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, 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 July 31, 1996 was 14,215,949 shares.
Index of Exhibits on Page 12 Page 1 of 107
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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, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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
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AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in thousands, except share data) 1996 1995
=======================================================================================================================
Assets Cash and cash equivalents............................................... $112,456 $101,082
Interest earning deposits in banks...................................... 450 260
Federal funds sold and other short-term investments..................... 2,971 9,050
Mortgage loans held for sale............................................ 10,043 15,801
Securities available for sale........................................... 1,143,146 884,044
Securities held to maturity (fair value of $13,481 in 1996;
$24,967 in 1995)...................................................... 13,449 24,625
------------------------
Total securities................................................... $1,156,595 $908,669
Loans and leases, net of unearned income................................ 1,365,535 1,285,961
Allowance for loan and lease losses..................................... (13,802) (13,061)
------------------------
Net loans and leases............................................... $1,351,733 $1,272,900
Premises and equipment, net............................................. 47,391 49,670
Intangible assets, net.................................................. 13,273 14,314
Other real estate owned................................................. 766 2,116
Other assets............................................................ 60,553 44,670
------------------------
TOTAL ASSETS....................................................... $2,756,231 $2,418,532
========================
Liabilities LIABILITIES
And Deposits:
Stockholders' Interest bearing...................................................... $1,571,291 $1,512,473
Equity Non-interest bearing.................................................. 253,215 265,232
------------------------
Total deposits..................................................... $1,824,506 $1,777,705
Short-term borrowings................................................... 525,080 292,042
Long-term borrowings.................................................... 174,227 107,803
Other liabilities....................................................... 34,038 31,120
------------------------
TOTAL LIABILITIES.................................................. $2,557,851 $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;
June 30, December 31,
1996 1995
Issued............14,926,695 14,926,695
Outstanding.......14,217,265 14,174,183 4,976 4,976
Additional paid-in capital.............................................. 56,583 56,412
Retained earnings....................................................... 156,870 149,315
Treasury stock and other................................................ (6,363) (6,659)
Net unrealized gain (loss) on securities available for sale............. (13,686) 5,818
------------------------
TOTAL STOCKHOLDERS' EQUITY......................................... $198,380 $209,862
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $2,756,231 $2,418,532
========================
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) 1996 1995 1996 1995
===================================================================================================================================
INTEREST Interest and fees on loans and leases............................. $29,287 $26,962 $57,837 $52,338
INCOME Interest on securities:
Taxable......................................................... 14,924 9,552 27,038 18,844
Tax-exempt...................................................... 3,512 3,020 6,532 6,000
---------------------------- -------------------
TOTAL INCOME FROM SECURITIES................................. $18,436 $12,572 $33,570 $24,844
---------------------------- -------------------
Interest on federal funds sold and other short-term investments... 68 88 259 226
Interest and fees on mortgage loans held for sale................. 709 749 1,467 1,214
Interest on deposits in banks..................................... 5 - 9 9
---------------------------- -------------------
TOTAL INTEREST INCOME........................................ $48,505 $40,371 $93,142 $78,631
---------------------------- -------------------
INTEREST Interest on deposits.............................................. $17,971 $17,276 $35,240 $32,363
EXPENSE Interest on short-term borrowings................................. 6,225 3,132 10,722 6,382
Interest on long-term borrowings.................................. 2,649 414 4,815 876
Other............................................................. 134 78 243 204
---------------------------- -------------------
TOTAL INTEREST EXPENSE....................................... $26,979 $20,900 $51,020 $39,825
---------------------------- -------------------
NET INTEREST INCOME............................................... $21,526 $19,471 $42,122 $38,806
Provision for loan and lease losses.......................... 967 871 1,856 1,600
---------------------------- -------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES..... $20,559 $18,600 $40,266 $37,206
---------------------------- -------------------
OTHER Trust and asset management income................................. $3,539 $2,977 $6,781 $5,827
INCOME Service charges on deposits....................................... 1,720 1,695 3,400 3,427
Mortgage revenues................................................. 968 1,002 1,701 1,563
Collection fee income............................................. 564 469 1,146 922
Other............................................................. 1,960 1,787 3,913 3,618
---------------------------- -------------------
TOTAL OTHER INCOME, EXCLUDING NET REALIZED SECURITY GAINS.... $8,751 $7,930 $16,941 $15,357
Net realized security gains....................................... 255 427 1,019 1,046
---------------------------- -------------------
TOTAL OTHER INCOME........................................... $9,006 $8,357 $17,960 $16,403
OPERATING Compensation expense.............................................. $9,154 $9,511 $18,150 $18,149
EXPENSES Employee benefits................................................. 2,645 2,629 5,575 5,316
Net occupancy expense............................................. 1,271 1,139 2,656 2,505
Equipment expense................................................. 1,852 2,802 3,731 4,440
Professional fees................................................. 595 1,020 1,203 1,587
Advertising and business development.............................. 660 721 1,214 1,231
Amortization of intangible assets................................. 511 646 1,023 1,288
Impairment of long-lived assets................................... - 3,269 - 3,269
Insurance expense................................................. 204 1,163 401 2,297
Other............................................................. 3,781 3,737 7,708 7,227
---------------------------- -------------------
TOTAL OPERATING EXPENSES..................................... $20,673 $26,637 $41,661 $47,309
---------------------------- -------------------
INCOME BEFORE INCOME TAXES........................................ $8,892 $320 $16,565 $6,300
Income taxes...................................................... 2,435 (820) 4,478 543
---------------------------- -------------------
NET INCOME................................................... $6,457 $1,140 $12,087 $5,757
============================ ===================
EARNINGS PER COMMON SHARE.................................... $0.45 $0.08 $0.85 $0.41
DIVIDENDS PER COMMON SHARE................................... 0.16 0.15 0.32 0.30
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................... 14,207 14,069 14,199 14,059
See accompanying notes to consolidated financial statements.
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AMCORE Financial, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
( in thousands) 1996 1995
==========================================================================================================================
CASH FLOWS NET INCOME.............................................................. $12,087 $5,757
FROM Adjustments to reconcile net income to net
OPERATING cash provided by operating activities:
ACTIVITIES Depreciation and amortization of premises and equipment............ 2,351 2,420
Amortization and accretion of securities, net...................... 2,231 (28)
Provision for loan and lease losses................................ 1,856 1,600
Amortization of intangible assets.................................. 1,023 1,288
Gain on sale of securities available for sale...................... (1,101) (1,132)
Loss on sale of securities available for sale...................... 82 86
Gain on sale of trading securities ................................ - (1)
Loss on sale of trading securities ................................ - 5
Purchase of trading securities..................................... (536) (6,016)
Proceeds from sale of trading securities........................... 536 6,012
Impairment of long-lived assets.................................... - 3,269
Write-down of other real estate owned.............................. - 53
Non-employee directors compensation expense........................ 236 143
Deferred income taxes.............................................. 1,193 (2,321)
Net decrease (increase) in mortgage loans held for sale............ 5,758 (8,234)
Other, net......................................................... 1,859 5,537
-------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................... $27,575 $8,438
-------------------------
CASH FLOWS Proceeds from maturities of securities.................................. $99,234 $63,988
FROM Proceeds from sales of securities available for sale.................... 105,527 99,810
INVESTING Purchase of securities held to maturity................................. (142) (13,496)
ACTIVITIES Purchase of securities available for sale............................... (486,157) (159,189)
Net decrease in federal funds sold and other short-term investments..... 6,079 1,770
Net (increase) decrease in interest earning deposits in banks........... (190) 38
Net increase in loans and leases........................................ (81,239) (76,008)
Proceeds from the sale of premises and equipment........................ 560 199
Premises and equipment expenditures..................................... (1,753) (4,830)
-------------------------
NET CASH REQUIRED FOR INVESTING ACTIVITIES...................... ($358,081) ($87,718)
-------------------------
CASH FLOWS Net decrease in demand deposits and savings accounts.................... ($27,605) ($7,340)
FROM Net increase in time deposits........................................... 74,406 94,078
FINANCING Net increase in short-term borrowings................................... 227,038 15,597
ACTIVITIES Proceeds from long-term borrowings...................................... 74,500 -
Payment of long-term borrowings......................................... (2,158) (4,616)
Dividends paid.......................................................... (4,532) (4,164)
Proceeds from exercise of incentive stock options....................... 231 189
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES....................... $341,880 $93,744
-------------------------
Net change in cash and cash equivalents................................. $11,374 $14,464
-------------------------
Cash and cash equivalents:
Beginning of year..................................................... 101,082 92,201
-------------------------
End of period......................................................... $112,456 $106,665
=========================
SUPPLEMENTAL Cash payments for:
DISCLOSURES OF Interest paid to depositors........................................... $34,296 $29,816
CASH FLOW Interest paid on borrowings........................................... 14,381 7,395
INFORMATION Income taxes paid..................................................... 3,937 3,412
NON-CASH Other real estate acquired in settlement of loans....................... 550 2,245
INVESTING
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.
Operating results for the three and six month periods ended June 30, 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.
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, 1996, the
balance was $15.3 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 during the
reported periods.
In late 1995 and early 1996, several of the Company's subsidiary banks borrowed
a total of $162,750,000 from the Federal Home Loan Bank (FHLB) in connection
with the purchase of mortgage-backed securities. The average maturity of these
borrowings is 2.2 years, with a weighted average borrowing rate of 5.68%.
Scheduled reductions of long-term borrowings are as follows:
=============================================================================================================
(in thousands) Total
- -------------------------------------------------------------------------------------------------------------
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,631
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,218
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,726
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,001
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,780
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871
- -------------------------------------------------------------------------------------------------------------
SUB-TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,227
Less current portion of FHLB borrowings . . . . . . . . . . . . . . . . . . . . . . . . . (6,000)
- -------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174,227
=============================================================================================================
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%.
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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 significant factors which
affected AMCORE Financial, Inc. and subsidiaries (the "Company") financial
condition as of June 30, 1996 as compared to December 31, 1995 and the results
of operations for the three and six months ended June 30, 1996 as compared to
the same periods 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 second quarter of 1996 totaled a record $6.5 million, an
increase of $5.3 million from the second quarter of 1995. Excluding a $3.5
million after-tax charge recorded in 1995, the increase was $1.9 million, or
40.2%. This prior year charge was related to the impairment of certain
long-lived assets required by a new accounting rule and costs associated with
increased merger activity. Through the first six months of 1996, net income
was $12.1 million as compared to $5.7 million in 1995. Excluding the prior
year impairment and merger-related charges, net income increased $2.9 million,
or 31.1%.
On a per share basis, net earnings in the second quarter of 1996 were a record
$.45 versus $.33 in 1995, exclusive of the impairment and merger-related
charges. On a year-to-date basis, earnings per share totaled $.85 versus $.66,
after excluding the $.25 per share impairment and merger-related charges, an
increase of 28.8%.
The record earnings were primarily the result of higher net interest income,
which rose $2.1 million or 10.6%. This increase was caused by strong loan
growth and the impact of an investment leveraging program as discussed in the
Net Interest Income Section. A $562,000, or 18.9%, increase in trust and asset
management income also elevated earnings, and resulted from a combination of
favorable investment performance and new accounts.
The return on average equity (ROE) was 12.76% in the second quarter of 1996 as
compared to 9.73% in 1995 and the return on average assets (ROA) for the
quarter was .96% versus .83% a year earlier, both excluding the impact of the
prior year impairment and merger-related charges. On a year-to-date basis, ROE
and ROA were 11.75% and .94% in 1996, respectively, versus 9.89% and .85% in
1995, exclusive of the impairment and merger-related charges.
NET INTEREST INCOME
Net interest income, the Company's primary source of earnings, totaled $21.5
million in the second quarter of 1996, an increase of $2.1 million or 10.6%
when compared with $19.5 million in 1995. On a year-to-date basis, net
interest income increased $3.3 million or 8.5% and totaled $42.1 million. 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 rose by
$2.3 million in the second quarter of 1996 as compared to 1995, the increase
almost entirely due to higher loan and investment volumes. The net interest
margin, which is computed by dividing the annualized tax equivalent net
interest income by the average earning assets, declined by 45 basis points to
3.70% as compared to 4.15% for the second quarter of 1995. The net interest
margin on a year-to-date basis reflected a similar decline falling to 3.77%
from 4.21% in the prior year. These declines were caused by the impact of an
investment leveraging program and a shift in the deposit mix to higher rate
time deposits. Growth in average loan volumes helped to mitigate some of the
interest margin compression.
The investment leveraging program 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 principally invested in mortgage-backed
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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 $1.5
million to net interest income in the second quarter of 1996 as compared to
$484,000 in the same quarter for 1995, resulting in a net increase of
approximately $1.0 million. On a year-to-date basis, the impact was $2.4
million in 1996 versus $897,000 a year earlier, a net increase of $1.5 million.
Excluding the impact of this program, the core net interest margin for the
second quarter of 1996 declined 13 basis points from the prior year to 4.24%
and, on a year-to-date basis, declined 18 basis points to 4.20%. In comparison
to the first quarter of 1996, however, the core net interest margin improved by
8 basis points.
ANALYSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
Unaudited Quarters Ended June 30,
(in thousands)
Average Balance Average Rate
- -----------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------
$903,472 $527,309 6.53% 7.17%
260,318 260,362 8.21% 7.06%
- -----------------------------------------------------
$1,163,790 $787,671 6.91% 7.13%
- -----------------------------------------------------
$10,335 $10,392 8.11% 7.69%
1,330,409 1,214,870 8.73% 8.80%
5,462 4,849 5.29% 7.18%
----------------------------------------------------
$2,509,996 $2,017,782 7.95% 8.25%
- -----------------------------------------------------
$441,579 $404,710 2.55% 2.73%
151,276 170,073 2.18% 2.60%
986,813 935,002 5.85% 5.76%
- -----------------------------------------------------
$1,579,668 $1,509,785 4.58% 4.59%
- -----------------------------------------------------
$464,984 $215,195 5.38% 5.84%
174,937 22,915 6.09% 7.25%
5,924 5,067 9.10% 6.17%
- -----------------------------------------------------
$2,225,513 $1,752,962 4.88% 4.78%
----------------------------------------------------
3.07% 3.47%
----------------------------------------------------
3.70% 4.15%
----------------------------------------------------
1996/1995
Interest Earned Change
or Paid Due to
-----------------------------------------------------
1996 1995 Volume Rate
-----------------------------------------------------
INTEREST EARNING ASSETS:
Taxable securities............................. $14,924 $9,552 $6,280 ($908)
Tax-exempt securities (1)...................... 5,403 4,646 (1) 758
- ----------------------------------------------------------------------------------------------------
Total securities............................... $20,327 $14,198 $6,279 ($150)
- ----------------------------------------------------------------------------------------------------
Mortgage loans held for sale (3)............... $212 $202 ($1) $11
Loans (1) (2).................................. 29,360 27,019 2,552 (211)
Other earning assets........................... 73 88 10 (25)
Fees on mortgage loans held for sale (3)....... 497 547 47 (97)
- ----------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS (FTE) $50,469 $42,054 $8,887 ($472)
- ----------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Interest-bearing demand deposits............... $2,795 $2,755 $244 ($204)
Savings deposits............................... 821 1,101 (115) (165)
Time deposits.................................. 14,355 13,420 763 172
- ----------------------------------------------------------------------------------------------------
Total interest-bearing deposits.............. $17,971 $17,276 $892 ($197)
- ----------------------------------------------------------------------------------------------------
Short-term borrowings.......................... $6,225 $3,132 $3,418 ($325)
Long-term borrowings........................... 2,649 414 2,351 (116)
Other.......................................... 134 78 15 41
- ----------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES................................. $26,979 $20,900 $6,676 ($597)
- ----------------------------------------------------------------------------------------------------
INTEREST RATE SPREAD (FTE).....................
- ----------------------------------------------------------------------------------------------------
NET INTEREST MARGIN/
NET INTEREST INCOME (FTE)................... $23,490 $21,154 $2,211 $125
- ----------------------------------------------------------------------------------------------------
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 absoulute 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 second quarter of 1996 were $2.51 billion,
an increase of $492.2 million or 24.4% over 1995. Average loans grew by $115.5
million or 9.5%, primarliy the result of growth in commercial real estate and
consumer loan portfolios. Average total securities increased $376.1 million to
$1.16 billion as a result of the investment leveraging program mentioned
earlier.
Average total interest-bearing liabilities were $2.23 billion in the second
quarter of 1996, an increase of $472.6 million or 27.0%. Average interest-
bearing deposits rose by $69.9 million or 4.6% during the second quarter of
1996, the increase mostly due to a $51.8 million growth in average time
deposits.
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Average interest-bearing demand deposits also grew by $36.9 million, but were
partially offset by an $18.8 million decline in average savings deposits. For
the second quarter of 1996, average short-term borrowings increased to $249.8
million over the prior year quarter, and totaled $465.0 million. Average
long-term borrowings also increased $152.0 million from the prior year quarter
and totaled $174.9 million. The large increases in borrowings were due to the
use of repurchase agreements and FHLB borrowings for the funding of the
investment leveraging program. Average earning assets as a percentage of total
average assets was 93.2% and 90.8%, respectively, for the second quarters of
1996 and 1995. The increase was the result of management's focus on reducing
non-earning assets and a 22.0% increase in average earning assets due to the
leveraging strategy.
The yield on average earning assets for the second quarter of 1996 was 7.95%, a
decline of 30 basis points from the yield in 1995. The average rate paid on
interest bearing liabilities rose by 10 basis points to 4.88%. As a result,
the net interest spread dropped 40 basis points to 3.07%.
The yield on loans for the second quarter of 1996 was 8.73%, a 7 basis point
decline from 1995. The yield on total securities dropped 22 basis points to
6.91% in comparison to the second quarter of 1995, due to additional
amortization caused by accelerated paydowns of mortgage-backed securities. The
yield on mortgage loans held for sale increased 42 basis points to 8.11% due to
the recent rise in long-term interest rates.
The average rate paid on interest-bearing deposits was stable at 4.58% versus
4.59% in the second quarter of 1995. The rate paid on time deposits in the
second quarter of 1996 was 5.85%, an increase of 9 basis points over 1995.
Both interest-bearing demand deposit rates and savings deposit rates, however,
declined by 18 basis points and 42 basis points, respectively.
The average rate paid on short-term borrowings was 5.38% as compared to 5.84%
for the second quarter of 1995, the decline due mainly to lower prevailing
short-term rates. The average rate paid on long-term borrowings also declined
from 7.25% to 6.09%. This decline was mainly due to the lower rates associated
with FHLB borrowings, which have an average rate of 5.68% and an average
maturity of 2.2 years.
On a year-to-date basis, tax equivalent net interest income was $45.8 million
in 1996, which represents an increase over 1995 of $3.6 million or 8.6%. This
increase was caused by strong loan growth and the investment leveraging
program. Earning assets for the first six months of 1996 yielded 7.97%, a 21
basis point decline from 1995. At the same time, the average rate paid on
interest bearing liabilities increased by 21 basis points to 4.86%. The result
was a 42 basis point compression in the net interest spread to 3.11%, which was
primarily caused by increased premium amortization from the prepayment of
mortgage-backed securities and a larger mix of higher rate time deposits.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
For the second quarter of 1996, the provision for loan and lease losses was
$967,000 as compared to $871,000 for the same period last year. Total net
charge-offs for the quarter were $420,000 versus $1.0 million in 1995. The
decline in net charge-offs was due to a $595,000 write-down of a commercial
real estate property in 1995, which was since reclassified into other real
estate and sold. On a year-to-date basis, net charge-offs totaled $1.1 million
in 1996, a decline from the $1.3 million recorded in 1995. The annualized
ratio of second quarter net charge-offs to average loans and leases was .13% in
1996 versus .33% a year earlier, and the year-to-date ratio was .17% in 1996 as
compared to .21% in 1995.
Total non-performing loans were $14.2 million at June 30, 1996, an increase of
$3.8 million since December 31, 1995 due primarily to a local commercial loan.
Total other real estate owned was $766,000 at the end of the second quarter, a
decline of $1.4 million when compared with the $2.1 million at December 31,
1995. Accordingly, total non-performing assets were $15.0 million at June 30,
1996, an increase of $2.4 million since December 31, 1995.
The allowance for loan and lease losses as a percentage of total non-performing
loans and leases was 97.3% at June 30, 1996 versus 101.1% at December 31, 1995.
Total non-performing assets as a percentage of total loans, leases and other
real estate owned, was 1.09% at June 30, 1996 versus .97% at December 31, 1995.
The allowance as a percentage of total net loans and leases was 1.01% at June
30, 1996 versus 1.02% at the end of 1995.
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OTHER INCOME
Non-interest income, exclusive of net security gains, totaled $8.8 million for
the second quarter of 1996, an increase of $821,000 or 10.4% over the prior
year quarter. On a year-to-date basis, non-interest income, exclusive of net
security gains, totaled $16.9 million, a $1.6 million or 10.3% increase over
1995.
Trust and asset management income totaled $3.5 million for the second quarter
of 1996, which represents a $562,000 or 18.9% increase over the comparable
period last year. Through the first six months of 1996, trust and asset
management income rose to $6.8 million, an increase of $954,000 or 16.4% over
the prior year. These increases were the result of favorable market
performance of trust assets, growth in the AMCORE Vintage Funds proprietary
mutual fund family and the addition of new trust accounts. Other non-interest
income increased $173,000 or 9.7% for the quarter and $295,000 or 8.2% on a
year-to-date basis. This increase was the result of strong insurance
commission growth and higher credit card income.
Mortgage revenues totaled $968,000 for the second quarter of 1996, a decline of
3.4% from the second quarter of 1995 due to a drop in mortgage loan volumes.
This was partially offset by increased servicing income from a larger servicing
portfolio. On a year-to-date basis, mortgage revenues totaled $1.7 million, a
$138,000 or 8.8% increase over 1995 as a result of higher refinancing activity
in early 1996 caused by lower mortgage rates.
Net security gains for the second quarter of 1996 were $255,000 versus $427,000
a year earlier. For the first six months of 1996, net security gains were $1.0
million, virtually unchanged from the same period of 1995.
OPERATING EXPENSES
Total operating expenses for the second quarter of 1996 were $20.7 million, a
$6.0 million decline over the same period in 1995. Approximately $5.6 million
of this decline related to the impairment and merger-related charges recorded
in 1995. Excluding these charges, total operating expenses for the quarter
declined $372,000 or 1.8%. A major factor for the decline was the elimination
of FDIC deposit insurance premiums in 1996, which lowered quarterly expenses by
$959,000 in comparison to the second quarter of 1995. On a year-to-date basis
and exclusive of the $5.6 million in prior year charges, total operating
expenses declined $56,000. Without the impact of the elimination of $1.9
million in FDIC deposit insurance premiums, total operating expenses would have
increased by $1.8 million or 4.4%.
Personnel costs, which includes compensation expense and employee benefits, is
the largest component of operating expense. Exclusive of $749,000 in 1995
merger-related charges, total personnel costs in the second quarter of 1996
increased $408,000 or 3.6% over the prior year quarter. On a year-to-date
basis, personnel costs totaled $23.7 million and increased $1.0 million or 4.4%
over 1995, excluding the merger-related charges. The increases were primarily
due to normal salary adjustments and higher insurance commission expense.
Total equipment expense for the second quarter of 1996 was $1.9 million versus
$2.8 million a year earlier. Exclusive of $1.2 million in 1995 merger-related
charges, total equipment expense would have increased $233,000 or 14.4% over
the second quarter of 1995. On a year-to-date basis, equipment expense totaled
$3.7 million, an increase of $474,000 or 14.6% over 1995, exclusive of the
prior year merger-related charges. These increases were principally caused by
the upgrade in information systems hardware and software and various PC
networks. These upgrades were associated with the installation of a new teller
automation product delivery system and the expansion of this system throughout
the entire customer service platform. Equipment costs should continue to be at
or above prior year levels, but it is expected that operational productivity
will be improved and cross-selling capabilities will be enhanced.
Professional fees totaled $595,000 for the second quarter of 1996 and $1.2
million for the year-to-date, declines of $163,000 or 21.5% and $122,000 or
9.2%, respectively, over the prior year periods, exclusive of $262,000 in
merger-related charges.
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Intangibles amortization expense totaled $511,000 in the second quarter of
1996, a decline of $135,000 or 20.9% from 1995; and on a year-to-date basis,
totaled $1.0 million, a decline of $265,000 or 20.6% from the prior year. The
declines in amortization expense were due mainly to lower levels of collection
agency intangibles caused by a $1.7 million impairment charge in the second
quarter of 1995, which resulted from the early adoption of Statement of
Financial Accounting Standards (FAS) No. 121 - "Accounting for the Impairment
of Long-Lived Assets". The total impact of this new accounting standard in
1995 was $3.3 million, as shown on the Consolidated Statements of Income, and
also included a $1.6 million charge for the reduction of carrying values
assigned to certain bank facilities.
Other operating expense 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. This category of expense totaled $3.8 million for the second quarter
of 1996, an increase of $44,000 or 1.2% from the prior year quarter. On a
year-to-date basis, other operating expense totaled $7.7 million, an increase
of $481,000 or 6.7% over 1995 due to a combination of higher loan processing
costs and additional credit card expenses.
Income tax expense for the second quarter of 1996 totaled $2.4 million, a $3.3
million increase over the prior year benefit of $820,000 due to a higher level
of earnings. For the first six months, the effective tax rate was 27.0% versus
24.9% in the prior year, excluding the impact of the impairment and
merger-related charges and tax credits recorded in the first quarter of 1995.
This effective rate increase was caused by the higher level of earnings and,
accordingly, the lower relative value associated with tax-exempt income.
SUMMARY OF FINANCIAL CONDITION
Total assets at June 30, 1996 were $2.76 billion, a $337.7 million or 14.0%
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. At June 30, 1996, total loans outstanding
were $1.37 billion, an increase of $79.6 million or 6.2% since the end of 1995.
Total securities at June 30, 1996 were $1.16 billion versus $908.7 million at
the end of 1995, an increase of $247.9 million or 27.3%.
The funding for the investment leveraging program caused short-term borrowings
to increase $233.0 million over the previous year-end to total $525.1 million
at June 30, 1996. The increased FHLB borrowings also caused long-term
borrowings to rise $66.4 million since the end of 1995 to $174.2 million at
June 30, 1996. Total deposits at the end of the quarter were $1.82 billion, an
increase of $46.8 million or 2.6% since the end of 1995. A $58.8 million
increase in interest bearing deposits, particularly in certificates of deposit,
was partially offset by a $12.0 million decline in non-interest bearing
deposits.
CAPITAL
Stockholders' equity was $198.4 million at June 30, 1996, a decline of $11.5
million or 5.5% since December 31, 1995. This decline was due to a $19.5
million after-tax reduction in the fair value of the securities available for
sale portfolio, which was caused by an increase in market interest rates.
Without the impact of this change in the net unrealized loss, total
stockholders' equity would have increased $8.0 million, or 3.9%. At June 30,
1996, the risk-based capital ratio was 13.29% and the Tier 1 risk-based capital
ratio was 12.43% in comparison to 13.26% and 12.40%, respectively, at December
31, 1995. The leverage ratio at June 30, 1996 was 7.42%, well above the
required minimum of 4.00%. Dividends per share for the second quarters of 1996
and 1995 were $.16 and $.15, respectively, an increase of 6.7%.
OTHER MATTERS
On August 2, 1996, the Company combined four of its banks in the southern
region into one national bank charter. The banks in Princeton, Peru and
Gridley were merged into the Mendota bank to form a new bank named AMCORE Bank
N.A., North Central, with assets totaling approximately $432 million. This
merger is intended to increase operating efficiencies and reduce costs. It is
also expected to improve customer service and allow for consistent product
offerings to customers in this economic region, which is in proximity to the
intersection of Interstates I-39 and I-80.
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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, 1996 (File No. 0-13393)
ITEM 6. Exhibits and Reports on Form 10-Q Page
(a) 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 of 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* Amended and Restated Transitional Compensation Agreement 15
dated June 1, 1996 between AMCORE Financial, Inc. and Robert
J. Meuleman.
10.3B* Amended and Restated Transitional Compensation Agreement 39
dated June 1, 1996 between AMCORE Financial, Inc. and the
following individuals: F. Taylor Carlin, John R. Hecht, and
James S. Waddell.
10.3C* Transitional Compensation Agreement dated June 1, 1996 60
between AMCORE Financial, Inc. and the following individuals:
Charles E. Gagnier and Gerald W. Lister.
10.3D* Transitional Compensation Agreement dated June 1, 1996 81
between AMCORE Financial, Inc. and the following individuals:
Kenneth E. Edge, William J. Hippensteel, Alan W. Kennebeck and
James F. Warsaw.
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).
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10.6* Executive Insurance Agreement dated March 1, 1996 between
AFI and the following executives: Robert J. Meuleman, F.
Taylor Carlin and James S. Waddell (Incorporated by
reference to Exhibit 10.6 of the Company's Form 10-Q for
the quarter ended March 31, 1996).
11 Statement Re-Computation of Per Share Earnings 102
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 103
99 Additional exhibit - Earnings release dated July 22, 1996. 104
(b) No reports on Form 8-K were filed during this quarter.
*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: August 9, 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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