1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-13393
AMCORE FINANCIAL, INC.
NEVADA 36-3183870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Seventh Street, Rockford, Illinois 61104
Telephone number (815) 968-2241
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common stock, par value
$.33 per share, at July 31, 1995 was 14,086,834 shares.
Index of Exhibits on Page 12 Page 1 of 19
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AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART I Page Number
------ -----------
ITEM 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three and Six
Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II
-------
ITEM 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6 Exhibits and Reports on Form 10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
(in thousands, except share data) 1995 1994
=============================================================================================================================
ASSETS Cash and cash equivalents...................................................... $106,665 $92,201
Interest earning deposits in banks............................................. 470 508
Federal funds sold and other short-term investments............................ 3,886 5,656
Mortgage loans held for sale................................................... 18,418 10,184
Securities available for sale.................................................. 348,854 318,246
Securities held to maturity (market value of $462,221 in 1995; $444,455 in
1994)........................................................................ 455,857 466,211
--------------------------
Total securities.......................................................... 804,711 784,457
Loans and leases, net of unearned income....................................... 1,234,483 1,161,870
Allowance for loan and lease losses............................................ (13,645) (13,302)
--------------------------
Net loans and leases...................................................... $1,220,838 $1,148,568
--------------------------
Premises and equipment, net.................................................... 49,773 49,178
Intangible assets, net......................................................... 15,343 18,314
Other real estate owned........................................................ 2,550 1,099
Other assets................................................................... 43,773 41,818
--------------------------
TOTAL ASSETS.............................................................. $2,266,427 $2,151,983
==========================
LIABILITIES LIABILITIES
AND Deposits:
STOCKHOLDERS' Interest bearing............................................................. $1,535,533 $1,456,702
EQUITY Non-interest bearing......................................................... 258,764 250,857
--------------------------
Total deposits............................................................ $1,794,297 $1,707,559
Short-term borrowings.......................................................... 224,122 208,525
Long-term borrowings........................................................... 21,973 26,487
Other liabilities.............................................................. 31,458 23,253
--------------------------
TOTAL LIABILITIES......................................................... $2,071,850 $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;
June 30, December 31,
1995 1994
Issued..................14,926,695 14,926,695
Outstanding.............14,086,879 14,039,680 4,976 4,970
Additional paid-in capital..................................................... 56,609 56,539
Retained earnings.............................................................. 140,834 139,245
Treasury stock and other....................................................... (8,039) (8,296)
Net unrealized gain (loss) on securities available for sale.................... 197 (6,299)
--------------------------
TOTAL STOCKHOLDERS' EQUITY................................................ $194,577 $186,159
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $2,266,427 $2,151,983
==========================
See accompanying notes to consolidated financial statements.
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AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(in thousands, except per share data) 1995 1994 1995 1994
===================================================================================================================================
INTEREST Interest and fees on loans and leases.............................. $26,962 $21,503 $52,338 $42,472
INCOME Interest on securities:
Taxable.......................................................... 9,331 7,932 18,430 15,632
Tax-exempt....................................................... 3,020 3,223 6,000 6,370
----------------------------------------------
TOTAL INCOME FROM SECURITIES.................................. $12,351 $11,155 $24,430 $22,002
----------------------------------------------
Interest on federal funds sold and other short-term investments.... 309 288 640 554
Interest and fees on mortgage loans held for sale.................. 749 703 1,214 1,551
Interest on deposits in banks...................................... - 76 9 128
----------------------------------------------
TOTAL INTEREST INCOME......................................... $40,371 $33,725 $78,631 $66,707
----------------------------------------------
INTEREST Interest on deposits............................................... $17,276 $12,647 $32,363 $25,076
EXPENSE Interest on short-term borrowings.................................. 3,132 1,291 6,382 2,123
Interest on long-term borrowings................................... 414 490 876 968
Other.............................................................. 78 129 204 234
----------------------------------------------
TOTAL INTEREST EXPENSE........................................ $20,900 $14,557 $39,825 $28,401
----------------------------------------------
NET INTEREST INCOME................................................ $19,471 $19,168 $38,806 $38,306
Provision for loan and lease losses........................... 871 174 1,600 304
----------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... $18,600 $18,994 $37,206 $38,002
----------------------------------------------
OTHER Trust revenues..................................................... $2,977 $2,792 $5,827 $5,450
INCOME Service charges on deposits........................................ 1,695 1,671 3,427 3,287
Mortgage revenues.................................................. 1,002 645 1,563 1,416
Collection fees.................................................... 469 435 922 887
Other.............................................................. 1,787 1,596 3,618 3,213
----------------------------------------------
TOTAL OTHER INCOME, EXCLUDING NET SECURITY GAINS.............. $7,930 $7,139 $15,357 $14,253
Net security gains................................................. 427 415 1,046 786
----------------------------------------------
TOTAL OTHER INCOME............................................ $8,357 $7,554 $16,403 $15,039
OPERATING Compensation expense............................................... $9,511 $8,021 $18,149 $16,022
EXPENSES Employee benefits.................................................. 2,629 2,108 5,316 4,502
Net occupancy expense.............................................. 2,734 1,176 4,100 2,326
Equipment expense.................................................. 2,802 1,533 4,440 3,037
Insurance expense.................................................. 1,163 1,134 2,297 2,263
Professional fees.................................................. 1,020 778 1,587 1,519
Advertising and business development............................... 721 559 1,231 1,055
Amortization of intangible assets.................................. 2,320 648 2,962 1,298
Other.............................................................. 3,737 3,356 7,227 6,688
----------------------------------------------
TOTAL OPERATING EXPENSES...................................... $26,637 $19,313 $47,309 $38,710
----------------------------------------------
INCOME BEFORE INCOME TAXES......................................... $320 $7,235 $6,300 $14,331
Income taxes....................................................... (820) 1,794 543 3,558
----------------------------------------------
NET INCOME.................................................... $1,140 $5,441 $5,757 $10,773
==============================================
EARNINGS PER COMMON SHARE..................................... $0.08 $0.39 $0.41 $0.77
DIVIDENDS PER COMMON SHARE.................................... $0.15 $0.15 $0.30 $0.28
See accompanying notes to consolidated financial statements.
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AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
(in thousands) 1995 1994
======================================================================================================================
CASH FLOWS NET INCOME................................................................... $5,757 $10,773
FROM Adjustments to reconcile net income to net
OPERATING cash provided by (required for) operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment................. $2,420 $2,222
Amortization and accretion of securities, net........................... (28) 2,238
Provision for loan and lease losses..................................... 1,600 304
Amortization of intangible assets....................................... 2,962 1,298
Gain on sale of securities available for sale........................... (1,132) (786)
Loss on sale of securities available for sale........................... 86 -
Gain on sale of trading securities...................................... (1) -
Loss on sale of trading securities...................................... 5 52
Purchase of trading securities.......................................... (6,016) (313)
Proceeds from sales of trading securities............................... 6,012 1,206
Write-down of premises and equipment.................................... 1,595 -
Write-down of other real estate owned................................... 53 -
Non-employee directors compensation expense............................. 143 205
Deferred income taxes................................................... (2,321) (1,597)
Net (increase) decrease in mortgage loans held for sale................. (8,234) 12,346
Other, net.............................................................. 5,537 (1,474)
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................ $8,438 $26,474
---------------------
CASH FLOWS Proceeds from maturities of securities....................................... $63,988 $80,333
FROM Proceeds from sales of securities available for sale......................... 99,810 38,901
INVESTING Purchase of securities held to maturity...................................... (13,496) (53,358)
ACTIVITIES Purchase of securities available for sale.................................... (159,189) (106,786)
Net decrease in federal funds sold and other short-term investments.......... 1,770 4,830
Net decrease in interest earning deposits in banks........................... 38 3,989
Net increase in loans and leases............................................. (76,008) (53,333)
Proceeds from the sale of premises and equipment............................. 199 176
Premises and equipment expenditures.......................................... (4,830) (4,858)
---------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES........................... ($87,718) ($90,106)
---------------------
CASH FLOWS Net increase in demand deposits and savings accounts......................... ($7,340) $47,423
FROM Net increase in time deposits................................................ 94,078 2,729
FINANCING Net increase in short-term borrowings........................................ 15,597 13,719
ACTIVITIES Payment of long-term borrowings.............................................. (4,616) (2,983)
Dividends paid............................................................... (4,164) (3,523)
Proceeds from exercise of incentive stock options............................ 189 103
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................ $93,744 $57,468
---------------------
Net change in cash and cash equivalents...................................... $14,464 ($6,164)
---------------------
Cash and cash equivalents:
Beginning of year.......................................................... $92,201 $92,336
---------------------
End of period.............................................................. $106,665 $86,172
=====================
SUPPLEMENTAL Cash payments for:
DISCLOSURES OF Interest paid to depositors................................................ $29,816 $25,314
CASH FLOW Interest paid on borrowings................................................ 7,395 2,674
INFORMATION Income taxes paid.......................................................... 3,412 4,848
NON-CASH Other real estate acquired in settlement of loans............................ 2,245 101
INVESTING Transfer of short-term investments to securities available for sale.......... - 10,307
ACTIVITIES
See accompanying notes to consolidated financial statements.
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
AMCORE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, these financial statements do not include all the
information and footnotes required by generally accepted accounting principles.
These financial statements include, however, all adjustments (consisting of
normal recurring accruals), which in the opinion of management are considered
necessary for the fair presentation of the results of operations for the
periods shown.
The consolidated financial statements and the financial information have been
restated to reflect the May 24, 1995 merger with NBM Bancorp, Inc. (NBM) and
the mergers with First State Bancorp of Princeton, Illinois, Inc. (FSB) and NBA
Holding Company (NBA), all of which were accounted for using the pooling of
interests method. Operating results for the three and six month periods ended
June 30, 1995 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Form 10-K Annual Report of AMCORE Financial, Inc. and
Subsidiaries (the "Company") for the year ended December 31, 1994.
NOTE 2 - 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 various stock incentive plans. The
fully-dilutive effect of common equivalents on earnings per share was less than
three percent for all periods presented. Share data for all prior year periods
presented have been restated to reflect the mergers with NBM, FSB, and NBA.
NOTE 3 - LONG-TERM BORROWINGS
The Company has a term loan agreement (Agreement) with an unaffiliated
financial institution that requires semi-annual principal payments and allows
several interest rate and funding period options. At June 30, 1995, the
balance was $19.5 million and the selected interest rates ranged from 7.81% to
8.00%.
The Agreement contains several restrictive covenants, including restrictions on
dividends to stockholders and maintenance of various capital adequacy levels.
All capital adequacy ratios remained well above the required minimums per the
Agreement.
Scheduled principal reductions on the Agreement are required as follows:
(in thousands)
Total
---------------------------------------------------------------------------------------------------------
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,500
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
---------------------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,500
=========================================================================================================
Other long-term borrowings include a non-interest bearing note from the January
19, 1993 acquisition of Rockford Mercantile Agency. The note requires annual
payments of $444,000 beginning in 1994 through 2002. The note was discounted
at an interest rate of 8.0%.
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AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the consolidated financial
condition of AMCORE Financial, Inc. and subsidiaries (the "Company") as of June
30, 1995 as compared to December 31, 1994 and the results of operations for the
three and six months ended June 30, 1995 as compared to the same periods in
1994. This discussion is intended to be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
report.
EARNINGS SUMMARY
Net income for the second quarter of 1995 was $1.1 million, a $4.3 million
decline in earnings from the same period in 1994. Through the first six months
of 1995, net income was $5.7 million as compared to $10.8 million in 1994.
Earnings per share were $.08 for the second quarter and $.41 for the first six
months of 1995 versus $.39 and $.77, respectively, for 1994. This decline in
earnings was caused primarily by the recognition of a one-time $2.0 million
after-tax charge in connection with the early adoption of Statement of
Financial Accounting Standards (FAS) No. 121 - "Accounting for the Impairment
of Long-Lived Assets" (See section "Operating Expenses" for further discussion
of FAS No. 121) and a $1.5 million after-tax charge for merger and data
conversion costs. Exclusion of these one-time charges would have resulted in
earnings per share of $.33 for the second quarter of 1995.
Higher provisions for loan and lease losses due to strong loan growth also
negatively impacted second quarter earnings by $697,000 as compared to the same
period last year. For the first half of 1995, the provision for loan and lease
losses rose to $1.6 million, up from $304,000 in 1994.
Despite a 30 basis point decline in the net interest margin to 4.15% in the
second quarter, net interest income rose by $303,000 or 1.6% due to increased
lending volume. On a year-to-date basis, the results are similar, with net
interest income rising by $500,000 or 1.3% while the net interest margin fell
by 30 basis points to 4.21%. A higher cost funding mix, particularly with time
deposits, was responsible for the margin compression.
Non-interest income for the second quarter of 1995 totaled $7.9 million,
exclusive of security gains. This represents a $791,000 or 11.1% increase over
the prior year total. Through the first six months, non-interest income
totaled $15.4 million and was $1.1 million or 7.7% above last year. Increases
in trust and mortgage revenues contributed to this rise.
Operating expenses for the second quarter of 1995 were $26.6 million or $7.3
million above the same period in 1994. Exclusive of the one-time charges
mentioned above, the increase was $1.7 million or 9.0%. This increase was due
to new expenses associated with branch expansion and upgrades in data
processing capabilities. Year-to-date operating expenses were $47.3 million as
compared to $38.7 million in 1994, an increase of $3.0 million or 7.8% when
excluding the one-time charges.
The return on assets (ROA) was .21% and 1.07%, respectively, for the second
quarters of 1995 and 1994. Exclusion of the one-time charges in 1995 would
result in an ROA of .83%. The return on average equity (ROE) for the quarter
was 2.41%, down from 11.76% in 1994. On a year-to-date basis, ROA and ROE
stood at .85% and 9.89%, respectively, after exclusion of the one-time charges.
This is in comparison with the prior year ROA of 1.07% and ROE of 11.80%.
NET INTEREST INCOME
Net interest income is the primary source of earnings for the Company's banking
affiliates. For the following analysis, net interest income is presented on a
tax equivalent basis, which adjusts reported 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.
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Net interest income, on a tax equivalent basis, rose by $187,000 in the second
quarter of 1995 as compared to the prior year. The net interest margin, which
is computed by dividing the tax equivalent net interest income by average
earning assets declined by 30 basis points to 4.15% in the second quarter. The
net interest margin on a year-to-date basis reflected a similar decline falling
to 4.21% from 4.51%. This was primarily a result of loan growth offset by
declines resulting from a rising interest rate environment, which caused
funding costs to increase at a faster pace than yields on earning assets. In
addition, a shift in the deposit mix to higher rate time deposits contributed
to the drop in net interest margin. The net interest spread, which is the
difference between the yield on earning assets and the rate paid on interest
bearing liabilities fell from 3.87% for the second quarter of 1994 to 3.47% for
the same period this year.
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
Unaudited Quarters Ended June 30,
(in thousands)
1995/1994
INTEREST EARNED CHANGES
AVERAGE BALANCE AVERAGE RATE OR PAID DUE TO
------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994 VOLUME RATE
------------------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
$514,117 $512,342 7.18% 6.12% Taxable securities................. $9,331 $7,932 $27 $1,372
260,362 256,368 7.06% 7.65% Tax-exempt securities (1).......... 4,646 4,958 76 (388)
------------------------------------------------------------------------------------------------------------------------------
$774,479 $768,710 7.14% 6.63% Total securities................ $13,977 $12,890 $103 $984
------------------------------------------------------------------------------------------------------------------------------
$10,392 $13,314 7.69% 6.21% Mortgage loans held for sale (3)... $202 $209 ($51) $44
1,214,870 1,049,373 8.80% 8.13% Loans (1) (2)...................... 27,019 21,567 3,584 1,868
18,041 34,008 6.78% 4.23% Other earning assets............... 309 364 (216) 161
Fees on mortgage loans held
for sale (3)...................... 547 494 (227) 280
------------------------------------------------------------------------------------------------------------------------------
$2,017,782 $1,865,405 8.25% 7.53% TOTAL EARNING ASSETS (FTE) $42,054 $35,524 $3,193 $3,337
------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
$404,710 $460,886 2.73% 2.31% Interest-bearing demand deposits... $2,755 $2,649 ($351) $457
170,073 173,754 2.60% 2.33% Savings deposits................... 1,101 1,010 (22) 113
935,002 789,122 5.76% 4.57% Time deposits...................... 13,420 8,988 1,867 2,565
------------------------------------------------------------------------------------------------------------------------------
$1,509,785 $1,423,762 4.59% 3.56% Total interest-bearing deposits. $17,276 $12,647 $1,494 $3,135
------------------------------------------------------------------------------------------------------------------------------
$215,195 $140,784 5.84% 3.68% Short-term borrowings.............. $3,132 $1,291 $884 $957
22,915 27,651 7.25% 7.11% Long-term borrowings............... 414 490 (87) 11
5,067 4,301 6.17% 12.03% Other.............................. 78 129 20 (71)
------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
$1,752,962 $1,596,498 4.78% 3.66% LIABILITIES..................... $20,900 $14,557 $2,311 $4,032
------------------------------------------------------------------------------------------------------------------------------
3.47% 3.87% INTEREST RATE SPREAD (FTE).........
------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN/
4.15% 4.45% NET INTEREST INCOME (FTE)....... $21,154 $20,967 $882 ($695)
------------------------------------------------------------------------------------------------------------------------------
The above table shows the changes in interest income (tax equivalent) and
interest expense attributable to rate and volume variances. The change in
interest income (tax equivalent) due to both rate and volume has been allocated
to rate and volume 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.
Total average earning assets for the quarter were $2.02 billion, an increase of
$152 million or 8.2% over 1994. Average loans grew by $165 million or 15.8%,
primarily the result of growth in residential real estate and commercial loan
portfolios. Average total securities rose slightly to $774 million, a $5.8
million quarter to quarter increase. Average other earning assets, which
include interest earning deposits in banks, federal funds sold and other
short-term investments declined by $16.0 million to $18.0 million.
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Average total interest-bearing liabilities for the second quarter grew to $1.75
billion, a 9.8% or $156 million increase over the prior year. Average
interest-bearing deposits rose by $86 million or 6.0% during the second
quarter. Growth in average time deposits of $146 million (18.5%) more than
offset declines in interest-bearing demand deposits ($56.2 million) and savings
deposits ($3.7 million). The increase in average deposits, in addition to
security sales and maturities, were utilized to fund loan growth. For the
second quarter, average short-term borrowings rose to $215 million, an increase
of $74 million over the prior year. This increase was due to the purchase of
adjustable rate mortgage-backed securities funded primarily through repurchase
agreements.
The yield on average earning assets for the second quarter of 1995 was 8.25%,
an increase of 72 basis points over the 1994 yield for the same period. The
average rate paid on interest bearing liabilities rose by 112 basis points
resulting in the drop in both net interest spread and net interest margin.
Generally rising rates since the second quarter of 1994 resulted in higher
yields in all earning asset categories. Loan yields for the second quarter
rose by 67 basis points to 8.80%. The yield on investment securities was
7.14%, representing a 51 basis point rise. The yield on other earning assets
was 6.78%, an increase of 255 basis points. The yield on mortgage loans held
for sale during the second quarter rose by 148 basis points.
The average rate paid on interest-bearing deposits rose by 103 basis points to
4.59% for the second quarter of 1995. This increase was indicative of higher
prevailing market rates as well as promotional rates offered on time deposits.
The average rate paid on time deposits rose from 4.57% in the second quarter of
1994 to 5.76% in 1995. The increase reflects the movement by customers to
longer term, higher yielding interest-bearing deposits. In a stable or
declining interest rate environment, this trend could continue to negatively
impact the net interest margin.
The average rate paid on short-term borrowings increased from 3.68% to 5.84% in
the second quarter, primarily due to higher rates on repurchase agreements.
The average rate paid on long-term borrowings rose from 7.11% in the second
quarter of 1994 to 7.25% in 1995. The interest rate risk on a portion of the
term loan agreement is hedged through the use of fixed rate swap agreements.
On a year-to-date basis, tax equivalent net interest income was $42.2 million
in 1995, which represents an increase of $294,000 or .7% over the same period
in 1994. For this same period, the net interest margin was 4.21% as compared
to 4.51% for the prior year. Loan growth and higher yields resulted in the
slightly higher net interest income. However, the change in deposit mix
coupled with faster repricing of interest-bearing liabilities resulted in the
net interest margin decline. Earning assets for the first six months of 1995
yielded 8.18% a 61 basis point rise over 1994. At the same time, the average
rate paid on interest bearing liabilities increased by 102 basis points to
4.65%.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
For the second quarter of 1995, the provision for loan and lease losses was
$871,000 as compared to $174,000 for the same period last year. Total net
charge-offs for the quarter were $1.0 million versus $649,000 in 1994. The
increase in net charge-offs was due to the $595,000 write-down of a commercial
real estate property which was foreclosed and reclassified into other real
estate during the second quarter. This rise in net charge-offs coupled with
loan growth caused the increase in the provision for loan and lease losses in
the second quarter. On a year-to-date basis, net charge-offs totaled $1.3
million in 1995, up from the $929,000 recorded in 1994.
The annualized ratio of second quarter net charge-offs to average loans and
leases was .33% in 1995 versus .25% a year earlier. The year-to-date
annualized ratio rose slightly from .18% in the first six months of 1994 as
compared to .21% for the same period this year.
The allowance for loan and lease losses as a percentage of total net loans and
leases was 1.11% at June 30, 1995, compared to 1.30% a year ago and 1.14% at
December 31, 1994. At June 30, 1995, the allowance was 125.8% of
non-performing loans and leases versus 104.8% at December 31, 1994 and 119.9%
at June 30, 1994.
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Total non-performing assets, which includes non-performing loans and leases and
other real estate owned, as a percentage of loans, leases and other real estate
owned were 1.08% at June 30, 1995, 1.16% a year earlier and 1.19% at December
31, 1994.
OTHER INCOME
Non-interest income for the second quarter of 1995 rose by 11.1% or $791,000,
exclusive of net security gains. On a year-to-date basis, non-interest income
totaled $15.4 million, a $1.1 million or 7.7% increase over 1994.
Trust revenues were $3.0 million for the second quarter of 1995, which
represents a 6.6% increase over the comparable period last year. Through the
first six months of 1995, trust revenues rose to $5.8 million, an increase of
6.9% over the prior year. Continued business expansion coupled with a
favorable market performance of trust assets under management resulted in these
increases. Other non-interest income rose by 12.0% for the quarter and 12.6%
on a year-to-date basis. This increase was the result of higher credit card
income and customer service fees.
Mortgage revenues, which include income generated from underwriting and
servicing fees and gains realized on the sale of these loans, totaled $1.0
million for second quarter of 1995, a $357,000 increase over the second quarter
of 1994. A 29.4% increase in loan servicing income coupled with the early
adoption of FAS No. 122 -"Accounting for Mortgage Servicing Rights" were the
factors causing the increase. This new accounting rule allows for the
recognition of the value of servicing rights on originated mortgage loans.
Applied retroactively to the beginning of the year, it resulted in
approximately $300,000 of mortgage revenues. On a year-to-date basis, mortgage
revenues totaled $1.6 million, a 10.4% increase over the prior year.
Net security gains for the second quarter of 1995 were $427,000, virtually
unchanged from the same period last year. For the first half of the year, net
security gains were $1.0 million, up 33.1% from the same period of 1994.
OPERATING EXPENSES
Total operating expenses for the second quarter of 1995 were $26.6 million, a
$7.3 million increase over the same period in 1994. Approximately $5.6 million
of this increase related to the one-time charges discussed earlier.
Approximately $3.2 million of these charges were associated with the early
adoption of FAS No. 121. FAS No. 121 requires an asset revaluation whenever a
change in events or other circumstances indicate the carrying amount of the
asset may not be fully recoverable. These charges include write-downs of
purchase accounting adjustments and other intangibles assigned to the former
Illinois National Bank building acquired in 1985 from the Illinois National
Bank and Trust Company and the reduction of goodwill and other intangibles
associated with the acquisitions of a collection agency and an insurance
agency.
The remainder of the one-time charges related to merger and data conversion
costs. The merger costs were associated with the May 24, 1995 merger with NBM
Bancorp, Inc. of Mendota, Illinois as well as recognition of remaining costs
associated with the 1994 mergers with First State Bancorp of Princeton,
Illinois, Inc. and NBA Holding Company of Aledo, Illinois. The charge for data
conversion costs was an accumulation of certain capitalized costs incurred
during various data conversions completed over the past year.
The adoption of FAS No. 121 while not required until 1996, was adopted early in
conjunction with the recognition of one-time merger-related costs. While the
acceleration of these charges adversely impacted second quarter earnings, total
operating expenses related to these charges are expected to decline by $1.6
million in 1996.
The remaining increase in operating expenses for the second quarter can be
attributed primarily to normal salary increases, costs associated with branch
expansion at the Rockford bank and the upgrade of information systems hardware
and software. For the year-to-date, total operating expenses were $47.3
million, an $8.6 million increase over 1994. Without the one-time charges, the
increase was $3.0 million or 7.8%.
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An income tax benefit of $820,000 was recorded in the second quarter of 1995.
This compares with $1.8 million of income tax expense for the second quarter of
1994. This benefit resulted from the one-time charges taken in the second
quarter as well as the recognition of research and experimentation tax credits.
SUMMARY OF FINANCIAL CONDITION
At June 30, 1995, total assets were $2.27 billion, a $114 million or 5.3%
increase since December 31, 1994. Total deposits grew to $1.79 billion,
representing an $86.7 million or 5.1% rise since the end of 1994. This deposit
increase included a 5.4% rise in interest-bearing deposits, primarily time
deposits, and a 3.2% increase in non-interest bearing deposits. Loans totaled
$1.23 billion at June 30, 1995 and grew $72.6 million or 6.2% since year-end.
The primary loan categories contributing to this growth were commercial and
industrial loans, one-to-four family residential real estate loans and consumer
loans. Mortgage loans held for sale grew by $8.2 million as mortgage activity
increased in comparison to the end of 1994. Total securities rose 2.6% to $805
million at June 30, 1995.
CAPITAL
Stockholders' equity was $195 million at June 30, 1995, an increase of 4.5%
since December 31, 1994. At June 30, 1995, the risk-based capital ratio was
13.04% and the Tier 1 risk-based capital ratio was 12.12%, both well above the
8.00% and 4.00% minimum required ratios. The leverage ratio at June 30, 1995
was 8.11%, also well above the 4.00% minimum.
Dividends paid were $.15 per share for the second quarters of 1995 and 1994.
The book value per share at June 30, 1994 rose by 4.2% to $13.81 when compared
to the December 31, 1994 book value.
OTHER MATTERS
In early 1995, the FDIC announced significantly lower deposit insurance
assessments expected for the second half of 1995. It is anticipated currently
that these rates will fall from a level of 23 cents per $100 of deposits to 4
cents per $100 for well-capitalized institutions. At the present time, there
is some doubt as to the timing of this insurance benefit based on the
anticipated levels of the Bank Insurance Fund (BIF), which by law must equal at
least 1.25% of insured deposits prior to any rate reduction. There is also
discussion regarding the ultimate recapitalization of the Savings Association
Insurance Fund (SAIF). Some regulatory agencies have considered a merger of
the two funds as a possible solution to the problem. The resolution of the
disparity in insurance deposit rates between the BIF and SAIF insured
institutions may reduce the benefit to BIF members such as the Company and it
subsidiary banks. This issue is expected to be resolved before the end of
1995.
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PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
(a)-(c) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995 (File No. 0-13393)
ITEM 6. Exhibits and Reports on Form 10-Q Page
----
(a) 2 Agreement and Plan of Reorganization by and among AMCORE Financial, Inc., NBM
Acquisition, Inc. and NBM Bancorp, Inc. (Incorporated by reference to the
Company's Amendment No. 1 to Form S-4 as filed with the Commission on February 23,
1995).
4 Rights Agreement dated February 12, 1986, between AMCORE Financial, Inc. and First
Wisconsin Trust Company (Incorporated by reference to Exhibit 4(a) of the
Company's Registration Statement on Form S-1 dated July 2, 1986).
11 Statement Re-Computation of Per Share Earnings 14
22 1995 Notice of Annual Meeting of Stockholders and Proxy Statement (Incorporated by
reference to Exhibit 22 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
27 Financial Data Schedule 15
99 Additional exhibit - Press release dated April 26, 1995. 16
(b) One report on Form 8-K was filed with the Commission and dated
June 8, 1995 announcing the merger with NBM Bancorp, Inc. on May
24, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCORE Financial, Inc.
(Registrant)
Date: August 10, 1995
/s/ John R. Hecht
__________________________
John R. Hecht
Senior Vice President and
Chief Financial Officer
(Duly authorized officer of the
registrant and principal financial
officer)
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