,218 $ (1,938)
======== ======= ======= ====== =======
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to volume and rate variances. The change in
interest income (tax equivalent) due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
- ---------------
(1) The interest on tax-exempt investment securities and tax-exempt loans is
calculated on a tax equivalent basis assuming a federal tax rate of 35%.
(2) The balances of nonaccrual loans are included in average loans outstanding.
Interest on loans includes yield-related loan fees.
(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.
21
22
TABLE 2
ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
Commercial, financial and agricultural.......... $ 347,996 $ 304,835 $ 289,767 $ 289,092 $303,877
Banker's acceptances, commercial paper and term
fed funds..................................... -- -- -- 9,987 --
Real estate..................................... 621,309 566,496 485,369 459,857 391,444
Real estate-construction........................ 33,797 24,380 12,997 15,574 13,495
Installment and consumer........................ 286,278 275,024 263,311 237,880 244,991
Direct lease financing.......................... 811 361 715 976 1,307
---------- ---------- ---------- ---------- --------
Gross Loans................................... $1,290,191 $1,171,096 $1,052,159 $1,013,366 $955,114
Unearned income............................... (4,230) (9,226) (16,317) (17,120) (19,680)
---------- ---------- ---------- ---------- --------
Loans, net of unearned income................. $1,285,961 $1,161,870 $1,035,842 $ 996,246 $935,434
Allowance for loan and lease losses........... (13,061) (13,302) (14,482) (14,080) (10,545)
---------- ---------- ---------- ---------- --------
NET LOANS....................................... $1,272,900 $1,148,568 $1,021,360 $ 982,166 $924,889
========== ========== ========== ========== =========
SUMMARY OF LOAN LOSS EXPERIENCE:
Allowance for loan and lease losses,
beginning..................................... $ 13,302 $ 14,482 $ 14,080 $ 10,545 $ 10,187
Amounts charged-off:
Commercial, financial and agricultural........ 818 801 1,094 2,144 6,106
Real estate................................... 1,024 173 269 117 57
Installment and consumer...................... 2,199 1,996 1,563 2,227 2,858
Direct lease financing........................ -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total Charge-offs...................... $ 4,041 $ 2,970 $ 2,926 $ 4,488 $ 9,021
---------- ---------- ---------- ---------- --------
Recoveries on amounts previously charged off:
Commercial, financial and agricultural........ 404 452 404 863 666
Real estate................................... 15 54 154 37 131
Installment and consumer...................... 689 656 646 650 650
Direct lease financing........................ -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total Recoveries....................... $ 1,108 $ 1,162 $ 1,204 $ 1,550 $ 1,447
---------- ---------- ---------- ---------- --------
Net Charge-offs........................ $ 2,933 $ 1,808 $ 1,722 $ 2,938 $ 7,574
Provision charged to expense.................... 2,692 628 2,124 5,547 7,932
Addition due to purchase of subsidiary.......... -- -- -- 1,719 --
Reduction due to sale of subsidiary............. -- -- -- (793) --
---------- ---------- ---------- ---------- --------
ALLOWANCE FOR LOAN AND LEASE LOSSES,
ENDING.................................... $ 13,061 $ 13,302 $ 14,482 $ 14,080 $ 10,545
========== ========== ========== ========== =========
NON-PERFORMING LOANS AT YEAR-END:
Non-accrual..................................... $ 10,432 $ 10,536 $ 11,644 $ 9,856 $ 5,883
Restructured.................................... 2,491 2,296 1,371 563 4,892
---------- ---------- ---------- ---------- --------
TOTAL NON-PERFORMING LOANS.................. $ 12,923 $ 12,832 $ 13,015 $ 10,419 $ 10,775
========== ========== ========== ========== =========
Past due 90 days or more not included above..... 1,301 846 1,816 1,542 3,155
========== ========== ========== ========== =========
RATIOS:
Allowance to year-end loans..................... 1.02% 1.14% 1.40% 1.41% 1.13%
Allowance to non-performing loans............... 101.07 103.66 111.27 135.14 97.87
Net charge-offs to average loans................ 0.24 0.17 0.17 0.32 0.79
Recoveries to charge-offs....................... 27.42 39.12 41.15 34.54 16.04
Non-performing loans to loans, net of
unearned...................................... 1.00 1.10 1.26 1.05 1.15
22
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TABLE 3
MATURITY AND INTEREST SENSITIVITY OF LOANS
DECEMBER 31, 1995
--------------------------------------------------------------------------
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)
Commercial, financial and
agricultural............ $187,626 $146,172 $14,198 $347,996 $ 85,892 $ 74,478
Real
estate-construction..... 14,011 16,455 3,331 33,797 14,449 5,337
-------- -------- ------- -------- -------- -------
TOTAL........... $201,637 $162,627 $17,529 $381,793 $100,341 $ 79,815
======== ======== ======= ======== ======== =======
TABLE 4
THREE-YEAR COMPARISON OF AVERAGE BALANCE SHEETS
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- ----- ---------- -----
(IN THOUSANDS)
ASSETS:
Taxable securities............... $ 583,372 26.0% $ 520,507 25.2% $ 542,636 27.4%
Tax-exempt securities............ 228,802 10.2 244,251 11.9 186,118 9.4
Other earning assets............. 8,656 0.4 15,323 0.7 44,096 2.2
Mortgage loans held for sale..... 11,267 0.5 12,033 0.6 31,747 1.6
Loans and leases, net of unearned
income........................ 1,228,175 54.7 1,088,206 52.8 1,000,759 50.7
---------- ----- ---------- ----- ---------- -----
Total Earning Assets..... $2,060,272 91.8 $1,880,320 91.2 $1,805,356 91.3
Non-earning assets....... 185,623 8.2 182,277 8.8 172,051 8.7
---------- ----- ---------- ----- ---------- -----
TOTAL ASSETS............. $2,245,895 100.0% $2,062,597 100.0% $1,977,407 100.0%
========== ===== ========== ===== ========== =====
LIABILITIES AND STOCKHOLDERS'
EQUITY:
LIABILITIES:
Interest bearing deposits........ $1,522,344 67.8% $1,457,341 70.6% $1,431,966 72.5%
Non-interest bearing deposits.... 242,083 10.8 248,834 12.1 233,841 11.8
---------- ----- ---------- ----- ---------- -----
Total Deposits........... $1,764,427 78.6 $1,706,175 82.7 $1,665,807 84.3
---------- ----- ---------- ----- ---------- -----
Short-term borrowings............ $ 232,997 10.4 $ 125,662 6.1 $ 90,760 4.6
Long-term borrowings............. 29,458 1.3 27,598 1.3 33,724 1.7
Other liabilities................ 24,467 1.0 19,991 1.0 18,377 0.9
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES........ $2,051,349 91.3 $1,879,426 91.1 $1,808,668 91.5
STOCKHOLDERS' EQUITY..... 194,546 8.7 183,171 8.9 168,739 8.5
---------- ----- ---------- ----- ---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $2,245,895 100.0% $2,062,597 100.0% $1,977,407 100.0%
========== ===== ========== ===== ========== =====
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TABLE 5
MATURITY OF SECURITIES
DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT STATES AND CORPORATE
POLITICAL OBLIGATIONS
U.S. TREASURY AGENCIES SUBDIVISIONS(1) AND OTHER TOTAL
---------------- ---------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
(IN THOUSANDS)
Securities Held to Maturity:
One year or less.......... $ 6,506 4.68% -- -- $ 3,427 8.32% $ 10 6.00% $ 9,943 5.94%
After one through five
years................... 1,095 5.20 -- -- 3,641 9.83 2 7.38 4,738 8.75
After five through ten
years................... -- -- -- -- 2,030 8.68 -- -- 2,030 8.68
After ten years........... -- -- -- -- 135 8.19 7,779 5.98 7,914 6.02
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities
Held to
Maturity.......... $ 7,601 4.75% -- -- $ 9,233 8.99% $ 7,791 5.98% $ 24,625 6.73%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Securities Available for
Sale:
One year or less.......... $ 29,160 6.40% $ 9,749 6.88% $ 15,363 7.90% $12,226 6.40% $ 66,498 6.81%
After one through five
years................... 80,730 6.29 29,441 5.76 67,868 7.70 25,708 6.05 203,747 6.65
After five through ten
years................... 1,637 8.89 15,328 7.91 102,449 7.35 1,034 6.12 120,448 7.43
After ten years........... -- -- -- -- 36,947 8.69 9,251 3.96 46,198 7.72
Mortgage-backed
securities(2)........... -- -- 418,665 7.13 -- -- 28,488 6.61 447,153 7.10
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities
Available for
Sale.............. $111,527 6.35% $473,183 7.07% $222,627 7.71% $76,707 6.06% $884,044 7.05%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total Securities.... $119,128 6.25% $473,183 7.07% $231,860 7.76% $84,498 6.05% $908,669 7.04%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
- ------------
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate
of 35%.
(2) Mortgage-backed security maturities may differ from contractual maturities
because the underlying mortgages may be called or prepaid without any
penalties. Therefore, these securities are not included within the maturity
categories above.
TABLE 6
MATURITY OF TIME DEPOSITS OVER $100,000
DECEMBER 31, 1995
----------------------------------------------------------------------------
TIME REMAINING TO MATURITY
----------------------------------------------------------------------------
DUE WITHIN THREE TO SIX TO AFTER
THREE MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TOTAL
------------ ---------- ------------- ------------- --------
(IN THOUSANDS)
Certificates of deposit.... $ 55,230 $ 46,537 $44,258 $ 105,747 $251,772
Other time deposits........ 10,304 3,813 496 1,058 15,671
------------ ---------- ------------- ------------- --------
TOTAL............ $ 65,534 $ 50,350 $44,754 $ 106,805 $267,443
========== ======== =========== =========== ========
24
25
TABLE 7
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
DECEMBER 31, 1995
-----------------------------------------------------------------------
1-30 31-90 91-180 181-365 OVER 1
DAYS DAYS DAYS DAYS YEAR TOTAL
--------- --------- --------- --------- ---------- ----------
(IN THOUSANDS)
Interest earning deposits in banks... $ 260 $ -- $ -- $ $ -- $ 260
Federal funds sold and other
short-term investments............. 9,050 -- -- -- -- 9,050
Mortgage loans held for sale......... 11,061 4,740 -- -- -- 15,801
Investment securities................ 66,220 12,638 17,777 59,898 752,136 908,669
Net loans............................ 322,825 75,287 75,129 136,482 676,238 1,285,961
--------- --------- --------- --------- ---------- ----------
Total Earning Assets............ $ 409,416 $ 92,665 $ 92,906 $ 196,380 $1,428,374 $2,219,741
========= ========= ========= ========= ========= =========
Interest-bearing deposits............ $ 635,638 $ 83,523 $ 160,799 $ 174,457 $ 458,056 $1,512,473
Short-term borrowings................ 182,770 103,930 3,480 1,862 -- 292,042
Long-term borrowings................. 446 17,004 7 14 90,332 107,803
--------- --------- --------- --------- ---------- ----------
Total Interest-Bearing
Liabilities................... 818,854 204,457 164,286 176,333 548,388 1,912,318
--------- --------- --------- --------- ---------- ----------
Net Asset (Liability) Repricing
Difference......................... (409,438) (111,792) (71,380) 20,047 879,986 $ 307,423
=========
--------- --------- --------- --------- ----------
Cumulative Asset (Liability)
Repricing Difference............... $(409,438) $(521,230) $(592,610) $(572,563) $ 307,423
========= ========= ========= ========= =========
Cumulative Rate Sensitive Assets
(RSA) to Rate Sensitive Liabilities
(RSL).............................. 0.50 0.49 0.50 0.58 1.16
========= ========= ========= ========= =========
Cumulative Asset (Liability)
Repricing Difference as a Percent
of Earning Assets.................. (18.4%) (23.5%) (26.7%) (25.8%) 13.8%
========= ========= ========= ========= =========
- ---------------
The above table shows a cumulative unadjusted RSA to RSL ratio. While this is
important, it only represents a static view of interest rate sensitivity.
AMCORE's asset/liability management policy focuses on an adjusted rate
sensitivity position, which is adjusted to account for changes in the rate of
variance of net interest income resulting from changes in interest rates. For
further discussion refer to the Net Interest Income and Interest Rate
Sensitivity and Liquidity sections of the Management's Discussion and Analysis
of the Results of Operations and Financial Condition.
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents........................................... $ 101,082 $ 92,201
Interest earning deposits in banks.................................. 260 508
Federal funds sold and other short-term investments................. 9,050 5,656
Mortgage loans held for sale........................................ 15,801 10,184
Securities available for sale....................................... 884,044 318,246
Securities held to maturity (market value: $24,967 in 1995; $444,455
in 1994).......................................................... 24,625 466,211
---------- ----------
Total securities (Note 3)................................. $ 908,669 $ 784,457
Net loans and leases (Note 4)....................................... 1,272,900 1,148,568
Premises and equipment, net (Note 6)................................ 49,670 49,178
Intangible assets, net.............................................. 14,314 18,314
Other real estate owned............................................. 2,116 1,099
Other assets........................................................ 44,670 41,818
---------- ----------
TOTAL ASSETS.............................................. $2,418,532 $2,151,983
========= =========
LIABILITIES
Deposits:
Interest bearing.................................................. $1,512,473 $1,456,702
Non-interest bearing.............................................. 265,232 250,857
---------- ----------
Total deposits............................................ $1,777,705 $1,707,559
Short-term borrowings (Note 9)...................................... 292,042 208,525
Long-term borrowings (Note 10)...................................... 107,803 26,487
Other liabilities................................................... 31,120 23,253
---------- ----------
TOTAL LIABILITIES......................................... $2,208,670 $1,965,824
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares; issued
none.............................................................. $ -- $ --
Common stock, $.33 par value: authorized 30,000,000 shares;
1995 1994
---------- ----------
Issued 14,926,695 14,926,695
Outstanding 14,174,183 14,039,680 .............................. 4,976 4,976
Additional paid-in capital.......................................... 56,412 56,533
Retained earnings (Notes 10 and 12)................................. 149,315 139,245
Treasury stock and other............................................ (6,659) (8,296)
Net unrealized gain (loss) on securities available for sale......... 5,818 (6,299)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................ $ 209,862 $ 186,159
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $2,418,532 $2,151,983
========= =========
See accompanying notes to consolidated financial statements.
26
27
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INTEREST INCOME
Interest and fees on loans and leases...................... $109,488 $ 90,719 $ 84,894
Interest on securities:
Taxable.................................................. 39,530 32,030 34,788
Tax-exempt............................................... 11,984 12,552 10,209
-------- -------- --------
Total Income from Securities..................... $ 51,514 $ 44,582 $ 44,997
Interest on federal funds sold and other short-term
investments.............................................. 490 585 1,289
Interest and fees on mortgage loans held for sale.......... 2,971 2,893 5,854
Interest on deposits in banks.............................. 23 176 150
-------- -------- --------
TOTAL INTEREST INCOME............................ $164,486 $138,955 $137,184
INTEREST EXPENSE
Interest on deposits....................................... $ 68,062 $ 53,202 $ 54,205
Interest on short-term borrowings.......................... 14,574 5,595 3,008
Interest on long-term borrowings........................... 2,050 2,058 2,119
Other...................................................... 394 340 295
-------- -------- --------
TOTAL INTEREST EXPENSE........................... $ 85,080 $ 61,195 $ 59,627
-------- -------- --------
NET INTEREST INCOME.............................. $ 79,406 $ 77,760 $ 77,556
Provision for loan and lease losses (Note 4)............... 2,692 628 2,124
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES................................................... $ 76,714 $ 77,132 $ 75,432
OTHER INCOME
Trust revenues............................................. $ 11,401 $ 10,910 $ 10,158
Service charges on deposits................................ 6,986 6,742 6,455
Mortgage revenues.......................................... 3,584 3,687 4,048
Collection fee income...................................... 1,831 1,700 1,913
Other...................................................... 7,913 7,087 5,868
-------- -------- --------
TOTAL OTHER INCOME, EXCLUDING NET
REALIZED SECURITY GAINS........................ $ 31,715 $ 30,126 $ 28,442
Net realized security gains................................ 2,298 908 1,163
-------- -------- --------
TOTAL OTHER INCOME............................... $ 34,013 $ 31,034 $ 29,605
OPERATING EXPENSES
Compensation expense....................................... $ 36,416 $ 32,659 $ 32,220
Employee benefits.......................................... 9,246 8,726 8,605
Net occupancy expense...................................... 5,068 4,739 4,392
Equipment expense.......................................... 8,229 6,276 5,042
Insurance expense.......................................... 2,765 4,528 4,492
Professional fees.......................................... 2,733 3,370 2,384
Advertising and business development....................... 2,437 2,377 2,079
Amortization of intangible assets.......................... 2,331 2,585 3,561
Impairment of long-lived assets (Note 7)................... 3,269 -- --
Other...................................................... 14,946 13,430 13,361
-------- -------- --------
TOTAL OPERATING EXPENSES......................... $ 87,440 $ 78,690 $ 76,136
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. $ 23,287 $ 29,476 $ 28,901
Income taxes (Note 14)..................................... 5,016 7,675 7,461
-------- -------- --------
NET INCOME................................................. $ 18,271 $ 21,801 $ 21,440
======== ======== ========
EARNINGS PER COMMON SHARE.................................. $ 1.30 $ 1.55 $ 1.53
DIVIDENDS PER COMMON SHARE................................. 0.58 0.55 0.41
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................. 14,083 14,023 13,972
See accompanying notes to consolidated financial statements.
27
28
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET UNREALIZED
GAIN (LOSS) ON
ADDITIONAL TREASURY SECURITIES TOTAL
COMMON PAID-IN RETAINED STOCK AVAILABLE STOCKHOLDERS'
STOCK CAPITAL EARNINGS AND OTHER FOR SALE EQUITY
------ ---------- -------- --------- -------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at December 31, 1992, as previously
reported....................................... $4,424 $ 50,727 $ 98,335 $(10,432 ) -- $143,054
Adjustment for pooling-of-interests (Note 2)..... 546 5,654 11,075 (33 ) -- 17,242
------ ------- -------- ------- ------ --------
Balance at December 31, 1992, as restated........ $4,970 $ 56,381 $109,410 $(10,465 ) -- $160,296
------ ------- -------- ------- ------ --------
Net Income..................................... -- -- 21,440 -- -- 21,440
Cash dividends on common stock--$.41 per
share........................................ -- -- (5,730) -- -- (5,730)
Issuance of 22,330 shares for Non-Employee
Directors.................................... -- 128 -- (128 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 300 -- 300
Reissuance of 140,970 treasury shares under
incentive stock option plans................. -- (7) -- 1,316 -- 1,309
------ ------- -------- ------- ------ --------
Balance at December 31, 1993..................... $4,970 $ 56,502 $125,120 $ (8,977 ) $ 0 $177,615
------ ------- -------- ------- ------ --------
Recognition of unrealized gain on securities
available for sale, net of tax............... -- -- -- -- 6,408 6,408
Net Income..................................... -- -- 21,801 -- -- 21,801
Cash dividends on common stock--$.55 per
share........................................ -- -- (7,678) -- -- (7,678)
Proceeds from sale of 17,203 shares of common
stock........................................ 6 83 -- -- -- 89
Issuance of 4,032 shares for Non-Employee
Directors.................................... -- 36 -- (36 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 360 -- 360
Reissuance of 22,533 treasury shares under
incentive stock option plans................. -- (88) 2 357 -- 271
Net change in unrealized gains and losses on
securities available for sale, net of tax.... -- -- -- -- (12,707) (12,707)
------ ------- -------- ------- ------ --------
Balance at December 31, 1994..................... $4,976 $ 56,533 $139,245 $ (8,296 ) $ (6,299) $186,159
------ ------- -------- ------- ------ --------
Net Income..................................... -- -- 18,271 -- -- 18,271
Cash dividends on common stock--$.58 per
share........................................ -- -- (8,199) -- -- (8,199)
Issuance of 36,622 shares for Non-Employee
Directors.................................... -- 120 -- (120 ) -- --
Non-Employee Directors compensation expense.... -- -- -- 280 -- 280
Reissuance of 99,881 treasury shares under
incentive stock option plans................. -- (241) (2) 1,477 -- 1,234
Net change in unrealized gains and losses on
securities available for sale, net of tax.... -- -- -- -- 12,117 12,117
------ ------- -------- ------- ------ --------
Balance at December 31, 1995..................... $4,976 $ 56,412 $149,315 $ (6,659 ) $ 5,818 $209,862
====== ======= ======== ======= ====== ========
See accompanying notes to consolidated financial statements.
28
29
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
--------- --------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 18,271 $ 21,801 $ 21,440
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and
equipment........................................... 4,854 4,474 4,112
Amortization and accretion of securities, net.......... 694 3,762 5,818
Provision for loan and lease losses.................... 2,692 628 2,124
Amortization of intangible assets...................... 2,331 2,585 3,561
Gain on sale of securities............................. -- -- (1,212)
Loss on sale of securities............................. -- -- 52
Gain on sale of securities available for sale.......... (2,429) (1,465) --
Loss on sale of securities available for sale.......... 127 578 --
Gain on sale of securities held to maturity............ -- (100) --
Loss on sale of securities held to maturity............ -- 40 --
Gain on sale of trading securities..................... (1) (3) (3)
Loss on sale of trading securities..................... 5 42 --
Purchase of trading securities......................... (8,017) (475) (9,960)
Proceeds from sale of trading securities............... 8,013 1,745 9,259
Impairment of long-lived assets........................ 3,269 -- --
Write-down of other real estate owned.................. 540 -- --
Non-employee directors compensation expense............ 280 360 300
Deferred income taxes.................................. (1,784) (28) (4,105)
Net (increase) decrease in mortgage loans held for
sale................................................ (5,617) 13,629 (6,510)
Other, net............................................. 653 (1,015) 5,806
--------- --------- --------
Net cash provided by operating activities...... $ 23,881 $ 46,558 $ 30,682
========= ========= ========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities................... $ 172,705 $ 163,903 $212,191
Proceeds from sales of securities available for sale..... 242,520 81,981 --
Proceeds from sales of securities held to maturity....... -- 9,586 --
Proceeds from sales of securities........................ -- -- 62,824
Purchase of securities held to maturity.................. (65,727) (70,561) --
Purchase of securities available for sale................ (452,597) (250,434) --
Purchase of securities................................... -- -- (274,334)
Net (increase) decrease in federal funds sold
and other short-term investments....................... (3,394) 6,226 14,256
Net decrease in interest earning deposits in banks....... 248 3,850 262
Net increase in loans and leases......................... (129,639) (128,259) (43,443)
Proceeds from the sale of premises and equipment......... 300 735 236
Premises and equipment expenditures...................... (7,244) (9,773) (8,152)
Purchase of subsidiaries less cash acquired.............. -- -- (1,026)
--------- --------- --------
Net cash required for investing activities..... $(242,828) $(192,746) $(37,186)
========= ========= ========
See accompanying notes to consolidated financial statements.
29
30
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits and savings
accounts................................................. $ 6,189 $ 14,551 $(14,776)
Net increase in time deposits.............................. 63,957 49,326 8,799
Net increase in short-term borrowings...................... 83,517 95,179 19,600
Proceeds from long-term borrowings......................... 88,250 80 --
Payment of long-term borrowings............................ (7,120) (5,765) (3,809)
Dividends paid............................................. (8,199) (7,678) (5,730)
Proceeds from sale of common stock......................... -- 89 --
Proceeds from exercise of incentive stock options.......... 1,234 271 1,309
-------- -------- --------
Net cash provided by financing activities........ $227,828 $146,053 $ 5,393
-------- -------- --------
Net change in cash and cash equivalents.................... $ 8,881 $ (135) $ (1,111)
Cash and cash equivalents:
Beginning of year........................................ 92,201 92,336 93,447
-------- -------- --------
End of period............................................ $101,082 $ 92,201 $ 92,336
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors.............................. $ 65,730 $ 52,642 $ 54,822
Interest paid on borrowings.............................. 15,692 7,349 5,217
Income taxes paid........................................ 6,192 8,956 11,626
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of non-interest bearing note for purchase of
financial services subsidiary............................ -- -- 2,796
Other real estate acquired in settlement of loans.......... 2,615 578 2,043
Transfer of short-term investments to securities available
for sale................................................. -- 10,307 --
Transfer of investment securities to securities available
for sale................................................. -- 198,643 --
Transfer of investment securities to securities held to
maturity................................................. -- 518,790 --
Transfer of securities held to maturity to available for
sale..................................................... 398,331 -- --
Transfer of securities available for sale to held to
maturity................................................. -- 66,488 --
Unamortized unrealized loss on securities transferred from
available for sale to held to maturity, net of tax....... -- 1,425 --
See accompanying notes to consolidated financial statements.
30
31
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of AMCORE Financial, Inc. and
subsidiaries (Company) conform to generally accepted accounting principles. The
following is a summary of the more significant accounting policies of the
Company.
DESCRIPTION OF THE BUSINESS
The Company is a multi-bank holding company located in northern Illinois
and conducts its principal business activities with businesses and individuals
located within this market area. The primary business of the Company is the
extension of credit and the collection of deposits with commercial and
financial, agricultural, real estate and consumer loan customers throughout
northern Illinois. Although the Company has a diversified loan portfolio,
adverse changes in the local economy would have a direct impact on the credit
risk in the portfolio.
The Company also offers a variety of financial services through its
financial services subsidiaries. These include mortgage banking, personal and
employee benefit trust administration for individuals, estates and corporations,
consumer finance, investment management, brokerage, insurance, debt collection
services and the reinsurance of credit life and accident and health insurance in
conjunction with the lending activities of the Company's bank subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. All prior year financial information has
been restated to reflect the mergers that took place during 1994 and 1995 as
explained in Note 2.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers its
cash on hand, amounts due from banks, and cash items in process of clearing to
be cash and cash equivalents.
SECURITIES
Securities are classified into three categories: held to maturity,
available for sale and trading. Securities held to maturity are reported at
amortized historical cost using the level yield method. Securities classified as
available for sale are recorded at fair value with unrealized gains and losses
recorded as a component of stockholders' equity, net of the related income tax
effect. Trading securities are recorded at fair value with unrealized gains and
losses recorded in earnings. There were no trading securities outstanding at
December 31, 1995 and 1994.
Realized gains and losses on all securities are recognized by the specific
identification method upon sale or when values are deemed to be permanently
impaired.
LOANS
Loans are carried at their principal amount outstanding plus any
unamortized net deferred origination costs or less any unamortized net deferred
origination fees. Interest on commercial, real estate, and certain installment
and consumer loans is accrued and recognized as income based upon the
outstanding principal
31
32
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standard (FAS) No. 114--"Accounting by Creditors for Impairment of a Loan" and
FAS No. 118--"Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures". Loans are considered impaired when, based on
current information and events, it is probable that the Company will not be able
to collect all amounts due according to the contractual terms of the loan
agreement. Under these statements, the 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. These new statements also require certain
disclosures about impaired loans and the allowance for loan losses and interest
income recognized on those loans, and are shown in Note 4. The effect of
adopting these statements was not material.
For impaired loans, the accrual of interest income 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 has been
collected. 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.
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
future losses on existing loans and leases. The evaluation of the allowance is
based on past loan loss experience, regular evaluation collectibility by
management, lending officers and corporate loan review staff, overall loan
quality, the nature and size of the portfolio, review of specific problem loans,
and current and anticipated economic conditions that may affect the borrower's
ability to pay. 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.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
recorded at the lower of cost or estimated market value in the aggregate. Gains
and losses on the sale of mortgage loans and servicing fee income are included
in other non-interest income.
When the sale of mortgage loans results in an average contractual interest
rate, adjusted for normal servicing fees, that differs from the agreed yield to
the purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated life of such loans. The resulting difference, or
excess servicing, is capitalized and amortized over the estimated life using a
method approximating the interest method. The unamortized balance is
periodically evaluated in relation to estimated future net servicing revenues,
taking into consideration changes in interest rates, current prepayment speeds
and expected future cash flows.
32
33
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE SERVICING RIGHTS
The Company elected early adoption of FAS No. 122--"Accounting for Mortgage
Servicing Rights", effective January 1, 1995. This new statement requires the
recognition as separate capitalized assets the value of rights to service
mortgage loans for others. These servicing rights are either attained through
the origination of mortgage loans or the purchase of a servicing rights
portfolio. Prior to the adoption of FAS No. 122, only purchased mortgage
servicing rights were capitalized. 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 the loans, based on
their relative fair values. The cost of mortgage servicing rights 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.
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.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued FAS No. 121--"Accounting for the Impairment
of Long-Lived Assets". This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for fiscal years beginning after
December 15, 1995; however, the Company elected to adopt FAS No. 121 in June
1995. The early adoption of this new statement resulted in an impairment charge
of $3,269,000, as explained in Note 7.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of real properties acquired in partial
or full satisfaction of loans. These properties are carried in other assets at
the lower of cost or fair market value less estimated costs to sell the
properties. When the property is acquired through foreclosure, any excess of the
related loan balance over
33
34
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the adjusted fair market 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.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company provides disclosures about the estimated fair value of its
financial instruments. A financial instrument is defined as cash, evidence of
ownership in an entity, or a contract that both imposes on one entity a
contractual obligation to deliver or exchange a financial instrument and conveys
to the other entity a contractual right to receive or exchange a financial
instrument. A significant portion of the Company's balance sheet components are
considered financial instruments, including cash, investments, loans, deposits
and borrowings. Certain off-balance sheet commitments are also considered
financial instruments. In addition, the Company provides disclosures about the
fair value of derivatives. A derivative financial instrument is defined as a
futures, forward, swap, option contract, or other financial instrument with
similar characteristics.
Estimated fair values were determined using various methods and assumptions
as explained in Note 5. See also Note 11 for further disclosure of derivative
financial instruments.
INTEREST RATE CONTRACTS
Interest rate swap agreements and other derivative contracts 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.
INCOME TAXES
The Company and its subsidiaries file consolidated federal and state income
tax returns. Deferred income taxes are provided using the asset and liability
method of accounting for income taxes. Under this method, deferred income taxes
are recognized for the tax consequences of "temporary differences" by applying
the applicable tax rate to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date of any such tax law
change.
EARNINGS PER SHARE
Earnings per share is based on dividing net income by the weighted average
number of shares of common stock outstanding during the periods, as adjusted for
common stock equivalents. Common stock equivalents consist of shares issuable
under options granted pursuant to incentive stock option plans. The
fully-dilutive effect of common equivalents on earnings per share was less than
3% for all years presented. Earnings per share amounts have been restated to
give effect to mergers accounted for as a pooling of interests.
NEW ACCOUNTING STANDARD
In October 1995, the FASB issued FAS No. 123--"Accounting for Stock Based
Compensation", which is effective for fiscal years beginning after December 15,
1995. This new standard encourages, but does not require, companies to charge to
expense, at the grant date, the fair value of stock based compensation awards.
If this new accounting method is not adopted, additional footnote disclosure is
required to show the pro-forma
34
35
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impact this new accounting method would have on net earnings and earnings per
share. It is expected the Company will not adopt the new accounting methodology,
but will provide the required footnote disclosures in 1996.
NOTE 2--MERGERS AND ACQUISITIONS
On May 24, 1995, NBM Bancorp, Inc. (NBM), a two-bank holding company,
merged into the Company, which issued 6.829 common shares for each of the
240,000 outstanding NBM shares for a total of 1,638,960 shares. At the date of
the merger, NBM had total assets of approximately $166 million.
On December 19, 1994, NBA Holding Company of Aledo, Illinois (NBA), a
one-bank holding company, merged into the Company, which issued 1,020,000 shares
of common stock in exchange for all of the 10,000 outstanding shares of NBA
stock. NBA had total assets of approximately $95 million at the date of the
merger. On August 1, 1994, First State Bancorp of Princeton, Illinois, Inc.
(FSB), a three-bank holding company, merged into the Company, which issued 1.835
common shares for each of the 527,422 outstanding FSB shares for a total of
967,819 shares. FSB had total assets of approximately $160 million at the date
of the merger.
Each of these mergers were accounted for as a pooling of interests and,
accordingly, all prior year financial statements and related financial
information of the Company have been restated to include NBM, NBA and FSB. The
results of operations of the separate companies for the periods prior to the
combinations are summarized as follows:
AMCORE COMBINED
FINANCIAL FSB NBA NBM TOTAL
------- ------ ------ ------ --------
(IN THOUSANDS)
Year ended December 31, 1993:
Net interest income....................... $62,451 $5,310 $3,663 $6,132 $77,556
Net income................................ 15,783 1,372 1,897 2,388 21,440
Seven months ended July 31, 1994:
Net interest income....................... $36,000 $3,018 * * $39,018
Net income................................ 9,362 631 * * 9,993
Eleven months ended November 30, 1994:
Net interest income....................... $61,813 ** $3,505 * $65,318
Net income................................ 15,905 ** 1,660 * 17,565
Year ended December 31, 1994:
Net interest income....................... $71,726 ** ** $6,034 $77,760
Net income................................ 19,600 ** ** 2,201 21,801
Four months ended April 30, 1995:
Net interest income....................... $23,773 ** ** $1,848 $25,621
Net income................................ 5,767 ** ** 172 5,939
- ---------------
* Not required since merger took place subsequent to the aforementioned date.
** The AMCORE Financial amounts include the results of mergers completed prior
to the aforementioned date.
On August 15, 1994, an affiliate of the Company acquired a local insurance
agency for $170,000 in cash. The entire purchase price was allocated to
intangible assets. As discussed in Note 7, the unamortized intangible balance of
$140,000 was written-off in 1995. The results of operations of the insurance
agency have been excluded from the consolidated statements of income for the
periods prior to the acquisition date.
On January 19, 1993, the Company purchased the assets and assumed certain
liabilities of a local collection agency for $1 million in cash and a
non-interest bearing note with a discounted value of $2.8 million.
35
36
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total acquisition cost exceeded the fair value of the identifiable assets
acquired by $1 million and was allocated to goodwill. In 1995, the remaining
balance of goodwill and a portion of the remaining customer list intangible were
written-off (see Note 7). The results of operations of the collection agency
have been excluded from the consolidated statements of income for the periods
prior to the acquisition date.
NOTE 3--SECURITIES
A summary of securities at December 31, 1995 and 1994 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
At December 31, 1995:
Securities Held to Maturity:
U.S. Treasury.............................. $ 7,601 $ 25 $ (6) $ 7,620
State and political subdivisions........... 9,233 318 (20) 9,531
Corporate obligations and other............ 7,791 25 -- 7,816
-------- ------- -------- --------
Total Securities Held to Maturity........ $ 24,625 $ 368 $ (26) $ 24,967
======== ======= ======== ========
Securities Available for Sale:
U.S. Treasury.............................. $ 110,382 $ 1,342 $ (197) $111,527
U.S. Government agencies................... 54,128 543 (153) 54,518
Mortgage-backed securities................. 415,125 4,174 (634) 418,665
State and political subdivisions........... 218,273 5,418 (1,064) 222,627
Corporate obligations and other............ 76,546 562 (401) 76,707
-------- ------- -------- --------
Total Securities Available for Sale...... $ 874,454 $ 12,039 $ (2,449) $884,044
-------- ------- -------- --------
Total Securities...................... $ 899,079 $ 12,407 $ (2,475) $909,011
======== ======= ======== ========
At December 31, 1994:
Securities Held to Maturity:
U.S. Treasury.............................. $ 52,883 $ 85 $ (2,542) $ 50,426
U.S. Government agencies................... 51,455 21 (2,912) 48,564
Mortgage-backed securities................. 123,495 2,602 (7,655) 118,442
State and political subdivisions........... 206,972 436 (9,946) 197,462
Corporate obligations and other............ 31,406 7 (1,852) 29,561
-------- ------- -------- --------
Total Securities Held to Maturity........ $ 466,211 $ 3,151 $ (24,907) $444,455
======== ======= ======== ========
Securities Available for Sale:
U.S. Treasury.............................. $ 98,687 $ 39 $ (2,303) $ 96,423
U.S. Government agencies................... 13,960 33 (440) 13,553
Mortgage-backed securities................. 148,811 195 (4,253) 144,753
State and political subdivisions........... 28,110 408 (713) 27,805
Corporate obligations and other............ 36,466 56 (810) 35,712
-------- ------- -------- --------
Total Securities Available for Sale...... $ 326,034 $ 731 $ (8,519) $318,246
-------- ------- -------- --------
Total Securities...................... $ 792,245 $ 3,882 $ (33,426) $762,701
======== ======= ======== ========
36
37
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and market value of both securities held to maturity and
securities available for sale as of December 31, 1995, 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.
AMORTIZED MARKET
COST VALUE
--------- --------
(IN THOUSANDS)
Securities Held to Maturity:
Due in one year or less...................................... $ 9,943 $ 9,973
Due after one year through five years........................ 4,738 4,823
Due after five years through ten years....................... 2,030 2,231
Due after ten years.......................................... 7,914 7,940
--------- --------
Total Securities Held to Maturity......................... $ 24,625 $ 24,967
======== ========
Securities Available for Sale:
Due in one year or less...................................... $ 66,374 $ 66,498
Due after one year through five years........................ 200,979 203,747
Due after five years through ten years....................... 118,541 120,448
Due after ten years.......................................... 44,997 46,198
Mortgage-backed securities................................... 443,563 447,153
--------- --------
Total Securities Available for Sale....................... $ 874,454 $884,044
======== ========
Total Securities.......................................... $ 899,079 $909,011
======== ========
At December 31, 1995 and 1994, investment securities with a market value of
approximately $541,391,000 and $382,455,000, respectively, were pledged to
secure public deposits, securities sold under agreements to repurchase and for
other purposes required by law.
In December 1995, approximately $398,331,000 of securities classified as
held to maturity were reclassified into the available for sale category. This
transfer was done in response to the FASB's decision to allow companies a
one-time opportunity to reclassify their security portfolios. This
reclassification will significantly improve the flexibility in managing interest
and liquidity risks. While this may cause additional fluctuations in the
unrealized gain or loss component of total stockholders' equity, it has no
impact on regulatory risk-based capital calculations.
37
38
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of the loan and lease portfolio at December 31, 1995 and
1994, was as follows:
1995 1994
---------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural...................... $ 347,996 $ 304,835
Real estate-construction.................................... 33,797 24,380
Real estate-commercial...................................... 284,069 271,745
Real estate-residential..................................... 337,240 294,751
Installment and consumer.................................... 286,278 275,024
Direct lease financing...................................... 811 361
---------- ----------
Gross loans and leases.................................... $1,290,191 $1,171,096
Unearned income........................................... (4,230) (9,226)
---------- ----------
Loans and leases, net of unearned income.................. $1,285,961 $1,161,870
Allowance for loan and lease losses....................... (13,061) (13,302)
---------- ----------
NET LOANS AND LEASES.............................. $1,272,900 $1,148,568
========= =========
Impaired loan information as of and for the year ended December 31, 1995 is
as follows:
1995
--------------
(IN THOUSANDS)
Impaired loans for which an allowance has been provided................ $ 2,665
Impaired loans for which no allowance has been provided................ 7,767
--------------
Total loans determined to be impaired.................................. $ 10,432
===========
Allowance provided for impaired loans, included in the allowance for
loan and lease losses................................................ $ 670
===========
Average recorded investment in impaired loans.......................... $ 10,650
Interest income recognized from impaired loans......................... 306
The components of non-performing loans and leases at December 31, 1994 was
as follows:
1994
--------------
(IN THOUSANDS)
Non-accrual............................................................ $ 10,536
Restructured........................................................... 2,296
--------------
TOTAL NON-PERFORMING LOANS AND LEASES........................ $ 12,832
===========
Past due loans 90 days or more and still accruing interest are not included
above and totaled $1,301,000 and $846,000 at December 31, 1995 and 1994,
respectively.
Non-accrual and restructured loans and leases had the following effect on
interest income for the years ended December 31, 1994 and 1993:
1994 1993
------ -----
(IN THOUSANDS)
Income recognized................................................... $ 430 $ 524
Income that would have been recognized in accordance with the
original terms.................................................... 1,066 940
38
39
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the allowance for loan and lease losses for the years ended
December 31, 1995, 1994 and 1993 follows:
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Balance at beginning of year.......................... $13,302 $14,482 $14,080
Provision charged to expense.......................... 2,692 628 2,124
Loans charged off..................................... (4,041) (2,970) (2,926)
Recoveries on loans previously charged off............ 1,108 1,162 1,204
------- ------- -------
BALANCE AT END OF YEAR...................... $13,061 $13,302 $14,482
======= ======= =======
The allocation of the allowance for loan and lease losses at December 31, 1995
and 1994, was as follows:
1995 1994
---------------------- ----------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
AMOUNT CATEGORY AMOUNT CATEGORY
------- ---------- ------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural............. $ 4,860 27.0% $ 3,910 26.0%
Real estate........................................ 2,079 50.8 2,214 50.5
Installment and consumer........................... 2,268 22.2 2,485 23.5
Impaired loans..................................... 670 * * *
Unallocated........................................ 3,184 * 4,693 *
------ ------ ------ -----
TOTAL.................................... $13,061 100.0% $13,302 100.0%
====== ====== ====== =====
- ---------------
* Not applicable.
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 1995 and 1994 were as follows:
1995 1994
------- -------
(IN THOUSANDS)
Balance at beginning of year..................................... $26,438 $24,996
New loans........................................................ 21,551 7,761
Repayments....................................................... (22,002) (6,319)
------ ------
BALANCE AT END OF YEAR................................. $25,987 $26,438
====== ======
39
40
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments 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 estimated fair values of
financial instruments at December 31, 1995, and 1994 that have liquid markets in
which fair value is assumed to be equal to the carrying amount, have readily
available quoted market prices, or are based on quoted prices for similar
financial instruments:
1995 1994
------------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
Cash and cash equivalents..................... $101,082 $ 101,082 $ 92,201 $ 92,201
Interest earning deposits in banks............ 260 260 508 508
Federal funds sold and other short-term
investments................................. 9,050 9,050 5,656 5,656
Mortgage loans held for sale.................. 15,801 16,225 10,184 10,200
Securities available for sale................. 844,044 844,044 318,246 318,246
Securities held to maturity................... 24,625 24,967 466,211 444,455
The carrying amounts and estimated fair values of accruing loans and leases
at December 31, 1995, and 1994 were as follows:
1995 1994
-------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural... $ 344,562 $ 356,853 $ 301,132 $ 296,949
Real estate.............................. 649,417 656,136 585,470 585,653
Installment and consumer, net............ 280,739 280,464 264,371 259,904
Direct lease financing................... 811 816 361 336
---------- ---------- ---------- ----------
Total loans.................... $1,275,529 $1,294,269 $1,151,334 $1,142,842
Fair values of loans were estimated for portfolios of loans with similar
characteristics. Loans were segregated by type as shown above and then each
category was further segmented into fixed and floating interest rate terms. The
fair value of fixed-rate loans, excluding residential real-estate loans, was
calculated by discounting contractual cash flows using estimated market discount
rates which reflect the credit and interest rate risk inherent in the loan. The
cash flows were further reduced by estimated prepayment assumptions. Fair value
for residential real-estate loans was estimated by discounting estimated future
cash flows, adjusted for prepayment estimates, using market discount rates based
on secondary market sources. Cash flow assumptions for credit card loans did not
include the value of new receivables generated from existing cardholders over
the remaining estimated life of the portfolio, thus understating the value of
the entire credit card relationship. The fair value of non-accrual loans with a
recorded book value of $10.4 million and $10.5 million in 1995 and 1994,
respectively, was not estimated because it was not practicable to reasonably
assess the credit adjustment that would be applied in the marketplace for such
loans.
40
41
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the carrying amounts and estimated fair values of
financial instrument liabilities and other off-balance sheet financial
instruments at December 31, 1995, and 1994:
1995 1994
------------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
Demand deposits and savings................... $858,873 $ 858,873 $852,716 $ 852,716
Time deposits................................. 918,832 932,864 854,843 855,950
Short-term borrowings......................... 292,042 292,677 208,525 209,019
Long-term borrowings.......................... 107,803 107,803 26,487 26,487
Commitments to extend credit.................. $ -- $ (297) $ -- $ (264)
Standby letters of credit..................... (44) (201) (58) (177)
Interest rate swap agreements................. (12) (68) (40) (401)
Interest rate floor agreements................ 126 829 -- --
Forward contracts............................. -- (104) -- (20)
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. 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 to terminate the contracts or agreements, using current rates
and, when appropriate, the current creditworthiness of the customer. The
off-balance sheet carrying amounts shown above represent accruals or deferred
fees arising from those unrecognized financial instruments.
The above fair value estimates were made at a discrete point in time based
on relevant market information and other assumptions about the financial
instruments. As no active market exists for a significant portion of the
Company's financial instruments, fair value estimates were based on judgements
regarding current economic conditions, future expected cash flows and loss
experience, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and therefore cannot be
calculated with precision. Changes in these assumptions could significantly
affect these estimates. In addition, the fair value estimates are based on
existing on and off-balance sheet financial instruments without attempting to
assess the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
investments in subsidiaries, specifically the trust, mortgage and brokerage
operations, are not considered financial instruments and the franchise values
have not been included in the fair value estimates. Similarly, premises and
equipment and intangible assets have not been considered.
41
42
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, 1995 and 1994, follows:
1995 1994
-------- --------
(IN THOUSANDS)
Land........................................................... $ 8,508 $ 8,358
Buildings and improvements..................................... 47,362 45,776
Furniture and equipment........................................ 30,135 26,665
Leasehold improvements......................................... 4,261 3,667
Construction in progress....................................... 1,703 771
-------- --------
Total premises and equipment................................... $ 91,969 $ 85,237
Accumulated depreciation and amortization...................... (42,299) (36,059)
-------- --------
PREMISES AND EQUIPMENT, NET.......................... $ 49,670 $ 49,178
======== ========
NOTE 7--IMPAIRMENT OF LONG-LIVED ASSETS
In June 1995, the Company recognized an impairment charge totaling
$3,269,000 in conjunction with the early adoption of FAS No. 121--"Accounting
for the Impairment of Long-Lived Assets". This charge resulted from changes in
circumstances arising in 1995 that indicated the carrying values of assets noted
below may not be fully recoverable. The charge was comprised of the following:
AMOUNT
--------------
(IN THOUSANDS)
Customer list intangibles and goodwill......... $1,674
Bank facilities................................ 1,595
-------
Total impairment charge...................... $3,269
===========
The write-down of the customer list intangible at the collection agency was
based on an analysis of net revenues from the original acquired customer list.
The fair value of the customer list intangible and related goodwill was
calculated by estimating future cash flows from the original acquired customer
list. This analysis demonstrated a reduction of profitability from the original
customer base, which was caused by a loss of customers and reduced volumes from
other customers. Accordingly, the remaining unamortized balance of the customer
list intangible was considered to be partially impaired and was written-down by
$669,000. The entire unamortized balance of goodwill totaling $865,000 was
written-off, as the goodwill was directly identified with the impaired customer
list. The remaining unamortized customer list intangible acquired from a local
insurance agency, with a balance of $140,000, was written-off. This write-off
was primarily caused by an analysis of the performance of the August 1994
acquisition, which disclosed lower than anticipated renewal rates in comparison
to historical experience prior to the acquisition.
The write-down of bank facilities was based on the results of engineering
studies and appraisals conducted in 1995 that identified concerns regarding the
suitability of the buildings as income producing properties. As a result, the
Company vacated non-banking related tenants and began activities to dispose of
the buildings. The write-down was based on an estimate of future benefits from
the continuing use of the properties as bank facilities.
42
43
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8--MORTGAGE SERVICING RIGHTS
The unpaid principal balance of mortgage loans serviced for others, which
are not included on the consolidated balance sheets, was $874,069,000 and
$620,172,000 at December 31, 1995 and 1994, respectively. The balance of loans
serviced for others related to both originated and purchased capitalized
servicing rights, as shown below, was $361,564,000 at the end of December 31,
1995. The remaining balance of originated loans sold and serviced for others
also have servicing rights associated with them; however, these servicing rights
arose prior to the adoption of FAS 122, and accordingly, have not been
capitalized.
The carrying value and fair value of capitalized mortgage servicing rights
consisted of the following as of December 31, 1995:
1995
--------------
(IN THOUSANDS)
Unamortized cost of mortgage servicing rights.................. $4,485
Valuation allowance............................................ (147)
------
Carrying value of mortgage servicing rights.................. $4,338
======
Fair value of mortgage servicing rights...................... $6,821
======
The following is an analysis of the activity for mortgage servicing rights
and the related valuation allowance for 1995:
1995
--------------
(IN THOUSANDS)
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year................................... $1,022
Additions of purchased mortgage servicing rights............... 2,715
Additions of originated mortgage servicing rights.............. 1,088
Amortization................................................... (340)
------
Balance at end of year....................................... $4,485
======
VALUATION ALLOWANCE
Balance at beginning of year................................... $ --
Impairment allowance charged to expense........................ 147
------
Balance at end of year....................................... $ 147
======
NOTE 9--SHORT-TERM BORROWINGS
At December 31, 1995 and 1994, short-term borrowings consisted of:
1995 1994
-------- --------
(IN THOUSANDS)
Securities sold under agreements to repurchase................. $243,057 $169,032
Federal Home Loan Bank borrowings.............................. 28,341 2,841
Federal funds purchased........................................ 12,759 33,300
U.S. Treasury tax and loan note accounts....................... 4,200 3,115
Commercial paper borrowings.................................... 3,150 --
Other short-term borrowings.................................... 535 237
-------- --------
TOTAL SHORT-TERM BORROWINGS.................................. $292,042 $208,525
======== ========
43
44
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional details on securities sold under agreements to repurchase are as
follows:
1995 1994
-------- --------
(IN THOUSANDS)
Average balance during the year................................ $201,715 $ 98,660
Maximum month-end balance during the year...................... 283,703 169,032
Weighted average rate during the year.......................... 6.04% 4.40%
Weighted average rate at December 31........................... 5.48% 5.65%
======== ========
The Company has a commercial paper agreement with an unrelated financial
institution that provides for the Company to issue non-rated short-term
unsecured debt obligations at negotiated rates and terms, not to exceed
$25,000,000. In the event the agent is unable to place the Company's commercial
paper on a particular day, the proceeds are provided by overnight borrowings on
a line of credit with the same financial institution. The commercial paper
agreement was primarily established for the purpose of funding consumer finance
receivables and mortgage loans held for sale.
NOTE 10--LONG-TERM BORROWINGS
Long-term borrowings consisted of the following at December 31, 1995 and
1994:
1995 1994
-------- -------
(IN THOUSANDS)
Term loan....................................................... $ 17,000 $22,000
Federal Home Loan Bank borrowings............................... 88,250 --
Other long-term borrowings...................................... 2,553 4,487
-------- -------
TOTAL LONG-TERM BORROWINGS............................ $107,803 $26,487
======== =======
The term loan agreement (Agreement) was renegotiated with another unrelated
financial institution in November 1995. It provides for semi-annual principal
payments and allows for several interest rate and funding period options. At
December 31, 1995, the interest rate was 7.44%.
The Agreement contains several restrictive covenants, including
restrictions on dividends to stockholders, maintenance of various capital
adequacy levels, and certain restrictions with regard to other indebtedness.
Generally, future dividends are limited to $5,000,000 plus 35% of cumulative
consolidated net income during the period from September 30, 1995 to the end of
the most recent reporting date. As of December 31, 1995, the Company had
$5,076,000 of unrestricted earnings available for additional dividends. All
capital adequacy ratios remained well above the required minimums.
In December 1995, several of the Company's subsidiary banks borrowed
$88,250,000 from the Federal Home Loan Bank in connection with the purchase of
mortgage-backed securities. The average maturity of these borrowings is 2.9
years, with a weighted average borrowing rate of 5.70%.
Other long-term borrowings principally include a non-interest bearing note
from the January 1993 acquisition of a local collection agency, which had a
balance of $2,511,000 and $2,769,000 at December 31, 1995 and 1994,
respectively. The note requires annual principal payments of $444,000 beginning
in 1994 through 2002. The note was discounted at an interest rate of 8.0%.
44
45
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled reductions of long-term borrowings are as follows:
TOTAL
--------------
(IN THOUSANDS)
1996........................................... $ 3,706
1997........................................... 41,718
1998........................................... 28,726
1999........................................... 29,002
2000........................................... 3,780
Thereafter..................................... 871
--------
TOTAL................................ $107,803
========
NOTE 11--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, interest rate floor agreements, 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 and floor
agreements and forward contracts do not represent exposure to credit risk.
A summary of the contract or notional amount of the Company's exposure to
off-balance sheet risk as of December 31, 1995 and 1994, is as follows:
1995 1994
-------- --------
(IN THOUSANDS)
Financial instruments whose contract amounts represent credit
risk only:
Commitments to extend credit................................. $335,557 $177,323
Standby letters of credit.................................... 17,512 17,622
Financial instruments whose contract or notional amounts
represent market risk only:
Interest rate floor agreements............................... 75,000 --
Interest rate swap agreements................................ 28,127 42,500
Forward contracts............................................ 13,820 2,600
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
45
46
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.
The Company has no derivative financial instruments held or issued for
trading purposes. The derivative financial instruments with which the Company is
involved are utilized for purposes of asset/liability management to modify the
existing market risk characteristics of certain hedged assets and liabilities.
An interest rate swap agreement is the most common financial instrument used for
these purposes and involves the exchange of fixed and floating rate interest
payment obligations based on the underlying notional principal amounts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the agreements and not the notional principal amounts
used only to express the volume of the transactions. The Company's credit risk
on a swap agreement is limited to nonperformance of the counterparty's
obligations under the terms of the swap agreement. The Company deals exclusively
with 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, 1995.
Following is a table outlining the nature and terms of each swap agreement
as of December 31, 1995:
TYPE OF SWAP
- ------------------------------------ NOTIONAL MATURITY
($ IN THOUSANDS) AMOUNT PAY RECEIVE DATE
-------- --------------- ------------------------------ --------
Fixed Rate.......................... $ 5,000 Fixed (5.50%) 3 Month LIBOR 6/15/98
Federal Funds Fixed Rate............ 10,000 Fixed (5.07%) Daily Federal Funds rate 12/22/97**
Indexed Amortizing.................. 3,127 3 Month LIBOR Fixed (5.24%) 3/09/97
Periodic LIBOR Cap.................. 10,000 3 Month LIBOR* 3 Month LIBOR + 32 basis pts. 1/18/96
- ---------------
* Subject to a .25% cap each quarter.
** Counterparty has an option to terminate the agreement beginning December 22,
1996 and each quarter thereafter until the maturity date.
The fixed rate swap agreement is used to hedge market risk associated with
the term loan agreement as discussed in Note 10. The federal funds fixed rate
swap is utilized to fix the interest rate paid on daily federal funds borrowing
positions. Both the indexed amortizing swap and the periodic LIBOR cap swap are
used for the purpose of hedging the spread between deposit rates such as
passbook and NOW accounts and earning assets whose yields float with the prime
rate. The notional amount of the indexed amortizing swap changes based on
certain interest rate indices. Generally, as rates fall the notional amounts
decline more rapidly and as rates increase the notional amounts decline more
slowly, similar to the characteristics of a mortgage-backed security. The
periodic LIBOR cap swap contract allows the Company to receive an amount based
on the London inter-bank offered rate (LIBOR) plus a pre-defined spread, while
paying LIBOR. The periodic repricing of this contract is subject to certain
defined caps. No collateral has been pledged by either party to any of these
swap transactions.
The Company is also party to various interest rate floor contracts with a
notional amount totaling $75,000,000. These contracts provide the Company with a
market risk hedge on the mortgage-backed security portfolio in the event of a
significant decline in interest rates.
Each of the interest rate swap agreements require a quarterly cash
settlement of the net difference between the calculated pay and receive amounts
on each transaction. The net difference between the calculated pay and receive
amounts is accrued on a monthly basis and recorded as an adjustment of the
interest income or expense of the asset or liability being hedged. Premiums paid
for the purchase of interest
46
47
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Any gains or losses on swap or floor contracts
closed out prior to the maturity date are recognized ratably over the remaining
life of the contract.
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 were no
call option agreements outstanding at December 31, 1995.
NOTE 12--RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Under current banking law, the banking subsidiaries of the Company are
limited in the amount of dividends they can pay without obtaining prior approval
from bank regulatory agencies. As of December 31, 1995, approximately
$29,888,000 was available for payment to the Company without prior regulatory
approval.
The subsidiaries are also limited as to the amount they may loan to the
Company unless such loans are collateralized by U.S. Treasury or agency
securities, a segregated deposit with the subsidiary or other specified
obligations. At December 31, 1995, the maximum amount available from the
subsidiaries to the Company in the form of loans approximated $9,059,000.
NOTE 13--STOCK INCENTIVE AND EMPLOYEE BENEFIT PLANS
INCENTIVE AWARDS. In May 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 to be available for issuance
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 350,000 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 a previous stock incentive plan.
Non-Qualified Stock Options issued are exercisable at not less than the
market value at the date of grant. 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 $6.67 to $16.67 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, 1995, 1994 and 1993 was
47
48
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $567,000, $375,000 and $375,000, respectively. The following table
presents certain information with respect to issuances pursuant to these plans.
1995 1994 1993
----------------- ------------------ ------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ------- -------- ------- -------- -------
Outstanding at beginning of year............................. 885,364 $13.99 691,354 $12.08 552,844 $ 9.37
Options granted.............................................. 155,500 19.04 173,000 19.50 225,000 15.17
Options exercised............................................ (97,881) 12.01 (22,533) 11.91 (129,980) 8.41
Options lapsed............................................... -- -- -- -- -- --
Units granted................................................ 81,442 -- 78,273 -- 70,502 --
Units paid................................................... (64,770) 6.67 -- -- -- --
Units forfeited.............................................. (16,819) -- (34,730) -- (27,012) --
-------- ------- -------- ------- -------- -------
Options outstanding at end of year, all exercisable.......... 732,575 $15.32 674,956 $13.99 524,489 $12.08
-------- ------- -------- ------- -------- -------
Units outstanding at end of year............................. 210,261 -- 210,408 -- 166,865 --
======= ======= ======== ======= ======== =======
Available to grant under Plan at end of year................. 226,221 -- 14,902 -- 187,902 --
======= ======= ======== ======= ======== =======
DIRECTORS' STOCK PLAN. During 1989, the Company adopted the Restricted
Stock Plan for Non-Employee Directors (Stock Plan). The Stock Plan provides that
each current eligible non-employee director 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, 1995, 1994 and 1993 was approximately $280,000,
$360,000 and $300,000, 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 1995 and 1994 related to this statement was $86,000 and $81,000,
respectively. The transition obligation, representing the present value of
future payments at the adoption of the statement, was approximately $842,000 and
is being amortized over a twenty year period.
In 1994, stockholders approved the 1994 Stock Option Plan for Non-Employee
Directors (Option Plan). The Option Plan provides that each current eligible
non-employee director and each subsequently elected non-employee director
receive options to purchase common stock of the Company. Each option granted
under the Option Plan will have a ten-year term and will generally become
exercisable twelve months after the grant date at an option price equal to the
fair market value of the shares on the grant date. All non-employee directors of
the Company were granted an option to purchase 1,000 common shares on May 3,
1994 at $20.125 per share and 1,000 shares on May 9, 1995 at $19.125 per share
pursuant to the Option Plan. Additionally, eligible subsidiary non-employee
directors were granted an option to purchase 500 shares on May 9, 1995 at
$19.125 per share pursuant to the Option Plan.
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 account and personal
savings account [401(k)]. The expense related to the Security Plan and other
similar plans from FSB, NBA and NBM for the years ended December 31, 1995, 1994
and 1993 was approximately $2,374,000, $2,233,000 and $2,604,000, 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.
48
49
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14--INCOME TAXES
The components of income tax expense were as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------ -------
(IN THOUSANDS)
Currently paid or payable...................................... $ 6,800 $7,703 $11,566
Deferred....................................................... (1,784) (28) (4,105)
------- ------ -------
TOTAL................................................ $ 5,016 $7,675 $ 7,461
======= ====== =======
Deferred income taxes consist of the tax effects of temporary differences
in reporting the following items for consolidated financial statement and income
tax purposes:
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------ -------
(IN THOUSANDS)
Securities..................................................... $ (178) $ (393) $ (763)
Core deposit and other intangibles............................. (953) (457) (725)
Deferred compensation.......................................... (663) (455) (322)
Premises and equipment......................................... (478) (703) (495)
Allowance for loan and lease losses............................ (60) 439 (1,007)
Allowance for other real estate owned.......................... 263 341 (77)
Other, net..................................................... 285 1,200 (716)
------- ------ -------
TOTAL................................................ $(1,784) $ (28) $(4,105)
======= ====== =======
The effective tax rates on income for 1995, 1994 and 1993 were 21.5%, 26.0%
and 25.8%, respectively. Income tax expense was less than the amounts computed
by applying the federal statutory rate of 35% due to the following:
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Income tax at statutory rate.................................. $ 8,150 $10,317 $10,115
Increase (decrease) resulting from:
Tax-exempt income........................................... (3,781) (4,193) (3,616)
State income taxes, net of federal benefit.................. 480 837 487
Net nondeductible expenses.................................. 405 383 111
Other, net.................................................. (238) 331 364
------- ------- -------
TOTAL............................................... $ 5,016 $ 7,675 $ 7,461
======= ======= =======
49
50
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets are
as follows:
AT DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation.......................................... $ 3,214 $ 2,475
Securities..................................................... -- 3,884
Allowance for loan and lease losses............................ 4,846 4,879
Allowance for other real estate owned.......................... 39 --
Other.......................................................... 2,157 1,872
------- -------
Total deferred tax assets................................... $10,256 $13,110
------- -------
Deferred tax liabilities:
Securities..................................................... $ 4,209 $ 637
Premises and equipment......................................... 4,722 4,152
Core deposit and other intangibles............................. 796 1,210
Other.......................................................... 1,345 2,325
------- -------
Total deferred tax liabilities.............................. $11,072 $ 8,324
------- -------
TOTAL DEFERRED TAX ASSET (LIABILITY)........................ (816) 4,786
Less: Tax effect of unrealized (gain) loss on securities
available for sale............................................. (3,724) 3,662
------- -------
NET DEFERRED TAX ASSET...................................... $ 2,908 $ 1,124
======= =======
No valuation allowance was considered necessary.
50
51
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15--CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents.............................................. $ 1,293 $ 758
Securities held to maturity............................................ 111 40
Short-term investments................................................. -- 1,000
Due from subsidiaries.................................................. 357 604
Loans to financial services subsidiaries............................... 9,188 4,220
Investment in bank subsidiaries........................................ 206,308 185,898
Investment in financial services subsidiaries.......................... 12,043 13,451
Premises and equipment,net............................................. 3,801 2,819
Other assets........................................................... 5,257 4,704
-------- --------
TOTAL ASSETS......................................................... $238,358 $213,494
======== ========
LIABILITIES
Short-term borrowings.................................................. $ 3,150 $ --
Long-term borrowings................................................... 19,511 24,769
Other liabilities...................................................... 5,835 2,566
-------- --------
TOTAL LIABILITIES.................................................... $ 28,496 $ 27,335
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock........................................................ $ -- $ --
Common stock........................................................... 4,976 4,976
Additional paid-in capital............................................. 56,412 56,533
Retained earnings...................................................... 149,315 139,245
Treasury stock and other............................................... (6,659) (8,296)
Net unrealized gain (loss) on securities available for sale............ 5,818 (6,299)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................... $209,862 $186,159
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $238,358 $213,494
======== ========
51
52
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Income:
Dividends from subsidiaries................................. $14,740 $14,920 $14,766
Interest income............................................. 484 451 639
Management fees and other................................... 11,434 10,993 9,512
------- ------- -------
TOTAL INCOME............................................. $26,658 $26,364 $24,917
------- ------- -------
Expenses:
Interest expense............................................ $ 1,909 $ 2,102 $ 2,286
Compensation expense and employee benefits.................. 10,187 7,649 7,011
Professional fees........................................... 1,058 1,001 552
Other....................................................... 6,917 5,664 3,821
------- ------- -------
TOTAL EXPENSES........................................... $20,071 $16,416 $13,670
------- ------- -------
Income before income tax benefits and equity in undistributed
net income of subsidiaries.................................. $ 6,587 $ 9,948 $11,247
Income tax benefits......................................... (3,592) (1,742) (1,384)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries................................................ $10,179 $11,690 $12,631
Equity in undistributed net income of subsidiaries............ 8,092 10,111 8,809
------- ------- -------
NET INCOME............................................... $18,271 $21,801 $21,440
======= ======= =======
52
53
AMCORE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 18,271 $ 21,801 $ 21,440
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization......................... 837 677 408
Non-employee directors compensation expense........... 280 360 300
Equity in undistributed net income of subsidiaries.... (8,092) (10,111) (8,809)
(Increase) decrease in due from subsidiaries.......... 247 (179) 189
Increase in other assets.............................. (553) (2,218) (2,129)
Increase in other liabilities......................... 3,269 463 747
Other, net............................................ 393 53 373
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ $ 14,652 $ 10,846 $ 12,519
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities..................................... (101) -- (40)
Proceeds from maturities of securities..................... 30 -- 30
Net decrease in short term investments..................... 1,000 -- 1,000
Dissolution of less-active state banking charters.......... 2,000 -- --
Net investment made in subsidiaries........................ (1,000) (50) (4,951)
Loans to subsidiaries...................................... (5,748) (19,851) (22,340)
Payments received on loans to subsidiaries................. 780 23,631 24,000
Proceeds from sale of premises and equipment............... -- 53 78
Premises and equipment expenditures........................ (1,819) (1,372) (1,347)
-------- -------- --------
NET CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES.......................................... $ (4,858) $ 2,411 $ (3,570)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings........... 3,150 -- (4,000)
Payment of long-term borrowings............................ (5,444) (5,444) (3,000)
Dividends paid............................................. (8,199) (7,678) (5,730)
Proceeds from sale of common stock......................... -- 89 --
Proceeds from exercise of incentive stock options.......... 1,234 271 1,309
-------- -------- --------
NET CASH REQUIRED FOR FINANCING ACTIVITIES............ $ (9,259) $(12,762) $(11,421)
-------- -------- --------
Net change in cash and cash equivalents.................... $ 535 $ 495 $ (2,472)
Cash and cash equivalents:
Beginning of year........................................ 758 263 2,735
-------- -------- --------
End of period............................................ $ 1,293 $ 758 $ 263
======== ======== ========
53
54
[McGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
AMCORE Financial, Inc.
Rockford, Illinois
We have the audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 financial statements of First State
Bancorp of Princeton, Illinois, Inc., a company which was pooled with AMCORE
Financial, Inc. in 1994 as explained in Note 2 to the consolidated financial
statements, which statements are included in the restated 1993 consolidated
financial statements and reflect net interest income constituting 7% for 1993
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion for 1993,
insofar as it relates to the amounts included for First State Bancorp of
Princeton, Illinois, Inc., is based solely upon the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on 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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of others, 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, 1995 and 1994, and the results of their operations and their
cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.
As described in Notes 1, 7 and 8 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights and for
the impairment of long-lived assets.
McGladrey & Pullen, LLP
Rockford, Illinois
January 19, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMCORE Financial, Inc.
As independent public accountants, we hereby consent to the incorporation of
our report dated January 19, 1996, in the Form 10-K, into AMCORE Financial,
Inc.'s previously filed Form S-8 Registration Statement No. 2-95624 and Form
S-8 Registration Statement No. 33-10446.
McGladrey & Pullen, LLP
Rockford, Illinois
March 28, 1996
54
55
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First State Bancorp of Princeton,
Illinois, Inc.,
Princeton, Illinois:
We have audited the consolidated statements of income, stockholders' equity,
and cash flows of First State Bancorp of Princeton, Illinois, Inc. and
subsidiaries for the year ended December 31, 1993. These consolidated
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
FC
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations
and cash flows of First State Bancorp of Princeton, Illinois, Inc. and
subsidiaries for the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 14, 1994
55
56
CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (UNAUDITED)
1995 1994
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income............. $38,260 $40,371 $42,432 $43,423 $32,982 $33,725 $35,290 $36,958
Interest expense............ 18,925 20,900 22,351 22,904 13,844 14,557 15,818 16,976
------- ------- ------- ------- ------- ------- ------- -------
Net interest income......... $19,335 $19,471 $20,081 $20,519 $19,138 $19,168 $19,472 $19,982
Provision for loan losses... 729 871 320 772 130 174 307 17
Other income................ 8,046 8,357 8,453 9,157 7,485 7,554 8,168 7,827
Other expense............... 20,673 26,637 19,950 20,180 19,397 19,313 19,724 20,256
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes..................... $5,979 $ 320 $8,264 $8,724 $7,096 $ 7,235 $7,609 $7,536
Income taxes................ 1,362 (820) 2,024 2,450 1,764 1,794 2,060 2,057
------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $4,617 $ 1,140 $6,240 $6,274 $5,332 $ 5,441 $5,549 $5,479
======= ======= ======= ======= ======= ======= ======= =======
Per share data:
Earnings.................... $ 0.34 $ 0.08 $ 0.44 $ 0.44 $ 0.38 $ 0.39 $ 0.39 $ 0.39
Dividends................... 0.13 0.15 0.15 0.15 0.13 0.13 0.14 0.15
Stock price ranges -high.... 21.25 19.75 23.25 24.00 20.50.. 21.75 22.75 21.25
-low...... 18.25 17.00 18.50 19.75 16.25 15.75 20.00 16.00
-close.... 19.25 18.50 22.75 20.25 16.25 21.25 21.25 18.75
- ------------
Quotes have been obtained from the National Association of Security Dealers.
These quotes do not reflect retail mark-ups, mark-downs or commissions nor are
they necessarily representative of actual transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. The 1996 Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 28, 1996 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 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 1996 Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 28, 1996 is incorporated herein by reference.
56
57
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, 1995 and 1994
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
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.
(a)3. EXHIBITS
3. Amended and Restated Articles of Incorporation of AMCORE Financial, Inc.
dated May 1, 1990 (Incorporated by reference to Exhibit 23 of AMCORE's Annual
Report on Form 10-K for the year ended December 31, 1989).
3.1 By-laws of AMCORE Financial, Inc. as amended May 17, 1990 (Incorporated by
reference to Exhibit 3.1 of AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1994).
4. Rights Agreement dated February 21, 1996, between AMCORE Financial, Inc. and
Firstar Trust Company (Incorporated by reference to AMCORE's Form 8-K as
filed with the Commission on February 28, 1996).
10.1* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 22 of
AMCORE's Annual Report on Form 10-K for the year ended December 31, 1994).
10.2* AMCORE Financial, Inc. 1994 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit 23 of AMCORE's Annual Report on Form
10-K for the year ended December 31, 1993).
10.3A* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and Robert J. Meuleman (Incorporated by reference to Exhibit
10.1 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3B* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and John R. Hecht (Incorporated by reference to Exhibit 10.2
to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3C* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and F. Taylor Carlin (Incorporated by reference to Exhibit
10.3 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
10.3D* Transitional Compensation Agreement dated September 25, 1995 between AMCORE
Financial, Inc. and James S. Waddell (Incorporated by reference to Exhibit
10.4 to AMCORE's Form 10-Q for the quarter ended September 30, 1995).
57
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10.3E* Severance Agreement dated March 5, 1993 between AMCORE Financial, Inc. and
Charles E. Gagnier (Incorporated by reference to Exhibit 10.2 to AMCORE's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.3F* Severance Agreement dated March 5, 1993 between AMCORE Financial, Inc. and
Gerald W. Lister. (Incorporated by reference to Exhibit 10.3F to AMCORE's
Annual Report on Form 10-K for the year ended December 31, 1993).
10.4 Agreement and Plan of Reorganization by and among AMCORE Financial, Inc., NBM
Acquisition, Inc., and NBM Bancorp, Inc. (Incorporated by reference to
AMCORE's Amendment No. 1 to Form S-4 as filed with the Commission on February
23, 1995).
10.5 Loan Agreement for $17,000,000 Term Loan and $25,000,000 Line of Credit Note
dated November 10, 1995 with M & I Marshall & Ilsley Bank.
10.6 Commercial Paper Placement Agreement dated November 10, 1995 with M & I
Marshall & Ilsley Bank.
11. Statement Re: Computation of Per Share Earnings.
13. 1995 Summary Annual Report to Stockholders.
21. Subsidiaries of the Registrant.
22. 1996 Notice of Annual Meeting of Stockholders and Proxy Statement.
24. Powers of Attorney.
(b) There were no Form 8-K's filed during the fourth quarter of 1995.
- ---------------
* These Exhibits are management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K.
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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 28th day of March 1996.
AMCORE FINANCIAL, INC.
By John R. Hecht
------------------------------------
John R. Hecht
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 28th day of March, 1996 by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
Robert J. Meuleman
- --------------------------------------------- President and Chief Executive Officer
Robert J. Meuleman (principal executive officer)
John R. Hecht
- --------------------------------------------- Senior Vice President and Chief Financial
John R. Hecht Officer
(principal financial officer and principal
accounting officer)
Directors: Milton R. Brown, Carl J. Dargene, Richard C. Dell, Robert A. Doyle,
Frank A. Fiorenza, Theresa Paulette Gilbert, Lawrence E. Gloyd,
Robert A. Henry, Robert J. Meuleman, Ted Ross, Robert J. Smuland,
Jack D. Ward and Gary L. Watson
Robert J. Meuleman
- ---------------------------------------------
Robert J. Meuleman*
John R. Hecht
- ---------------------------------------------
John R. Hecht*
- ------------
* Attorney in Fact*
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