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 September 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 October 31, 1995 was 14,105,654 shares.
Index of Exhibits on Page 12 Page 1 of 98
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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 September 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three and Nine
Months Ended September 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)
SEPTEMBER 30, DECEMBER 31,
(in thousands, except share data) 1995 1994
=======================================================================================================================
ASSETS Cash and cash equivalents..................................................... $97,442 $92,201
Interest earning deposits in banks............................................ 476 508
Federal funds sold and other short-term investments........................... 1,920 5,656
Mortgage loans held for sale.................................................. 14,495 10,184
Securities available for sale................................................. 460,428 318,246
Securities held to maturity (market value of $396,148 in 1995; $444,455 386,932 466,211
in 1994)
------------------------
Total securities.............................................................. 847,360 784,457
Loans and leases, net of unearned income...................................... 1,273,050 1,161,870
Allowance for loan and lease losses........................................... (13,190) (13,302)
------------------------
Net loans and leases..................................................... $1,259,860 $1,148,568
------------------------
Premises and equipment, net................................................... 49,649 49,178
Intangible assets, net........................................................ 14,828 18,314
Other real estate owned....................................................... 2,502 1,099
Other assets.................................................................. 45,926 41,818
------------------------
TOTAL ASSETS............................................................. $2,334,458 $2,151,983
========================
LIABILITIES LIABILITIES
AND Deposits:
STOCKHOLDERS Interest bearing............................................................ $1,567,069 $1,456,702
EQUITY Non-interest bearing........................................................ 259,794 250,857
------------------------
Total deposits........................................................... $1,826,863 $1,707,559
Short-term borrowings......................................................... 254,116 208,525
Long-term borrowings.......................................................... 22,013 26,487
Other liabilities............................................................. 32,195 23,253
------------------------
TOTAL LIABILITIES........................................................ $2,135,187 $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;
September 30, December 31,
1995 1994
Issued.................................14,926,695 14,926,695
Outstanding............................14,093,764 14,039,680 4,976 4,976
Additional paid-in capital.................................................... 56,579 56,533
Retained earnings............................................................. 145,160 139,245
Treasury stock and other...................................................... (7,853) (8,296)
Net unrealized gain(loss) on securities available for sale.................... 409 (6,299)
------------------------
TOTAL STOCKHOLDERS' EQUITY............................................... $199,271 $186,159
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................... $2,334,458 $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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(in thousands, except per share data) 1995 1994 1995 1994
==========================================================================================================================
INTEREST Interest and fees on loans and leases.............................. $28,158 $23,341 $80,496 $65,813
INCOME Interest on securities:
Taxable.......................................................... 9,527 7,562 27,957 23,194
Tax-exempt....................................................... 3,003 3,154 9,003 9,524
----------------------------------------
TOTAL INCOME FROM SECURITIES.................................. $12,530 $10,716 $36,960 $32,718
----------------------------------------
Interest on federal funds sold and other short-term investments.... 747 501 1,387 1,055
Interest and fees on mortgage loans held for sale.................. 991 705 2,205 2,256
Interest on deposits in banks...................................... 6 27 15 155
----------------------------------------
TOTAL INTEREST INCOME......................................... $42,432 $35,290 $121,063 $101,997
----------------------------------------
INTEREST Interest on deposits............................................... $17,990 $13,646 $50,353 $38,722
EXPENSE Interest on short-term borrowings.................................. 3,867 1,563 10,249 3,686
Interest on long-term borrowings................................... 403 497 1,279 1,465
Other.............................................................. 91 112 295 346
----------------------------------------
TOTAL INTEREST EXPENSE........................................ $22,351 $15,818 $62,176 $44,219
----------------------------------------
NET INTEREST INCOME................................................ $20,081 $19,472 $58,887 $57,778
Provision for loan and lease losses........................... 320 307 1920 611
----------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... $19,761 $19,165 $56,967 $57,167
----------------------------------------
OTHER Trust revenues..................................................... $2,628 $2,701 $8,455 $8,151
INCOME Service charges on deposits........................................ 1,879 1,627 5,306 4,914
Mortgage revenues.................................................. 1,069 1,398 2,632 2,814
Collection fees.................................................... 464 427 1,386 1,314
Other.............................................................. 2,013 1,946 5,631 5,159
----------------------------------------
TOTAL OTHER INCOME, EXCLUDING NET SECURITY GAINS.............. $8,053 $8,099 $23,410 $22,352
Net security gains................................................. 400 69 1,446 855
----------------------------------------
TOTAL OTHER INCOME............................................ $8,453 $8,168 $24,856 $23,207
OPERATING Compensation expense............................................... $9,352 $8,267 $27,501 $24,289
EXPENSES Employee benefits.................................................. 2,375 1,969 7,691 6,471
Net occupancy expense.............................................. 1,372 1,144 5,472 3,470
Equipment expense.................................................. 1,756 1,542 6,196 4,579
Insurance expense.................................................. 90 1,136 2,387 3,399
Professional fees.................................................. 587 874 2,174 2,393
Advertising and business development............................... 615 776 1,846 1,831
Amortization of intangible assets.................................. 516 647 3,478 1,945
Other.............................................................. 3,287 3,369 10,515 10,057
----------------------------------------
TOTAL OPERATING EXPENSES...................................... $19,950 $19,724 $67,260 $58,434
----------------------------------------
Income Before Income Taxes......................................... $8,264 $7,609 $14,563 $21,940
Income taxes....................................................... 2,024 2,060 2,566 5,618
----------------------------------------
NET INCOME.................................................... $6,240 $5,549 $11,997 $16,322
========================================
EARNINGS PER COMMON SHARE..................................... $0.44 $0.40 $0.85 $1.16
DIVIDENDS PER COMMON SHARE.................................... $0.15 $0.13 $0.45 $0.41
See accompanying notes to consolidated financial statements.
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AMCORE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
(in thousands) 1995 1994
=========================================================================================================
CASH FLOWS NET INCOME...................................................... $11,997 $16,322
FROM Adjustments to reconcile net income to net
OPERATING cash provided by(required for) operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment.... $3,565 $3,258
Amortization and accretion of securities, net.............. 136 3,248
Provision for loan and lease losses........................ 1,920 611
Amortization of intangible assets.......................... 3,478 1,945
Gain on sale of securities available for sale.............. (1,567) (1,348)
Loss on sale of securities available for sale.............. 121 493
Gain on sale of trading securities......................... (1) -
Loss on sale of trading securities......................... 5 52
Purchase of trading securities............................. (8,017) (313)
Proceeds from sales of trading securities.................. 8,013 1,206
Write down of premises and equipment....................... 1,595 -
Write down of other real estate owned...................... 123 -
Non-employee directors compensation expense................ 218 282
Deferred income taxes...................................... (2,458) (1,694)
Net (increase) decrease in mortgage loans held for sale.... (4,311) 11,067
Other, net................................................. 4,503 412
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... $19,320 $35,541
----------------------
CASH FLOWS Proceeds from maturities of securities.......................... $111,232 $111,316
FROM Proceeds from sales of securities available for sale............ 140,972 82,374
INVESTING Purchase of securities held to maturity......................... (16,844) (57,395)
ACTIVITIES Purchase of securities available for sale....................... (286,405) (163,160)
Net (increase) decrease in federal funds sold and other
short-term investments........................................ 3,736 2,445
Net decrease in interest earning deposits in banks.............. 32 3,893
Net increase in loans and leases................................ (115,631) (103,760)
Proceeds from the sale of premises and equipment................ 266 173
Premises and equipment expenditures............................. (5,911) (6,919)
----------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES.............. ($168,553) ($135,923)
----------------------
CASH FLOWS Net increase in demand deposits and savings accounts............ $21,459 $44,013
FROM Net increase in time deposits................................... 97,845 21,082
FINANCING Net increase in short-term borrowings........................... 45,591 34,770
ACTIVITIES Payment of long-term borrowings................................. (4,613) (3,015)
Dividends paid.................................................. (6,078) (5,358)
Proceeds from exercise of incentive stock options............... 270 201
----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... $154,474 $91,693
----------------------
Net change in cash and cash equivalents......................... $5,241 ($8,689)
----------------------
Cash and cash equivalents:
Beginning of year............................................. $92,201 $92,336
----------------------
End of period................................................. $97,442 $83,647
======================
SUPPLEMENTAL Cash payments for:
DISCLOSURES OF Interest paid to depositors................................... $46,582 $38,037
CASH FLOW Interest paid on borrowings................................... 11,112 4,525
INFORMATION Income taxes paid............................................. 3,924 6,666
NON-CASH Other real estate acquired in settlement of loans............... 2,419 539
INVESTING Transfer of short-term investments to securities available for
ACTIVITIES sale........................................................... - 10,307
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 mergers with NBM Bancorp, Inc. (NBM) and NBA Holding
Company (NBA), all of which were accounted for using the pooling of interests
method. Operating results for the three and nine month periods ended September
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 stock 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 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 September 30, 1995, the
balance was $19.5 million and the selected interest rates ranged from 7.625% to
7.68%.
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
September 30, 1995 as compared to December 31, 1994 and the results of
operations for the three and nine months ended September 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 third quarter of 1995 was a record $6.2 million, a $691,000
increase over earnings in the third quarter of 1994. Quarterly earnings per
share reached a record $.44 in comparison to the $.40 posted a year earlier.
The increased earnings were the result of a $1.0 million pre-tax refund of FDIC
insurance premiums.
Through the first nine months of 1995, net income was $12.0 million as compared
to $16.3 million in 1994. Earnings per share totaled $.85 versus $1.16 in
1994. These declines were primarily caused by a $3.5 million, or $.25 per
share one-time charge in the second quarter of 1995 (see "Operating Expenses"
section for further discussion).
Despite a 33 basis point decline in the net interest margin to 4.04% versus the
third quarter of 1994, net interest income totaled $20.1 million, a $609,000 or
3.1% increase due primarily to higher loan volumes. On a year-to-date basis,
the results are similar, with net interest income rising by $1.1 million or
1.9%, while the net interest margin fell by 30 basis points to 4.16%. A shift
in the funding mix, particularly into time deposits, was the most significant
factor causing the margin compression.
Total other income, exclusive of security gains, was $8.1 million for the third
quarter, a $46,000 decline from 1994. Through the first nine months, other
income totaled $23.4 million and was $1.1 million or 4.7% above last year.
Increases in trust revenues, service charges and insurance commission income
contributed to the year-to-date improvement over 1994. Security gains totaled
$400,000 for the third quarter and $1.4 million for the first nine months,
increases of $331,000 and $591,000, respectively, over the 1994 periods.
The provision for loan and lease losses totaled $320,000 for the quarter, an
increase of $13,000 over the third quarter of 1994. For the first nine months
of 1995, the provision for loan and lease losses was $1.9 million, up from
$611,000 in 1994.
Operating expenses for the third quarter of 1995 were $20 million or $226,000
above the same period in 1994. Year-to-date operating expenses were $67.3
million as compared to $58.4 million in 1994, an increase of $8.8 million. The
year-to-date increase was due to the one-time charges recorded in the second
quarter, new expenses associated with branch expansion and upgrades in data
processing capabilities. Exclusive of the $5.6 million in one-time pre-tax
charges, year-to-date operating expenses reflect an increase of $3.2 million or
5.5% over 1994.
The return on assets (ROA) was 1.08% and 1.06%, respectively, for the third
quarters of 1995 and 1994. The return on average equity (ROE) for the quarter
was 12.61%, up from 11.95% in 1994. On a year-to-date basis, ROA and ROE were
.94% and 10.85%, respectively, after exclusion of the one-time charges,
compared 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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Tax equivalent net interest income totaled $21.8 million for the third quarter
of 1995, an increase of $528,000 or 2.5% over the prior year. This increase
was primarily a result of loan growth partially offset by higher funding costs.
The net interest margin, which is computed by dividing the tax equivalent net
interest income by average earning assets declined by 33 basis points to 4.04%
in the third quarter. The net interest margin on a year-to-date basis
reflected a similar decline falling to 4.16% from 4.46%. These declines were
due to the 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. Accordingly, the net interest spread, which is the difference
between the yield on earning assets and the rate paid on interest bearing
liabilities, fell from 3.80% for the third quarter of 1994 to 3.36% for the
same period this year.
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
Unaudited Quarters Ended September 30,
(in thousands)
1995/1994
INTEREST EARNED CHANGE
AVERAGE BALANCE AVERAGE RATE OR PAID DUE TO
1995 1994 1995 1994 1995 1994 VOLUME RATE
- ---------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
$539,972 $488,719 6.90% 6.05% Taxable securities....................... $9,527 $7,562 $840 $1,125
253,627 242,159 7.13% 7.84% Tax-exempt securities (1)................ 4,620 4,852 223 (455)
- ---------------------------------------------------------------------------------------------------------------------
$793,599 $730,878 6.98% 6.65% Total securities......................... $14,147 $12,414 $1,063 $670
- ---------------------------------------------------------------------------------------------------------------------
$15,214 $13,016 8.18% 7.03% Mortgage loans held for sale(3).......... $318 $234 $43 $41
1,250,852 1,112,104 8.83% 8.23% Loans(1)(2).............................. 28,216 23,399 3,052 1,765
48,504 43,647 6.07% 4.73% Other earning assets..................... 753 528 64 161
Fees on mortgage loans held for sale(3).. 673 471 163 39
- ---------------------------------------------------------------------------------------------------------------------
$2,108,169 $1,899,645 8.19% 7.63% TOTAL EARNING ASSETS (FTE) $44,107 $37,046 $4,385 $2,676
- ---------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
$453,328 $479,936 2.52% 2.41% Interest-bearing demand deposits......... $2,883 $2,920 ($168) $131
165,852 170,296 2.53% 2.21% Savings deposits......................... 1,057 950 (26) 133
955,122 821,131 5.84% 4.72% Time deposits............................ 14,050 9,776 1,773 2,501
- ---------------------------------------------------------------------------------------------------------------------
$1,574,302 $1,471,363 4.53% 3.68% Total interest-bearing deposits.......... $17,990 $13,646 $1,579 $2,765
- ---------------------------------------------------------------------------------------------------------------------
$236,580 $136,966 6.48% 4.53% Short-term borrowings.................... $3,867 $1,563 $1,465 $839
21,994 27,448 7.27% 7.18% Long-term borrowings..................... 403 497 (101) 7
4,795 4,025 7.53% 11.04% Other.................................... 91 112 19 (40)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
$1,837,671 $1,639,802 4.83% 3.83% LIABILITIES.............................. $22,351 $15,818 $2,962 $3,571
- ---------------------------------------------------------------------------------------------------------------------
3.36% 3.80% INTEREST RATE SPREAD (FTE)...............
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN/
4.04% 4.37% NET INTEREST INCOME (FTE)................ $21,756 $21,228 $1,423 ($895)
- ---------------------------------------------------------------------------------------------------------------------
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 $2.1 billion, an increase of
$209 million or 11% over 1994. Average loans grew by $139 million or 12.5%,
primarily the result of growth in residential real estate loans and commercial
and industrial loans. Average total securities rose by $63 million, or 8.6%,
to $794 million for the quarter versus $731 million in 1994. Average other
earning assets, which include interest earning deposits in banks, federal funds
sold and other short-term investments increased by $4.9 million or 11.1%, to
$48.5 million.
Average total interest-bearing liabilities for the third quarter grew to $1.8
billion, a 12.1% or $198 million increase over the prior year. Average
interest-bearing deposits rose by $103 million or 7.0% during the third
quarter. Growth in average time deposits of $134 million (16.3%) more than
offset the $26.6 million decline in interest-bearing demand deposits and $4.4
million decline in savings deposits, and was utilized
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9
to fund loan growth. For the third quarter, average short-term borrowings rose
to $237 million, an increase of $100 million over the same quarter in 1994.
This increase resulted from the use of repurchase agreements to fund the
addition of mortgage-backed securities into the available for sale securities
portfolio. These transactions were designed to increase financial leverage
and, consequently, return on equity at certain banks with excess capital.
The yield on average earning assets for the third quarter of 1995 was 8.19%, an
increase of 56 basis points over the 1994 yield for the same period.
Generally, rising rates in the past year have resulted in higher yields in all
earning asset categories. The average rate paid on interest bearing
liabilities rose by 100 basis points, which caused the 44 basis point drop in
the net interest spread.
The average rate paid on interest-bearing deposits rose by 85 basis points to
4.53% for the third quarter of 1995. This increase was indicative of higher
market rates, increased competition and special promotional rates offered on
time deposits. The average rate paid on time deposits rose from 4.72% in the
third quarter of 1994 to 5.84% in the same period of 1995. The increase
reflects the movement by customers to longer term, higher yielding
interest-bearing deposits, particularly as a result of the rate increases noted
above. In a stable or declining interest rate environment, this trend could
continue the net interest margin compression.
The average rate paid on short-term borrowings increased from 4.53% to 6.48% in
the third quarter, primarily due to higher market rates on repurchase
agreements. The average rate paid on long-term borrowings rose from 7.18% in
the third quarter of 1994 to 7.27% 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 $63.9 million
in 1995, an increase of $822,000 or 1.3% over 1994. For this same period, the
net interest margin was 4.16% as compared to 4.46% for the prior year. Loan
growth and higher yields resulted in the 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 nine months of 1995 yielded 8.20%, a 61 basis point rise over 1994.
At the same time, the average rate paid on interest bearing liabilities
increased by 101 basis points to 4.71%.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses was $320,000 for the third quarter of
1995 as compared to $307,000 for the same period a year earlier. Total net
charge-offs for the quarter were $770,000 versus $438,000 in 1994. On a
year-to-date basis, net charge-offs totaled $2.0 million in 1995, up from the
$1.4 million recorded in 1994. The year-to-date increase over 1994 was due
mainly to a $595,000 write-down of a commercial real estate property, which was
acquired in foreclosure and reclassified into other real estate at the end of
the second quarter.
The annualized ratio of third quarter net charge-offs to average loans and
leases was .25% in 1995 versus .16% a year earlier. The year-to-date
annualized ratio rose from .17% in the first nine months of 1994 to .22% for
the same period this year.
The allowance for loan and lease losses as a percentage of total net loans and
leases was 1.04% at September 30, 1995, compared to 1.21% a year ago and 1.14%
at December 31, 1994. At September 30, 1995, the allowance covered 107.5% of
non-performing loans and leases versus 104.8% at December 31, 1994 and 113.2%
at September 30, 1994.
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 1.16% at September 30, 1995, compared to 1.18% a year earlier and
1.19% at December 31, 1994.
OTHER INCOME
Non-interest income for the third quarter of 1995 declined slightly by .6% or
$46,000, exclusive of net security gains. On a year-to-date basis,
non-interest income totaled $23.4 million, a $1.1 million or 4.7% increase over
1994.
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Trust revenues were $2.6 million for the third quarter of 1995, a slight
decline of $73,000 versus 1994. On a year-to-date basis, trust revenues rose to
$8.5 million, an increase of 3.7% or $304,000 over the prior year. Continued
business expansion coupled with favorable market performance of trust assets
under management resulted in this increase.
Service charges on deposits were $1.9 million and $1.6 million for the third
quarters of 1995 and 1994, respectively, an increase of 15.5%. On a
year-to-date basis, service charges increased by $392,000 or 8.0% over the
prior year. Higher service charges were primarily due to the combination of
fee increases and a reduction in balances maintained to cover services. Other
non-interest income totaled $2.0 million for the quarter, an increase of 3.4%
over the prior year quarter. On a year-to-date basis, the total was $5.6
million, a 9.1% increase over 1994. These increases were the result of higher
credit card revenues and insurance commissions.
Mortgage revenues, which include income generated from underwriting and
servicing fees and gains realized on the sale of these loans, totaled $1.1
million for third quarter of 1995, versus $1.4 million a year earlier. This
decline was due to a $790,000 gain recognized in 1994 from the sale of
servicing rights. The decline was partially offset by $437,000 of revenues
recorded in 1995 in connection with the adoption of Statement of Financial
Accounting Standards (FAS) No. 122-"Accounting for Mortgage Servicing Rights".
On a year-to-date basis, mortgage revenues totaled $2.6 million, a decline of
$182,000 or 6.5% from the prior year.
OPERATING EXPENSES
Total operating expenses for the third quarter of 1995 were $20.0 million, a
$226,000 or 1.1% increase over 1994. On a year-to-date basis, these expenses
totaled $67.3 million versus $58.4 million in 1994, an increase of $8.8
million. Approximately $5.6 million of the year-to-date increase was caused by
the one-time charges recorded in the second quarter. These charges included
the early adoption impact of FAS No. 121-"Accounting for the Impairment of
Long-Lived Assets" and the recognition of certain merger and data conversion
costs. FAS No. 121 requires revaluation of an asset's carrying value when it
is determined the value is not fully recoverable.
Personnel costs, the largest component of total operating expenses, include
compensation and employee benefits and were $11.7 million in the third quarter
of 1995 versus $10.2 million in 1994. This increase of $1.5 million or 14.6%
was caused by approximately $200,000 in severance costs and an increase in
employees due to branch expansion and growth in the insurance group. On a
year-to-date basis, personnel costs were $35.2 million compared to $30.8
million in 1994, a 14.4% increase. This increase was caused by $941,000 of
one-time charges recorded in the second quarter in connection with the
recognition of merger costs.
Total occupancy and equipment expense was $3.1 million for the quarter versus
$2.7 million a year earlier, an increase of $442,000 or 16.5%. Year-to-date
expense totaled $11.7 million in 1995 and was $8.0 million the previous year.
Exclusive of $2.8 million in one-time charges recorded in the second quarter,
the increase was $864,000 or 10.7%. This increase was caused by branch
expansion as well as the upgrade to new information systems hardware and
software.
Insurance expense totaled only $90,000 in the third quarter of 1995 versus $1.1
million a year earlier. This decline resulted from a $1.0 million FDIC
insurance premium refund and was based on the premium rate reduction from $.23
to $.04 per $100 of deposit, effective June 1, 1995. This rate reduction is
expected to further reduce 1996 insurance costs by $1.3 million.
The remaining categories of operating expenses decreased when comparing the
third quarter of 1995 with the same period in 1994 due mainly to lower levels
of professional fees and intangible amortization expense. Total operating
expenses as a percent of average assets were 1.98% and 2.20% for the third
quarters of 1995 and 1994, respectively. On a year-to-date basis, excluding
the second quarter one-time charges, total operating expenses as a percent of
average assets were 2.23% for 1995 and 2.30% for 1994.
Income tax expense for the third quarter of 1995 totaled $2.0 million versus
$2.1 million the prior year, resulting in effective tax rates of 24.5% and
27.1%, respectively. The lower effective tax rate in 1995 resulted from 1994
tax return adjustments totaling $157,000. For the nine months ended September
30, 1995, income taxes totaled $2.6 million compared to $5.6 million in 1994.
The decline was caused by
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tax benefits recorded in connection with the one-time charges as well as
favorable tax return adjustments and the recognition of research and
experimentation tax credits.
SUMMARY OF FINANCIAL CONDITION
At September 30, 1995, total assets were $2.33 billion, a $182 million or 8.5%
increase since December 31, 1994. Total deposits grew to $1.83 billion,
representing a $119 million or 7.0% increase since the end of 1994. This
deposit increase included a 7.6% rise in interest-bearing deposits, primarily
certificates of deposit, and a 3.6% increase in non-interest bearing deposits.
Short-term borrowings also increased by $45.6 million to $254 million at
September 30, 1995. These increases were utilized to fund an increase in loans
and the purchase of mortgage-backed securities. Total loans at September 30,
1995 were $1.27 billion and grew $111 million or 9.6% since the previous
year-end. The primary loan categories contributing to this growth were
commercial loans and residential real estate loans. Total securities increased
$62.9 million to $847 million at September 30, 1995, an 8.0% increase over
December 31, 1994.
CAPITAL
Stockholders' equity grew 7.0% in the first nine months of 1995 to $199.3
million. At September 30, 1995, the risk-based capital ratio was 12.97% and
the Tier 1 risk-based capital ratio was 12.11%, both well above the 8.00% and
4.00% minimum required ratios. The leverage ratio at September 30, 1995 was
8.05%, also well above the 4.00% minimum.
Dividends paid were $.15 per share for the third quarters of 1995 and 1994.
The book value per share at September 30, 1994 rose by 6.6% to $14.14 when
compared to the December 31, 1994 book value.
OTHER MATTERS
In mid-November, the Financial Accounting Standards Board (FASB) is expected to
announce a temporary easing of the requirements of FAS No. 115 - "Accounting
for Certain Investments in Debt and Equity Securities". Accordingly, for the
remainder of 1995, the FASB will allow a one-time transfer of securities
between the available for sale and held to maturity categories without regard
to restrictions under FAS No. 115. Management is currently reviewing its
options related to this change and anticipates further reclassification of
securities into the available for sale category. This will allow more
flexibility with regard to managing liquidity and interest rate risk. The
higher level of securities classified as available for sale could, however,
cause additional capital volatility as unrealized gains and losses must be
adjusted through stockholders' equity.
On September 29, 1995, AMCORE Investment Banking, Inc. (AIB), a wholly-owned
subsidiary of AMCORE Financial, Inc., filed documents with the National
Association of Securities Dealers, Inc. to discontinue its operations as an
investment banking firm.
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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).
10.1 Transitional Compensation Agreement dated September 25, 1995 between AMCORE 14
Financial, Inc. and Robert J. Meuleman.
10.2 Transitional Compensation Agreement dated September 25, 1995 between AMCORE 36
Financial, Inc. and John R. Hecht.
10.3 Transitional Compensation Agreement dated September 25, 1995 between AMCORE 55
Financial, Inc. and F. Taylor Carlin.
10.4 Transitional Compensation Agreement dated September 25, 1995 between AMCORE 74
Financial, Inc. and James S. Waddell.
11 Statement Re-Computation of Per Share Earnings 93
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 94
99 Additional exhibit - Press release dated October 18, 1995. 95
(b) One report on Form 8 was filed with the Commission and dated August 4, 1995 as an
amendment to Form 8-K filed on May 25, 1995. The filing was necessary to complete
the financial statement filing requirements for the NBM Bancorp, Inc. merger.
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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: November 8, 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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