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 March 31, 1996
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 April 30, 1996 was 14,200,289 shares.
Index of Exhibits Page 1 of 34
on Page 12
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AMCORE FINANCIAL, INC.
Form 10-Q Table of Contents
PART 1 Page Number
ITEM 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 ...................................... 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1995 ................... 4
Consolidated Statements of Cash Flows for the Three
months Ended March 31, 1996 and 1995 ................... 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 ....................................................... 14
2
3
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(in thousands, except share data) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Assets Cash and cash equivalents............................................................... $ 96,365 $ 101,082
Interest earning deposits in banks...................................................... 316 260
Federal funds sold and other short-term investments..................................... 2,265 9,050
Mortgage loans held for sale............................................................ 11,318 15,801
Securities available for sale........................................................... 1,140,823 884,044
Securities held to maturity (market value of $16,916 in 1996; $24,967 in 1995).......... 16,818 24,625
-----------------------
Total securities................................................................... 1,157,641 $908,669
Loans and leases, net of unearned income................................................ 1,305,115 1,285,961
Allowance for loan and lease losses..................................................... (13,255) (13,061)
-----------------------
Net loans and leases............................................................... $1,291,860 $1,272,900
-----------------------
Premises and equipment, net............................................................. 48,862 49,670
Intangible assets, net.................................................................. 13,793 14,314
Other real estate owned................................................................. 890 2,116
Other assets............................................................................ 49,962 44,670
-----------------------
TOTAL ASSETS....................................................................... $2,673,272 $2,418,532
=======================
Liabilities LIABILITIES
And Deposits:
Stockholders' Interest bearing...................................................................... $1,554,570 $1,512,473
Equity Non-interest bearing.................................................................. 241,541 265,232
-----------------------
Total deposits..................................................................... $1,796,111 $1,777,705
Short-term borrowings................................................................... 457,049 292,042
Long-term borrowings.................................................................... 178,893 107,803
Other liabilities....................................................................... 34,540 31,120
-----------------------
TOTAL LIABILITIES.................................................................. $2,466,593 $2,208,670
-----------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value: authorized 10,000,000 shares;
issued none........................................................................... $ - $ -
Common stock, $.33 par value: authorized 30,000,000 shares;
March 31, December 31,
1996 1995
Issued........14,926,695 14,926,695
Outstanding...14,200,289 14,174,183 4,976 4,976
Additional paid-in capital.............................................................. 56,503 56,412
Retained earnings....................................................................... 152,675 149,315
Treasury stock and other................................................................ (6,544) (6,659)
Net unrealized gain (loss) on securities available for sale............................. (931) 5,818
-----------------------
TOTAL STOCKHOLDERS' EQUITY......................................................... $ 206,679 $ 209,862
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $2,673,272 $2,418,532
========================
See accompanying notes to consolidated financial statements.
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4
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months
Ended March 31,
(in thousands, except per share data) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Interest Interest and fees on loans and leases............................................... $28,550 $25,376
Income Interest on securities:
Taxable............................................................................ 12,114 9,292
Tax-exempt......................................................................... 3,020 2,980
---------------------
Total Income from Securities...................................................... $15,134 $12,272
---------------------
Interest on federal funds sold and other short-term investments..................... 191 138
Interest and fees on mortgage loans held for sale................................... 758 465
Interest on deposits in banks....................................................... 4 9
---------------------
Total Interest Income............................................................. $44,637 $38,260
---------------------
Interest Interest on deposits................................................................ $17,269 $15,087
Expense Interest on short-term borrowings................................................... 4,507 3,250
Interest on long-term borrowings.................................................... 2,156 462
Other............................................................................... 109 126
---------------------
Total Interest Expense............................................................ $24,041 $18,925
---------------------
Net Interest Income................................................................. $20,596 $19,335
Provision for loan and lease losses............................................... 889 729
---------------------
Net Interest Income After Provision for Loan and Lease Losses....................... $19,707 $18,606
---------------------
Other Trust and asset management income................................................... $ 3,242 $ 2,943
Income Service charges on deposits......................................................... 1,680 1,732
Mortgage revenues................................................................... 733 561
Collection fee income............................................................... 582 453
Other............................................................................... 1,953 1,738
---------------------
Total Other Income, Excluding Net Realized Security Gains......................... $ 8,190 $ 7,427
Net realized security gains......................................................... 764 619
---------------------
Total Other Income................................................................ $ 8,954 $ 8,046
Operating Compensation expense................................................................ $ 8,996 $ 8,638
Expenses Employee benefits................................................................... 2,930 2,687
Net occupancy expense............................................................... 1,385 1,366
Equipment expense................................................................... 1,879 1,638
Professional fees................................................................... 608 567
Advertising and business development................................................ 554 510
Amortization of intangible assets................................................... 512 642
Insurance expense................................................................... 197 1,134
Other............................................................................... 3,927 3,491
---------------------
Total Operating Expenses.......................................................... $20,988 $20,673
---------------------
Income Before Income Taxes.......................................................... $ 7,673 $ 5,979
Income taxes........................................................................ 2,043 1,362
---------------------
NET INCOME........................................................................ $ 5,630 $ 4,617
=====================
EARNINGS PER COMMON SHARE......................................................... $ 0.40 $ 0.33
DIVIDENDS PER COMMON SHARE........................................................ 0.16 0.13
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........................................ 14,192 14,049
See accompanying notes to consolidated financial statements.
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5
AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows NET INCOME..................................................................................... $ 5,630 $ 4,617
From Adjustments to reconcile net income to net
Operating cash provided by operating activities:
Activities Depreciation and amortization of premises and equipment...................................... 985 1,179
Amortization and accretion of securities, net................................................ 1,250 (31)
Provision for loan and lease losses.......................................................... 889 729
Amortization of intangible assets............................................................ 512 642
Gain on sale of securities available for sale................................................ (804) (661)
Loss on sale of securities available for sale................................................ 40 42
Purchase of trading securities............................................................... - (3,016)
Proceeds from sale of trading securities..................................................... - 3,016
Non-employee directors compensation expense.................................................. 119 87
Deferred income taxes........................................................................ 1,038 (323)
Net decrease in mortgage loans held for sale................................................. 4,483 243
Other, net................................................................................... 3,220 2,373
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................... $ 17,362 $ 8,897
----------------------
Cash Flows Proceeds from maturities of securities......................................................... $ 61,162 $ 35,589
From Proceeds from sales of securities available for sale........................................... 84,057 33,249
Investing Purchase of securities held to maturity........................................................ - (12,208)
Activities Purchase of securities available for sale...................................................... (405,820) (31,125)
Net decrease(increase) in federal funds sold and other short-term investments.................. 6,785 (4,333)
Net increase in interest earning deposits in banks............................................. (56) (9)
Net increase in loans and leases............................................................... (20,309) (27,748)
Proceeds from the sale of premises and equipment............................................... 553 130
Premises and equipment expenditures............................................................ (730) (3,143)
----------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES.................................................. ($274,358) ($9,598)
----------------------
Cash Flows Net decrease in demand deposits and savings accounts........................................... ($31,901) ($27,153)
From Net increase in time deposits.................................................................. 50,307 59,499
Financing Net increase(decrease) in short-term borrowings................................................ 165,007 (32,697)
Activities Proceeds from long-term borrowings............................................................. 71,500 -
Payment of long-term borrowings................................................................ (451) (2,105)
Dividends paid................................................................................. (2,270) (1,861)
Proceeds from exercise of incentive stock options.............................................. 87 189
----------------------
NET CASH PROVIDED BY(REQUIRED FOR) FINANCING ACTIVITIES..................................... $252,279 ($4,128)
----------------------
Net change in cash and cash equivalents........................................................ ($4,717) ($4,829)
----------------------
Cash and cash equivalents:
Beginning of year............................................................................. 101,082 92,201
----------------------
End of period................................................................................. $ 96,365 $ 87,372
======================
Supplemental
Disclosures Cash payments for:
of Cash
Flow Interest paid to depositors................................................................... $ 16,660 $ 13,516
Information Interest paid on borrowings................................................................... 5,715 3,903
Income taxes paid............................................................................. 108 377
Non-Cash
Investing Other real estate acquired in settlement of loans.............................................. 460 53
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 merger with NBM Bancorp, Inc. (NBM), which was accounted
for using the pooling of interests method. Operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1996.
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, 1995.
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, adjusted for
common stock equivalents. Common stock equivalents consist of shares issuable
under options granted pursuant to stock 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 merger with NBM.
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 March 31, 1996, the
balance was $17 million at an interest rate of 6.90%.
The Agreement contains several restrictive covenants, including limitations on
dividends to stockholders, maintenance of various capital adequacy levels, and
certain restrictions with regard to other indebtedness. All capital adequacy
ratios remained well above the required minimums per the Agreement.
In late 1995 and early 1996, several of the Company's subsidiary banks borrowed
a total of $159,750,000 from the Federal Home Loan Bank in connection with the
purchase of mortgage-backed securities. The average maturity of these
borrowings is 2.4 years, with a weighted average borrowing rate of 5.67%.
Scheduled reductions of long-term borrowings are as follows:
========================================================================
(in thousands) Total
- ------------------------------------------------------------------------
1996 ..................................................... $ 7,297
1997 ..................................................... 32,218
1998 ..................................................... 50,725
1999 ..................................................... 28,751
2000 ..................................................... 59,030
Thereafter ............................................... 872
- ------------------------------------------------------------------------
TOTAL .................................................. $178,893
========================================================================
Other long-term borrowings include a non-interest bearing note from the
January 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%
6
7
AMCORE FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis focuses on the significant factors which
affected AMCORE Financial, Inc. and subsidiaries (the "Company") financial
condition as of March 31, 1996 as compared to December 31, 1995 and the results
of operations for the three months ended March 31, 1996 as compared to the same
period in 1995. 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 first quarter of 1996 totaled $5.6 million, an increase of
21.9% from the first quarter of 1995. On a per share basis, net earnings were
$.40 per share in 1996 versus $.33 in the first quarter of 1995. These increases
were primarily the result of higher levels of net interest income and fee-based
revenues and the elimination of FDIC deposit insurance premiums.
Net interest income rose by $1.3 million or 6.5% due to increased loan volumes
and the impact of an investment leveraging program. Total fee-based income,
exclusive of security gains, increased by 10.3% or $763,000 as a result of
higher trust and mortgage revenues. Total operating expenses increased only
$315,000 or 1.5%, as total insurance expense declined $937,000 due to the
elimination of FDIC premiums.
The return on average equity (ROE) was 10.77% through the first three months of
1996 as compared to 9.94% for 1995. The return on average assets (ROA) for the
first quarter of 1996 was .92% versus .87% a year earlier.
NET INTEREST INCOME
Net interest income, the Company's primary source of earnings, totaled $20.6
million in the first quarter of 1996, an increase of $1.3 million or 6.5% when
compared with $19.3 million in 1995. In 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.
As shown in the following table, tax equivalent net interest income totaled
$22.3 million and increased $1.3 million in the first quarter of 1996 as
compared to the prior year quarter. This increase was due to a $2.0 million
increase from volume, less a $674,000 unfavorable rate impact. The net interest
margin, which is computed by dividing the annualized tax equivalent net
interest income by the average earning assets, declined 43 basis points to
3.85% as compared to 4.28% for the first quarter of 1995. This decline was due
to a shift in deposit mix to higher rate time deposits, which was partially
offset by loan growth.
Another factor contributing to the net interest margin decline was the impact
of an investment leveraging program, which is designed to better deploy
underutilized capital at affiliate banks and improve the return on equity. The
program is funded through repurchase agreements and Federal Home Loan Bank
(FHLB) borrowings, the proceeds of which are invested in mortgage-backed
securities. 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 $901,000
to net interest income in the first quarter of 1996. It reduced, however, the
net interest margin by 31 basis points.
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8
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
Unaudited Quarters Ended March 31,
(in thousands)
1996/1995
Interest Earned Change
Average Balance Average Rate or Paid Due to
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 Volume Rate
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
$ 745,028 $ 538,570 6.43% 6.90% Taxable securities...................... $12,114 $ 9,292 $3,394 ($ 572)
229,774 235,609 8.00% 7.78% Tax-exempt securities (1)............... 4,646 4,585 (116) 178
- --------------------------------------------------------------------------------------------------------------------------
$ 974,802 $ 774,179 6.80% 7.17% Total securities...................... $16,760 $13,877 $3,278 ($ 394)
- --------------------------------------------------------------------------------------------------------------------------
$ 10,463 $ 7,028 6.99% 8.65% Mortgage loans held for sale (3)........ $ 185 $ 152 $ 65 ($ 32)
1,291,853 1,174,331 8.76% 8.66% Loans (1) (2)........................... 28,621 25,435 2,601 585
15,636 8,947 4.93% 6.57% Other earning assets.................... 195 147 90 (42)
Fees on mortgage loans held for sale (3) 573 313 291 (31)
- --------------------------------------------------------------------------------------------------------------------------
$2,292,754 $1,964,485 7.99% 8.13% TOTAL EARNING ASSETS (FTE) $46,334 $39,924 $6,325 $ 86
- --------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
$ 427,375 $ 423,175 2.44% 2.56% Interest-bearing demand deposits........ $ 2,605 $ 2,668 $ 27 ($ 90)
158,346 167,485 2.36% 2.68% Savings deposits........................ 930 1,106 (60) (116)
942,075 880,566 5.85% 5.21% Time deposits........................... 13,734 11,313 846 1,575
- --------------------------------------------------------------------------------------------------------------------------
$1,527,796 $1,471,226 4.53% 4.16% Total interest-bearing deposits....... $17,269 $15,087 $ 813 $1,369
- --------------------------------------------------------------------------------------------------------------------------
$ 330,577 $ 208,800 5.47% 6.31% Short-term borrowings................... $ 4,507 $ 3,250 $1,731 ($ 474)
134,737 24,497 6.42% 7.65% Long-term borrowings.................... 2,156 462 1,800 (106)
5,273 4,802 8.29% 10.64% Other................................... 109 126 12 (29)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
$1,998,383 $1,709,325 4.83% 4.49% LIABILITIES........................... $24,041 $18,925 $4,356 $760
- --------------------------------------------------------------------------------------------------------------------------
3.16% 3.64% INTEREST RATE SPREAD (FTE)..............
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN/
3.85% 4.28% NET INTEREST INCOME (FTE)............. $22,293 $20,999 $1,969 ($674)
- --------------------------------------------------------------------------------------------------------------------------
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.
For the first quarter of 1996, total average earning assets were $2.29 billion,
representing an increase of 16.7% or $328.3 million over 1995. Average
securities increased $200.6 million or 25.9%, mainly due to the investment
leveraging program. Average loans also increased by $117.5 million or 10.0%,
primarily as a result of commercial and real estate loan growth. Average
mortgage loans held for sale increased $3.4 million over the prior year quarter
due to higher refinancing volumes as a result of lower mortgage rates in early
1996.
Average total interest-bearing liabilities grew from the first quarter of 1995
by 16.9% or $289.1 million. Average interest-bearing deposits rose by $56.6
million or 3.8% during the first quarter of 1996. The increase in average
interest-bearing deposits was due to a $61.5 million growth in average time
deposits. Average short-term borrowings increased $121.8 million in the first
quarter of 1996 when compared to a year earlier and average long-term borrowings
increased $110.2 million. These increases were due to the use of repurchase
agreements and FHLB borrowings for the funding of the investment leveraging
program. Average earnings assets as a percentage of total average assets was
92.9% and 91.6%, respectively, for the first quarters of 1996 and 1995. The
increase was a result of management's focus on reducing non-earning assets and a
17.0% increase in earning assets due to the leveraging strategy.
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The yield on average earning assets for the first quarter of 1996 was 7.99%, a
14 basis point decline over the same period in 1995. The average rate on
interest-bearing liabilities rose by 34 basis points to 4.83% when compared to
the first quarter of 1995. As a result, the net interest spread declined 48
basis points to 3.16% as compared to 3.64% in the prior year quarter.
The yield on loans for the first quarter of 1996 was 8.76%, a 10 basis point
increase over 1995. The yield on total securities dropped 37 basis points to
6.80% in comparison to the first quarter of 1995, due to accelerated paydowns
of mortgage-backed securities. Lower mortgage rates also affected the yield
on mortgage loans held for sale, which dropped 166 basis points to 6.99% in the
first quarter of 1996. Refinancing activity caused closed mortgage volumes to
double in comparison to the prior year quarter. The yield on other earning
assets was 4.93% in the first quarter of 1996, a decline of 164 basis points
from the previous year quarter due to the drop in rates earlier in 1996.
The average rate paid on interest-bearing deposits increased by 37 basis points
to 4.53% for the first quarter of 1996 due to higher time deposit rates
resulting from increased competition and a shift in deposit mix to higher rate
products. The rate paid on time deposits in the first quarter of 1996 was
5.85%, an increase of 64 basis points over 1995. Both interest-bearing demand
deposit rates and savings deposit rates, however, declined by 12 basis points
and 32 basis points, respectively.
The average rate paid on short-term borrowings was 5.47% as compared to 6.31%
for the first quarter of 1995, the decline due mainly to lower prevailing
short-term rates. The average rate paid on long-term borrowings also declined
from 7.65% to 6.42%. This decline was due to the lower rates associated with
FHLB borrowings, which have maturities of two to three years.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses for the first quarter of 1996 increased
$160,000 or 21.9%, to $889,000. Total net charge-offs for the quarter were
$695,000 as compared with $255,000 a year earlier, the increase due to
commercial real estate and consumer loan categories. The annualized ratio of
first quarter net charge-offs to average total loans and leases was .22% in
1996 and .09% in 1995. The provision for loan and lease losses increased in
1996 due to the higher level of net charge-offs and overall loan growth.
Non-performing loans totaled $11.5 million at March 31, 1996, a decline of
$1.4 million or 11.0% since December 31, 1995. Other real estate owned totaled
$890,000 at March 31, 1996, a decline of $1.2 million or 57.9% since December
31, 1995 due to the sale of a commercial real estate property. Total
non-performing assets were $12.4 million at the end of the first quarter of
1996, a decline of $1.3 million or 9.6% since March 31, 1995 and a decline of
$2.6 million or 17.6% since December 31, 1995.
The allowance for loan and lease losses as a percentage of non-performing loans
and leases at March 31, 1996 was 115.3% versus 109.1% a year earlier and 101.1%
at December 31, 1995. Total non-performing assets, as a percentage of loans,
leases and other real estate owned, was .95% at March 31, 1996, 1.15% at March
31, 1995 and 1.17% at December 31, 1995. The allowance as a percentage of
total net loans and leases was 1.02% at March 31, 1996, unchanged from December
31, 1995.
OTHER INCOME
Non-interest income, exclusive of security gains, totaled $8.2 million for the
first quarter of 1996, an increase of $763,000 or 10.3% over the first quarter
of 1995. Trust and asset management income increased by $299,000 or 10.2%,
while mortgage revenues rose by 30.7% or $172,000. Trust and asset management
income rose as a result of the favorable investment performance of trust assets
under administration and growth in the AMCORE Vintage Funds proprietary mutual
fund family. A drop in long-term interest rates earlier in 1996 resulted in
higher levels of refinancing, which increased mortgage revenues. Closed loan
volume for the first quarter of 1996 was $45.0 million, up $22.6 million or
101.4% from last year. Approximately 60% of the closed loan volume in 1996
related to refinancing activity. Higher collection fee income and insurance
commissions also contributed to the growth in non-interest income. Collection
fees increased $129,000 or 28.5% due to increased placement volumes. Insurance
commissions rose $66,000 or 35.1% as a result of continued growth at the
full-service insurance group.
Net security gains for the first quarter of 1996 were $764,000 as compared to
$619,000 a year earlier. All securities sold were from the available for sale
portfolio.
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OPERATING EXPENSES
Total operating expenses for the first quarter of 1996 were $21.0 million, an
increase of $315,000 or 1.5%, when compared to the first quarter of 1995. As
mentioned earlier, the elimination of FDIC deposit insurance premiums lowered
total insurance expense by $937,000 and helped to offset growth in the
operating costs. Without the impact of this item, total operating expenses
would have increased $1.3 million or 6.1%, mainly due to higher personnel costs
and equipment expenses, as discussed below.
Personnel costs, the largest component of total operating expenses, includes
compensation expense and employee benefits. This category totaled $11.9 million
and rose $601,000 or 5.3% over the first quarter of 1995. This increase was
primarily caused by normal salary adjustments and higher mortgage commissions.
For the first three months of 1996, total equipment expense was $1.9 million,
an increase of $241,000 or 14.7% over the same period a year earlier. This
increase was caused by branch expansion and the upgrade in information systems
hardware and software. In late 1995, a new teller automation product delivery
system was installed within all bank teller lines. In 1996, this delivery
system will be expanded throughout the entire customer service platform. This
will cause higher equipment costs in 1996, but is expected to improve
day-to-day efficiencies, enhance customer service and improve cross-selling
effectiveness.
Intangibles amortization expense totaled $512,000 in the first quarter of 1996,
a decline of $130,000 from 1995. This was due to lower levels of collection
agency intangible assets, which were reduced by the asset impairment charge
taken in the second quarter of 1995. Other expenses totaled $3.9 million in the
first quarter of 1996, an increase of $436,000 or 12.5% over the prior year
quarter. 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 1996 was mainly caused by higher loan processing
costs both at the banks and at the mortgage company as a result of commercial
and real estate loan growth and the higher mortgage refinancing activity.
Income tax expense for the first quarter of 1996 totaled $2.0 million, a
$681,000 increase over the first quarter of 1995. This increase was due to the
higher level of earnings and approximately $300,000 in tax credits recorded in
the first quarter of 1995. Without the impact of these 1995 tax credits, the
effective tax rate for the first quarter of 1995 would have been 27.8% versus
26.6% in the first quarter of this year.
SUMMARY OF FINANCIAL CONDITION
Total assets at March 31, 1996 were $2.67 billion, a $254.7 million or 10.5%
increase since December 31, 1995. As mentioned earlier, loan growth and the
purchase of securities in connection with the investment leveraging program
accounted for much of the increase in total assets. At March 31, 1996, total
loans outstanding were $1.31 billion, an increase of $19.2 million or 1.5%
since the end of 1995. Total securities at March 31, 1996 were $1.16 billion
versus $908.7 million at the end of 1995, an increase of $249.0 million or
27.4%. The investment leveraging program, as described earlier, caused the
growth in the investment portfolio.
The funding for this program caused short-term borrowings to increase $165.0
million over the previous quarter-end to total $457.0 million at March 31,
1996. The increase FHLB borrowings also caused long-term borrowings to rise
$71.1 million over the end of 1995 to $178.9 million at March 31, 1996. Total
deposits at the end of the quarter were $1.80 billion, an increase of $18.4
million or 1.0% since year-end. A $42.1 million increase in interest bearing
deposits, particularly in certificates of deposit, partially offset a $23.7
million decrease in non-interest bearing deposits.
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CAPITAL
Stockholders' equity at March 31, 1996 was $206.7 million, a decline of 1.5% or
$3.2 million since December 31, 1995. This decline was caused by the unrealized
market value change of the securities available for sale portfolio. Without
this $6.7 million reduction in market value, net of tax, total stockholders'
equity would have increased $3.6 million or 1.7%. The risk-based capital ratio
was 13.36% at March 31, 1996 as compared to 13.26% at December 31, 1995. Tier 1
risk-based capital increased to 12.51% versus 12.40% at year-end. The leverage
ratio at the end of the first quarter was 7.90%, well above the required
minimum of 4.00%. Dividends per share for the first quarter of 1996 increased
by 6.7% to $.16 per share.
OTHER MATTERS
On April 10, 1996, the Company announced plans to combine four banks in the
southern region into one national bank charter. The banks in Princeton, Peru and
Gridley will be merged into the Mendota bank to form a new bank with assets
totaling approximately $425 million. This merger will increase operating
efficiencies and reduce costs. It will also result in providing improved
customer service and consistent product offerings for customers in this
economic region, which is in proximity to the intersection of Interstates I-39
and I-80. The merger is subject to regulatory approval and is expected to be
completed in the third quarter of 1996.
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PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) AMCORE Financial, Inc. 1996 Annual Meeting of Stockholders was held on
May 7, 1996.
(b) Proxies were solicited by AMCORE Financial, Inc. management for the
purposes of electing four Class I directors whose term will expire in
1999. The following individuals were elected as Class I directors:
Name Votes For Votes Withheld
- ---- ---------- --------------
Frank A. Fiorenza 11,685,603 45,794
Theresa Paulette Gilbert 11,679,788 51,609
Lawrence E. Gloyd 11,683,162 48,235
Robert J. Meuleman 11,685,915 45,482
(c) Proxies were solicited by AMCORE Financial, Inc. management to ratify the
appointment of McGladrey & Pullen, LLP as independent auditors. The appointment
of McGladrey & Pullen, LLP was ratified, via 11,652,401 votes for, 19,186 votes
against and 59,810 votes abstaining the ratification of the appointment.
ITEM 6. Exhibits and Reports of 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).
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).
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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).
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 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 (Incorporated by reference to Exhibit
10.5 to AMCORE's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.5 Commercial Paper Placement Agreement dated November 10, 1995
with M&I Marshall and Ilsley Bank (Incorporated by reference
to Exhibit 10.6 to AMCORE's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.6* Executive Insurance Agreement dated March 1, 1996 between 15
AFI and the following executives: Robert J. Meuleman, F.
Taylor Carlin and James S. Waddell.
11 Statement Re-Computation of Per Share Earnings 29
22 1996 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, 1995).
27 Financial Data Schedule 30
99 Additional exhibit - Earnings release dated April 24, 1996. 31
(b) One Form 8-K was filed during the quarter in connection with
the renewal of AMCORE's Rights Agreement, as mentioned in
Item (a)4 above.
*These Exhibits are management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-Q.
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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: May 15, 1996
/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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