##### Table of Contents

---



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10K



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2003



Commission file number 013393



---



AMCORE FINANCIAL, INC.



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NEVADA                                                         |  | 363183870                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



501 Seventh Street,
Rockford, Illinois 61104

Telephone Number (815) 9682241



Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.22 par value

Common Stock Purchase Rights



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days X Yes
     No



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10K.     X



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). X Yes  No



As of February 15, 2004, 25,244,000 shares of common stock were outstanding. The aggregate market value of the common equity held by non-affiliates, computed by reference to the average bid and ask price of such
common equity, as of the last business day of the registrants most recently completed second fiscal quarter was approximately $504,246,000.



---



Documents Incorporated by
Reference:



Portions of Proxy Statement and Notice of 2004 Annual Meeting,
dated March 12, 2004, are incorporated by reference into Part III of the Form 10-K for the fiscal year ended December 31, 2003.



---



---

##### Table of Contents

AMCORE FINANCIAL, INC.



Form 10K
Table of Contents



|           |  |                                                                                                |  |           
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----------
|PART I     |  |                                                                                                |  | PageNumber
|           |  |                                                                                               
|Item 1     |  | Business                                                                                       |  | 1         
|Item 2     |  | Properties                                                                                     |  | 7         
|Item 3     |  | Legal Proceedings                                                                              |  | 7         
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                            |  | 8         
|           |  |                                                                                               
|PART II    |  |                                                                                                |  |           
|           |  |                                                                                               
|Item 5     |  | Market for the Registrants Common Equity and Related Stockholder Matters                      |  | 8         
|Item 6     |  | Selected Financial Data                                                                        |  | 9         
|Item 7     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 10        
|Item 7A    |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 36        
|Item 8     |  | Financial Statements and Supplementary Data                                                    |  | 46        
|Item 9     |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 92        
|Item 9A    |  | Controls and Procedures                                                                        |  | 92        
|           |  |                                                                                               
|PART III   |  |                                                                                                |  |           
|           |  |                                                                                               
|Item 10    |  | Directors and Executive Officers of the Registrant                                             |  | 92        
|Item 11    |  | Executive Compensation                                                                         |  | 92        
|Item 12    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 92        
|Item 13    |  | Certain Relationships and Related Transactions                                                 |  | 93        
|Item 14    |  | Principal Accounting Fees and Services                                                         |  | 93        
|           |  |                                                                                               
|PART IV    |  |                                                                                                |  |           
|           |  |                                                                                               
|Item 15    |  | Exhibits, Financial Statement Schedules and Reports on Form 8K                                |  | 93        
|           | 
|Signatures |  | 96                                                                                            



---

##### Table of Contents

PART I



ITEM 1.    BUSINESS



General



AMCORE Financial, Inc. (AMCORE or the
Company) is a registered bank holding company incorporated under the laws of the State of Nevada in 1982. The corporate headquarters is located at 501 Seventh Street in Rockford, Illinois. The operations are divided into four business
segments: Commercial Banking, Retail Banking, Trust and Asset Management, and Mortgage Banking. AMCORE owns directly or indirectly all of the outstanding common stock of each of its subsidiaries. AMCORE provides its subsidiaries with advice and
counsel on policies and operating matters among other things.



AMCORE provides
free of charge, through the Companys Internet site at www.AMCORE.com/SEC, access to annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably
practicable after electronically filing such material with the Securities and Exchange Commission (SEC). However, the information found on AMCOREs website is not part of this or any other report. The Company has adopted a code of ethics
applicable to all employees. The AMCORE Financial, Inc. Code of Ethics is posted on the Companys website at www.AMCORE.com/governance. The Company intends that this website posting and future postings of amendments, waivers or
modifications of the Code of Ethics shall contain all required disclosures, however, a Form 8-K will be filed for amendments and waivers in order to meet the more stringent NASDAQ rules.



Banking Segments



General  AMCORE directly owns AMCORE Bank, N.A. (BANK), a nationally chartered bank. AMCORE also directly owns AMCORE Consumer Finance Company, Inc. (FINANCE), a
consumer finance company and indirectly owns Property Exchange Company, a qualified intermediary, which is a subsidiary of the BANK.



Geographic and Economic Information  The BANK conducts business at 63 locations throughout northern Illinois and south central Wisconsin (the Service
Areas). The Banking segments Service Area is dispersed among four basic economic areas: the Rockford, Illinois metropolitan area (Rockford), the Madison, Wisconsin metropolitan area (Madison), the northwestern and far-western Chicago
suburbs (Chicagoland) and community banking branches which are not otherwise specified (Community Banking). Locations in the Chicagoland, Rockford and Madison Service Areas are concentrated along the I-90 Corridor where populations are
the greatest and where the density and diversity of mid-sized businesses are highest. Recently, the Companys growth strategy has focused on expansion along the I-90 Corridor Service Area. At the same time, AMCORE exited certain Community
Banking markets that no longer fit its growth objectives. For additional information see the Branch Strategy discussion under Item 7, Managements Discussion And Analysis Of Financial Condition And Results Of Operations.



The Service Areas along the I-90 Corridor have similar economic characteristics of
population growth and business diversity among service, retail and manufacturing. Among the three Service Areas along the I-90 Corridor, the Rockford Service Area has the highest concentration of manufacturing activities. The Community Banking
Service Areas, on the other hand, have less growth potential and have a greater concentration of smaller-sized business and agricultural concentrations. At the end of 2003, economic conditions in the Madison Service Area were characterized as strong
with low unemployment. In the Chicagoland Service Area, economic conditions were stable with strong development activity and loan growth. In the Rockford Service Area, economic conditions were characterized as declining with high unemployment,
primarily due to tightening of employment opportunities in the manufacturing sector with cutbacks and layoffs. Economic conditions in Community Banking Service Areas were relatively stable with the exception of the agricultural sector which was
experiencing some weakness.



The BANK has 43 locations throughout northern
Illinois, excluding the far northwestern counties, including the Illinois cities of Rockford, Algonquin, Elgin, Carpentersville, Crystal Lake, Des Plaines, Lincolnshire, McHenry, Schaumburg, Oak Brook, Aurora, St. Charles, Woodstock, Dixon,
Freeport, Mendota, Peru, Princeton, Sterling



1



---

##### Table of Contents

and the surrounding communities. The BANK conducts business at 20 locations throughout south central Wisconsin, including the Wisconsin cities of Madison,
Monroe, Baraboo, Portage, Mt. Horeb, Waukesha and the surrounding communities.



Through its banking locations, AMCORE provides various personal banking, commercial banking and related financial services. AMCORE also conducts banking business through six supermarket branches, which gives the customer convenient access
to bank services seven days a week.



Investment Portfolio and Policies 
As a complement to its Commercial and Retail Banking segments, the BANK also carries a securities investment portfolio. The level of assets that the Company holds in securities is dependent upon a variety of factors. Chief among these factors is the
optimal utilization of the Companys capital. After consideration of loan demand, excess capital is available to allocate to high-quality investment activities that can generate additional income for the Company, while still maintaining strong
capital ratios. In addition to producing additional interest spreads for the BANK, the investment portfolio is used as a source of liquidity, to manage interest rate risk and to meet pledging requirements of the BANK. The investment portfolio is
governed by an investment policy designed to provide maximum flexibility in terms of liquidity and to contain risk from changes in interest rates. Individual holdings are diversified, maximum terms and durations are limited and minimum credit
ratings are enforced and monitored. The BANK does not engage in trading activities. The amount of securities that the Company is permitted to invest in that have a higher degree of risk of loss are defined and limited by Company policy. The
investment portfolio is managed on a day-to-day basis by a professional investment manager from AMCOREs Trust and Asset Management segment. Portfolio performance and changing risk profiles are regularly monitored by the Investment Committee of
AMCOREs Board of Directors.



Sources of Fundings  Liquidity
management is the process by which the Company, through its Asset and Liability Committee (ALCO) and treasury function, ensures that adequate liquid funds are available to meet its financial commitments on a timely basis, at a reasonable cost and
within acceptable risk tolerances. These commitments include funding credit obligations to borrowers, funding of mortgage originations pending delivery to the secondary market, withdrawals by depositors, repayment of debt when due or called,
maintaining adequate collateral for secured deposits and borrowings, paying dividends to its parent company, payment of operating expenses, funding capital expenditures and maintaining deposit reserve requirements.



Liquidity is derived primarily from core deposit growth and retention; principal and interest
payments on loans; principal and interest payments, sale, maturity and prepayment of investment securities; net cash provided by operations; and access to other funding sources. Other funding sources include brokered certificates of deposit
(CDs), federal funds purchased lines (FED funds), Federal Home Loan Bank (FHLB) advances, repurchase agreements, commercial paper and back-up lines of credit (via the BANKs parent company), the sale or securitization of loans, and access
to other capital markets. Core deposits from the BANKs retail and commercial customers are considered by management to be the primary, most stable and most cost-effective source of funding and liquidity for the BANK.



Retail Banking Segment  Retail banking services to individuals include deposit (demand,
savings and time deposit accounts) and lending activities. Principal lending types include installment loans (primarily direct and indirect automobile lending), mortgage and home equity loans, overdraft protection, personal credit lines and bank
card programs.



Mortgage and home equity lending have the lowest risk profile
due to the nature of the collateral. Installment loans have an intermediate risk due to the lower principal amounts and the depreciating nature of the collateral. Personal lines and overdraft have the highest degree of risk since the loans are
unsecured. The bank card programs are a fee service for originating the relationship and no credit risk is retained by the BANK. The BANK manages its retail lending risk via a centralized credit administration process, risk scoring, loan-to-value
and other underwriting standards and knowledge of its customers and their credit history. As a general rule, the BANK does not actively engage in retail lending activities outside its geographic market areas.



2



---

##### Table of Contents

The Vintage Mutual Funds, a proprietary family of mutual funds, are also marketed through most banking locations. The
Private Banking Group also markets Vintage Mutual Funds and meets other special needs of high net worth individuals. Automated teller machines located throughout AMCOREs market area make banking transactions available to customers when the
bank facilities and hours are not convenient.



Commercial Banking Segment
 A wide range of financial services are provided to commercial, small business and governmental organizations. These services include, among others, lending, deposits, letters of credit and cash management services. The BANK has a limited
portfolio of equipment leases and does not actively promote this type of financing with its commercial customers. The Commercial Banking Segment lending products are tailored to the specific customer needs (facilities acquisition and expansion,
equipment purchases and working capital needs). Commercial lending has a higher risk profile than does retail lending due to the larger dollar amounts involved, the nature of the collateral and a greater variety of economic risks that could
potentially affect the loan customer.



The BANK manages its commercial lending
risks through a centralized underwriting process, serial sign-off requirements as dollar amounts increase, lending limits, monitoring concentrations, regular loan review and grading of credits and an active work-out management process for troubled
credits.



The BANK is a significant lender in the Small Business Administration
(SBA) program, with a total loan portfolio of $46.8 million as of December 31, 2003, and has earned Preferred Lender Status from the SBA in both Illinois and Wisconsin. SBA loans are popular with small business customers offering them another source
of financing.



Mortgage Banking Segment  AMCORE Mortgage, Inc. was merged
into AMCORE Bank, N.A. effective January 1, 2003, however, continues as a reportable segment. The mortgage banking segment is a full service operation providing a broad spectrum of mortgage products to meet its customer needs. Residential mortgage
loans are originated, of which non-conforming adjustable rate, fixed-rate and balloon mortgages are normally placed in the BANKs real estate portfolio. The conforming adjustable rate, fixed-rate and balloon residential mortgage loans are
normally sold in the secondary market. The mortgage banking segment services most of the loans that are sold. See Note 18 of the Notes to Consolidated Financial Statements included under Item 8 of this document for further information on
AMCOREs business segments.



Other Financial Services  The BANK
provides various services to consumers, commercial customers and correspondent banks. Services available include safe deposit box rental, securities safekeeping, foreign currency exchange, lock box and other services.



The BANK also offers several electronic banking services to commercial and retail customers.
AMCORE Online provides retail customers with online capability to access deposit and loan account balances, transfer funds between accounts, make loan payments, view statements and pay bills. AMCORE Online For Business facilitates access to
commercial customers accounts via personal computers. It also permits the transfer of funds between accounts and the initiation of wire transfers and ACH activity to accounts at other financial institutions. The AMCORE TeleBank service
provides retail and commercial customers the opportunity to use their telephone 24 hours a day to obtain balance and other information on their checking and savings accounts, certificates of deposit, personal installment loans and retail mortgage
loans; all from a completely automated system. Through Vintage Mutual Funds WebAccess or via telephone, shareholders can access all of their accounts and purchase, redeem or exchange shares.



Trust and Asset Management Segment



AMCORE Investment Group, N.A. (AIG) is a nationally chartered non-depository bank and owns
AMCORE Investment Services, Inc. (AIS) and Investors Management Group, Ltd. (IMG). AIG provides trust services, employee benefit plan and estate administration and various other services to corporations and individuals.



3



---

##### Table of Contents

AIS, a whollyowned subsidiary of AIG, is incorporated under the laws of the State of Illinois and is a member of
the National Association of Security Dealers (NASD). AIS is a fullservice brokerage company that offers a full range of investment alternatives including annuities, mutual funds, stocks and bonds. AIS customers can get real time stock market
quotes, investment account information, and place trades for market hours execution 24 hours a day, 7 days a week through AMCORETrade.com.



IMG is incorporated under the laws of the State of Iowa and is a wholly-owned subsidiary of AIG. IMG is an asset management company whose primary customers include trust
customers, retirement plans, foundations, endowments, private investors, Vintage Mutual Funds family, insurance companies, banks, public entities and individuals. IMG also provides the mutual fund administration for the Vintage Mutual Funds.



Competition



Active competition exists for all services offered by AMCOREs bank and nonbank
affiliates with other national and state banks, savings and loan associations, credit unions, finance companies, personal loan companies, brokerage and mutual fund companies, mortgage bankers, insurance agencies, financial advisory services, and
other financial institutions serving the affiliates respective market areas. The principal competitive factors in the banking and financial services industry are quality of services to customers, ease of access to services and pricing of
services, including interest rates paid on deposits, interest rates charged on loans, and fees charged for fiduciary and other professional services.



Since 1982, when Illinois multibank holding company legislation became effective, there have been many bank mergers and acquisitions in Illinois. These combinations
have had the effect of increasing the assets and deposits of bank holding companies involved in such activities. Illinois legislation, effective December 1, 1990, permitted bank acquisitions in Illinois by institutions headquartered in any other
state which has reciprocal legislation, further increasing competition. See Supervision and Regulation below in this Item 1.



On September 29, 1994, Congress passed laws allowing interstate banking and interstate branching. A year later, nationwide interstate banking became effective allowing
institutions to make acquisitions in any state. Beginning July 1, 1997, interstate branching became effective, and banks can merge with affiliate banks or establish de novo branches in any state. Individual states, however, have the right to
opt out of interstate branching. Illinois and Wisconsin have not opted out, however Iowa has retained the de novo rules for branching.



Employment



AMCORE had 1,491 fulltime equivalent employees as of February 1, 2004. AMCORE provides a variety of benefit plans to its employees including health, dental, group term life and disability insurance, childcare
reimbursement, flexible spending accounts, retirement, profit sharing, 401(k), stock option, stock purchase and dividend reinvestment plans.



Supervision and Regulation



AMCORE is subject to regulations under the Bank Holding Company Act of 1956, as amended (the Act), and is registered with the Federal Reserve Board (FRB) under the Act.
AMCORE is required by the Act to file quarterly and annual reports of its operations and such additional information as the FRB may require and is subject, along with its subsidiaries, to examination by the FRB.



The acquisition of five percent or more of the voting shares or all or substantially all of
the assets of any bank by a bank holding company requires the prior approval of the FRB and is subject to certain other federal and state law limitations. The Act also prohibits, with certain exceptions, a bank holding company from acquiring direct
or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank



4



---

##### Table of Contents

and from engaging in any business other than banking, managing and controlling banks or furnishing services to banks and their subsidiaries, except that
holding companies may engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking as to be a proper incident thereto. On August 31, 1993, the FRB approved an amendment to
add certain activities and to reduce the burden on bank holding companies that desire to conduct these activities by simplifying the regulatory review process.



Under current regulations of the FRB, a bank holding company and its nonbank subsidiaries are permitted, among other activities, to engage in such
bankingrelated businesses as sales and consumer finance, equipment leasing, computer service bureau and software operations, mortgage banking, brokerage and financial advisory services. The Act does not place territorial restrictions on the
activities of nonbank subsidiaries of bank holding companies. In addition, federal legislation prohibits acquisition of control of a bank or bank holding company without prior notice to certain federal bank regulators.
Control is defined in certain cases as acquisition of ten percent or more of the outstanding shares of a bank or bank holding company.



There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy
that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the Federal Deposit Insurance Corporation (FDIC) insurance fund in the event the depository institution becomes in danger of default or is
in default. For example, under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and commit
resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the cross-guarantee provisions of federal law require insured depository institutions under common control to reimburse the
FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of
default.



The federal banking agencies have broad powers under current federal
law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically undercapitalized, as such terms are defined under regulations issued by each of the federal banking agencies.



In late 1992, Congress passed the Federal Deposit Insurance Corporation Improvement Act of
1992 that included many provisions that have had significant effects on the cost structure and operational and managerial standards of commercial banks. In addition to provisions for recapitalization of the Bank Insurance Fund, this Act contains
provisions that revise bank supervision and regulation, including, among many other things, the monitoring of capital levels, outline additional management reporting and external audit requirements, and add consumer provisions that include
Truth-in-Savings disclosures.



The Gramm-Leach-Bliley Act (GLB Act) was enacted
November 1999, and, among other things, established a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms. To date, the GLB Act has not materially affected the Companys operations.
However, to the extent the GLB Act permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This could result in a growing number of larger financial institutions
that offer a wider variety of financial services than the Company currently offers and that can aggressively compete in the markets the Company currently serves.



The foregoing references to applicable statutes and regulations are brief summaries thereof and are not intended to be complete and are
qualified in their entirety by reference to the full text of such statutes and regulations.



AMCORE is supervised and examined by the FRB. The BANK and AIG are supervised and regularly examined by the Office of the Comptroller of the Currency (OCC) and are subject to examination by the FRB. In addition, the
BANK is subject to periodic examination by the FDIC.



5



---

##### Table of Contents

FINANCE is regulated by the Illinois Department of Financial Institutions. AIS and IMG are supervised and examined by the
NASD and are regulated by the SEC.



Subsidiary Dividends and Capital



Legal limitations exist as to the extent to which the BANK can lend or
pay dividends to AMCORE and/or its affiliates. The payment of dividends by a national bank without prior regulatory approval is limited to the current years net income plus the adjusted retained net income for the two preceding years. The
payment of dividends by any bank or bank holding company is affected by the requirement to maintain adequate capital pursuant to the capital adequacy guidelines issued by the FRB and regulations issued by the FDIC and the OCC (collectively
Agencies). As of December 31, 2003, approximately $49.9 million was available for payment to AMCORE in the form of dividends without prior regulatory approval. The BANK is also limited as to the amount it may lend to AMCORE and its
affiliates. At December 31, 2003, the maximum amount available to AMCORE and its affiliates in the form of loans approximated $26.4 million. There were no loans outstanding from the BANK to affiliates at December 31, 2003. See Note 19 of the Notes
to Consolidated Financial Statements.



The FRB issues riskbased capital
guidelines for bank holding companies. These capital rules require minimum capital levels as a percent of riskweighted assets. In order to be adequately capitalized under these guidelines, banking organizations must have minimum capital ratios
of 4% and 8% for Tier 1 capital and total capital, respectively. The FRB also established leverage capital requirements intended primarily to establish minimum capital requirements for those banking organizations that have historically invested a
significant portion of their funds in low risk assets. Federally supervised banks are required to maintain a minimum leverage ratio of not less than 4%. Refer to the Capital Management section of Item 7 for a summary of AMCOREs capital ratios
as of December 31, 2003 and 2002. See also Note 20 of the Notes to Consolidated Financial Statements.



Governmental Monetary Policies and Economic Conditions



The earnings of all subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the FRB influences general economic conditions and
interest rates through various monetary policies and tools. It does so primarily through openmarket operations in U.S. Government securities, varying the discount rate on member and non-member bank borrowings, and setting reserve requirements
against bank deposits. FRB monetary policies have had a significant effect on the operating results of banks in the past and are expected to do so in the future. The general effect of such policies upon the future business and earnings of each of
the subsidiary companies cannot accurately be predicted.



Interest rate
sensitivity has a major impact on the earnings of banks. As market rates change, yields earned on assets may not necessarily move to the same degree as rates paid on liabilities. For this reason, AMCORE attempts to minimize earnings volatility
related to fluctuations in interest rates through the use of a formal asset/liability management program and certain derivative activities. See Item 7A and Note 11 of the Notes to Consolidated Financial Statements included under Item 8 for
additional discussion of interest rate sensitivity and related derivative activities.



6



---

##### Table of Contents

Executive Officers of the Registrant



The following table contains certain information about the executive officers of AMCORE. There are no family relationships between
any director or executive officer of AMCORE.



|                    |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                |  | Age |  | Principal Occupation Within the Last Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Kenneth E. Edge     |  | 58  |  | Chairman of the Board, President and Chief Executive Officer of AMCORE since January 2003. President and Chief Executive Officer from July 2002 to January 2003. President and Chief Operating
Officer of AMCORE from May 2000 to July 2002. Executive Vice President and Chief Operating Officer until May 2000. Chairman of the Board, President and Chief Executive Officer of the BANK since October 1999. Previously Group Vice President, Banking
Subsidiaries. Chairman of the Board of AIG since October 1999 and President and Chief Executive Officer of AIG since November 2003.
|                    |  |    
|John R. Hecht       |  | 45  |  | Executive Vice President and Chief Financial Officer of AMCORE. Director of the BANK and AIG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                    |  |    
|Bruce W. Lammers    |  | 47  |  | Executive Vice President and Chief Operating Officer of the BANK since January 2004. Previously Executive Vice President and Commercial Line of Business Manager of the BANK. Director of the BANK
and AIG.                                                                                                                                                                                                                                                                                                                                                                                
|                    |  |    
|James S. Waddell    |  | 58  |  | Executive Vice President, Chief Administrative Officer and Corporate Secretary of AMCORE. Director of the BANK and AIG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                    |  |    
|Joseph B. McGougan  |  | 43  |  | President of AMCORE Mortgage, a division of the BANK. President and Chief Executive Officer of AMCORE Mortgage, Inc. until it was merged into the BANK effective January 1, 2003. Executive Vice
President of the BANK since October 2002. Director of the BANK and AIG.                                                                                                                                                                                                                                                                                                                   
|                    |  |    
|Eleanor F. Doar     |  | 47  |  | Senior Vice President and Corporate Marketing Director of the BANK since February 2002. Previously Vice President, Advertising and Public Relations Manager of the BANK. Marketing Manager for
Vintage Mutual Funds Inc. since February 2000. Director of the BANK and AIG since January 2003.                                                                                                                                                                                                                                                                                             
|                    |  |    
|Patricia M. Bonavia |  | 53  |  | Executive Vice President and Chief Operating Officer of AIG since March 2000. President of AIS and Director of the Bank and IMG.                                                                                                                                                                                                                                                                                                                                                                                                                                                           



ITEM 2.    PROPERTIES



On
December 31, 2003, AMCORE had 82 locations, of which 55 were owned and 27 were leased. The Commercial, Retail and Mortgage Banking segments had 80 locations, of which 55 were owned and 25 were leased. The Trust and Asset Management segment had two
leased facilities. All of these offices are considered by management to be well maintained and adequate for the purpose intended. See Item 1 and Note 5 of the Notes to Consolidated Financial Statements included under Item 8 of this document for
further information on properties. In addition, AMCORE had 147 ATM machine locations that were available without fee to AMCORE customers.



ITEM 3.    LEGAL PROCEEDINGS



Management believes that no litigation is threatened or pending in which the Company faces potential loss or exposure which will materially affect the Companys consolidated financial position or consolidated results of operations.
Since the Companys subsidiaries act as depositories of funds, trustee and escrow agents, they occasionally are named as defendants in lawsuits involving claims to the ownership of funds in particular accounts. This and other litigation is
incidental to the Companys business.



7



---

##### Table of Contents

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of security holders during the fourth quarter of 2003.



PART II



ITEM 5.    MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



See Items 6 and 8 of this document for information on the Companys stock price ranges and dividends. AMCOREs common stock trades on the NASDAQ National Market
System under the symbol AMFI. There were approximately 8,800 holders of record of AMCOREs common stock as of March 1, 2004. See Item 12 of this document for information on the Companys equity compensation plans.



The Companys policy is to declare regular quarterly dividends based upon the
Companys earnings, financial position, capital requirements and such other factors deemed relevant by the Board of Directors. This dividend policy is subject to change, however, and the payment of dividends by the Company is necessarily
dependent upon the availability of earnings and the Companys financial condition in the future. The payment of dividends on the Common Stock is also subject to regulatory capital requirements.



The Companys principal source of funds for dividend payments to its stockholders is
dividends received from the BANK. Under applicable banking laws, the declaration of dividends by the BANK in any year, in excess of its net profits, as defined, for that year, combined with its retained net profits of the preceding two years, must
be approved by the Office of the Comptroller of the Currency. For further discussion of restrictions on the payment of dividends, see Item 7, Managements Discussion and Analysis of the Results of Operations and Financial Condition and Note 19
of the Notes to the Consolidated Financial Statements.



8



---

##### Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA



Five Year Comparison of Selected Financial Data



|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|------------------------------------------------------------------ |  | ------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                   |  | 2003                                  |           |   | 2002 |   |           | 2001 |  |   | 2000      |   |  | 1999 |          
|                                                                   |  | (in thousands, except per share data) |          
|FOR THE YEAR:                                                      |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest income                                                    |  | $                                     | 228,748   |   |      | $ | 253,128   |      |  | $ | 281,387   |   |  | $    | 320,874   |   |  | $ | 300,322   |  
|Interest expense                                                   |  |                                       | 90,061    |   |      |   | 122,360   |      |  |   | 161,514   |   |  |      | 195,821   |   |  |   | 168,883   |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income                                                |  |                                       | 138,687   |   |      |   | 130,768   |      |  |   | 119,873   |   |  |      | 125,053   |   |  |   | 131,439   |  
|Provision for loan losses                                          |  |                                       | 24,917    |   |      |   | 12,574    |      |  |   | 16,700    |   |  |      | 9,710     |   |  |   | 10,550    |  
|Non-interest income                                                |  |                                       | 91,988    |   |      |   | 70,312    |      |  |   | 77,066    |   |  |      | 61,209    |   |  |   | 58,204    |  
|Operating expenses                                                 |  |                                       | 146,148   |   |      |   | 131,015   |      |  |   | 123,635   |   |  |      | 117,113   |   |  |   | 123,838   |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income before income taxes, extraordinary item & accounting change |  |                                       | 59,610    |   |      |   | 57,491    |      |  |   | 56,604    |   |  |      | 59,439    |   |  |   | 55,255    |  
|Income taxes                                                       |  |                                       | 16,106    |   |      |   | 14,020    |      |  |   | 14,382    |   |  |      | 16,356    |   |  |   | 15,106    |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income before extraordinary item & accounting change           |  | $                                     | 43,504    |   |      | $ | 43,471    |      |  | $ | 42,222    |   |  | $    | 43,083    |   |  | $ | 40,149    |  
|Extraordinary item: Early extinguishment of debt (net of tax)      |  |                                       |          |   |      |   |          |      |  |   | (204      | ) |  |      |          |   |  |   |          |  
|Cumulative effect of accounting change (net of tax)                |  |                                       |          |   |      |   |          |      |  |   | 225       |   |  |      |          |   |  |   |          |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                                                         |  | $                                     | 43,504    |   |      | $ | 43,471    |      |  | $ | 42,243    |   |  | $    | 43,083    |   |  | $ | 40,149    |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets                                           |  |                                       | 0.98      | % |      |   | 1.02      | %    |  |   | 1.04      | % |  |      | 1.00      | % |  |   | 0.95      | %
|Return on average equity                                           |  |                                       | 11.90     |   |      |   | 13.19     |      |  |   | 13.50     |   |  |      | 14.92     |   |  |   | 12.96     |  
|Net interest margin                                                |  |                                       | 3.54      |   |      |   | 3.53      |      |  |   | 3.42      |   |  |      | 3.29      |   |  |   | 3.55      |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|AVERAGE BALANCE SHEET:                                             |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total assets                                                       |  | $                                     | 4,424,520 |   |      | $ | 4,242,499 |      |  | $ | 4,054,874 |   |  | $    | 4,314,593 |   |  | $ | 4,216,662 |  
|Gross loans                                                        |  |                                       | 2,902,208 |   |      |   | 2,665,875 |      |  |   | 2,518,772 |   |  |      | 2,736,482 |   |  |   | 2,593,770 |  
|Earning assets                                                     |  |                                       | 4,069,154 |   |      |   | 3,899,321 |      |  |   | 3,750,714 |   |  |      | 4,035,705 |   |  |   | 3,969,851 |  
|Deposits                                                           |  |                                       | 3,326,541 |   |      |   | 3,085,333 |      |  |   | 2,930,452 |   |  |      | 3,079,212 |   |  |   | 2,953,023 |  
|Long-term borrowings                                               |  |                                       | 193,862   |   |      |   | 212,997   |      |  |   | 288,680   |   |  |      | 316,680   |   |  |   | 300,490   |  
|Stockholders equity                                               |  |                                       | 365,689   |   |      |   | 329,548   |      |  |   | 312,855   |   |  |      | 288,820   |   |  |   | 309,723   |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|ENDING BALANCE SHEET:                                              |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total assets                                                       |  | $                                     | 4,543,628 |   |      | $ | 4,520,714 |      |  | $ | 4,021,847 |   |  | $    | 4,244,106 |   |  | $ | 4,347,621 |  
|Gross loans                                                        |  |                                       | 2,992,309 |   |      |   | 2,883,717 |      |  |   | 2,477,193 |   |  |      | 2,627,157 |   |  |   | 2,746,613 |  
|Earning assets                                                     |  |                                       | 4,193,474 |   |      |   | 4,145,365 |      |  |   | 3,670,113 |   |  |      | 3,946,631 |   |  |   | 4,008,000 |  
|Deposits                                                           |  |                                       | 3,368,494 |   |      |   | 3,294,662 |      |  |   | 2,893,737 |   |  |      | 3,143,561 |   |  |   | 3,016,408 |  
|Long-term borrowings                                               |  |                                       | 184,610   |   |      |   | 185,832   |      |  |   | 268,230   |   |  |      | 265,830   |   |  |   | 285,270   |  
|Stockholders equity                                               |  |                                       | 375,584   |   |      |   | 355,681   |      |  |   | 301,660   |   |  |      | 308,497   |   |  |   | 293,728   |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|FINANCIAL CONDITION ANALYSIS:                                      |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for loan losses to year-end loans                        |  |                                       | 1.41      | % |      |   | 1.22      | %    |  |   | 1.37      | % |  |      | 1.11      | % |  |   | 1.03      | %
|Allowance to non-accrual loans                                     |  |                                       | 132.98    |   |      |   | 108.24    |      |  |   | 128.28    |   |  |      | 132.12    |   |  |   | 159.16    |  
|Net charge-offs to average loans                                   |  |                                       | 0.57      |   |      |   | 0.42      |      |  |   | 0.44      |   |  |      | 0.29      |   |  |   | 0.33      |  
|Non-accrual loans to gross loans                                   |  |                                       | 1.06      |   |      |   | 1.13      |      |  |   | 1.07      |   |  |      | 0.84      |   |  |   | 0.65      |  
|Average long-term borrowings to average equity                     |  |                                       | 53.01     |   |      |   | 64.63     |      |  |   | 92.27     |   |  |      | 109.65    |   |  |   | 97.02     |  
|Average equity to average assets                                   |  |                                       | 8.27      |   |      |   | 7.77      |      |  |   | 7.72      |   |  |      | 6.69      |   |  |   | 7.35      |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|STOCKHOLDERS DATA:                                                |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic earnings per share                                           |  | $                                     | 1.75      |   |      | $ | 1.76      |      |  | $ | 1.66      |   |  | $    | 1.60      |   |  | $ | 1.42      |  
|Diluted earnings per share                                         |  |                                       | 1.73      |   |      |   | 1.75      |      |  |   | 1.64      |   |  |      | 1.58      |   |  |   | 1.40      |  
|Book value per share                                               |  |                                       | 14.98     |   |      |   | 14.35     |      |  |   | 12.26     |   |  |      | 11.87     |   |  |   | 10.51     |  
|Dividends per share                                                |  |                                       | 0.66      |   |      |   | 0.64      |      |  |   | 0.64      |   |  |      | 0.64      |   |  |   | 0.56      |  
|Dividend payout ratio                                              |  |                                       | 37.71     | % |      |   | 36.36     | %    |  |   | 38.55     | % |  |      | 40.00     | % |  |   | 39.44     | %
|Average common shares outstanding                                  |  |                                       | 24,896    |   |      |   | 24,701    |      |  |   | 25,490    |   |  |      | 26,930    |   |  |   | 28,304    |  
|Average diluted shares outstanding                                 |  |                                       | 25,090    |   |      |   | 24,911    |      |  |   | 25,730    |   |  |      | 27,237    |   |  |   | 28,730    |  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  



9



---

##### Table of Contents

ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion highlights the significant factors affecting AMCORE Financial, Inc. and Subsidiaries (AMCORE or the Company) consolidated
financial condition as of December 31, 2003 compared to December 31, 2002 and the consolidated results of operations for the three years ended December 31, 2003. The discussion should be read in conjunction with the Consolidated Financial
Statements, accompanying Notes to the Consolidated Financial Statements, and selected financial data appearing elsewhere within this report.



FACTORS INFLUENCING FORWARD-LOOKING STATEMENTS



This report on Form 10-K contains, and our periodic filings with the Securities and Exchange Commission and written or oral statements made by the Companys officers
and directors to the press, potential investors, securities analysts and others will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe harbors created thereby with respect to, among other things, the financial condition, results of operations, plans, objectives, future performance and business of AMCORE. Statements
that are not historical facts, including statements about beliefs and expectations, are forward-looking statements. These statements are based upon beliefs and assumptions of AMCOREs management and on information currently available to such
management. The use of the words believe, expect, anticipate, plan, estimate, should, may, will or similar expressions are forward looking statements.
Forward-looking statements speak only as of the date they are made, and AMCORE undertakes no obligation to update publicly any of them in light of new information or future events.



Contemplated, projected, forecasted or estimated results in such forward-looking statements involve certain inherent risks and
uncertainties. A number of factors  many of which are beyond the ability of the Company to control or predict  could cause actual results to differ materially from those in its forward-looking statements. These factors include, among
others, the following possibilities: (I) heightened competition, including specifically the intensification of price competition, the entry of new competitors and the formation of new products by new or existing competitors; (II) adverse state,
local and federal legislation and regulation; (III) failure to obtain new customers and retain existing customers; (IV) inability to carry out marketing and/or expansion plans; (V) ability to attract and retain key executives or personnel; (VI)
changes in interest rates including the effect of prepayment; (VII) general economic and business conditions which are less favorable than expected; (VIII) equity and fixed income market fluctuations; (IX) unanticipated changes in industry trends;
(X) unanticipated changes in credit quality and risk factors; (XI) success in gaining regulatory approvals when required; (XII) changes in Federal Reserve Board monetary policies; (XIII) unexpected outcomes on existing or new litigation in which
AMCORE, its subsidiaries, officers, directors or employees are named defendants; (XIV) technological changes; (XV) changes in accounting principles generally accepted in the United States of America; (XVI) changes in assumptions or conditions
affecting the application of critical accounting estimates; and (XVII) inability of third-party vendors to perform critical services to the Company or its customers; and (XVIII) disruption of operations caused by the conversion of data
processing systems.



CRITICAL ACCOUNTING ESTIMATES



The financial condition and results of operations for AMCORE presented in
the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements, selected financial data appearing elsewhere within this report, and managements discussion and analysis are, to a large degree, dependent upon
the Companys accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change.



10



---

##### Table of Contents

Presented below are discussions of those accounting policies that management believes requires its most difficult,
subjective and complex judgments about matters that are inherently uncertain (Critical Accounting Estimates) and are most important to the portrayal and understanding of the Companys financial condition and results of operation. In the event
that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. See also Note 1 of the Notes
to Consolidated Financial Statements.



Loans and Allowance for Estimated
Losses



Loans are the Companys largest income earning asset
category. Loans are recorded at the amount advanced to the borrower plus certain costs incurred by AMCORE to originate the loan, less certain origination fees that are collected from the borrower. The carrying amount of loans is reduced as principal
payments are made. Payments made by the borrower are allocated between interest income and principal payment based upon the outstanding principal amount, the contractual rate of interest and other contractual terms. The carrying amount is further
adjusted to reflect amortization of the origination costs net of origination fees. These items are amortized over the expected life of the loan.



The accrual of interest income is generally discontinued (Non-Accrual Status) when management believes that collection of principal and/or interest is doubtful or when
payment becomes 90 to 120 days past due, except for loans that are well secured and are in a short-term, well-defined process of collection. Payments received from the borrower after a loan is placed on Non-Accrual Status are applied to reduce the
principal balance of the loan until such time that collectibility of remaining principal and interest is no longer doubtful.



Management periodically evaluates the loan portfolio in order to establish an estimated allowance for loan losses (Allowance) that are probable as of the respective
reporting date and considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan groups or pools that are based on historical loss
experience and other loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrowers ability to repay, and current economic and industry
conditions, among other things. If the Allowance is not adequate, additions to the Allowance are charged against earnings for the period as a provision for loan losses (Provision). Conversely, this evaluation could result in a decrease in the
Allowance and Provision.



Actual loan losses are charged against (reduce) the
Allowance when management believes that the collection of principal will not occur. Unpaid interest attributable to prior years for loans that are placed on Non-Accrual Status is also charged against the Allowance. Unpaid interest for the current
year for loans that are placed on Non-Accrual Status is reversed against the interest income previously recognized. Subsequent recoveries of amounts previously charged to the Allowance, if any, are credited to (increase) the Allowance. The Allowance
is also subject to periodic examination by regulators whose review includes a determination as to its adequacy to absorb probable losses.



Those judgments and assumptions that are most critical to the application of this accounting policy are the initial and on-going credit-worthiness of the borrower, the
amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk
gradings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the Allowance for actual losses that are greater or less than previously estimated. These judgments and assumptions are
dependent upon or can be influenced by a variety of factors including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing
economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.



11



---

##### Table of Contents

While the Company strives to reflect all known risk factors in its evaluations, judgment errors may occur. If different
assumptions or conditions were to prevail, the amount and timing of interest income and loan losses could be materially different. These factors are most pronounced during economic downturns and may continue into an economic recovery, as specific
credit performance may not be immediately affected by the stress of the downturn. Since, as described above, so many factors can affect the amount and timing of losses on loans it is difficult to predict, with any degree of certainty, the affect on
income if different conditions or assumptions were to prevail. Nonetheless, if any combination of the above judgments or assumptions were to adversely affect the adequacy of the Allowance by ten percent, an additional Provision of approximately $4.2
million would be necessary. See also Table 2 and Note 4 of the Notes to Consolidated Financial Statements.



Mortgage Servicing Rights



The Company
recognizes as separate assets the rights to service mortgage loans for others. Mortgage servicing rights that are retained when mortgage loans are sold are recorded by allocating the previous carrying amount of the sold loan between the servicing
rights retained and the loans that are sold. This allocation is based upon the relative fair values of the mortgage servicing rights and the loans sold. Because it is retained as an asset, the amount allocated to mortgage servicing rights will have
a favorable impact on the amount of gain or loss that is recognized on the sale of the loans.



The mortgage servicing rights asset is amortized over the projected period of and in proportion to the estimated amount of net servicing income. Amortization of the servicing rights asset will reduce the amount of
income that is recorded in the respective period from the servicing of the mortgage loans.



Each reporting period, the Company re-evaluates the fair value of its remaining mortgage servicing rights assets. The amount by which the unamortized carrying amount of mortgage servicing rights exceeds the new
estimate of fair value is charged against earnings for the period. Rather than directly reducing the unamortized carrying amount of the servicing rights asset, a valuation allowance is established for the same amount as the charge against earnings.
In subsequent reporting periods, depending upon current estimates of fair value, the valuation allowance may be reversed. The reversal is limited to the remaining amount of the valuation allowance and will result in an increase in recorded earnings.



The periodic re-evaluation of fair value is based upon current estimates of
the present value of remaining net servicing cash flows that incorporate numerous assumptions including the cost of servicing the loans, discount rates, prepayment rates and default rates. This re-evaluation is done by stratifying mortgage servicing
rights assets into pools based upon one or more predominant risk characteristics of the underlying loans that are being serviced. Risk characteristics include loan type and interest rate. Valuation allowances required for one pool cannot be offset
by the amount that the fair value of another pool exceeds its unamortized carrying amount.



Judgments and assumptions that are most critical to the application of this accounting policy are the appropriate risk-weighted discount rates used to determine the present value of estimated net future cash flows,
prepayment speeds that will determine the amount and period of servicing revenue that is expected to be earned, estimated costs to service the loans and estimated interest earned on amounts collected for real estate tax and property insurance
premiums that are held in escrow until payment is due. These assumptions are based upon actual performance of the underlying loans and the general market consensus regarding changes in mortgage and other interest rates. For example, declining
mortgage interest rates typically result in accelerated mortgage prepayments, which tend to shorten the life and reduce the value of the servicing rights asset.



In addition to the judgments and assumptions affecting the application of this accounting policy, the adoption of Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, permitted mortgage servicers to restratify their mortgage servicing rights pools. Upon consideration, the Company determined that its
existing stratification was preferable



12



---

##### Table of Contents

to other alternatives and chose not to restratify its pools. This represented the selection of an accounting policy that could have produced different
results for 2001 and later years had the Company chose to restratify its pools. In general, the greater the number of pools, the greater the likelihood of earnings volatility associated with valuation allowances. Conversely, the fewer the number of
pools the less likely there will be earnings volatility.



If different
assumptions and conditions were to prevail, materially different amortization and valuation allowances than those that were recorded may be required. Since, as described above, so many factors can affect the value of mortgage servicing rights it is
difficult to predict, with any degree of certainty, the affect on income if different conditions or assumptions were to prevail. Nonetheless, if any combination of the above judgments or assumptions were to adversely affect their value by an
additional ten percent, an additional impairment charge of approximately $1.1 million would be necessary. See also Note 7 of the Notes to Consolidated Financial Statements.



Loan Securitizations and Sale of Receivables



During 2003 and 2001, the Company sold certain indirect automobile loans in securitization transactions. Upon the sale, the net carrying
amount of the loans were removed from the consolidated balance sheet in exchange for cash, and certain retained residual interests. The retained interests included rights to service the loans that were sold (the Servicing Rights) and an
interest in residual cash flows (the Interest Only Strip). The Interest Only Strip includes the excess of interest collected on the loans over the amount required to be paid to the investors and the securitization agent (the Excess
Spread) plus an interest in sales proceeds that were not remitted by the securitization trust at the time of the initial sale of the loans to the extent it exceeds projected credit losses (the Credit Enhancement or
Overcollateralization). The carrying value of the loans removed from the balance sheet included the unpaid principal balance of the loans, net of an allocable portion of the Allowance for Loan and Lease Losses, minus the portion of the
carrying value of the loans that were allocated to the retained residual interests. These allocations were based upon the relative fair values of the retained residual interests and the loans sold. Because they are retained assets, the amount
allocated and recorded for the residual interests had a favorable impact on the amount of gain or loss that was recognized on the sale of the loans.



Since the projected income from the Servicing Rights approximates what is considered adequate compensation for servicing the loans, no asset or liability was
recorded for Servicing Rights. Income from servicing is recognized as earned pursuant to the terms of the servicing agreement and to the extent cash collections from the borrowers exceed payments to the investors and agent. Cash collections in
excess of the Servicing Rights income that is earned is next applied to the Interest Only Strip. The value allocated to the Interest Only Strip is reduced and interest income is recorded assuming a constant yield based upon the discount rate used to
estimate its fair value. At the end of the estimated life of the securitization, the carrying value of the Interest Only Strip that is attributable to the Excess Spread will be fully amortized. At that time the carrying value of the Interest Only
Strip that is attributable to the Overcollateralization will have accreted to the amount of the sales proceeds that were not remitted by the securitization trust at the time of the initial sale of the loans less credit losses and excess
Overcollateralization previously refunded by the securitization trust because it exceeds contractual requirements. At that time cash is expected to be released by the securitization trust in an amount that equals the accreted value of the
Overcollateralization.



Because the Companys retained residual interests
are subordinated to the interests of securitization investors and the trust agent, there is risk that the carrying value of the Interest Only Strip will not be fully recovered, resulting in a loss charged to earnings. These include the risk the
asset will have a shorter life than originally estimated (prepayment risk), that actual credit losses may exceed expected credit losses (credit risk) and that interest paid to the securitization trust and investors will be greater than projected
(interest rate risk). The Companys risk of loss is limited to its interest in the Interest Only Strip. Neither the investors nor the securitization trust have any other recourse to the Companys other assets, thus a loss in excess of the
carrying value of the Interest Only Strip is not possible. Each reporting period, the fair values of the Interest Only Strips are re-evaluated based upon current estimates and assumptions of the net present value of residual future cash flows net of
remaining expected credit



13



---

##### Table of Contents

losses and anticipated refunds of Overcollaterization. Changes in fair value are generally recorded net of tax as a component of OCI. If this re-evaluation
results in fair values that are less than the amortized carrying value of the Interest Only Strip, and if the decline is considered other than temporary, in accordance with Emerging Issues Task Force (EITF) Issue No. 99-20 Recognition of
Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets, the decline is charged against earnings for the current period. Finally, each reporting period, new Interest Only Strip amortization schedules
are developed based upon current estimates, assumptions, adjusted carrying values and revised constant yields.



Judgments and assumptions that are most critical to the application of this accounting policy are estimated defaults, delinquencies and credit losses, projected prepayment speeds, projected interest rates, and
discount rates. These assumptions are based upon demonstrated credit performance, the prepayment history of the underlying loans and market consensus on future interest rates. These are, in turn, most highly influenced by general economic
conditions, with the greatest adverse affect during economic downturns and periods of rapidly falling interest rates.



If different assumptions and conditions were to prevail, noticeably different results could occur because the recorded value of the Interest Only Strips may need to be
written off or written down faster than planned and cash flows from the retained residual interests may be less than expected. Since, as described above, so many factors can affect the value of the Interest Only Strips it is difficult to predict,
with any degree of certainty, the affect on income if different conditions or assumptions were to prevail. Nonetheless, if any combination of the above judgments or assumptions were to adversely affect their value by an additional ten percent and
the decline was determined to be other than temporary, an impairment charge of approximately $1.3 million would be necessary. See also Note 8 of the Notes to Consolidated Financial Statements.



OVERVIEW OF OPERATIONS



AMCORE reported net income of $43.5 million for the year ended December 31, 2003. This
compares to $43.5 million and $42.2 million reported for the years ended December 2002 and 2001, respectively. This represents an increase of $33,000 or 0.1% when comparing 2003 and 2002, and an increase of $1.2 million or 2.9% when comparing 2002
and 2001.



Diluted earnings per share for 2003 were $1.73 compared to a record
$1.75 in 2002 and $1.64 in 2001. This represents a decrease of $0.02 per share or 1.1%, when comparing 2003 and 2002, and an increase of $0.11 per share or 6.7%, when comparing 2002 and 2001. The 1.1% decrease in 2003 earnings on a diluted per share
basis compared to 2002 contrasts to a slight increase in earnings on a dollar basis, reflecting the dilutive impact to per share earnings of the increase of 179,000 in average diluted shares outstanding during 2003. The increase is due to the
reissuance of treasury shares pursuant to stock-based employee incentive plans. The 6.7% increase in 2002 earnings on a diluted per share basis over 2001 compares favorably to the 2.9% increase on a dollar basis, reflecting the accretive impact to
per share earnings of stock repurchase programs. During 2002, average diluted shares outstanding declined 819,000.



AMCOREs return on average equity for 2003 was 11.90% versus 13.19% in 2002 and 13.50% in 2001. AMCOREs return on average assets for 2003 was 0.98% compared to
1.02% in 2002 and 1.04% in 2001.



Both AMCORE and the Companys banking
subsidiary (the BANK) continue to significantly exceed the minimum capital requirements established by regulators for banks and bank holding companies. In addition, the BANK continues to be well capitalized as defined by
regulatory guidelines. See Note 20 of the Notes to Consolidated Financial Statements.



Branch Strategy



During 2001, the Company launched the first
phase (Phase I) of a strategic initiative to reallocate capital to higher growth midwestern markets, particularly along the I-90 growth corridor between Chicagos northwest suburbs and Madison, Wisconsin and, more recently, the
Milwaukee, Wisconsin market (the Branch



14



---

##### Table of Contents

Expansion). The Companys strategy is to move into a new market where there are strong population growth rates and high concentrations of mid-size
businesses, with a seasoned commercial service staff in a leased facility (limited branch office or LBO). Once a book of business is developed and the branch becomes profitable, a more permanent site for a full service facility is
sought. At the same time, AMCORE has exited certain markets that no longer fit its growth objectives (the Branch Sales).



During 2001, the BANK sold seven Illinois branches and in 2002 closed one additional branch. For the seven Illinois Branch Sales, $65.1 million in loans, $170.8 million
in deposits and $1.4 million in premises and equipment were sold to the respective buyers resulting in a pre-tax gain of $10.6 million or a net after-tax gain of $6.3 million (the Branch Gain(s)). Loans and deposits for the closed branch
were transferred to nearby BANK branches. During the first quarter of 2003, the BANK sold six Wisconsin branches located in Clinton, Darien, Montello, Kingston, Dalton and Westfield. Combined loans, deposits and premises and equipment of $47.8
million, $124.6 million and $2.1 million, respectively, were sold to the respective buyers of the Wisconsin branches, resulting in a pre-tax gain of $8.2 million or a net after-tax gain of $4.9 million (also referred to as Branch
Gain(s)).



Branch Expansion activities in 2001 included two new offices:
one on Rockfords east side and one in Geneva, Illinois, a Chicago suburb. During 2002, the BANK opened four LBOs and three full-service branches. The LBOs included three in the Chicago suburbs of Schaumburg, Lincolnshire and Des
Plaines, Illinois and one on the east side of Madison, Wisconsin. The full-service branches included one each in St. Charles and McHenry, Illinois and one along the beltway in Madison. As a result of the new office openings, an LBO in Geneva,
Illinois and a smaller full-service branch in downtown McHenry, Illinois were closed.



During 2003, the BANK opened 11 new branches, including four LBOs in Freeport, Oak Brook and Aurora, Illinois and Waukesha, Wisconsin, a suburb of Milwaukee, and seven full-service branches in Machesney Park, Elgin, South Elgin and
Algonquin, Illinois, two in Madison, Wisconsin and one on Rockfords northwest side. In connection with the opening of these locations the Company closed two in-store branches, one LBO and one full-service facility. Combined, the new locations
opened since April 1, 2001 have $557.8 million in loans and $266.3 million in deposits outstanding as of December 31, 2003. The impact of the Branch Expansion was dilutive $0.08 in 2003 compared to dilution of $0.04 and $0.02 in 2002 and 2001,
respectively.



During second quarter 2003, the Company announced the second
phase of its Branch Expansion program (Phase II), authorizing $30 million in incremental capital investment. These funds will be used to open new full-service facilities and upgrade several LBOs to full-service facilities in
selected high-growth midwestern communities. Increased capabilities in these markets will accelerate the Companys ability to generate deposits, which will better support loan growth and decrease its use of wholesale funding. Phase II calls for
a total of 10 additional branches opening in 2004 through 2006. When both phases of the Branch Expansion are complete, AMCORE will have a total of 24 new branches opened since April 2001, net of closed branches. Total offices by the end of 2006 are
expected to number 74. More than two-thirds of its offices will be located in high growth markets. See Table 7 for a tabular presentation of the Companys Branch Expansion plans. Phase II, when considered with Phase I expansion, is expected to
dilute earnings by $0.04 to $0.08 per share in 2004. By 2005, the combined Branch Expansion initiative is expected to be accretive in the range of $0.10 to $0.15 per share.



During 2002, as a complement to its Branch Expansion, the BANK added 37 additional automated teller machines (ATMs) in 15
communities in northern Illinois and southern Wisconsin. The ATMs are primarily located in Kelley-Williamson Mobil stations as part of a co-branding relationship, and are owned and operated by an unaffiliated third party. During 2003, the
co-branding relationship was expanded and an additional 37 ATMs were added. The BANK currently owns and operates 73 ATMs throughout Illinois (58) and Wisconsin (15). The co-branded relationship increased the Illinois and Wisconsin ATM presence
to 113 and 34, respectively, or 147 overall.



15



---

##### Table of Contents

Organizational Changes and Related Charges



During 2003, the Company incurred $431,000 in net after-tax severance related charges (the Severance Charges) related to the
reduction in 43 retail positions, including one senior position.



During 2002,
Kenneth E. Edge was named President and Chief Executive Officer, effective July 1, 2002, and Chairman of the Board of the Company, effective January 1, 2003. Mr. Edge, who previously served as AMCOREs President and Chief Operating Officer,
replaced Robert J. Meuleman following Mr. Meulemans retirement. Mr. Meuleman continued as Chairman until his retirement at the end of 2002. In connection with these changes, and in an effort to gain efficiencies, the position of Chief
Operating Officer was not replaced. The net present value of early retirement obligations, pursuant to Meulemans Separation, Release and Consulting Agreement, including certain enhanced post retirement benefits and continued participation in
the Companys Long-Term Incentive Plan (the Separation Agreement), at $784,000 net of tax (the Retirement Obligation), was accrued in 2002. Amounts due for consulting services subsequent to retirement date have been
expensed as earned.



During 2001, AMCORE announced certain business changes
designed to better integrate banking and asset management services to its customers. To better support these structural changes, AMCORE streamlined its management team resulting in the departure of certain senior managers. Additional changes were
made in 2002. Severance Charges related to these structural changes were $215,000 and $464,000 after-tax in 2002 and 2001, respectively.



Loan Securitizations and Securities Sales



During 2003 and 2001, the BANK sold $106.0 million and $29.9 million, respectively, of indirect automobile loans in securitization transactions (the Auto Loan
Sales). Net after-tax gains of $1.5 million and $494,000, were recorded for the respective years (the Auto Loan Sales Gains). See Note 8 of the Notes to Consolidated Financial Statements.



During 2001, AMCORE recognized $2.0 million in net security losses related to investment
portfolio restructuring (the Security Portfolio Restructuring); a strategy designed to reduce interest rate risk. The restructuring plan focused on the disposal of securities having a higher degree of interest rate risk associated with
changes in prepayment speeds and on securities with low yields and/or longer durations. The restructuring was intended to improve the stability and quality of future earnings and values.



Accounting Changes



On January 1, 2003, the Company adopted Financial Accounting Standards Board (FASB) Financial Interpretation No. (FIN) 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 expands the information required to be disclosed by guarantors for obligations under certain types of guarantees. It also requires
initial recognition at fair value of a liability for such guarantees. In addition, FIN 34, Disclosure of Indirect Guarantees of Others, was rescinded, though the guidance contained therein was carried forward into FIN 45 without
modification. The initial recognition and initial measurement requirements of FIN 45 were effective prospectively for guarantees issued or modified after December 31, 2002. Adoption of the Interpretation did not have a material effect on the
Companys Consolidated Financial Statements. See Note 15 of the Notes to the Consolidated Financial Statements.



On January 1, 2002, the Company adopted SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, with respect
to business combinations that were completed prior to July 1, 2001. These statements required that the Company evaluate its existing intangible assets and goodwill classifications. Goodwill and intangible assets with indefinite useful lives may no
longer be amortized, but instead must be tested for impairment at least annually. The useful life and residual values of all other intangibles



16



---

##### Table of Contents

must also be reassessed. As of the date of adoption, the Company had unamortized goodwill in the amount of $15.6 million and unamortized identifiable
intangible assets (the Core Deposit Intangibles) in the amount of $282,000 that were subject to the transition provisions of SFAS Nos. 141 and 142. The Company had no other intangible assets subject to these standards.



Amortization expense related to goodwill was $2.0 million for 2001. Amortization of Core
Deposit Intangibles was $141,000 in 2003 and 2002, compared to $96,000 in 2001. Core Deposit Intangibles were fully amortized as of December 31, 2003. The increase in 2002 over 2001 reflects the reassessment of and reduction in useful life. Fair
value exceeded carrying value for all reporting units that have allocated goodwill at both the transitional and annual evaluation dates. Thus, no transitional or annual impairment loss was recognized and no cumulative effect of a change in
accounting principle was recorded. In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 requires financial institutions to evaluate their accounting for past
acquisitions to determine whether revisions are needed. SFAS No. 147 applies to all new and past financial-institution acquisitions, including branch acquisitions that qualify as acquisitions of a business, but excludes acquisitions
between mutual institutions. The Company does not have any acquisitions affected by this new standard. See Note 5 of the Notes to Consolidated Financial Statements



On January 1, 2001, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 138, effective beginning January 1, 2001 and SFAS No. 149, effective beginning June 30, 2003. This statement outlines accounting and reporting standards for derivative instruments and
hedging activities. Net income for 2001 includes a cumulative effect of $225,000 net of tax, or $0.01 per diluted share, attributable to the adoption of the new accounting standard (the Accounting Change). See Note 11 of the Notes to
Consolidated Financial Statements.



Extinguishment of Debt



In the first quarter of 2004, as the result of the adoption of FIN 46 (Revised December,
2003) Consolidation of Variable Interest Entities, the Company will be required to de-consolidate the Trust. The Company expects that the de-consolidation of the Trust, including the impact on the Debt Extinguishment, will not have a
material effect on the Companys Consolidated Financial Statements.



During 2001, AMCORE reacquired for its own portfolio at par $15.0 million in capital trust preferred securities (the Trust Preferred), which were accounted for as a retirement (the Debt Extinguishment), with the
coupon rate of 9.35 percent. The Debt Extinguishment resulted in an after-tax extraordinary charge of $204,000, or $0.01 per diluted share (the Extraordinary Item). Prior to the Debt Extinguishment the Company had $40.0 million of Trust
Preferred outstanding through AMCORE Capital Trust I (Trust), a statutory business trust. As a result of the Debt Extinguishment there are now, on a consolidated basis, $25.0 million of Trust Preferred effectively outstanding. See Note
10 of the Notes to Consolidated Financial Statements.



Stock Repurchase
Programs



During 2002 and 2001 the Company reacquired shares pursuant to
various share repurchase authorizations (the Stock Repurchase Programs). Shares so acquired became treasury shares available for general corporate purposes. During 2002, the Company repurchased 82,000 shares at an average price of
$22.20. During 2001, the Company repurchased 1.8 million shares at an average price of $21.42. No shares remain to be purchased under any authorization. The Company also regularly repurchases shares to replenish treasury for shares reissued in
connection with AMCOREs stock option plans and other employee benefit plans.



17



---

##### Table of Contents

EARNINGS REVIEW OF CONSOLIDATED INCOME STATEMENT



The following highlights a comparative discussion of the major components of net income and
their impact for the last three years.



Net Interest Income



Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing liabilities. The interest income on certain loans and investment securities is not subject to Federal income tax. For analytical purposes, the interest income and rates on
these types of assets are adjusted to a fully taxable equivalent or FTE basis. The FTE adjustment was calculated using AMCOREs statutory Federal income tax rate of 35%. Adjusted interest income is as follows (in thousands):



|                              |  |                          |         |      |   |         |  |   |        
|----------------------------- |  | ------------------------ | ------- | ---- | - | ------- |  | - | -------
|                              |  | Years Ended December 31,
|                              |  | 2003                     |         | 2002 |   | 2001   
|Interest Income Book Basis    |  | $                        | 228,748 |      | $ | 253,128 |  | $ | 281,387
|FTE Adjustment                |  |                          | 5,255   |      |   | 6,862   |  |   | 8,059  
|                              |  |                          |         |      |   |         |  |   |        
|Interest Income FTE Basis     |  |                          | 234,003 |      |   | 259,990 |  |   | 289,446
|Interest Expense              |  |                          | 90,061  |      |   | 122,360 |  |   | 161,514
|                              |  |                          |         |      |   |         |  |   |        
|Net Interest Income FTE Basis |  | $                        | 143,942 |      | $ | 137,630 |  | $ | 127,932
|                              |  |                          |         |      |   |         |  |   |        



Net interest income on a fully taxable
equivalent basis increased $6.3 million or 4.6% in 2003 and increased $9.7 million or 7.6% in 2002. The increase in net interest income in 2003 was primarily attributable to higher average earning assets. The increase in net interest income in 2002
was primarily the result of decreased funding costs and an increase in average earning assets.



The net interest spread is the difference between the average rates on interest-earning assets and the average rates on interest-bearing liabilities. The interest rate margin represents net interest income divided by
average earning assets. These ratios can also be used to analyze net interest income. Since a significant portion of the Companys funding is derived from interest-free sources, primarily demand deposits, other liabilities and
stockholders equity, the effective rate paid for all funding sources is lower than the rate paid on interest-bearing liabilities alone.



As Table 1 indicates, the interest rate spread improved eight basis points to 3.23% in 2003 from 3.15% in 2002, which was an improvement of 27 basis points from the 2001
level of 2.88%. The interest rate margin was 3.54% in 2003, an increase of one basis point from 3.53% in 2002. The 2002 level was an increase of 11 basis points from 3.42% in 2001.



The level of net interest income is the result of the relationship between the total volume and mix of interest-earning assets and the rates
earned and the total volume and mix of interest-bearing liabilities and the rates paid. The rate and volume components associated with interest earning assets and interest-bearing liabilities can be segregated to analyze the year-to-year changes in
net interest income. Changes due to rate/volume variances have been allocated between changes due to average volume and changes due to average rate based on the absolute value of each to the total change of both categories. Because of changes in the
mix of the components of interest-earning assets and interest-bearing liabilities, the computations for each of the components do not equal the calculation for interest-earning assets as a total and interest-bearing liabilities as a total. Table 1
analyzes the changes attributable to the volume and rate components of net interest income.



Changes Due to Volume



In 2003, net
interest income on an FTE basis increased due to average volume by $7.5 million. This was comprised of an $11.0 million increase in interest income that was partially offset by a $3.5 million increase in



18



---

##### Table of Contents

interest expense. In 2002, net interest income on an FTE basis increased due to average volume by $4.7 million. This was comprised of an $11.9 million
increase in interest income that was partially offset by a $7.2 million increase in interest expense.



The 2003 increase in interest income of $11.0 million was driven by a $236.3 million or 8.9% increase in average loans offset by a decline of $81.7 million or 7.0% in average investment securities. The growth in
average loans came from an increase of $271.8 million in commercial real estate lending driven mostly by the Branch Expansion while average consumer and average commercial loans increased $32.4 million and $16.5 million, respectively. Partially
offsetting these increases was an $84.3 million average decline in residential real estate loans, due to the impact of refinancings, as fixed mortgage interest rates reached 45-year lows. Strong loan growth, particularly in new markets, has allowed
the Company to reshape its balance sheet to an improved mix of earning assets, contributing to the decline in average investment securities.



The increase in average loans, offset by the decline in investment securities, was funded by a $142.7 million or 5.3% increase in average bank-issued deposits and by a
$98.5 million or 25.6% increase in average brokered certificate of deposits (CDs). The increase in average bank-issued deposits which includes a $37.2 million increase in non-interest bearing deposits was attributable to a Company-wide
initiative to attract deposits, especially transaction deposits, and the Branch Expansion. This growth occurred despite the transfer of $124.6 million of deposits in connection with the Wisconsin Branch Sales. AMCORE recognizes the importance of
continued bank-issued deposit growth, not only as a means of funding the Branch Expansion loan growth, but also to continue the strategy of reducing wholesale funding balances. The transition to full-service branches in new growth markets as the
Branch Expansion develops, continued emphasis on attracting and retaining primary transaction accounts, and Auto Loan Sales are all means by which the Company has and expects to implement these strategies. To this end, the Company was able to
decrease average borrowings by $101.5 million or 13.5% compared to 2002.



The
2002 increase in interest income of $11.9 million was largely the result of a $147.1 million or 5.8% increase in average loans. Average installment and consumer loans, primarily indirect automobile lending, increased $127.9 million, while average
commercial real estate and average commercial, financial and agricultural loans increased $87.9 million and $28.2 million, respectively. The combined increase in commercial lending was primarily driven by AMCOREs Branch Expansion in the
Chicago suburban and Madison area markets. These increases were partially offset by a decline in average residential real estate loans of $97.0 million due to the impact of refinancings, as mortgage interest rates hit 45 year lows.



The 2002 increase in average earning assets was funded by a $154.9 million increase in
average deposits. The increase was comprised of a $78.4 million increase in average brokered deposits and a $76.5 million or 2.9% increase in average bank-issued deposits. The growth in bank-issued deposits reflects company-wide initiatives to
attract additional bank-issued deposits as well as deposit growth attributable to the Branch Expansion. Over 95% of the bank-issued deposit growth was attributable to primary transaction account business, which is one of the Companys lowest
cost funding sources.



Changes Due to Rate



During 2003, net interest income on an FTE basis declined due to average rates by $1.1
million when compared with 2002. This was comprised of a $36.9 million decrease in interest income that was partly offset by a $35.8 million decline in interest expense. During 2002, net interest income on an FTE basis increased due to average rates
by $5.0 million, when compared with 2001. This was comprised of a $41.4 million decline in interest income that was more than offset by a $46.4 million decrease in interest expense.



The yield on earning assets declined 92 basis points in 2003, compared to 2002. The yield on average securities fell by 109 basis points,
while the yield on average loans fell by 89 basis points. The decline in security yields was affected by the prepayment of higher-yielding mortgage-related securities, including accelerated premium



19



---

##### Table of Contents

amortization, that occurred as mortgage interest rates fell. These securities were replaced with lower yielding securities due to the current low interest
rate environment. While nearly all loan categories were affected, the largest dollar decline was attributable to commercial real estate loans. Loans that refinanced during the year, variable priced loans and new loan production were all adversely
impacted by the reductions in interest rates that have been in decline since January of 2001.



The rate on interest-bearing liabilities declined 100 basis points during 2003 compared to 2002, due to lower bank-issued deposit, wholesale deposit, short-term and long-term borrowing rates. While rates fell on all
deposit products, the decrease was most pronounced on CDs. Average rates on CDs have declined as older CDs bearing higher rates have matured and re-priced since the decline in interest rates that have occurred over the past three
years. The Company also benefited from an expired interest rate swap that had increased funding costs in 2002, as well as new swaps entered into during 2002 that lowered the cost of wholesale deposits during 2003. The decrease in borrowing rates was
largely the result of lower rates paid on reverse repurchase agreements that renewed at lower rates as short-term interest rates have declined.



The yield on earning assets declined 107 basis points in 2002, compared to 2001. The yield on average loans fell by 119 basis points and was primarily attributable to
commercial real estate and commercial loans. Falling interest rates during the year impacted pricing on new loan volume, variable priced loans and loans that refinanced during the year. The yield on average securities decreased by 87 basis points,
also the result of declining interest rates. Yields on securities were also affected by the sale of higher risk securities in the 2001 Security Portfolio Restructuring well as the pre-payment of higher yielding mortgage-related securities that
occurred as mortgage interest rates fell.



The rate paid on interest-bearing
liabilities declined 134 basis points in 2002, compared to 2001. This was primarily due to decreased rates paid on deposits and short-term borrowings. The decrease in deposit costs was largely driven by CDs and the Companys indexed money
market deposit accounts (AMDEX) that benefited from the decline in short-term interest rates. The decrease in short-term borrowing costs was mainly due to reverse repurchase agreements that renewed at lower rates, also due to the decline in
short-term interest rates.



The current interest rate environment is expected
to result in improved interest rate spreads and margins in 2004, compared to 2003. Specifically, the Company expects continuing benefits from deposit re-pricing during the coming year. Among those factors that could cause margins and spreads not to
improve as anticipated by the Company in 2004 include, unexpected changes in interest rates, changes in the shape of the yield curve, the effect of prepayments or renegotiated rates, changes in the mix of earning assets and the mix of liabilities,
including greater than anticipated use of expensive wholesale sources to fund the Branch Expansion and greater than expected loan delinquencies resulting in non-accrual status.



Provision for Loan Losses



The Provision (see Critical Accounting Estimates discussion) was $24.9 million for 2003, and increased by $12.3 million or 98.2% compared to 2002. Increases in net
charge-offs, higher specific loss estimates on individually reviewed loans, increased concentrations, increasing loan balances in emerging markets, higher levels of delinquencies and continued economic weakness were all among the factors leading to
the increased Provision. Comparable additions to the Allowance in 2002 were not necessary. The Provision decreased $4.1 million or 24.7% in 2002 from the $16.7 million in 2001. While non-accrual loans and net charge-offs were up year-over-year in
2002, the total of non-accrual loans, loans past due 90 days or more and restructured loans were down compared to 2001. As a result, although non-accrual loans and net-charge-offs were up, there was a decrease in the Provision year-over-year.



AMCORE recorded net charge-offs of $16.6 million, $11.3 million and $11.0
million in 2003, 2002 and 2001, respectively. Net charge-offs represented 57 basis points of average loans in 2003 versus 42 basis points in 2002 and 44 basis points in 2001. Commercial net charge-offs increased $3.3 million in 2003 compared to
2002.



20



---

##### Table of Contents

Installment and consumer net charge-offs increased $1.7 million in 2003 compared to 2002, reflecting continuing increases in losses on repossessed vehicles.
Residential real-estate net charge-offs increased $795,000 while commercial real-estate net charge-offs declined $413,000 in 2003 compared to 2002. Commercial net charge-offs declined $1.3 million in 2002, compared to 2001, reflecting settlement
activity that occurred in 2001. Installment and consumer loan net charge-offs increased $1.4 million over the same period, the result of the continued sluggish economy and increasing loss levels on repossessed vehicles. Real estate loan net
charge-offs were up $78,000 year-to-year.



Non-Interest Income



Total non-interest income is comprised primarily of fee based revenues
from trust and asset management activities, bank-related service charges on deposits and mortgage revenues. Net security gains or losses and increases in cash surrender value (CSV) of BANK and Company-owned life insurance (COLI) are also included in
this category. For 2003 and 2001, this category also included Branch Gains and Auto Loan Sales Gains.



Non-interest income totaled $92.0 million in 2003, an increase of $21.7 million or 30.8% from the $70.3 million in 2002. In addition to a $9.6 million increase in mortgage revenues, the increase included $8.2 million
of Branch Gains and $2.5 million of Auto Loan Sale Gains.



Non-interest income
totaled $70.3 million in 2002, a decline of $6.8 million or 8.8% from the $77.1 million in 2001. Increases of $3.1 million attributable to services charges on deposits and $2.8 million of security gains were offset by the Branch Gains of $10.6
million included in non-interest income in 2001.



Trust and asset management
income, the Companys largest source of fee based revenues, totaled $22.5 million in 2003, a decrease of $2.2 million or 8.8% from $24.7 million in 2002. This follows a decrease in 2002 of $2.2 million or 8.17% from $26.9 million in 2001.
Declining equity markets over the past three years have challenged the investment industry with the S & P 500 losing 24.3% of its value from 2000 to 2003. These declines have negatively impacted the value of AMCORE-administered assets, upon
which fees are partially based, leading to the decrease in fee revenue. Also contributing to the decline was the loss of a major public fund customer effective October 1, 2003 and specific investment performance on related Vintage Mutual Funds.
Unless replaced with new business, the loss of the public fund customer could adversely affect trust and asset management income in 2004. Revenues from this customer were $916,000 in 2003, $1.1 million in 2002 and $932,000 in 2001. A shift by
clients to a higher mix of fixed income and money market assets also affected prior year results.



The trust and asset management segment manages or administers $5.4 billion of investments, inclusive of traditional assets as well as the management of the BANKs fixed income portfolio of approximately $1.1
billion. Assets under administration at December 31, 2002 and 2001 were $4.6 billion and $4.9 billion, respectively. Assets in the Vintage Mutual Funds totaled $827 million, $877 million and $1.2 billion at December 31, 2003, 2002 and 2001,
respectively. In addition to overall market performance, trust and asset management revenues are dependent upon the Companys ability to attract and retain accounts, specific investment performance and other economic factors. Fees from Money
Market funds can also be negatively affected as the federal funds purchased (FED Funds) rate approaches 1.00%, a level generally viewed as a minimum acceptable return by investors. Thus, waivers of fees on money market funds have been and may
continue to be required to provide competitive returns for investors.



Service
charges on deposits totaled $18.6 million in 2003, an increase of $742,000 or 4.2% from the $17.9 million in 2002. During 2002, service charges on deposits increased $3.1 million or 21.0% from $14.8 million in 2001. Deposit growth initiatives, which
primarily affected retail accounts, contributed to the increases in both 2003 and 2002. Additionally, in 2002, increased commercial account maintenance fees contributed to the increase.



21



---

##### Table of Contents

Mortgage revenues include fees generated from underwriting, originating and servicing of mortgage loans along with gains
realized from the sale of these loans, net of servicing rights amortization and impairment (see Critical Accounting Estimates). Mortgage revenues were $17.6 million in 2003, an increase of $9.6 million or 121.1% from the $7.9 million reported in
2002. During 2002, mortgage revenues declined $542,000 or 6.4% from $8.5 million in 2001. Contributing to the $9.6 million increase in 2003 was a $3.4 million recapture of mortgage servicing right impairment reserves compared to an impairment charge
of $2.6 million in 2002. An impairment charge of $780,000 was recorded in 2001. For the third year in a row, declining mortgage interest rates resulted in record closing volumes. In 2003, closing volumes were $893.7 million, compared to $718.0
million in 2002, and $634.2 million in 2001.



Refinancing activity declined
significantly in the fourth quarter of 2003 resulting in declining mortgage revenues. This trend in refinancing activity is expected to continue into 2004. The Company has, however, added 13 mortgage loan originators, primarily in the Branch
Expansion markets, to capitalize on growth opportunities in new purchase home mortgages. New purchase new home mortgages increased 31.5% in 2003 compared to 2002. The growth of new purchase home mortgages is expected to continue in 2004.



As of December 31, 2003, the carrying value of AMCOREs capitalized mortgage
servicing rights was $11.2 million and were $10.6 million as of December 31, 2002. The fair value of the Companys capitalized mortgage servicing rights was $11.7 million. The unpaid principal balance of mortgage loans serviced for others,
which are not included on the Consolidated Balance Sheets, including loans held for sale, was $1.2 billion as of December 31, 2003. See Note 7 of the Notes to Consolidated Financial Statements.



COLI income totaled $7.0 million in 2003; a $1.3 million or 23.5% increase over the $5.7
million in 2002. This compares to a $435,000 increase in 2002 over the $5.2 million reported in 2001. The 2003 increase over 2002, included the impact of compounding, increased average investments year-over-year and $467,000 in net death benefits.
The 2002 increase was primarily due to compounding. Both years increases were partially offset by lower yields due to declining interest rates. AMCORE uses COLI as a tax-advantaged means of financing its future obligations with respect to
certain non-qualified retirement and deferred compensation plans in addition to other employee benefit programs. As of December 31, 2003, the CSV of COLI stood at $116.5 million, which included additional net investments of $1.1 million during 2003.



Other non-interest income includes customer service charges, bank card fees,
brokerage commissions, insurance commissions, gains on fixed asset and loan sales and other miscellaneous income. In 2003, other non-interest income was $11.2 million, a decline of $410,000 or 3.5% from $11.6 million in 2002. The decrease was due to
a $700,000 decline in derivative related income due to the mark-to-market losses in 2003 as opposed to gains in 2002, a decline of $440,000 in insurance commission income, a $309,000 gain in 2002 associated with an excess retirement plan asset
reversion and lower gains on sale of fixed assets of $303,000. These decreases were partly offset by increases in brokerage commission income of $609,000, servicing income in connection with the Auto Loan Sales of $350,000, customer service fees of
$252,000, and bank card fees of $138,000. In 2002, other non-interest income was $11.6 million; a $1.0 million or 9.6% increase from $10.6 million in 2001. The increase was attributable to improved brokerage commission income of $636,000, a $607,000
increase in derivative related income due mark-to-market gains in 2002 as opposed to losses in 2001, higher bank card fees of $419,000, a $365,000 gain on the sale of excess land and the $309,000 retirement plan asset reversion gain. These increases
were partly offset by a 2001 gain of $1.0 million from cash received on the merger of an ATM service provider.



Net securities gains totaled $4.4 million in 2003 and $2.5 million in 2002 compared to net losses of $303,000 in 2001. The level of security gains or losses is dependent on the size of the available for sale
portfolio, pledging requirements, interest rate levels, AMCOREs liquidity needs and balance sheet risk objectives. The increase in 2003, compared to 2002, was attributable to the gain realized on the disposition of securities with longer
duration and unfavorable call structures, which facilitated the Companys efforts to reduce the duration of its investment portfolio as well as fund loan growth. The increase in 2002, compared to 2001, was attributable to the Security Portfolio
Restructuring and continuation of a security portfolio de-leveraging strategy that began in 1999.



22



---

##### Table of Contents

Operating Expenses



Total operating expenses were $146.1 million in 2003, an increase of $15.1 million or 11.6% from $131.0 million in 2002, which was a $7.4 million or 6.0% increase from
$123.6 million in 2001. Operating expenses in 2003 included $5.1 million in expenses related to the Branch Expansion, a $1.6 million charge for the early extinguishment of debt, $707,000 in Severance Charges and a $623,000 impairment charge on a
private equity fund investment. Operating expenses in 2002 included $1.7 million in expenses related to the Branch Expansion, the $1.3 million Retirement Obligation and a $352,000 Severance Charge. Operating expenses in 2001 included Severance
Charges of $760,000. Pursuant to SFAS No. 142, the Company discontinued the amortization of goodwill, effective January 1, 2002.



Amortization expense related to goodwill was $2.0 million in 2001. The efficiency ratio was 63.36% in 2003, 65.16% in 2002 and 62.78% in 2001. The efficiency ratio is
calculated by dividing total operating expenses by the sum of net interest income and non-interest income.



Compensation expense is the largest component of operating expenses, totaling $67.2 million in 2003. This was a $6.7 million or 11.0% increase from $60.5 million in 2002, which was a $5.1 million or 9.3% increase from
$55.3 million in 2001. The 2003 increase included $4.0 million in net staff additions associated with the Branch Expansion strategy, higher commissions of $923,000 mainly driven by increased mortgage closings, the $707,000 Severance Charge and
$434,000 in increased incentive costs. The 2002 increase included $1.3 million in net staff additions associated with the Branch Expansion strategy, $922,000 in increased incentive costs, higher commissions of $819,000, mainly driven by increased
mortgage closings, and $527,000 of the Retirement Obligation. Severance Charges decreased $408,000 when compared to 2001.



Employee benefit costs were $17.4 million in 2003, an increase of $1.2 million or 7.3% from $16.2 million in 2002, which was a $2.0 million or 14.0% increase from $14.2
million in 2001. Health care costs rose $874,000 in 2003 due to staff additions and medical cost inflation and payroll tax expense increased $649,000 in 2003 due to higher compensation expense. These increases were offset by lower deferred
compensation and other benefit costs of $243,000. The 2002 increase was primarily attributable to $757,000 of the Retirement Obligation, $665,000 in retirement and deferred compensation costs and $538,000 in payroll tax costs.



Net occupancy expense was $8.8 million in 2003, an increase of $918,000 or 11.7% from 2002.
This follows an increase of $303,000 or 4.0% from 2001 levels. The 2003 and 2002 increases included net increases due to the Branch Expansion strategy.



Equipment expense increased $1.8 million or 23.1% to $9.6 million in 2003 and decreased $173,000 or 2.2% to $7.8 million in 2002. The 2003 increase was primarily due to
increased depreciation and amortization on new computer hardware and software resulting from the conversion of the Companys core data processing system during 2003 (the System Conversion). Also necessitated by the System Conversion
were personal computer (PC) replacements and the acceleration of existing hardware and software depreciation and amortization. The Branch Expansion also contributed to higher PC equipment expense in 2003. The 2002 decrease reflects lower net
electronic data processing equipment and software expenses.



Data processing
expenses include costs related to core bank data processing, trust and other external processing systems. This category declined $1.7 million or 24.9% to $5.1 million in 2003, primarily due to lower processing costs resulting from the System
Conversion from an outsourced data processing system to a new in-house data processing system. Expenses in 2002 were $6.8 million; a $738,000 or 12.2% increase from $6.0 million in 2001 primarily due to increased core bank data processing.



Professional fees totaled $4.6 million in 2003, an increase of $321,000 or
7.5% from 2002 due to higher legal, tax and accounting services. Professional fees were $4.3 million in 2002, an increase of $149,000 or 3.6% from $4.1 million in 2001. Audit and consulting fee increases were partly offset by decreased legal fees.



23



---

##### Table of Contents

Communication expense was $4.7 million in 2003 an increase of $565,000 or 13.7% from 2002 due to increased courier,
telephone and postage expenses due to the Branch Expansion and postal rate increases. Communication expense was $4.1 million in 2002, an increase of $196,000 or 5.0% from $3.9 million in 2001. The increase was due to higher courier and postage costs
partially related to the Branch Expansion.



Advertising and business
development expenses were $5.2 million in 2003, an increase of $461,000 or 9.8% from 2002 due to increases in advertising expense as the company continues to grow as a result of the Branch Expansion into new markets and totally-free checking
promotions. Advertising and business development expenses were $4.7 million in 2002, an increase of $120,000 or 2.6% from $4.6 million in 2001. This reflects increases in branch and market level public relations and business development expenses,
which were partly funded by a decrease in newspaper and direct mail advertising.



Intangibles amortization was $141,000 in 2003 and 2002, compared to $2.1 million in 2001. The decrease in 2002 relates to the discontinuation of goodwill amortization pursuant to SFAS No. 142. This is more fully explained in the
Accounting Changes section, above. The Core Deposit Intangibles were fully amortized at December 31, 2003. See also Notes 1 and 6 of the Notes to Consolidated Financial Statements.



Other expenses were $23.5 million in 2003, an increase of $4.9 million or 26.3% from 2002.
The increase was primarily due to the $1.6 million in prepayment penalties related to restructuring of Federal Home Loan Bank (FHLB) advances, increased loan processing costs of $1.5 million associated with increased mortgage activity
and the $623,000 private equity fund impairment charge. Other increases included higher recruiting expenses and losses on disposals of fixed assets, both of which were related to the Branch Expansion. Other expenses were $18.6 million in 2002, an
increase of $878,000 or 4.9% from $17.7 million in 2001. The 2002 increase was largely the result of higher loan processing expenses of $633,000, mainly associated with collection and repossession activities, $315,000 of investment related
impairment charges and $291,000 in increased travel and entertainment costs. These were partly offset by a $388,000 reduction in expenses related to foreclosed real estate.



Income Taxes



Income tax expense totaled $16.1 million in 2003, compared with $14.0 million and $14.4 million in 2002 and 2001, respectively. The effective tax rates were 27.0%, 24.4%
and 25.4% in 2003, 2002 and 2001, respectively. Effective tax rates are lower than the statutory tax rates due primarily to investments in tax-exempt municipal bonds and increases in CSV and death benefits on COLI that are not taxable. The increase
in effective tax rate in 2003 over the prior year is due to a decrease in the size of these tax-exempt items relative to total pre-tax earnings as well as an increase in state income taxes which in 2002 benefited from the favorable resolution of
various tax audits and other pending tax issues. See Note 16 of the Notes to Consolidated Financial Statements.



EARNINGS REVIEW BY BUSINESS SEGMENT



AMCOREs internal reporting and planning process focuses on four primary lines of business (Segment(s)): Commercial Banking, Retail Banking, Trust and Asset Management, and Mortgage Banking. Note 18
of the Notes to Consolidated Financial Statements presents a condensed income statement and total assets for each Segment.



The financial information presented was derived from the Companys internal profitability reporting system that is used by management to monitor and manage the
financial performance of the Company. This information is based on internal management accounting policies which have been developed to reflect the underlying economics of the Segments and, to the extent practicable, to portray each Segment as if it
operated on a stand-alone basis. Thus, each Segment, in addition to its direct revenues, expenses, assets and liabilities, includes an



24



---

##### Table of Contents

appropriate allocation of shared support function expenses. The Commercial, Retail and Mortgage Banking Segments also include funds transfer adjustments to
appropriately reflect the cost of funds on loans made and funding credits on deposits generated. Apart from these adjustments, the accounting policies used are similar to those described in Note 1 of the Notes to Consolidated Financial Statements.



Since there are no comprehensive authorities for management accounting
equivalent to accounting principles generally accepted in the United States of America, the information presented is not necessarily comparable with similar information from other financial institutions. In addition, methodologies used to measure,
assign and allocate certain items may change from time-to-time to reflect, among other things, accounting estimate refinements, changes in risk profiles, changes in customers or product lines, and changes in management structure. During the first
quarter of 2003, the Company also changed the classification of mortgage loans not sold into the secondary market that are retained by the BANK. All revenues from these loans, along with related Provisions and expenses, are now reported as part of
the Mortgage Banking Segment instead of the Retail Banking Segment. Prior period Segment results have been restated to reflect this change.



Total Segment results differ from consolidated results primarily due to intersegment eliminations, certain corporate administration costs, items not otherwise allocated
in the management accounting process and treasury and investment activities. The impact of these items is aggregated to reconcile the amounts presented for the Segments to the consolidated results and is included in the Other column of
Note 18 of the Notes to Consolidated Financial Statements.



Commercial
Banking



The Commercial Banking Segment (Commercial) provides
commercial banking services to large and small business customers through the BANKs 63 banking locations. The services provided by this Segment include lending, business checking and deposits, treasury management and other traditional as well
as electronic commercial banking services.



Commercial earnings for 2003 were
$24.8 million, an increase of $2.1 million or 9.2% from 2002. Earnings in 2002 totaled $22.7 million and were $7.5 million or 49.4% higher than 2001 earnings of $15.2 million. The increase for 2003 was attributable to increased net interest income
and non-interest income that was partially offset by increased Provision, operating expenses and income taxes.



Net interest income increased $13.8 million in 2003. The increase was due to higher average loan volumes, particularly commercial real estate loans, lower priced deposits and decreased cost of funds allocations, which
more than compensated for lower yields on loans. The lower yields on loans, reduced rates on deposits and decreased cost of funds allocations were all attributable to declining short-term interest rates over the past three years, which have impacted
new product (loans and deposits) pricing as well as the re-pricing of variable priced products and fixed-price product renewals. Strong loan demand, aided by the Branch Expansion, was more than sufficient to replace average loan balances transferred
in the Branch Sales, leading to the increased volumes.



Non-interest income
increased $2.4 million and was attributable to Commercials allocable portion of the Branch Gain of $2.2 million.



The 2003 Provision increased $10.3 million and was attributable to a $4.0 million increase in net charge-offs, a $3.1 million increase in both specific loss estimates and
other loss estimates. These estimates are based upon increased concentrations, including commercial real estate; deteriorating loan quality and collateral values, including loans that are secured by receivables, inventory and specialized equipment;
growth in new markets; increased delinquencies; continued weakness in the overall economy, particularly the manufacturing segment; and other factors.



Operating expenses increased $2.4 million in 2003. The increase was largely due to higher personnel expenses, which included the impact of the Branch Expansion strategy.



25



---

##### Table of Contents

Income taxes increased $1.3 million in 2003, due to higher income before taxes.



The Commercial Segment represented 53.5%, 61.5% and 49.5% of total Segment earnings in 2003,
2002 and 2001, respectively. Commercial Segment total assets were $2.0 billion at December 31, 2003 and represented 44.8% of total consolidated assets.



Retail Banking



The Retail Banking Segment (Retail) provides retail-banking services to individual customers through the BANKs 63 banking locations in northern Illinois and south central Wisconsin. The services
provided by this Segment include direct and indirect lending, checking, savings, money market and CD accounts, safe deposit rental, automated teller machines, and other traditional and electronic retail banking services.



Retail earnings for 2003 were $10.2 million compared to $4.7 million in 2002, an increase of
$5.6 million or 118.5%. This followed an increase of $1.3 million or 37.7% in 2002 from 2001 earnings of $3.4 million. The increase in 2003 was the result of higher non-interest income and lower operating expense partially offset by increased income
taxes and Provision.



Net interest income increased by $111,000 for 2003 due to
higher average loan volumes, particularly indirect automobile loans, and lower priced deposits. These factors offset lower yields on loans and reduced funds credit allocations. The lower yields on loans, reduced rates on deposits and decreased funds
credit allocations were all attributable to declining rates over the past three years, which have impacted new product (loans and deposits) pricing as well as the re-pricing of variable priced products and fixed-price product renewals. The growth in
overall average loan balances occurred despite the Auto Loan Sale and the transfer of loans associated with the Wisconsin Branch Sales totaling $129.5 million, both of which occurred in March 2003.



Non-interest income increased $8.4 million in 2003. Of the increase, $6.0 million was
attributable to the Branch Gain and $2.5 million related to the Auto Loan Sale Gain.



The 2003 Provision increased $1.9 million primarily due to an increase of $1.6 million in net charge-offs due to higher loss levels on repossessed automobiles.



Operating expenses decreased by $2.2 in 2003. The decline is due to lower allocations for support function expenses.



Income taxes increased $3.5 million in 2003 and were primarily the result of higher income
before taxes.



The Retail Segment represented 22.1%, 12.7% and 11.1% of total
segment earnings in 2003, 2002 and 2001, respectively. Retail Segment total assets were $810.4 million at December 31, 2003 and represented 17.8% of total consolidated assets.



Trust and Asset Management



The Trust and Asset Management Segment (TAM) provides trust, investment management, employee benefit recordkeeping and administration and brokerage services.
It also acts as an advisor and provides fund administration to the Vintage Mutual Funds and various public fund programs. These products are distributed nationally (i.e. Vintage Equity Fund is available through Charles Schwab, OneSource), regionally to institutional investors and
corporations, and locally through the BANKs locations.



TAM earnings for
2003 were $2.4 million, a $1.3 million or 35.5% decline from 2002 earnings of $3.7 million. This followed an increase of $207,000 or 5.9% from 2001 earnings of $3.5 million. The decrease in 2003 was primarily due to declines in non-interest income
net of lower operating expenses and income taxes.



26



---

##### Table of Contents

TAM non-interest income declined $1.5 million in 2003. Declines in fee-based revenue were partially offset by increased
brokerage commission income. Lower AMCORE-managed asset values and specific investment performance on selected Vintage Mutual Funds contributed to the decrease in trust and asset management revenues. Declining equity markets over the past three
years have challenged the investment industry with the S & P 500 losing 24.3% of its value from 2000 to 2003. These declines have negatively impacted the value of AMCORE-administered assets, upon which fees are partially based, leading to
the decrease in fee revenue. Also contributing to the decline was the loss of a major public fund customer effective October 1, 2003. Unless replaced with new business the loss of the public fund client could continue to adversely affect TAM
revenues. Revenues from this customer were $916,000 in 2003 and $1.1 million in 2002. A shift to a higher mix of fixed income and money market assets also affected prior year results. Net brokerage commissions on the other hand have been
particularly strong and are primarily the result of increased fixed-annuity sales. In addition, processing costs associated with annuity sales, which are netted against commissions, have declined as the TAM segment is now processing its own sales.



Operating expenses decreased $566,000 for 2003 due to lower personnel costs
and lower advertising costs.



Income taxes declined $788,000 in 2003 due to the
decline in pre-tax earnings.



The TAM Segment represented 5.1%, 10.0% and 11.3%
of total segment earnings in 2003, 2002 and 2001, respectively. TAM Segment total assets were $18.8 million at December 31, 2003 and represented 0.4% of total consolidated assets.



Mortgage Banking



The Mortgage Banking Segment (Mortgage) provides a variety of mortgage lending products to meet its customers needs. It sells the majority of the
long-term, fixed-rate loans to the secondary market and continues to service most of the loans sold.



Mortgage earnings were $8.9 million in 2003, an increase of $3.1 million or 53.4% compared to $5.8 million in 2002. This followed a decline of $2.8 million or 32.5% from $8.6 million in 2001. The increase in 2003 was
due to increased mortgage volume, primarily driven by refinancing activity, and the $3.4 million recapture of mortgage servicing right impairment in 2003 compared to a $2.6 million impairment charge in 2002.



Net interest income decreased $1.4 million in 2003. This was primarily due to lower rates on
mortgage loans retained in portfolio and on mortgage loans held for sale. Average balances on mortgage loans held in portfolio continued their decline, as fixed mortgage rates reached 45-year lows, and contributed to the decrease in net interest
income. Partially offsetting these decreases were lower net cost of funds allocations.



Non-interest income includes fees generated from the underwriting, originating and servicing of mortgage loans along with the gains realized from the sale of these loans, net of servicing right amortization and impairment. Non-interest
income for 2003 increased $9.0 million. Closing volumes increased 24.5% to $893.7 million in 2003, from $718.0 million in 2002. Also contributing to the increase in non-interest income was the recapture of mortgage servicing right impairment
reserves of $3.4 million in 2003 compared to an impairment charge of $2.6 million in the prior year, which resulted in a $5.9 million change year over year.



Operating expenses totaled $14.9 million, an increase of $2.6 million from 2002. The increases were primarily due to higher salaries, commissions and processing costs
that were paid due to the increase in mortgage volumes.



Income taxes increased
$1.6 million in 2003. The increase was due to higher pre-tax earnings.



The
unpaid principal balance of mortgage loans serviced for others, including mortgage loans held for sale, was $1.21 billion as of December 31, 2003 compared to $1.02 billion at the prior year-end.



The Mortgage Segment represented 19.3%, 15.8% and 28.1% of total segment earnings in 2003,
2002 and 2001, respectively. Mortgage Segment total assets were $255.8 million at December 31, 2003 and represented 5.6% of total consolidated assets.



27



---

##### Table of Contents

BALANCE SHEET REVIEW AND LIQUIDITY RISK MANAGEMENT



Liquidity management is the process by which the Company, through its Asset and Liability
Committee (ALCO) and treasury function, ensures that adequate liquid funds are available to meet its financial commitments on a timely basis, at a reasonable cost and within acceptable risk tolerances. These commitments include funding credit
obligations to borrowers, funding of mortgage originations pending delivery to the secondary market, withdrawals by depositors, repayment of debt when due or called, maintaining adequate collateral for public deposits, paying dividends to
shareholders, payment of operating expenses, funding capital expenditures and maintaining deposit reserve requirements.



Liquidity is derived primarily from bank-issued deposit growth and retention; principal and interest payments on loans; principal and interest payments, sale, maturity
and prepayment of investment securities; net cash provided from operations; and access to other funding sources. Other funding sources include brokered CDs, federal funds purchased lines (FED funds), FHLB advances, repurchase agreements,
commercial paper and back-up lines of credit, the sale or securitization of loans, and access to other capital markets.



The parent company requires adequate liquidity to pay its expenses, repay debt when due and pay stockholder dividends. Liquidity is primarily provided to the parent
through the BANK and other subsidiaries in the form of dividends. In 2003, dividends from subsidiaries amounted to $23.0 million, compared to $30.5 million in 2002. In 2002, the parent required higher dividends from its subsidiaries to fund Stock
Repurchase Programs. In 2003, lower dividends were paid by the BANK to the parent in order to support the BANKs Branch Expansion. While the BANK is limited in the amount of dividends it can pay, as of December 31, 2003, approximately $49.9
million was available for payment to the parent in the form of dividends without prior regulatory approval. See Note 20 of the Notes to Consolidated Financial Statements.



Cash and Cash Equivalents



Cash and cash equivalents decreased $37.3 million from December 31, 2002 to December 31, 2003, as the net cash used for investing activities of $211.4 million more than
offset the cash provided by operating activities of $94.2 million plus the cash provided by financing activities of $79.9 million. This compares to an increase in cash and cash equivalents of $11.0 million from December 31, 2001 to December 31,
2002, as the net cash provided by financing activities of $424.1 million plus the cash provided by operating activities of $88.7 million more than offset the net cash used for investing activities of $501.8 million during 2002.



The $94.2 million of cash provided by operating activities during 2003 compares with $88.7
million provided in 2002, representing a $5.5 million increase in cash provided between the two years. The change was attributable to the increase in proceeds from the sale of loans held for sale, net of increased originations of such loans,
primarily attributable to the Mortgage segments origination and sale of loans into the secondary market.



The $211.4 million of cash used for investing activities during 2003 compares with $501.8 million cash used in 2001, for a decrease of $290.4 million in cash used between the two years. This was primarily the result
of an increase of $306.1 million in proceeds from the sales and maturities of securities, a $107.2 million increase in proceeds from sale of loans and less growth in loan originations of $138.3 million. These changes were partially offset by a
$259.3 million increase in security purchases.



The $79.9 million of cash
provided by financing activities during 2003 compares with $424.1 million cash provided during 2002, or a decrease of $344.2 million in cash provided between the two years. This was primarily due to $202.9 million less growth in demand, savings and
time deposit accounts, a $100.3 million decrease in short term borrowings and $65.4 million in cash required to fund the Branch Sales in 2003. An increase in long-term borrowings of $38.9 million partially offset these decreases.



28



---

##### Table of Contents

Securities



Total securities as of December 31, 2003 were $1.17 billion, a decrease of $8.1 million or 0.7% from the prior year-end. At December 31, 2003 and 2002, the total
securities portfolio comprised 27.8% and 28.3%, respectively, of total earning assets, including COLI. The decrease in investment securities includes reductions in corporate obligations and municipal securities and also reflects mortgage prepayment
activity as well as actions taken by AMCORE to improve liquidity and to reduce duration.



The securities portfolio serves an important role in the overall context of balance sheet management in terms of balancing capital utilization and liquidity needs. The decision to purchase or sell securities is based
upon the current assessment of economic and financial conditions, including the interest rate environment. The portfolios scheduled maturities and the prepayment of mortgage and asset backed securities represent a significant source of
liquidity. Approximately $14.4 million, or 1.2%, of the securities portfolio will contractually mature in 2004. This does not include mortgage and asset backed securities. Mortgage and asset backed security maturities may differ from
contractual maturities because borrowers may have the right to prepay obligations, typically without penalty. For example, scheduled maturities for 2003, excluding mortgage and asset backed securities, were $24.2 million, whereas proceeds from
actual maturities, which included prepayments of mortgage and asset backed securities, were $623.0 million. This compares to proceeds of $366.5 million and $336.7 million in 2002 and 2001, respectively. As of December 31, 2003, $318.9 million of
investment securities were unpledged and available as a source of liquidity.



Mortgage and asset backed securities as of December 31, 2003 totaled $871.7 million and represent 74.8% of total securities. The distribution of mortgage and asset backed securities includes $372.4 million of U.S. government agency
mortgage-backed pass through securities, $467.9 million of agency collateralized mortgage obligations and $31.4 million of private issue collateral mortgage obligations, all of which are rated AAA except for $2.6 million of securities rated either
Aa2 or A2.



At December 31, 2003, securities available for sale totaled $1.17
billion, which included gross unrealized gains of $19.7 million and gross unrealized losses of $6.2 million, of which the combined effect, net of tax, is included as accumulated other comprehensive income (OCI) in stockholders equity. For
comparative purposes, at December 31, 2002, gross unrealized gains of $35.3 million and gross unrealized losses of $4.0 million were included in the securities available for sale portfolio. There were no held to maturity securities at
December 31, 2003 or 2002. For further analysis of the securities portfolio see Table 4 and Note 3 of the Notes to Consolidated Financial Statements.



Loans Held for Sale



At December 31, 2003, mortgage origination fundings awaiting delivery to the secondary market were $32.4 million, compared to $79.9 million at December 31, 2002. Residential mortgage loans are originated by the
BANKs Mortgage Segment, of which non-conforming adjustable rate, fixed-rate and balloon residential mortgages are normally retained by the BANK. The conforming adjustable rate, fixed-rate and balloon residential mortgage loans are sold in the
secondary market to eliminate interest rate risk, as well as to generate gains on the sale of these loans and servicing income. All loans of the Mortgage Segment are considered held for sale and are recorded at the lower of cost or market value.



For the second year in a row, declining mortgage interest rates resulted in
record closing volumes, increasing the pressure on short-term liquidity needs. In 2003, closing volumes were $893.7 million, compared to $718.0 million in 2002. During the fourth quarter of 2003, refinancing activity began to decline as mortgage
interest rates rose, relieving the pressure on short-term liquidity needs. This trend is expected to continue into 2004. Outstanding residential mortgage commitments, a potential use of liquidity, were $41.8 million at December 31, 2003.



29



---

##### Table of Contents

Loans



Loans represent the largest component of AMCOREs earning asset base, while the funding of loan originations is its most significant liquidity need. At year-end
2003, total loans were $2.99 billion, an increase of $108.6 million or 3.8% as compared to 2002. Loan growth included the impact of the Branch Expansion and was reduced by $106.0 million in loans sold in the Auto Loan Sale and $47.8 million of loans
transferred in the Branch Sales. Average loans increased $236.3 million or 8.9% during 2003. See Table 2 and Note 4 of the Notes to Consolidated Financial Statements.



Total commercial real estate loans increased $274.2 million or 25.7%, while residential real estate loans declined $87.1 million.
Installment and consumer loans declined $50.1 million or 8.3%. Commercial, financial and agricultural loans decreased $27.8 million or 3.7%. Increased balances in commercial real estate loans were mostly driven by the Branch Expansion. Residential
real estate loan balances were affected by refinancings, as mortgage interest rates fell to 45 year lows during 2003.



The scheduled repayments and maturities of loans represent a substantial source of liquidity. Table 3 shows selected loan maturity data as of December 31, 2003. In
addition to same branch and Branch Expansion loan growth, potential uses of liquidity include $634.9 million in commitments to extend credit and $189.8 in letters of credit.



Deposits



Total deposits at December 31, 2003, were $3.37 billion, an increase of $73.8 million or 2.2% when compared to 2002. The increase included $168.4 million in higher
Bank-issued deposit balances partly offset by a $94.6 million decline in brokerage CDs and the transfer of $124.6 million in deposits in the Branch Sales. Average deposits increased $105.6 million or 4.5% during 2003.



Bank-issued deposits, which exclude brokered CDs, are considered by management to be
the primary, most stable and most cost-effective source of funding and liquidity. Total bank-issued deposits were $2.94 billion at the end of 2003; a $168.4 million or 6.1% increase from the prior year-end. The increase is attributable to
company-wide initiatives to attract additional deposits as well as the Branch Expansion. Bank-issued deposits represent 87.4% and 84.2% of total deposits at December 31, 2003 and 2002, respectively. Table 5 shows the maturity distribution of time
deposits $100,000 and over. The BANK also has capacity, over time, to place sufficient amounts of additional brokered CDs as a source of mid to long-term funds.



Borrowings



Borrowings totaled $741.7 million at year-end 2003 and were comprised of $557.1 million of short-term and $184.6 million of long-term borrowings. See Notes 9 and 10 of
the Notes to Consolidated Financial Statements.



AMCORE has $25.0
million of Trust Preferred securities outstanding through the Trust. The securities pay cumulative cash distributions semiannually at an annual rate of 9.35%. The securities are redeemable from March 25, 2007 until March 25, 2017, at a declining
premium of 104.675% to 100.0% of the principal amount. After March 25, 2017, they are redeemable at par until June 15, 2027, when redemption is mandatory. The capital securities qualify as Tier 1 capital for regulatory purposes. During 2001, AMCORE
retired at par $15.0 million in Trust Preferred securities with the coupon rate of 9.35 percent. Prior to the Debt Extinguishment that occurred in 2001, $40.0 million of Trust Preferred securities were outstanding.



The parent company has a commercial paper placement agreement with an unrelated financial
institution that provides for the issuance of non-rated short-term unsecured debt obligations at negotiated rates and terms, not to exceed $50.0 million. In the event the agent is unable to place the parent companys commercial paper on a
particular day, the proceeds are provided by overnight borrowings on a reciprocal line of credit with the same financial institution. At December 31, 2003, $10.0 million in commercial paper was outstanding.



30



---

##### Table of Contents

As of December 31, 2003, sources of readily available liquidity totaled $506.0 million and included $121.0 million of
unused FED funds lines, $21.0 million of FHLB advances, unused collateral sufficient to support $324.0 million in FED discount window advances and $40.0 million in unused commercial paper and backup line of credit borrowings.



OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS



Off-Balance Sheet Arrangements



During the ordinary course of its business, the Company engages in financial transactions
that are not recorded on its Consolidated Balance Sheet, are recorded in amounts that are different than their full principal or notional amount, or are recorded on an equity or cost basis rather than being consolidated. Such transactions serve a
variety of purposes including management of the Companys liquidity and credit concentration risks, optimization of capital utilization, meeting the financial needs of its customers and fulfilling Community Reinvestment Act obligations in the
markets that it serves.



The Companys largest off-balance sheet
arrangement relates to the Auto Loan Sales that occurred during 2001 and the first quarter of 2003. Structured as sales pursuant to Statement of Financial Accounting Standard (SFAS) No. 140 Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, the Auto Loan Sales are a component of the Companys liquidity and credit concentration risk management strategy. The Auto Loan Sales are also helpful as a capital management tool.



In the Auto Loan Sales, indirect automobile loan receivables are transferred
to a multi-seller variable-interest entity (VIE). Since the Company is not the primary beneficiary of the VIE, consolidation is not required under the terms of Financial Accounting Standards Board Interpretation (FIN) 46
(Revised December 2003) Consolidation of Variable Interest Entities. As a result, the net carrying amount of the loans is removed from the consolidated balance sheet and certain retained residual interests are recorded. The
Companys retained interests are subordinate to the interests of investors in the VIE and are subject to prepayment risk, interest-rate risk and credit risk on the transferred auto loans. Neither the investors nor the VIE have any other
recourse to the Companys other assets for failure of automobile loan debtors to pay when due. The Company also retains the rights to service the loans that are sold.



As of December 31, 2003, the balance of automobile loans serviced and not included on the Companys Consolidated Balance Sheet was
$93.1 million, compared to $41.9 million at December 31, 2002. The carrying value of retained interests was $13.0 million and $6.4 million at the end of 2003 and 2002, respectively. The carrying value of the retained interests is the maximum
estimated exposure to loss of the retained residual interests. See Critical Accounting Estimates and Note 8 of the Notes to Consolidated Financial Statements.



The Company also originates mortgage loans that it sells to the secondary market. The Company typically retains the right to service the loans that are sold. As of
December 31, 2003, the unpaid principal balance of mortgage loans serviced for others was $1.21 billion, compared to $1.02 billion at December 31, 2002. These loans are not recorded on the Companys consolidated balance sheets. The Company, as
of December 31, 2003 and 2002, and in accordance with SFAS No. 140, had recorded $11.2 million and $10.6 million, respectively, of capitalized mortgage servicing rights, less impairment valuation allowances of $0 and $3.4 million, respectively. See
Critical Accounting Estimate and Note 7 of the Notes to Consolidated Financial Statements.



The Company, as a provider of financial services, routinely enters into commitments to extend credit to its BANK customers, including performance and standby letters of credit. While these represent a potential outlay
by the Company, a significant amount of the commitments may expire without being drawn upon. Commitments and letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company.



31



---

##### Table of Contents

At December 31, 2003, a liability in the amount of $802,000, representing the fair value of the guarantee obligations
associated with certain of the financial and standby letters of credit, has been recorded in accordance with FIN 45. This amount will be amortized into income over the life of the commitments. There were no such recorded guarantee obligations at the
end of 2002. The notional amount of all letters of credit, including those exempted from the scope of FIN 45, was $189.8 million and $161.4 million at the end of December 31, 2003 and 2002, respectively. See Note 15 of the Notes to Consolidated
Financial Statements.



The carrying value of mortgage loan commitments at
December 31, 2003 and 2002 was an asset of $342,000 and $1.7 million, respectively. These amounts represent the fair value of those commitments marked-to-market in accordance with SFAS 138, Accounting for Derivative Instruments and Hedging
Activities. The total notional amount of mortgage loan commitments was $27.4 million at December 31, 2003 and $85.1 million at December 31, 2002. See Note 11 of the Notes to Consolidated Financial Statements.



At December 31, 2003 and 2002, the Company had extended $634.9 million and $587.4 million,
respectively, in loan commitments other than the mortgage loan commitments and letters of credit described above. These amounts represented the notional amount of the commitment. No asset or liability has been recorded.



The Company has a number of non-marketable equity investments that have not been consolidated
in its financial statements. At both December 31, 2003 and 2002, these investments included $5.5 million in private equity fund investments that were reported under either the cost or equity method, depending on the percentage of ownership. Not
included in the carrying amount were commitments to fund an additional $1.9 million and $3.2 million, for the respective year-ends, at some future date. At December 31, 2003 the Company also has recorded investments of $4.3 million, $23.0 million,
and $9.0 million, respectively, in stock of the Federal Reserve Bank, FHLB and preferred stock of Freddie Mac. The amounts were $4.4 million, $21.3 million, and $9.0 million, respectively, at December 31, 2002. These investments are recorded at
historical cost, with income recorded when dividends are declared. Other investments, comprised of various affordable housing tax credit projects (AHTCP), totaled approximately $742,000 and $918,000 at December 31, 2003 and 2002,
respectively. Those investments without guaranteed yields were reported on the equity method, while those with guaranteed yields were reported using the effective yield method. With the possible exception of the AHTCPs, consolidation of these
investments will not be required pursuant to FIN 46 (Revised December 2003) since the Company is not the primary beneficiary in the investments. The Company has determined that consolidation will not be required for all but one of the AHTCPs. The
Company is still in the process of obtaining relevant information to determine whether consolidation of the remaining AHTCP will be necessary. This determination is required to be completed by the end of the first quarter of 2004. Consolidation of
this entity, if required, will not have a material effect on the Consolidated Financial Statements. The maximum exposure to loss for all non-marketable equity investments is the sum of the carrying amounts plus additional commitments.



The Companys subsidiaries also hold assets in a fiduciary or agency capacity that are
not included in the Consolidated Financial Statements because they are not assets of the Company. The total assets managed or administered by the Company at December 31, 2003 and 2002, excluding the BANKs investment portfolio, were $4.3
billion and $4.6 billion, respectively.



Contractual Obligations



In the ordinary course of its business, the Company enters into certain
contractual arrangements. These obligations include issuance of debt to fund operations, property leases and derivative transactions. During 2003, the Company entered into five operating lease arrangements in connection with the Branch Expansion.
There were no residual guarantees on these leases. The Company also terminated certain operating leases during the year in connection with its Branch Expansion with no related penalties. During the first quarter of 2003, the Company incurred $1.6
million in prepayment penalties to restructure a portion of its FHLB advances. During the first quarter of 2003, the Company sold $106.0 million of Auto Loan Sales, retaining the right to service



32



---

##### Table of Contents

those loans and an Interest Only Strip initially valued at $9.2 million. The Company recorded a $2.5 million pre-tax gain on the Auto Loan Sale. During year,
the Company entered into fair value hedges of FHLB borrowings for total notional amount of $74.0 million and fair value hedges of brokered CDs for total notional amount of $25.0 million. Other than these transactions, there were no material
changes in the Companys contractual obligations since December 31, 2002. See Table 6 and Notes 5, 8, 10 and 11 of the Notes to Consolidated Financial Statements.



|                          |  |                        |         |                  |   |           |  |           |        |                   |   |        |  |   |       
|------------------------- |  | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------ |  | - | ------
|(in thousands)            |  | Payments due by period
|Contractual Obligations   |  | Total                  |         | Less Than 1 Year |   | 1-3 Years |  | 3-5 Years |        | More Than 5 Years
|Long-Term Debt            |  | $                      | 184,610 |                  | $ | 3         |  | $         | 51,908 |                   | $ | 79,683 |  | $ | 53,016
|Capital Lease Obligations |  |                        | 3,121   |                  |   | 163       |  |           | 332    |                   |   | 346    |  |   | 2,280 
|Operating Leases          |  |                        | 17,437  |                  |   | 2,413     |  |           | 3,853  |                   |   | 2,802  |  |   | 8,369 
|Purchase Obligations (1)  |  |                        | 5,630   |                  |   | 5,630     |  |           |       |                   |   |       |  |   |      
|                          |  |                        |         |                  |   |           |  |           |        |                   |   |        |  |   |       
|Total                     |  | $                      | 210,798 |                  | $ | 8,209     |  | $         | 56,093 |                   | $ | 82,831 |  | $ | 63,665
|                          |  |                        |         |                  |   |           |  |           |        |                   |   |        |  |   |       

---

|(1) | Branch offices for which purchase contracts were signed during 2003, but the closing on the property takes place in 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------



ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT



AMCOREs credit risk is centered in the loan portfolio, which on December 31, 2003
totaled $2.99 billion, or 69.5%, of earning assets. The objective in managing loan portfolio risk is to quantify and manage credit risk on a portfolio basis as well as reduce the risk of a loss resulting from a customers failure to perform
according to the terms of a transaction. To achieve this objective, AMCORE strives to maintain a loan portfolio that is diverse in terms of loan type, industry concentration, and borrower concentration.



The Company is also exposed to credit risk with respect to its $116.5 million investment in
COLI. AMCORE manages this risk by diversifying its holdings among various carriers and by periodic internal credit reviews. All carriers have Secure ratings from A. M. Best that range from a low of A (Excellent) to
A++ (Superior).



Allowance for Loan Losses



The determination by management of the appropriate level of the Allowance (see Critical
Accounting Estimates discussion) amounted to $42.1 million at December 31, 2003, compared to $35.2 million at December 31, 2002, an increase of $6.9 million or 19.6%. This increase includes a $3.3 million increase in specific loss estimates on
certain individually reviewed loans, a $266,000 decrease for statistical loss estimates on loan groups or pools based upon historical loss experience, a $2.9 million increase for other loss estimates that are based upon the size, quality and
concentration characteristics of the various loan portfolios, adverse situations that may affect the borrowers ability to repay, and current economic and industry conditions and a $1.0 million increase in unallocated loss estimates. Factors
leading to the $2.9 million increase in other loss estimates were increased loan concentrations; growth in emerging markets with lending staff that are new to the Companys lending culture and where our knowledge of the customer base and local
conditions are not as strong as existing markets; increased delinquencies; deteriorating collateral values including used cars and loans that are secured by receivables, inventory and specialized equipment; and, continued effects of recent weakness
in the overall economy, particularly the manufacturing segment.



Allocations of
the Allowance for commercial, financial and agricultural loans increased $2.3 million in 2003. Allocations of the Allowance for real estate loans increased $1.8 million. Allocations of the Allowance for installment and consumer loans declined
$265,000. Allocations for impaired loans increased $1.6 million during the year. The amount of the unallocated Allowance increased $1.5 million from one year ago to $3.0 million. A detailed analysis of the Allowance and the allocation of the
Allowance by category for the past five years are shown in Table 2.



33



---

##### Table of Contents

As of December 31, 2003, the Allowance as a percent of total loans and of non-accrual loans was 1.41% and 133%,
respectively. These compare to the same ratios for the prior year of 1.22% and 108%. Net charge-offs as a percent of average loans increased to 0.57% for 2003 versus 0.42% in 2002. Commercial net charge-offs increased $3.3 million in 2003, compared
to 2002 primarily due to weakness in the manufacturing sector. Commercial Real estate loan net charge-offs declined $413,000 year-to-year, while residential real estate loan net charge offs increased $795,000. Installment and consumer loan
charge-offs increased $1.7 million, the result of the continued sluggish economy and earlier recognition and increasing loss levels on repossessed vehicles.



Non-performing Assets



Non-performing assets consist of non-accrual loans, loans 90 days past due and still accruing, other real estate owned and other foreclosed assets. Non-performing assets totaled $41.4 million as of year-end 2003, a
decrease of $132,000 or 0.3% from the $41.5 million at year-end 2002. Total non-performing assets represented 0.91% and 0.92% of total assets at December 31, 2003 and December 31, 2002, respectively.



Non-performing loans which includes non-accrual loans and loans 90 days past due and still
accruing declined $1.1 million or 3.1% to total $35.0 million at December 31, 2003, when compared to the prior year-end. As of December 31, 2003, non-performing loans to total loans were 1.17% compared to 1.25% at year-end 2002. Table 2 presents
non-performing loans for each of the past five years.



Foreclosed real estate
and other foreclosed assets increased $983,000, or 18.1%, to $6.4 million at December 31, 2003, when compared to year-end 2002. The increase is primarily attributable to the addition of three commercial properties.



Concentration of Credit Risks



As previously discussed, AMCORE strives to maintain a diverse loan and lease portfolio in an
effort to minimize the effect of credit risk. Summarized below are the characteristics of classifications that exceed 10% of total loans.



Commercial, financial, and agricultural loans were $733.2 million at December 31, 2003, and comprised 24.5% of gross loans, of which 1.21% were non-performing. Net
charge-offs of commercial loans represented 0.95% during 2003, and 0.45% during 2002, of the year-end balance of the category.



Construction and commercial real estate loans were $1.3 billion at December 31, 2003, comprising 44.9% of gross loans, of which 0.96% were classified as non-performing.
Net charge-offs of this category of loans represent 0.07% during 2003, and 0.12% during 2002, of the year-end balance of the category.



Residential real estate loans, which includes home equity and permanent residential financing, totaled $362.3 million at December 31, 2003, and represent 12.1% of gross
loans, of which 2.20% were non-performing. Net charge-offs of residential real estate loans represent 0.52% of the category total in 2002 and 0.24% of the year-end balance in 2001.



Installment and consumer loans were $554.5 million at December 31, 2003, and comprised 18.5% of gross loans, of which 0.35% were
non-performing. Net charge-offs of consumer loans represented 1.22% and 0.85% of the year-end category total for 2003 and 2002, respectively. Consumer loans are comprised primarily of in-market indirect auto loans and direct installment loans.
Indirect auto loans totaled $476.9 million at December 31, 2003. Both direct loans and indirect auto loans are approved and funded through a centralized department utilizing the same credit scoring system to provide a standard methodology for the
extension of consumer credit.



34



---

##### Table of Contents

CAPITAL MANAGEMENT



Capital Management



Total stockholders equity at December 31, 2003, was $375.6 million, an increase of $19.9 million or 5.6% from December 31, 2002. The decrease in stockholders
equity was primarily due to $27.1 million in earnings for the year in excess of dividends paid net of a decrease in OCI of $12.1 million. The decrease in OCI relates to decreases in net after-tax unrealized gains on the Companys available for
sale investment portfolio and net after-tax mark-to-market adjustments on derivatives accounted for as cash flow hedges.



AMCORE paid $16.4 million of cash dividends during 2003, which represent $0.66 per share, or a dividend payout ratio of 37.7%. This compares to $0.64 per share paid in
2002, which represented a payout ratio of 36.4%. The book value per share increased $0.63 per share to $14.98 at December 31, 2003, up from $14.35 at December 31, 2002.



During 2002 and 2001 the Company reacquired shares pursuant to various Stock Repurchase Programs. During 2002, the Company repurchased
82,000 shares at an average price of $22.20. During 2001, the Company repurchased 1.8 million shares at an average price of $21.42. No shares remain to be purchased under any authorization. The Company also regularly repurchases shares to replenish
treasury for shares reissued in connection with AMCOREs stock option plans and other employee benefit plans.



AMCORE has outstanding $25.0 million of Trust Preferred securities through Trust. The Trust Preferred securities qualify as Tier 1 capital for regulatory capital
purposes.



The BANK is categorized as a well-capitalized
institution based on regulatory guidelines. AMCOREs leverage ratio of 8.49% at December 31, 2003 exceeds the regulatory guidelines of 5% for well-capitalized institutions. AMCOREs ratio of Tier 1 capital at 10.57% and total risk based
capital at 11.76% significantly exceed the regulatory minimums (as the following table indicates), as of December 31, 2003. See Note 18 of the Notes to Consolidated Financial Statements.



|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  
|-------------------------------------- |  | ----------------- | --------- | ----- | ----------------- | - | ------ | - | --------- |  | ----- | -
|(Dollars in thousands)                 |  | December 31, 2003 |           |       | December 31, 2002 |  
|                                       |  | Amount            |           | Ratio |                   |   | Amount |   | Ratio     | 
|Tier 1 Capital                         |  | $                 | 375,330   |       | 10.57             | % |        | $ | 343,253   |  | 9.95  | %
|Tier 1 Capital Minimum                 |  |                   | 142,001   |       | 4.00              | % |        |   | 137,977   |  | 4.00  | %
|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  
|Amount in Excess of Regulatory Minimum |  | $                 | 233,329   |       | 6.57              | % |        | $ | 205,276   |  | 5.95  | %
|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  
|                                       |  |                   |           |      
|                                       |  | Amount            |           | Ratio |                   |   | Amount |   | Ratio     | 
|Total Capital                          |  | $                 | 417,580   |       | 11.76             | % |        | $ | 378,688   |  | 10.98 | %
|Total Capital Minimum                  |  |                   | 284,003   |       | 8.00              | % |        |   | 275,954   |  | 8.00  | %
|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  
|Amount in Excess of Regulatory Minimum |  | $                 | 133,577   |       | 3.76              | % |        | $ | 102,734   |  | 2.98  | %
|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  
|                                       |  |                   |           |      
|Risk Adjusted Assets                   |  | $                 | 3,550,035 |       |                   |   |        | $ | 3,449,428 |  |       |  
|                                       |  |                   |           |       |                   |   |        |   |           |  |       |  



35



---

##### Table of Contents

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As part of its normal operations, AMCORE is subject to interest-rate risk on the interest-earning assets it invests in (primarily loans and securities) and the
interest-bearing liabilities it funds with (primarily customer deposits, brokered deposits and borrowed funds), as well as its ability to manage such risk. Fluctuations in interest rates may result in changes in the fair market values of
AMCOREs financial instruments, cash flows and net interest income. Like most financial institutions, AMCORE has an exposure to changes in both short-term and long-term interest rates. In the near-term, AMCORE expects that its interest-rate
risk will be greater should interest rates decline.



While AMCORE manages other
risks in its normal course of operations, such as credit and liquidity risk, it considers interest-rate risk to be its most significant market risk. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not
arise in the normal course of AMCOREs business activities and operations. In addition, since AMCORE does not hold a trading portfolio, it is not exposed to significant market risk from trading activities. During 2003, there were no material
changes in AMCOREs primary market risk exposures. Based upon current expectations, no material changes are anticipated in the future in the types of market risks facing AMCORE.



Table 6 and Note 12 of the Notes to Consolidated Financial Statements summarize AMCOREs market risk and interest sensitivity position
as of December 31, 2003. The amounts and assumptions should not be relied upon as indicative of expected actual results since, like most financial institutions, AMCOREs net interest income can be significantly impacted by external factors.
These factors include, but are not limited to: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities re-price, variances in prepayment of loans and securities other than
those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships
between indices and balance sheet growth.



AMCOREs asset and liability
management process is utilized to manage market and interest rate risk through structuring the balance sheet and off-balance sheet positions to maximize net interest income while maintaining acceptable levels of risk to changes in market interest
rates. While achievement of this goal requires a balance between earnings, liquidity and interest rate risk, there are opportunities to enhance revenues through managed risk. Interest rate sensitivity analysis is performed monthly using various
simulations with an asset/liability modeling system. These analyses are reviewed by the Asset and Liability Committee (ALCO), whose actions attempt to minimize any sudden or sustained negative impact that interest rate movements may have on net
interest income. ALCO reviews the impact of liquidity, capital adequacy and rate sensitivity, among other things, and determines appropriate policy direction to maintain or meet established ALCO guidelines.



The Company may, from time-to-time, use derivative contracts to help manage its exposure to
changes in interest rates and in conjunction with its mortgage banking operations. The derivatives used most often are interest rate swaps, caps, collars and floors (collectively Interest Rate Derivatives), mortgage loan commitments and
forward contracts and are more fully described in Note 11 of the Notes to Consolidated Financial Statements. Interest Rate Derivatives are contracts with a third party (the Counter-party) to exchange interest payment streams based upon
an assumed principal amount (the Notional Principal Amount). The Notional Principal Amount is not advanced from the Counter-party. It is used only as a reference point to calculate the exchange of interest payment streams.



AMCORE does not have any derivatives that are held or issued for trading purposes. The only
credit risk exposure AMCORE has is in relation to the counter-parties, which all have investment grade credit ratings. All counter-parties are expected to meet any outstanding interest payment obligations.



The total notional amount of swap contracts outstanding was $159.0 million and $90.0 million
as of December 31, 2003 and 2002, respectively. As of December 31, 2003, swap contracts had an aggregate positive



36



---

##### Table of Contents

carrying and fair value of $2.6 million. There were no collars outstanding at December 31, 2003 or 2002. The total notional amount of caps outstanding was
$20.0 million at December 31, 2003, with $40.0 million of outstanding caps as of the end of 2002. As of the end of 2003, the caps had an aggregate carrying and fair value of $0. See Table 6. For further discussion of derivative contracts, see Notes
11 and 12 of the Notes to Consolidated Financial Statements.



Based upon an
immediate increase in interest rates of 100 basis points and no change in the slope of the yield curve, the potential decrease in net interest income for 2004 would be approximately $764,000 or 0.48% of base forecasted net interest income.
This analysis assumes no growth in assets or liabilities and replacement of maturing instruments with like-kind instruments. At the end of 2002, comparable assumptions would have resulted in a potential increase in 2003 net income of $3.3 million or
2.12%. Thus, AMCOREs earnings at risk for rising rates has increased since the end of 2002, as the Company moved from an asset sensitive position to a slightly liability sensitive position.



Conversely, an immediate decrease in interest rates of 100 basis points and no change in the
slope of the yield curve would result in a potential decrease in net interest income for 2004 of $7.1 million or 4.48% of base forecasted net interest income. At the end of 2002, a similar decrease in rates would have resulted in a potential
decrease in net interest income of $7.7 million or 5.01%. AMCOREs sensitivity to declining interest rates has remained relatively stable since the end of 2002. AMCORE continues to be sensitive to compression as rates on most earning assets
would be adversely affected by the full 100 basis point decline whereas many interest paying liabilities may already be paying less than one percent and thus cannot decline the full 100 basis points. Other factors include the negative convexity of
the mortgage-backed products and the large volume of floating rate commercial loans.



The amounts and assumptions used in the rising and falling rate scenarios should not be viewed as indicative of expected actual results. In addition to rising or falling interest rates, AMCOREs net interest income can be significantly
impacted by a variety of external factors, such as those previously noted. In addition, as interest rates move, the ALCO is likely to adjust interest rate risk management strategies to limit, to the extent possible, the adverse impact that such
changes in interest rates might otherwise have on AMCOREs net interest income, as well as maximize potential positive impacts such movements might have.





37



---

##### Table of Contents

TABLE 1



ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET



|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|------------------------------------------- |  | ------------------------ | --------- | - | -------- | - | ----------- | ---- | ---- | -------------- |  | - | --------- | - | ----------- | - | ------- | -------------- | ---- | - | -------- | - | ----------- | - |  | - | ------- |  | ---- | -
|                                            |  | Years Ended December 31, |          
|                                            |  | 2003                     |           |   | 2002     |   |             | 2001 |     
|                                            |  | AverageBalance           |           |   | Interest |   | AverageRate |      |      | AverageBalance |  |   | Interest  |   | AverageRate |   |         | AverageBalance |      |   | Interest |   | AverageRate |  
|                                            |  | (dollars in thousands)   |          
|Assets:                                     |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Taxable securities                          |  | $                        | 906,085   |   |          | $ | 39,220      |      | 4.33 | %              |  | $ | 932,227   |   |             | $ | 51,557  |                | 5.53 | % |          | $ | 879,940     |   |  | $ | 57,461  |  | 6.53 | %
|Tax-exempt securities (1)                   |  |                          | 178,966   |   |          |   | 13,286      |      | 7.42 | %              |  |   | 234,514   |   |             |   | 17,632  |                | 7.52 | % |          |   | 270,248     |   |  |   | 20,788  |  | 7.69 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total Securities (2)                        |  | $                        | 1,085,051 |   |          | $ | 52,506      |      | 4.84 | %              |  | $ | 1,166,741 |   |             | $ | 69,189  |                | 5.93 | % |          | $ | 1,150,188   |   |  | $ | 78,249  |  | 6.80 | %
|Short-term investments                      |  |                          | 20,872    |   |          |   | 198         |      | 0.95 | %              |  |   | 15,061    |   |             |   | 229     |                | 1.52 | % |          |   | 23,789      |   |  |   | 1,011   |  | 4.25 | %
|Loans held for sale (3)                     |  |                          | 61,023    |   |          |   | 4,908       |      | 8.04 | %              |  |   | 51,644    |   |             |   | 4,740   |                | 9.18 | % |          |   | 47,397      |   |  |   | 4,537   |  | 9.57 | %
|                                            |  |                          |           |   |          |   |             |      |     
|Commercial                                  |  |                          | 745,202   |   |          |   | 42,550      |      | 5.71 | %              |  |   | 728,744   |   |             |   | 46,465  |                | 6.37 | % |          |   | 700,532     |   |  |   | 54,893  |  | 7.84 | %
|Commercial real estate                      |  |                          | 1,191,904 |   |          |   | 67,545      |      | 5.67 | %              |  |   | 920,136   |   |             |   | 60,985  |                | 6.63 | % |          |   | 832,205     |   |  |   | 66,266  |  | 7.96 | %
|Residential real estate                     |  |                          | 400,653   |   |          |   | 25,048      |      | 6.25 | %              |  |   | 484,931   |   |             |   | 35,160  |                | 7.25 | % |          |   | 583,437     |   |  |   | 48,258  |  | 8.27 | %
|Consumer                                    |  |                          | 564,449   |   |          |   | 41,248      |      | 7.31 | %              |  |   | 532,064   |   |             |   | 43,222  |                | 8.12 | % |          |   | 402,598     |   |  |   | 36,232  |  | 9.00 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total loans (1) (4)                         |  | $                        | 2,902,208 |   |          | $ | 176,391     |      | 6.08 | %              |  | $ | 2,665,875 |   |             | $ | 185,832 |                | 6.97 | % |          | $ | 2,518,772   |   |  | $ | 205,649 |  | 8.16 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total interest-earning assets               |  | $                        | 4,069,154 |   |          | $ | 234,003     |      | 5.75 | %              |  | $ | 3,899,321 |   |             | $ | 259,990 |                | 6.67 | % |          | $ | 3,740,146   |   |  | $ | 289,446 |  | 7.74 | %
|Allowance for loan losses                   |  |                          | (40,907   | ) |          |   |             |      |      |                |  |   | (34,429   | ) |             |   |         |                |      |   |          |   | (31,476     | ) |  |   |         |  |      |  
|Non-interest-earning assets                 |  |                          | 396,273   |   |          |   |             |      |      |                |  |   | 377,607   |   |             |   |         |                |      |   |          |   | 346,204     |   |  |   |         |  |      |  
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total assets                                |  | $                        | 4,424,520 |   |          |   |             |      |      |                |  | $ | 4,242,499 |   |             |   |         |                |      |   |          | $ | 4,054,874   |   |  |   |         |  |      |  
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Liabilities and Stockholders Equity:       |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Interest-bearing demand and savings         |  | $                        | 1,259,175 |   |          | $ | 11,524      |      | 0.92 | %              |  | $ | 1,086,721 |   |             | $ | 17,214  |                | 1.58 | % |          | $ | 1,021,137   |   |  | $ | 29,226  |  | 2.86 | %
|Time deposits                               |  |                          | 1,186,328 |   |          |   | 39,799      |      | 3.35 | %              |  |   | 1,253,219 |   |             |   | 55,303  |                | 4.41 | % |          |   | 1,257,592   |   |  |   | 72,772  |  | 5.79 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total Bank issued interest-bearing deposits |  | $                        | 2,445,503 |   |          | $ | 51,323      |      | 2.10 | %              |  | $ | 2,339,940 |   |             | $ | 72,517  |                | 3.10 | % |          | $ | 2,278,729   |   |  | $ | 101,998 |  | 4.48 | %
|Wholesale deposits                          |  |                          | 482,526   |   |          |   | 17,701      |      | 3.67 | %              |  |   | 384,066   |   |             |   | 19,903  |                | 5.18 | % |          |   | 305,673     |   |  |   | 20,253  |  | 6.63 | %
|Short-term borrowings                       |  |                          | 458,168   |   |          |   | 10,578      |      | 2.31 | %              |  |   | 540,548   |   |             |   | 17,071  |                | 3.16 | % |          |   | 448,253     |   |  |   | 21,861  |  | 4.88 | %
|Long-term borrowings                        |  |                          | 193,862   |   |          |   | 10,459      |      | 5.40 | %              |  |   | 212,997   |   |             |   | 12,869  |                | 6.04 | % |          |   | 288,680     |   |  |   | 17,402  |  | 6.03 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total interest-bearing liabilities          |  | $                        | 3,580,059 |   |          | $ | 90,061      |      | 2.52 | %              |  | $ | 3,477,551 |   |             | $ | 122,360 |                | 3.52 | % |          | $ | 3,321,335   |   |  | $ | 161,514 |  | 4.86 | %
|Non-interest bearing deposits               |  |                          | 398,512   |   |          |   |             |      |      |                |  |   | 361,327   |   |             |   |         |                |      |   |          |   | 346,050     |   |  |   |         |  |      |  
|Other liabilities                           |  |                          | 80,260    |   |          |   |             |      |      |                |  |   | 74,073    |   |             |   |         |                |      |   |          |   | 74,634      |   |  |   |         |  |      |  
|Realized Stockholders Equity               |  |                          | 350,128   |   |          |   |             |      |      |                |  |   | 317,074   |   |             |   |         |                |      |   |          |   | 309,107     |   |  |   |         |  |      |  
|Other Comprehensive Income                  |  |                          | 15,561    |   |          |   |             |      |      |                |  |   | 12,474    |   |             |   |         |                |      |   |          |   | 3,748       |   |  |   |         |  |      |  
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Total Liabilities & Stockholders Equity    |  | $                        | 4,424,520 |   |          |   |             |      |      |                |  | $ | 4,242,499 |   |             |   |         |                |      |   |          | $ | 4,054,874   |   |  |   |         |  |      |  
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Net Interest Income (FTE)                   |  |                          |           |   |          | $ | 143,942     |      |      |                |  |   |           |   |             | $ | 137,630 |                |      |   |          |   |             |   |  | $ | 127,932 |  |      |  
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Net Interest Spread (FTE)                   |  |                          |           |   |          |   |             |      | 3.23 | %              |  |   |           |   |             |   |         |                | 3.15 | % |          |   |             |   |  |   |         |  | 2.88 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  
|Interest Rate Margin (FTE)                  |  |                          |           |   |          |   |             |      | 3.54 | %              |  |   |           |   |             |   |         |                | 3.53 | % |          |   |             |   |  |   |         |  | 3.42 | %
|                                            |  |                          |           |   |          |   |             |      |      |                |  |   |           |   |             |   |         |                |      |   |          |   |             |   |  |   |         |  |      |  



38



---

##### Table of Contents

|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | - | ------- | ----------------------------------- | ------------- | - | --------------------------- | ----------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                |  | Years Ended December 31,            |       
|                                                |  | 2003/2002                           |        |   | 2002/2001                   |  
|                                                |  | Increase (Decrease)Due to Change In |        |   | Total NetIncrease(Decrease) |   |         | Increase (Decrease)Due to Change In |               |   | Total NetIncrease(Decrease) |            
|                                                |  | AverageVolume                       |        |   | AverageRate                 |   |         |                                     | AverageVolume |   |                             | AverageRate |  |  
|                                                |  | (in thousands)                      |       
|Interest Income:                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Taxable securities                              |  | $                                   | (1,410 | ) |                             | $ | (10,927 | )                                   |               | $ | (12,337                     | )           |  | $ | 3,268  |   |  | $ | (9,172  | ) |  | $ | (5,904  | )
|Tax-exempt securities (1)                       |  |                                     | (4,127 | ) |                             |   | (219    | )                                   |               |   | (4,346                      | )           |  |   | (2,696 | ) |  |   | (460    | ) |  |   | (3,156  | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Investment securities (1) (2)                   |  | $                                   | (4,598 | ) |                             | $ | (12,085 | )                                   |               | $ | (16,683                     | )           |  | $ | 1,111  |   |  | $ | (10,171 | ) |  | $ | (9,060  | )
|Short-term investments                          |  |                                     | 70     |   |                             |   | (101    | )                                   |               |   | (31                         | )           |  |   | (273   | ) |  |   | (509    | ) |  |   | (782    | )
|Loans held for sale (3)                         |  |                                     | 797    |   |                             |   | (629    | )                                   |               |   | 168                         |             |  |   | 395    |   |  |   | (192    | ) |  |   | 203     |  
|                                                |  |                                     |        |   |                             |  
|Commercial                                      |  |                                     | 1,033  |   |                             |   | (4,948  | )                                   |               |   | (3,915                      | )           |  |   | 2,141  |   |  |   | (10,569 | ) |  |   | (8,428  | )
|Commercial real estate                          |  |                                     | 16,261 |   |                             |   | (9,701  | )                                   |               |   | 6,560                       |             |  |   | 6,548  |   |  |   | (11,829 | ) |  |   | (5,281  | )
|Residential real estate                         |  |                                     | (5,641 | ) |                             |   | (4,471  | )                                   |               |   | (10,112                     | )           |  |   | (7,567 | ) |  |   | (5,531  | ) |  |   | (13,098 | )
|Consumer                                        |  |                                     | 2,531  |   |                             |   | (4,505  | )                                   |               |   | (1,974                      | )           |  |   | 10,781 |   |  |   | (3,791  | ) |  |   | 6,990   |  
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Total loans (1) (4)                             |  |                                     | 15,617 |   |                             |   | (25,058 | )                                   |               |   | (9,441                      | )           |  |   | 11,509 |   |  |   | (31,326 | ) |  |   | (19,817 | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Total Interest-Earning Assets                   |  | $                                   | 10,953 |   |                             | $ | (36,940 | )                                   |               | $ | (25,987                     | )           |  | $ | 11,917 |   |  | $ | (41,373 | ) |  | $ | (29,456 | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Interest Expense:                               |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Interest-bearing demand and savings             |  | $                                   | 2,417  |   |                             | $ | (8,107  | )                                   |               | $ | (5,690                      | )           |  | $ | 1,103  |   |  | $ | (13,115 | ) |  | $ | (12,012 | )
|Time deposits                                   |  |                                     | (2,823 | ) |                             |   | (12,681 | )                                   |               |   | (15,504                     | )           |  |   | (252   | ) |  |   | (17,217 | ) |  |   | (17,469 | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Total Bank issued interest-bearing deposits     |  |                                     | 3,142  |   |                             |   | (24,336 | )                                   |               |   | (21,194                     | )           |  |   | 2,672  |   |  |   | (32,153 | ) |  |   | (29,481 | )
|Wholesale deposits                              |  |                                     | 4,406  |   |                             |   | (6,608  | )                                   |               |   | (2,202                      | )           |  |   | 4,582  |   |  |   | (4,932  | ) |  |   | (350    | )
|Short-term borrowings                           |  |                                     | (2,349 | ) |                             |   | (4,144  | )                                   |               |   | (6,493                      | )           |  |   | 3,916  |   |  |   | (8,706  | ) |  |   | (4,790  | )
|Long-term borrowings                            |  |                                     | (1,099 | ) |                             |   | (1,311  | )                                   |               |   | (2,410                      | )           |  |   | (4,573 | ) |  |   | 40      |   |  |   | (4,533  | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Total Interest-Bearing Liabilities              |  | $                                   | 3,502  |   |                             | $ | (35,801 | )                                   |               | $ | (32,299                     | )           |  | $ | 7,266  |   |  | $ | (46,420 | ) |  | $ | (39,154 | )
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  
|Net Interest Margin / Net Interest Income (FTE) |  | $                                   | 7,451  |   |                             | $ | (1,139  | )                                   |               | $ | 6,312                       |             |  | $ | 4,651  |   |  | $ | 5,047   |   |  | $ | 9,698   |  
|                                                |  |                                     |        |   |                             |   |         |                                     |               |   |                             |             |  |   |        |   |  |   |         |   |  |   |         |  



The above table shows the changes in
interest income (tax equivalent FTE) and interest expense attributable to volume and rate variances.



The change in interest income (tax equivalent) due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.



|(1) | The interest on tax-exempt securities and tax-exempt loans is calculated on a tax equivalent basis assuming a federal tax rate of 35%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(2) | The average balances of the securities are based on amortized historical cost.
|--- | ------------------------------------------------------------------------------

|(3) | The yield-related fees recognized from the origination of 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The balances of nonaccrual loans are included in average loans outstanding. Interest on loans includes yield related loan fees of $2.9 million, $2.9 million, and $3.3 million for
2003, 2002, and 2001 respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

TABLE 2



ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE



|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------------- |  | ---------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                              |  | 2003                   |           |   | 2002 |   |           | 2001 |  |   | 2000      |   |  | 1999 |          
|                                              |  | (dollars in thousands) |          
|LOAN PORTFOLIO AT YEAR END:                   |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial, financial and agricultural        |  | $                      | 733,167   |   |      | $ | 760,950   |      |  | $ | 705,486   |   |  | $    | 697,056   |   |  | $ | 710,302   |  
|Real estate-commercial                        |  |                        | 1,147,592 |   |      |   | 925,003   |      |  |   | 724,936   |   |  |      | 762,320   |   |  |   | 732,447   |  
|Real estate-residential                       |  |                        | 362,254   |   |      |   | 449,330   |      |  |   | 500,053   |   |  |      | 662,778   |   |  |   | 689,702   |  
|Real estate-construction                      |  |                        | 194,495   |   |      |   | 142,844   |      |  |   | 100,349   |   |  |      | 111,156   |   |  |   | 121,216   |  
|Installment and consumer                      |  |                        | 554,514   |   |      |   | 604,663   |      |  |   | 443,106   |   |  |      | 390,970   |   |  |   | 489,457   |  
|Direct lease financing                        |  |                        | 287       |   |      |   | 927       |      |  |   | 3,263     |   |  |      | 2,877     |   |  |   | 3,489     |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Gross loans                                   |  | $                      | 2,992,309 |   |      | $ | 2,883,717 |      |  | $ | 2,477,193 |   |  | $    | 2,627,157 |   |  | $ | 2,746,613 |  
|Allowance for loan losses                     |  |                        | (42,115   | ) |      |   | (35,214   | )    |  |   | (33,940   | ) |  |      | (29,157   | ) |  |   | (28,377   | )
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net Loans                                     |  | $                      | 2,950,194 |   |      | $ | 2,848,503 |      |  | $ | 2,443,253 |   |  | $    | 2,598,000 |   |  | $ | 2,718,236 |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|SUMMARY OF LOSS EXPERIENCE:                   |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for loan losses, beginning of year  |  | $                      | 35,214    |   |      | $ | 33,940    |      |  | $ | 29,157    |   |  | $    | 28,377    |   |  | $ | 26,403    |  
|Amounts charged-off:                          |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial, financial and agricultural        |  |                        | 7,979     |   |      |   | 3,876     |      |  |   | 5,332     |   |  |      | 3,401     |   |  |   | 5,055     |  
|Real estate-commercial                        |  |                        | 1,189     |   |      |   | 1,424     |      |  |   | 1,612     |   |  |      | 856       |   |  |   | 65        |  
|Real estate-residential                       |  |                        | 2,403     |   |      |   | 1,249     |      |  |   | 888       |   |  |      | 807       |   |  |   | 900       |  
|Installment and consumer                      |  |                        | 7,884     |   |      |   | 6,142     |      |  |   | 4,858     |   |  |      | 4,639     |   |  |   | 4,068     |  
|Direct lease financing                        |  |                        | 124       |   |      |   | 397       |      |  |   | 163       |   |  |      | 148       |   |  |   | 221       |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total Charge-offs                             |  | $                      | 19,579    |   |      | $ | 13,088    |      |  | $ | 12,853    |   |  | $    | 9,851     |   |  | $ | 10,309    |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Recoveries on amounts previously charged off: |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial, financial and agricultural        |  |                        | 1,016     |   |      |   | 448       |      |  |   | 411       |   |  |      | 691       |   |  |   | 424       |  
|Real estate-commercial                        |  |                        | 303       |   |      |   | 125       |      |  |   | 148       |   |  |      | 98        |   |  |   | 37        |  
|Real estate-residential                       |  |                        | 531       |   |      |   | 172       |      |  |   | 54        |   |  |      |          |   |  |   | 11        |  
|Installment and consumer                      |  |                        | 1,114     |   |      |   | 1,026     |      |  |   | 1,190     |   |  |      | 1,188     |   |  |   | 1,258     |  
|Direct lease financing                        |  |                        | 6         |   |      |   | 17        |      |  |   | 12        |   |  |      | 12        |   |  |   | 3         |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total Recoveries                              |  | $                      | 2,970     |   |      | $ | 1,788     |      |  | $ | 1,815     |   |  | $    | 1,989     |   |  | $ | 1,733     |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net Charge-offs                               |  | $                      | 16,609    |   |      | $ | 11,300    |      |  | $ | 11,038    |   |  | $    | 7,862     |   |  | $ | 8,576     |  
|Provision charged to expense                  |  |                        | 24,917    |   |      |   | 12,574    |      |  |   | 16,700    |   |  |      | 9,710     |   |  |   | 10,550    |  
|Reductions due to sale of loans               |  |                        | 1,407     |   |      |   |          |      |  |   | 879       |   |  |      | 1,068     |   |  |   |          |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for Loan Losses, end of year        |  | $                      | 42,115    |   |      | $ | 35,214    |      |  | $ | 33,940    |   |  | $    | 29,157    |   |  | $ | 28,377    |  
|                                              |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|RISK ELEMENTS:                                |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Non-accrual loans                             |  | $                      | 31,671    |   |      | $ | 32,535    |      |  | $ | 26,457    |   |  | $    | 22,069    |   |  | $ | 17,829    |  
|Past due 90 days or more not included above   |  | $                      | 3,304     |   |      | $ | 3,555     |      |  | $ | 14,001    |   |  | $    | 13,136    |   |  | $ | 10,197    |  
|Troubled debt restructuring                   |  | $                      |          |   |      | $ | 3,327     |      |  | $ |          |   |  | $    |          |   |  | $ |          |  
|RATIOS:                                       |  |                        |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for loan losses to year-end loans   |  |                        | 1.41      | % |      |   | 1.22      | %    |  |   | 1.37      | % |  |      | 1.11      | % |  |   | 1.03      | %
|Allowance to non-accrual loans                |  |                        | 132.98    | % |      |   | 108.24    | %    |  |   | 128.28    | % |  |      | 132.12    | % |  |   | 159.16    | %
|Net charge-offs to average loans              |  |                        | 0.57      | % |      |   | 0.42      | %    |  |   | 0.44      | % |  |      | 0.29      | % |  |   | 0.33      | %
|Recoveries to charge-offs                     |  |                        | 15.17     | % |      |   | 13.66     | %    |  |   | 14.12     | % |  |      | 20.19     | % |  |   | 16.81     | %
|Non-accrual loans to loans                    |  |                        | 1.06      | % |      |   | 1.13      | %    |  |   | 1.07      | % |  |      | 0.84      | % |  |   | 0.65      | %



40



---

##### Table of Contents

The allocation of the allowance for loan and lease losses at December 31, was as follows:



|                                       |  |                        |        |                            |       |   |        |      |                            |  |       |        |  |                            |        |  |        |   |                            |   |        |        |       |                            |  |   |        |  |       |  
|-------------------------------------- |  | ---------------------- | ------ | -------------------------- | ----- | - | ------ | ---- | -------------------------- |  | ----- | ------ |  | -------------------------- | ------ |  | ------ | - | -------------------------- | - | ------ | ------ | ----- | -------------------------- |  | - | ------ |  | ----- | -
|                                       |  | 2003                   |        |                            | 2002  |   |        | 2001 |                            |  | 2000  |        |  | 1999                       |       
|                                       |  | Amount                 |        | Percent ofLoans inCategory |       |   | Amount |      | Percent ofLoans inCategory |  |       | Amount |  | Percent ofLoans inCategory |        |  | Amount |   | Percent ofLoans inCategory |   |        | Amount |       | Percent ofLoans inCategory | 
|                                       |  | (dollars in thousands) |       
|Commercial, financial and agricultural |  | $                      | 17,747 |                            | 24.5  | % |        | $    | 15,470                     |  | 26.4  | %      |  | $                          | 16,136 |  | 28.6   | % |                            | $ | 13,065 |        | 26.6  | %                          |  | $ | 7,863  |  | 26.0  | %
|Real estate                            |  |                        | 6,643  |                            | 57.0  | % |        |      | 4,881                      |  | 52.6  | %      |  |                            | 4,526  |  | 53.5   | % |                            |   | 3,940  |        | 58.5  | %                          |  |   | 3,581  |  | 56.2  | %
|Installment and consumer               |  |                        | 7,529  |                            | 18.5  | % |        |      | 7,794                      |  | 21.0  | %      |  |                            | 7,359  |  | 17.9   | % |                            |   | 6,322  |        | 14.9  | %                          |  |   | 7,471  |  | 17.8  | %
|Impaired loans                         |  |                        | 7,219  |                            | *     |   |        |      | 5,575                      |  | *     |        |  |                            | 4,096  |  | *      |   |                            |   | 3,457  |        | *     |                            |  |   | 4,469  |  | *     |  
|Unallocated                            |  |                        | 2,977  |                            | *     |   |        |      | 1,494                      |  | *     |        |  |                            | 1,823  |  | *      |   |                            |   | 2,373  |        | *     |                            |  |   | 4,993  |  | *     |  
|                                       |  |                        |        |                            |       |   |        |      |                            |  |       |        |  |                            |        |  |        |   |                            |   |        |        |       |                            |  |   |        |  |       |  
|Total                                  |  | $                      | 42,115 |                            | 100.0 | % |        | $    | 35,214                     |  | 100.0 | %      |  | $                          | 33,940 |  | 100.0  | % |                            | $ | 29,157 |        | 100.0 | %                          |  | $ | 28,377 |  | 100.0 | %
|                                       |  |                        |        |                            |       |   |        |      |                            |  |       |        |  |                            |        |  |        |   |                            |   |        |        |       |                            |  |   |        |  |       |  

---

|* | Not applicable
|- | --------------



TABLE 3



MATURITY AND INTEREST SENSITIVITY OF LOANS



|                                       |  |                            |         |                  |   |                         |  |       |        |                   |   |                      |  |   |         |  |   |        
|-------------------------------------- |  | -------------------------- | ------- | ---------------- | - | ----------------------- |  | ----- | ------ | ----------------- | - | -------------------- |  | - | ------- |  | - | -------
|                                       |  | December 31, 2003         
|                                       |  | Time Remaining to Maturity |         |                  |   | Loans Due After OneYear
|                                       |  | DueWithinOne Year          |         | One ToFive Years |   | After FiveYears         |  | Total |        | FixedInterestRate |   | FloatingInterestRate
|                                       |  | (in thousands)            
|Commercial, financial and agricultural |  | $                          | 341,256 |                  | $ | 320,789                 |  | $     | 71,122 |                   | $ | 733,167              |  | $ | 188,847 |  | $ | 203,064
|Real estate-construction               |  |                            | 109,466 |                  |   | 71,886                  |  |       | 13,143 |                   |   | 194,495              |  |   | 28,915  |  |   | 56,114 
|                                       |  |                            |         |                  |   |                         |  |       |        |                   |   |                      |  |   |         |  |   |        
|Total                                  |  | $                          | 450,722 |                  | $ | 392,675                 |  | $     | 84,265 |                   | $ | 927,662              |  | $ | 217,762 |  | $ | 259,178
|                                       |  |                            |         |                  |   |                         |  |       |        |                   |   |                      |  |   |         |  |   |        



TABLE 4



MATURITY OF SECURITIES



|                                               |  |                        |       |       |                        |   |        |                                     |         |  |                               |        |  |       |         |  |        |   |       |   |        |        |      |       |  |   |           |  |      |  
|---------------------------------------------- |  | ---------------------- | ----- | ----- | ---------------------- | - | ------ | ----------------------------------- | ------- |  | ----------------------------- | ------ |  | ----- | ------- |  | ------ | - | ----- | - | ------ | ------ | ---- | ----- |  | - | --------- |  | ---- | -
|                                               |  | December 31, 2003      |      
|                                               |  | U.S. Treasury          |       |       | U.S.GovernmentAgencies |   |        | States andPoliticalSubdivisions (1) |         |  | CorporateObligationsand Other |        |  | Total |        
|                                               |  | Amount                 |       | Yield |                        |   | Amount |                                     | Yield   |  |                               | Amount |  | Yield |         |  | Amount |   | Yield |   |        | Amount |      | Yield | 
|                                               |  | (dollars in thousands) |      
|Securities Available for Sale (2):             |  |                        |       |       |                        |   |        |                                     |         |  |                               |        |  |       |         |  |        |   |       |   |        |        |      |       |  |   |           |  |      |  
|One year or less                               |  | $                      | 5,027 |       | 1.75                   | % |        | $                                   |        |  |                              |        |  | $     | 9,280   |  | 4.73   | % |       | $ | 81     |        | 0.22 | %     |  | $ | 14,388    |  | 3.65 | %
|After one through five years                   |  |                        |      |       |                       |   |        |                                     | 77,437  |  | 3.22                          | %      |  |       | 45,382  |  | 4.73   | % |       |   | 4,317  |        | 6.28 | %     |  |   | 127,136   |  | 3.85 | %
|After five through ten years                   |  |                        |      |       |                       |   |        |                                     | 1,268   |  | 2.63                          | %      |  |       | 92,571  |  | 4.87   | % |       |   |       |        |     |       |  |   | 93,839    |  | 4.84 | %
|After ten years                                |  |                        |      |       |                       |   |        |                                     | 408     |  | 3.82                          | %      |  |       | 6,202   |  | 5.06   | % |       |   | 51,756 |        | 7.76 | %     |  |   | 58,366    |  | 7.46 | %
|Mortgage-backed and asset-backedsecurities (3) |  |                        |      |       |                       |   |        |                                     | 840,217 |  | 4.06                          | %      |  |       |        |  |       |   |       |   | 31,436 |        | 6.06 | %     |  |   | 871,653   |  | 4.14 | %
|                                               |  |                        |       |       |                        |   |        |                                     |         |  |                               |        |  |       |         |  |        |   |       |   |        |        |      |       |  |   |           |  |      |  
|Total Securities Available for Sale            |  | $                      | 5,027 |       | 1.75                   | % |        | $                                   | 919,330 |  | 3.99                          | %      |  | $     | 153,435 |  | 4.83   | % |       | $ | 87,590 |        | 7.06 | %     |  | $ | 1,165,382 |  | 4.32 | %
|                                               |  |                        |       |       |                        |   |        |                                     |         |  |                               |        |  |       |         |  |        |   |       |   |        |        |      |       |  |   |           |  |      |  

---

|(1) | Yields were calculated on a tax equivalent basis assuming a federal tax rate of 35%.
|--- | ------------------------------------------------------------------------------------

|(2) | Yields were calculated based on amortized cost.
|--- | -----------------------------------------------

|(3) | Mortgage-backed and asset-backed security maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without penalties.
Therefore, these securities are not included within the maturity categories above.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





41



---

##### Table of Contents

TABLE 5



MATURITY OF TIME DEPOSITS $100,000 OR MORE



|                        |  |                            |         |                    |   |                     |  |                    |         |       |   |         |  |   |        
|----------------------- |  | -------------------------- | ------- | ------------------ | - | ------------------- |  | ------------------ | ------- | ----- | - | ------- |  | - | -------
|                        |  | December 31, 2003         
|                        |  | Time Remaining to Maturity
|                        |  | Due WithinThree Months     |         | Three toSix Months |   | Six toTwelve Months |  | AfterTwelve Months |         | Total
|                        |  | (in thousands)            
|Certificates of deposit |  | $                          | 158,341 |                    | $ | 123,699             |  | $                  | 139,168 |       | $ | 348,457 |  | $ | 769,665
|Other time deposits     |  |                            |        |                    |   |                    |  |                    |        |       |   | 838     |  |   | 838    
|                        |  |                            |         |                    |   |                     |  |                    |         |       |   |         |  |   |        
|Total                   |  | $                          | 158,341 |                    | $ | 123,699             |  | $                  | 139,168 |       | $ | 349,295 |  | $ | 770,503
|                        |  |                            |         |                    |   |                     |  |                    |         |       |   |         |  |   |        



TABLE 6



INTEREST RATE SENSITIVITY



The following table provides information about the Companys derivative financial
instruments and other financial instruments used for purposes other than trading that are sensitive to changes in interest rates. For loans, securities, and liabilities with contractual maturities, the table presents principal cash flows and related
weighted-average interest rates by contractual maturities as well as any anticipated prepayments.



For deposits that have no contractual maturity (demand deposit accounts, interest-bearing checking, savings, and money market deposits) the table was constructed based on historical Company data and analysis.



For interest rate swaps and caps, the table presents notional amounts and, if
applicable, weighted-average interest rates by contractual maturity date or call date. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts.



|                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|----------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | - | --------- | - |  | - | --------- | - |  | - | ---------
|At December 31, 2003:               |  | 2004                   |         |   | 2005 |   |         | 2006 |  |   | 2007    |   |  | 2008 |         |   | Thereafter |   |         | Total |  |   | FairValue
|                                    |  | (dollars in thousands)
|Rate Sensitive Assets:              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Fixed Interest Rate Loans           |  | $                      | 508,299 |   |      | $ | 308,117 |      |  | $ | 288,516 |   |  | $    | 157,565 |   |            | $ | 227,320 |       |  | $ | 68,012    |   |  | $ | 1,557,829 |   |  | $ | 1,667,671
|Average Interest Rate               |  |                        | 6.39    | % |      |   | 6.60    | %    |  |   | 6.04    | % |  |      | 6.33    | % |            |   | 6.01    | %     |  |   | 6.27      | % |  |   | 6.30      | % |  |   |          
|Variable Interest Rate Loans        |  |                        | 615,820 |   |      |   | 201,790 |      |  |   | 149,753 |   |  |      | 146,526 |   |            |   | 221,593 |       |  |   | 98,998    |   |  |   | 1,434,480 |   |  |   | 1,441,416
|Average Interest Rate               |  |                        | 4.78    | % |      |   | 4.61    | %    |  |   | 4.40    | % |  |      | 4.45    | % |            |   | 4.16    | %     |  |   | 5.07      | % |  |   | 4.60      | % |  |   |          
|Fixed Interest Rate Securities      |  |                        | 240,584 |   |      |   | 222,522 |      |  |   | 261,061 |   |  |      | 134,270 |   |            |   | 96,171  |       |  |   | 193,430   |   |  |   | 1,148,038 |   |  |   | 1,161,547
|Average Interest Rate               |  |                        | 4.42    | % |      |   | 4.32    | %    |  |   | 3.84    | % |  |      | 4.18    | % |            |   | 4.08    | %     |  |   | 4.88      | % |  |   | 4.29      | % |  |   |          
|Variable Interest Rate Securities   |  |                        | 2,274   |   |      |   | 337     |      |  |   | 320     |   |  |      | 314     |   |            |   | 315     |       |  |   | 275       |   |  |   | 3,835     |   |  |   | 3,835    
|Average Interest Rate               |  |                        | 3.93    | % |      |   | 3.00    | %    |  |   | 3.00    | % |  |      | 3.00    | % |            |   | 3.00    | %     |  |   | 3.00      | % |  |   | 3.55      | % |  |   |          
|Other Interest-Bearing Assets       |  |                        | 1,746   |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 1,746     |   |  |   | 1,746    
|Average Interest Rate               |  |                        | 0.70    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 0.70      | % |  |   |          
|                                    |  |                        |         |   |      |   |         |     
|Rate Sensitive Liabilities:         |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Non-Interest-bearing checking       |  |                        | 166,004 |   |      |   | 44,431  |      |  |   | 37,025  |   |  |      | 30,878  |   |            |   | 25,772  |       |  |   | 133,393   |   |  |   | 437,503   |   |  |   | 437,503  
|Average Interest Rate               |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   |          |   |  |   |          
|Savings & Interest-bearing checking |  |                        | 889,009 |   |      |   | 113,259 |      |  |   | 94,152  |   |  |      | 72,821  |   |            |   | 48,612  |       |  |   | 204,623   |   |  |   | 1,422,476 |   |  |   | 1,422,476
|Average Interest Rate               |  |                        | 1.02    | % |      |   | 0.81    | %    |  |   | 0.82    | % |  |      | 0.86    | % |            |   | 0.71    | %     |  |   | 0.66      | % |  |   | 0.92      | % |  |   |          
|Time-deposits                       |  |                        | 910,223 |   |      |   | 259,035 |      |  |   | 165,828 |   |  |      | 150,797 |   |            |   | 4,358   |       |  |   | 18,274    |   |  |   | 1,508,515 |   |  |   | 1,539,344
|Average Interest Rate               |  |                        | 2.70    | % |      |   | 3.55    | %    |  |   | 3.10    | % |  |      | 5.08    | % |            |   | 2.58    | %     |  |   | 3.90      | % |  |   | 3.14      | % |  |   |          
|Fixed Interest Rate Borrowings      |  |                        | 327,714 |   |      |   | 63,253  |      |  |   | 16,710  |   |  |      | 25,016  |   |            |   | 90,019  |       |  |   | 28,071    |   |  |   | 550,783   |   |  |   | 569,632  
|Average Interest Rate               |  |                        | 2.60    | % |      |   | 1.73    | %    |  |   | 4.25    | % |  |      | 9.35    | % |            |   | 5.03    | %     |  |   | 4.86      | % |  |   | 3.37      | % |  |   |          
|Variable Interest Rate Borrowings   |  |                        | 190,890 |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 190,890   |   |  |   | 190,890  
|Average Interest Rate               |  |                        | 0.96    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 0.96      | % |  |   |          



42



---

##### Table of Contents

|                                                 |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|------------------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|At December 31, 2003:                            |  | 2004                   |         |   | 2005 |   |         | 2006 |  |   | 2007    |   |  | 2008 |         |   | Thereafter |   |         | Total |  |   | FairValue |  
|                                                 |  | (dollars in thousands) |        
|                                                 |  |                        |         |   |      |   |         |     
|Rate Sensitive Derivative Financial Instruments: |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  | $                      |        |   |      | $ |        |      |  | $ |        |   |  | $    | 10,000  |   |            | $ |        |       |  | $ |          |   |  | $ | 10,000    |   |  | $ | 903       |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 0.95    | % |            |   |        |       |  |   |          |   |  |   | 0.95      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 5.15    | % |            |   |        |       |  |   |          |   |  |   | 5.15      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 10,000  |   |            |   |        |       |  |   |          |   |  |   | 10,000    |   |  |   | 884       |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 0.94    | % |            |   |        |       |  |   |          |   |  |   | 0.94      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 5.15    | % |            |   |        |       |  |   |          |   |  |   | 5.15      | % |  |   |           |  
|Index: 6 mo. Libor-resets semi-annually          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 10,000  |   |            |   |        |       |  |   |          |   |  |   | 10,000    |   |  |   | 668       |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 1.06    | % |            |   |        |       |  |   |          |   |  |   | 1.06      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 4.35    | % |            |   |        |       |  |   |          |   |  |   | 4.35      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 10,000  |   |            |   |        |       |  |   |          |   |  |   | 10,000    |   |  |   | 562       |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 1.33    | % |            |   |        |       |  |   |          |   |  |   | 1.33      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      | 4.40    | % |            |   |        |       |  |   |          |   |  |   | 4.40      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|                                                 |  |                        |         |   |      |   |         |     
|Rate Sensitive Derivative Financial Instruments: |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 34,000  |       |  |   |          |   |  |   | 34,000    |   |  |   | (194      | )
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 3.55    | %     |  |   |          |   |  |   | 3.55      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 5.14    | %     |  |   |          |   |  |   | 5.14      | % |  |   |           |  
|Index: 1 mo. Libor-resets monthly                |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 40,000  |       |  |   |          |   |  |   | 40,000    |   |  |   | (108      | )
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 3.37    | %     |  |   |          |   |  |   | 3.37      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   | 4.99    | %     |  |   |          |   |  |   | 4.99      | % |  |   |           |  
|Index: 1 mo. Libor-resets monthly                |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | 19        |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.13      | % |  |   | 1.13      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 4.60      | % |  |   | 4.60      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | (61       | )
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.13      | % |  |   | 1.13      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 5.00      | % |  |   | 5.00      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | (86       | )
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.17      | % |  |   | 1.17      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 5.10      | % |  |   | 5.10      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 15,000    |   |  |   | 15,000    |   |  |   | (14       | )
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.15      | % |  |   | 1.15      | % |  |   |           |  
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 4.25      | % |  |   | 4.25      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Interest rate cap                                |  |                        | 20,000  |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 20,000    |   |  |   |          |  
|Average strike rate                              |  |                        | 8.00    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 8.00      | % |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|At December 31, 2002:                            |  | 2003                   |         |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | 2007 |         |   | Thereafter |   |         | Total |  |   | FairValue |  
|                                                 |  | (dollars in thousands) |        
|Rate Sensitive Assets:                           |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |           |  
|Fixed Interest Rate Loans                        |  |                        | 648,894 |   |      |   | 371,640 |      |  |   | 241,043 |   |  |      | 183,531 |   |            |   | 131,763 |       |  |   | 57,605    |   |  |   | 1,634,476 |   |  |   | 1,778,506 |  
|Average Interest Rate                            |  |                        | 6.95    | % |      |   | 7.42    | %    |  |   | 7.09    | % |  |      | 7.01    | % |            |   | 6.88    | %     |  |   | 6.47      | % |  |   | 7.06      | % |  |   |           |  
|Variable Interest Rate Loans                     |  |                        | 545,570 |   |      |   | 155,716 |      |  |   | 139,432 |   |  |      | 104,808 |   |            |   | 164,874 |       |  |   | 138,841   |   |  |   | 1,249,241 |   |  |   | 1,267,820 |  
|Average Interest Rate                            |  |                        | 5.16    | % |      |   | 4.96    | %    |  |   | 5.00    | % |  |      | 4.79    | % |            |   | 4.73    | %     |  |   | 5.12      | % |  |   | 5.03      | % |  |   |           |  
|Fixed Interest Rate Securities                   |  |                        | 472,469 |   |      |   | 189,686 |      |  |   | 94,207  |   |  |      | 88,780  |   |            |   | 56,355  |       |  |   | 227,336   |   |  |   | 1,128,833 |   |  |   | 1,160,084 |  
|Average Interest Rate                            |  |                        | 4.23    | % |      |   | 4.88    | %    |  |   | 5.13    | % |  |      | 5.04    | % |            |   | 5.34    | %     |  |   | 4.98      | % |  |   | 4.68      | % |  |   |           |  
|Variable Interest Rate Securities                |  |                        | 9,420   |   |      |   | 1,669   |      |  |   | 407     |   |  |      | 385     |   |            |   | 382     |       |  |   | 1,114     |   |  |   | 13,377    |   |  |   | 13,377    |  
|Average Interest Rate                            |  |                        | 3.96    | % |      |   | 3.71    | %    |  |   | 3.34    | % |  |      | 3.29    | % |            |   | 3.27    | %     |  |   | 3.27      | % |  |   | 3.81      | % |  |   |           |  
|Other Interest-Bearing Assets                    |  |                        | 6,351   |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 6,351     |   |  |   | 6,351     |  
|Average Interest Rate                            |  |                        | 1.20    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |          |   |  |   | 1.20      | % |  |   |           |  



43



---

##### Table of Contents

|                                                 |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|------------------------------------------------ |  | ---------------------- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - | ---------- | - | ------- | ----- |  | - | --------- | - |  | - | --------- | - |  | - | ---------
|At December 31, 2002:                            |  | 2003                   |           |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | 2007 |        |   | Thereafter |   |         | Total |  |   | FairValue
|                                                 |  | (dollars in thousands)
|                                                 |  |                        |           |   |      |   |         |     
|Rate Sensitive Liabilities:                      |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Non-Interest-bearing checking                    |  | $                      | 146,773   |   |      | $ | 40,090  |      |  | $ | 33,419  |   |  | $    | 27,881 |   |            | $ | 23,279  |       |  | $ | 120,704   |   |  | $ | 392,146   |   |  | $ | 392,146  
|Average Interest Rate                            |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   |          |   |  |   |          
|Savings & Interest-bearing checking              |  |                        | 795,444   |   |      |   | 68,602  |      |  |   | 53,199  |   |  |      | 43,261 |   |            |   | 32,380  |       |  |   | 123,134   |   |  |   | 1,116,020 |   |  |   | 1,116,020
|Average Interest Rate                            |  |                        | 0.89      | % |      |   | 0.85    | %    |  |   | 0.83    | % |  |      | 0.93   | % |            |   | 0.81    | %     |  |   | 0.69      | % |  |   | 0.86      | % |  |   |          
|Time-deposits                                    |  |                        | 1,101,880 |   |      |   | 357,416 |      |  |   | 120,544 |   |  |      | 50,660 |   |            |   | 151,476 |       |  |   | 4,520     |   |  |   | 1,786,496 |   |  |   | 1,844,559
|Average Interest Rate                            |  |                        | 3.89      | % |      |   | 4.27    | %    |  |   | 5.09    | % |  |      | 4.69   | % |            |   | 5.09    | %     |  |   | 1.68      | % |  |   | 4.17      | % |  |   |          
|Fixed Interest Rate Borrowings                   |  |                        | 376,282   |   |      |   | 96,843  |      |  |   | 15,682  |   |  |      | 11,710 |   |            |   | 25,316  |       |  |   | 118,100   |   |  |   | 643,933   |   |  |   | 674,812  
|Average Interest Rate                            |  |                        | 2.52      | % |      |   | 5.97    | %    |  |   | 6.51    | % |  |      | 5.27   | % |            |   | 9.32    | %     |  |   | 4.99      | % |  |   | 3.91      | % |  |   |          
|Variable Interest Rate Borrowings                |  |                        | 137,412   |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 137,412   |   |  |   | 137,412  
|Average Interest Rate                            |  |                        | 0.98      | % |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 0.98      | % |  |   |          
|Rate Sensitive Derivative Financial Instruments: |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 10,000  |       |  |   |          |   |  |   | 10,000    |   |  |   | 1,114    
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 1.18    | %     |  |   |          |   |  |   | 1.18      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 5.15    | %     |  |   |          |   |  |   | 5.15      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|                                                 |  |                        |           |   |      |   |         |     
|Rate Sensitive Derivative Financial Instruments: |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 10,000  |       |  |   |          |   |  |   | 10,000    |   |  |   | 1,073    
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 1.51    | %     |  |   |          |   |  |   | 1.51      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 5.15    | %     |  |   |          |   |  |   | 5.15      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 10,000  |       |  |   |          |   |  |   | 10,000    |   |  |   | 778      
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 1.67    | %     |  |   |          |   |  |   | 1.67      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 4.35    | %     |  |   |          |   |  |   | 4.35      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 10,000  |       |  |   |          |   |  |   | 10,000    |   |  |   | 652      
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 1.94    | %     |  |   |          |   |  |   | 1.94      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   | 4.40    | %     |  |   |          |   |  |   | 4.40      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |        |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 20,000    |   |  |   | 20,000    |   |  |   | 185      
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 1.78      | % |  |   | 1.78      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 4.00      | % |  |   | 4.00      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | 143      
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 1.39      | % |  |   | 1.39      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 4.25      | % |  |   | 4.25      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | 86       
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 1.35      | % |  |   | 1.35      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 4.60      | % |  |   | 4.60      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 10,000    |   |  |   | 10,000    |   |  |   | 33       
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 1.37      | % |  |   | 1.37      | % |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   | 5.00      | % |  |   | 5.00      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Interest rate cap                                |  |                        | 20,000    |   |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 20,000    |   |  |   |         
|Average strike rate                              |  |                        | 5.75      | % |      |   |        |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 5.75      | % |  |   |          
|Index: 3 mo. Treasury-resets monthly             |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          
|Interest rate cap                                |  |                        |          |   |      |   | 20,000  |      |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 20,000    |   |  |   | 2        
|Average strike rate                              |  |                        |          |   |      |   | 8.00    | %    |  |   |        |   |  |      |       |   |            |   |        |       |  |   |          |   |  |   | 8.00      | % |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |        |   |            |   |         |       |  |   |           |   |  |   |           |   |  |   |          



Pursuant to Statement of Financial
Accounting Standards, (SFAS) NO. 133, Accounting for Derivative Instruments and Hedging Activities, as modified by SFAS No. 138 and amended by SFAS No. 149, all derivatives are recognized at fair value in the Consolidated Balance Sheets.
Changes in fair value for derivatives that are not hedges are recognized in the Consolidated Statement of Income (Income Statement) as they arise. If



44



---

##### Table of Contents

the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset in the Income Statement or are
recorded as a component of other comprehensive income in the Consolidated Statement of Stockholders Equity. See Note 11 of the Notes to Consolidated Financial Statements for further information on derivative instruments.



TABLE 7



AMCORE BRANCH EXPANSION PLANS



|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|-------------------------------- |  | ---- | - |  | --------- | - |  | -------- | - |  | --------------- | - |  | -------------- | -
|Strategy                         |  | LBO* |   |  | FullServ. |   |  | In-store |   |  | BranchExpansion |   |  | TotalLocations |  
|2001                             |  |      |   |  |           |   |  |          |   |  |                 |   |  | 64             |  
|  Sold branches                 |  |      |   |  |           |   |  |          |   |  |                 |   |  | (7             | )
|+  New branches                  |  | 1    |   |  | 1         |   |  | 0        |   |  | 2               |   |  | 2              |  
|  Closed, moved to new facility |  | 0    |   |  | 0         |   |  | 0        |   |  | 0               |   |  | 0              |  
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 1    |   |  | 1         |   |  | 0        |   |  | 2               |   |  | 59             |  
|                                 |  |      |   |  |          
|2002                             |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|+  New branches                  |  | 4    |   |  | 3         |   |  | 0        |   |  | 7               |   |  | 7              |  
|  Closed, moved to new facility |  | (1   | ) |  | (1        | ) |  | 0        |   |  | (2              | ) |  | (2             | )
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 4    |   |  | 3         |   |  | 0        |   |  | 7               |   |  | 64             |  
|                                 |  |      |   |  |          
|2003                             |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|  Sold branches                 |  |      |   |  |           |   |  |          |   |  |                 |   |  | (6             | )
|  Closed in-store               |  |      |   |  |           |   |  |          |   |  |                 |   |  | (1             | )
|+  New branches                  |  | 4    |   |  | 7         |   |  | 0        |   |  | 11              |   |  | 11             |  
|  Closed, moved to new facility |  | (1   | ) |  | (1        | ) |  | (2       | ) |  | (4              | ) |  | (4             | )
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 7    |   |  | 9         |   |  | (2       | ) |  | 14              |   |  | 64             |  
|                                 |  |      |   |  |          
|2004 Projected                   |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|+  New branches                  |  | 3    |   |  | 7         |   |  | 0        |   |  | 10              |   |  | 10             |  
|  Closed, moved to new facility |  | (4   | ) |  | 0         |   |  | (2       | ) |  | (6              | ) |  | (6             | )
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 6    |   |  | 16        |   |  | (4       | ) |  | 18              |   |  | 68             |  
|                                 |  |      |   |  |          
|2005 Projected                   |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|+  New branches                  |  | 2    |   |  | 7         |   |  | 0        |   |  | 9               |   |  | 9              |  
|  Closed, moved to new facility |  | (3   | ) |  | 0         |   |  | 0        |   |  | (3              | ) |  | (3             | )
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 5    |   |  | 23        |   |  | (4       | ) |  | 24              |   |  | 74             |  
|                                 |  |      |   |  |          
|2006 Projected                   |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|+  New branches                  |  | 0    |   |  | 1         |   |  | 0        |   |  | 1               |   |  | 1              |  
|  Closed, moved to new facility |  | (1   | ) |  | 0         |   |  | 0        |   |  | (1              | ) |  | (1             | )
|                                 |  |      |   |  |           |   |  |          |   |  |                 |   |  |                |  
|Cumulative total                 |  | 4    |   |  | 24        |   |  | (4       | ) |  | 24              |   |  | 74             |  

---

|* | LBO is a limited branch office.
|- | -------------------------------



45



---

##### Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                         |  |            |           |            |  |                                   |           |   |      |  |       | 
|------------------------------------------------------------------------ |  | ---------- | --------- | ---------- |  | --------------------------------- | --------- | - | ---- |  | ----- | 
|                                                                         |  |            |           |            |  | As of December 31,                |          
|                                                                         |  |            |           |            |  | 2003                              |           |   | 2002 | 
|                                                                         |  |            |           |            |  | (in thousands, except share data) |          
|ASSETS                                                                   |  |            |           |            |  |                                   |           |  
|Cash and cash equivalents                                                |  | $          | 107,965   |            |  | $                                 | 145,224   |  
|Interest earning deposits in banks                                       |  |            | 1,746     |            |  |                                   | 2,151     |  
|Federal funds sold and other short-term investments                      |  |            |          |            |  |                                   | 4,200     |  
|Loans held for sale                                                      |  |            | 32,351    |            |  |                                   | 79,893    |  
|Securities available for sale                                            |  |            | 1,165,382 |            |  |                                   | 1,173,461 |  
|Gross loans                                                              |  |            | 2,992,309 |            |  |                                   | 2,883,717 |  
|Allowance for loan losses                                                |  |            | (42,115   | )          |  |                                   | (35,214   | )
|                                                                         |  |            |           |            |  |                                   |           |  
|Net Loans                                                                |  | $          | 2,950,194 |            |  | $                                 | 2,848,503 |  
|Company owned life insurance                                             |  |            | 116,475   |            |  |                                   | 108,914   |  
|Premises and equipment, net                                              |  |            | 72,427    |            |  |                                   | 57,911    |  
|Goodwill                                                                 |  |            | 15,575    |            |  |                                   | 15,645    |  
|Foreclosed real estate                                                   |  |            | 4,433     |            |  |                                   | 3,415     |  
|Other assets                                                             |  |            | 77,080    |            |  |                                   | 81,397    |  
|                                                                         |  |            |           |            |  |                                   |           |  
|Total Assets                                                             |  | $          | 4,543,628 |            |  | $                                 | 4,520,714 |  
|                                                                         |  |            |           |            |  |                                   |           |  
|LIABILITIES                                                              |  |            |           |            |  |                                   |           |  
|Deposits:                                                                |  |            |           |            |  |                                   |           |  
|Demand deposits                                                          |  | $          | 1,615,392 |            |  | $                                 | 1,372,446 |  
|Savings deposits                                                         |  |            | 244,587   |            |  |                                   | 135,720   |  
|Other time deposits                                                      |  |            | 1,508,515 |            |  |                                   | 1,786,496 |  
|                                                                         |  |            |           |            |  |                                   |           |  
|Total Deposits                                                           |  | $          | 3,368,494 |            |  | $                                 | 3,294,662 |  
|Short-term borrowings                                                    |  |            | 557,063   |            |  |                                   | 595,513   |  
|Long-term borrowings                                                     |  |            | 184,610   |            |  |                                   | 185,832   |  
|Other liabilities                                                        |  |            | 57,877    |            |  |                                   | 89,026    |  
|                                                                         |  |            |           |            |  |                                   |           |  
|Total Liabilities                                                        |  | $          | 4,168,044 |            |  | $                                 | 4,165,033 |  
|                                                                         |  |            |           |            |  |                                   |           |  
|STOCKHOLDERS EQUITY                                                     |  |            |           |            |  |                                   |           |  
|Preferred stock, $1 par value: authorized 10,000,000 shares; issued none |  | $          |          |            |  | $                                 |          |  
|Common stock, $.22 par value: authorized 45,000,000 shares;              |  |            |           |            |  |                                   |           |  
|                                                                         |  |            |           |           
|                                                                         |  | 2003       |           | 2002       |  |                                   |           |   |      | 
|Issued                                                                   |  | 29,830,041 |           | 29,785,861 |  |                                   |           |   |      |  |       | 
|Outstanding                                                              |  | 25,079,471 |           | 24,788,510 |  |                                   | 6,625     |   |      |  | 6,615 | 
|Additional paid-in capital                                               |  |            | 73,862    |            |  |                                   | 74,326    |  
|Retained earnings                                                        |  |            | 378,305   |            |  |                                   | 351,247   |  
|Deferred compensation                                                    |  |            | (353      | )          |  |                                   | (523      | )
|Treasury stock (20034,750,570 shares; 20024,997,351 shares)            |  |            | (91,812   | )          |  |                                   | (97,043   | )
|Accumulated other comprehensive income                                   |  |            | 8,957     |            |  |                                   | 21,059    |  
|                                                                         |  |            |           |            |  |                                   |           |  
|Total Stockholders Equity                                               |  | $          | 375,584   |            |  | $                                 | 355,681   |  
|                                                                         |  |            |           |            |  |                                   |           |  
|Total Liabilities and Stockholders Equity                               |  | $          | 4,543,628 |            |  | $                                 | 4,520,714 |  
|                                                                         |  |            |           |            |  |                                   |           |   |      |  |       | 



See accompanying notes
to consolidated financial statements.



46



---

##### Table of Contents

AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME



|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|-------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | - | ------- |  | - | ------- | -
|                                                                     |  | Years ended December 31,              |        
|                                                                     |  | 2003                                  |         | 2002 |   | 2001    | 
|                                                                     |  | (in thousands, except per share data) |        
|INTEREST INCOME                                                      |  |                                       |         |      |   |         |  |   |         |  
|Interest and fees on loans                                           |  | $                                     | 175,786 |      | $ | 185,141 |  | $ | 204,866 |  
|Interest on securities:                                              |  |                                       |         |      |   |         |  |   |         |  
|Taxable                                                              |  |                                       | 39,220  |      |   | 51,557  |  |   | 57,461  |  
|Tax-exempt                                                           |  |                                       | 8,636   |      |   | 11,461  |  |   | 13,512  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Income on Securities                                           |  | $                                     | 47,856  |      | $ | 63,018  |  | $ | 70,973  |  
|Interest on federal funds sold and other short-term investments      |  |                                       | 161     |      |   | 150     |  |   | 448     |  
|Interest and fees on loans held for sale                             |  |                                       | 4,908   |      |   | 4,740   |  |   | 4,537   |  
|Interest on deposits in banks                                        |  |                                       | 37      |      |   | 79      |  |   | 563     |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Interest Income                                                |  | $                                     | 228,748 |      | $ | 253,128 |  | $ | 281,387 |  
|INTEREST EXPENSE                                                     |  |                                       |         |      |   |         |  |   |         |  
|Interest on deposits                                                 |  | $                                     | 69,024  |      | $ | 92,420  |  | $ | 122,251 |  
|Interest on short-term borrowings                                    |  |                                       | 10,578  |      |   | 17,071  |  |   | 21,861  |  
|Interest on long-term borrowings                                     |  |                                       | 10,459  |      |   | 12,869  |  |   | 17,402  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Interest Expense                                               |  | $                                     | 90,061  |      | $ | 122,360 |  | $ | 161,514 |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Net Interest Income                                                  |  | $                                     | 138,687 |      | $ | 130,768 |  | $ | 119,873 |  
|Provision for loan losses                                            |  |                                       | 24,917  |      |   | 12,574  |  |   | 16,700  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Net Interest Income After Provision for Loan Losses.                 |  | $                                     | 113,770 |      | $ | 118,194 |  | $ | 103,173 |  
|NON-INTEREST INCOME                                                  |  |                                       |         |      |   |         |  |   |         |  
|Trust and asset management income                                    |  | $                                     | 22,524  |      | $ | 24,707  |  | $ | 26,878  |  
|Service charges on deposits                                          |  |                                       | 18,611  |      |   | 17,869  |  |   | 14,769  |  
|Mortgage revenues                                                    |  |                                       | 17,558  |      |   | 7,940   |  |   | 8,482   |  
|Company owned life insurance income                                  |  |                                       | 7,022   |      |   | 5,684   |  |   | 5,249   |  
|Gain on sale of branches                                             |  |                                       | 8,208   |      |   |        |  |   | 10,591  |  
|Gain on sale of loans                                                |  |                                       | 2,491   |      |   |        |  |   | 810     |  
|Other                                                                |  |                                       | 11,199  |      |   | 11,609  |  |   | 10,590  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Non-Interest Income, Excluding Net Security Gains (Losses)     |  | $                                     | 87,613  |      | $ | 67,809  |  | $ | 77,369  |  
|Net security gains (losses)                                          |  |                                       | 4,375   |      |   | 2,503   |  |   | (303    | )
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Non-Interest Income                                            |  | $                                     | 91,988  |      | $ | 70,312  |  | $ | 77,066  |  
|OPERATING EXPENSES                                                   |  |                                       |         |      |   |         |  |   |         |  
|Compensation expense                                                 |  | $                                     | 67,157  |      | $ | 60,483  |  | $ | 55,343  |  
|Employee benefits.                                                   |  |                                       | 17,398  |      |   | 16,218  |  |   | 14,227  |  
|Net occupancy expense                                                |  |                                       | 8,772   |      |   | 7,854   |  |   | 7,551   |  
|Equipment expense                                                    |  |                                       | 9,610   |      |   | 7,807   |  |   | 7,980   |  
|Data processing expense                                              |  |                                       | 5,096   |      |   | 6,783   |  |   | 6,045   |  
|Professional fees                                                    |  |                                       | 4,583   |      |   | 4,262   |  |   | 4,113   |  
|Communication expense                                                |  |                                       | 4,693   |      |   | 4,128   |  |   | 3,932   |  
|Advertising and business development                                 |  |                                       | 5,175   |      |   | 4,714   |  |   | 4,594   |  
|Amortization of intangible assets                                    |  |                                       | 141     |      |   | 141     |  |   | 2,103   |  
|Other                                                                |  |                                       | 23,523  |      |   | 18,625  |  |   | 17,747  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Total Operating Expenses                                             |  | $                                     | 146,148 |      | $ | 131,015 |  | $ | 123,635 |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Income Before Income Taxes, Extraordinary Item and Accounting Change |  | $                                     | 59,610  |      | $ | 57,491  |  | $ | 56,604  |  
|Income taxes                                                         |  |                                       | 16,106  |      |   | 14,020  |  |   | 14,382  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Net Income Before Extraordinary Item and Accounting Change           |  | $                                     | 43,504  |      | $ | 43,471  |  | $ | 42,222  |  
|Extraordinary item: Early extinguishment of debt (net of tax)        |  |                                       |        |      |   |        |  |   | (204    | )
|Cumulative effect of accounting change (net of tax).                 |  |                                       |        |      |   |        |  |   | 225     |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Net Income.                                                          |  | $                                     | 43,504  |      | $ | 43,471  |  | $ | 42,243  |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|                                                                     | 
|EARNINGS PER COMMON SHARE (EPS)                                      |  |                                       |         |      |   |         |  |   |         |  
|Basic EPS                                                            |  |                                       |         |      |   |         |  |   |         |  
|Income Before Extraordinary Item and Accounting Change               |  | $                                     | 1.75    |      | $ | 1.76    |  | $ | 1.66    |  
|Extraordinary item: Early extinguishment of debt                     |  |                                       |        |      |   |        |  |   | (0.01   | )
|Cumulative effect of accounting change                               |  |                                       |        |      |   |        |  |   | 0.01    |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Basic net income                                                     |  | $                                     | 1.75    |      | $ | 1.76    |  | $ | 1.66    |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Diluted EPS                                                          |  |                                       |         |      |   |         |  |   |         |  
|Income Before Extraordinary Item and Accounting Change               |  | $                                     | 1.73    |      | $ | 1.75    |  | $ | 1.64    |  
|Extraordinary item: Early extinguishment of debt                     |  |                                       |        |      |   |        |  |   | (0.01   | )
|Cumulative effect of accounting change                               |  |                                       |        |      |   |        |  |   | 0.01    |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|Diluted net income                                                   |  | $                                     | 1.73    |      | $ | 1.75    |  | $ | 1.64    |  
|                                                                     |  |                                       |         |      |   |         |  |   |         |  
|DIVIDENDS PER COMMON SHARE                                           |  | $                                     | 0.66    |      | $ | 0.64    |  | $ | 0.64    |  
|AVERAGE COMMON SHARES OUTSTANDING                                    |  |                                       |         |      |   |         |  |   |         |  
|Basic                                                                |  |                                       | 24,896  |      |   | 24,701  |  |   | 25,490  |  
|Diluted                                                              |  |                                       | 25,090  |      |   | 24,911  |  |   | 25,730  |  
|                                                                     | 



See accompanying notes
to consolidated financial statements



47



---

##### Table of Contents

AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | --------------------------------- | ----- | ------------------------ | - | ------ | ---------------- |  | - | -------------------- | - |  | ------------- | ------ | - | ------------------------------------------ | - | -------- | ------------------------ |  | - | ------ | - |  | - | ------- | -
|                                                                                   |  | CommonStock                       |       | AdditionalPaid-inCapital |   |        | RetainedEarnings |  |   | DeferredCompensation |   |  | TreasuryStock |        |   | AccumulatedOtherComprehensiveIncome (Loss) |   |          | TotalStockholdersEquity | 
|                                                                                   |  | (in thousands, except share data) |      
|Balance at December 31, 2000                                                       |  | $                                 | 6,596 |                          | $ | 74,900 |                  |  | $ | 297,703              |   |  | $             | (1,651 | ) |                                            | $ | (69,385  | )                        |  | $ | 334    |   |  | $ | 308,497 |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Comprehensive Income:                                                              |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Net Income before extraordinary item & accounting change                           |  |                                   |      |                          |   |       |                  |  |   | 42,222               |   |  |               |       |   |                                            |   |         |                          |  |   |       |   |  |   | 42,222  |  
|Early extinguishment of debt, net of tax                                           |  |                                   |      |                          |   |       |                  |  |   | (204                 | ) |  |               |       |   |                                            |   |         |                          |  |   |       |   |  |   | (204    | )
|Cumulative effect of accounting change, net of tax                                 |  |                                   |      |                          |   |       |                  |  |   | 368                  |   |  |               |       |   |                                            |   |         |                          |  |   | (2,538 | ) |  |   | (2,170  | )
|Current period unrealized gains on hedging activities                              |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | 890    |   |  |   | 890     |  
|Reclassification of gains on hedging activitiesto earnings                         |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | (3,370 | ) |  |   | (3,370  | )
|Income tax effect related to items of other comprehensive income                   |  |                                   |       |                          |   |        |                  |  |   | (143                 | ) |  |               |        |   |                                            |   |          |                          |  |   | 1,957  |   |  |   | 1,814   |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Net cumulative effect of SFAS No. 133 implementation and hedging activities        |  |                                   |      |                          |   |       |                  |  |   | 225                  |   |  |               |       |   |                                            |   |         |                          |  |   | (3,061 | ) |  |   | (2,836  | )
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Unrealized holding gains on securitiesavailable for sale arising during the period |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | 3,689  |   |  |   | 3,689   |  
|Less reclassification adjustment for netsecurity losses included in net income     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | 303    |   |  |   | 303     |  
|Income tax effect related to items of other comprehensive income                   |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | (1,566 | ) |  |   | (1,566  | )
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Net unrealized gains on securities availablefor sale                               |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   | 2,426  |   |  |   | 2,426   |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Comprehensive Income (Loss)                                                        |  |                                   |      |                          |   |       |                  |  |   | 42,243               |   |  |               |       |   |                                            |   |         |                          |  |   | (635   | ) |  |   | 41,608  |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Cash dividends on common stock-$.64 per share                                      |  |                                   |      |                          |   |       |                  |  |   | (16,331              | ) |  |               |       |   |                                            |   |         |                          |  |   |       |   |  |   | (16,331 | )
|Purchase of 1,888,678 shares for the treasury                                      |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |       |   |                                            |   | (40,644  | )                        |  |   |       |   |  |   | (40,644 | )
|Deferred compensation expense and other                                            |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               | 577    |   |                                            |   |         |                          |  |   |       |   |  |   | 577     |  
|Reissuance of 466,357 treasury shares for incentive plans                          |  |                                   |      |                          |   | (1,518 | )                |  |   |                     |   |  |               | (1,033 | ) |                                            |   | 9,832    |                          |  |   |       |   |  |   | 7,281   |  
|Issuance of 39,394 common shares forEmployee Stock Plan                            |  |                                   | 9     |                          |   | 663    |                  |  |   |                     |   |  |               |       |   |                                            |   |         |                          |  |   |       |   |  |   | 672     |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  
|Balance at December 31, 2001                                                       |  | $                                 | 6,605 |                          | $ | 74,045 |                  |  | $ | 323,615              |   |  | $             | (2,107 | ) |                                            | $ | (100,197 | )                        |  | $ | (301   | ) |  | $ | 301,660 |  
|                                                                                   |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |        |   |                                            |   |          |                          |  |   |        |   |  |   |         |  









48



---

##### Table of Contents

|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | ----- | ------------------------ | - | ------ | ---------------- |  | - | -------------------- | - |  | ------------- | ----- | - | ------------------------------------------ | - | ------- | ------------------------ |  | - | ------- | - |  | - | ------- | -
|                                                                                     |  | CommonStock                       |       | AdditionalPaid-inCapital |   |        | RetainedEarnings |  |   | DeferredCompensation |   |  | TreasuryStock |       |   | AccumulatedOtherComprehensiveIncome (Loss) |   |         | TotalStockholdersEquity | 
|                                                                                     |  | (in thousands, except share data) |      
|Comprehensive Income:                                                                |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net Income                                                                           |  | $                                 |      |                          | $ |       |                  |  | $ | 43,471               |   |  | $             |      |   |                                            | $ |        |                          |  | $ |        |   |  | $ | 43,471  |  
|Current period unrealized gains onhedging activities                                 |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 4,305   |   |  |   | 4,305   |  
|Reclassification of losses on hedgingactivities to earnings                          |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 3,951   |   |  |   | 3,951   |  
|Income tax effect related to items of other comprehensive income                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (3,220  | ) |  |   | (3,220  | )
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net effect of hedging activities                                                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 5,036   |   |  |   | 5,036   |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Unrealized holding gains on securities availablefor sale arising during the period   |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 29,298  |   |  |   | 29,298  |  
|Less reclassification adjustment for netsecurity gains included in net income        |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (2,503  | ) |  |   | (2,503  | )
|Income tax effect related to items of other comprehensive income                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (10,471 | ) |  |   | (10,471 | )
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net unrealized gains on securities availablefor sale                                 |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 16,324  |   |  |   | 16,324  |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Comprehensive Income                                                                 |  |                                   |      |                          |   |       |                  |  |   | 43,471               |   |  |               |      |   |                                            |   |        |                          |  |   | 21,360  |   |  |   | 64,831  |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Cash dividends on common stock-$.64 per share                                        |  |                                   |      |                          |   |       |                  |  |   | (15,839              | ) |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   | (15,839 | )
|Purchase of 109,448 shares for the treasury                                          |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   | (2,412  | )                        |  |   |        |   |  |   | (2,412  | )
|Deferred compensation expense and other                                              |  |                                   |      |                          |   | 778    |                  |  |   |                     |   |  |               | 1,592 |   |                                            |   |        |                          |  |   |        |   |  |   | 2,370   |  
|Reissuance of 248,985 treasury shares forincentive plans                             |  |                                   |      |                          |   | (1,330 | )                |  |   |                     |   |  |               | (8    | ) |                                            |   | 5,566   |                          |  |   |        |   |  |   | 4,228   |  
|Issuance of 46,468 common shares forEmployee Stock Plan                              |  |                                   | 10    |                          |   | 833    |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   | 843     |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                                                         |  | $                                 | 6,615 |                          | $ | 74,326 |                  |  | $ | 351,247              |   |  | $             | (523  | ) |                                            | $ | (97,043 | )                        |  | $ | 21,059  |   |  | $ | 355,681 |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Comprehensive Income:                                                                |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net Income                                                                           |  |                                   |      |                          |   |       |                  |  |   | 43,504               |   |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   | 43,504  |  
|Current period unrealized gains on hedging activities                                |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   |        |  
|Reclassification of gains on hedging activities to earnings                          |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (2,269  | ) |  |   | (2,269  | )
|Income tax effect related to items of other comprehensive income                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 885     |   |  |   | 885     |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net effect of hedging activities                                                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (1,384  | ) |  |   | (1,384  | )
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Unrealized holding losses on securities available for sale arising during the period |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (13,367 | ) |  |   | (13,367 | )
|Less reclassification adjustment for net security gains included in net income       |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (4,375  | ) |  |   | (4,375  | )
|Income tax effect related to items of other comprehensive income                     |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | 7,024   |   |  |   | 7,024   |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Net unrealized losses on securities availablefor sale                                |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   | (10,718 | ) |  |   | (10,718 | )
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Comprehensive Income (Loss)                                                          |  |                                   |      |                          |   |       |                  |  |   | 43,504               |   |  |               |      |   |                                            |   |        |                          |  |   | (12,102 | ) |  |   | 31,402  |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Cash dividends on common stock-$.66 per share                                        |  |                                   |      |                          |   |       |                  |  |   | (16,446              | ) |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   | (16,446 | )
|Purchase of 257,428 shares for the treasury                                          |  |                                   |      |                          |   |       |                  |  |   |                     |   |  |               |      |   |                                            |   | (6,328  | )                        |  |   |        |   |  |   | (6,328  | )
|Deferred compensation expense and other                                              |  |                                   |      |                          |   | 176    |                  |  |   |                     |   |  |               | 336   |   |                                            |   |        |                          |  |   |        |   |  |   | 512     |  
|Reissuance of 504,209 treasury shares forincentive plans                             |  |                                   |      |                          |   | (1,473 | )                |  |   |                     |   |  |               | (166  | ) |                                            |   | 11,559  |                          |  |   |        |   |  |   | 9,920   |  
|Issuance of 44,180 common shares forEmployee Stock Plan                              |  |                                   | 10    |                          |   | 833    |                  |  |   |                     |   |  |               |      |   |                                            |   |        |                          |  |   |        |   |  |   | 843     |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                                         |  | $                                 | 6,625 |                          | $ | 73,862 |                  |  | $ | 378,305              |   |  | $             | (353  | ) |                                            | $ | (91,812 | )                        |  | $ | 8,957   |   |  | $ | 375,584 |  
|                                                                                     |  |                                   |       |                          |   |        |                  |  |   |                      |   |  |               |       |   |                                            |   |         |                          |  |   |         |   |  |   |         |  



See accompanying notes
to consolidated financial statements.



49



---

##### Table of Contents

AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                  |  | Years ended December 31, |         
|                                                                                                  |  | 2003                     |          |   | 2002 |   |          | 2001 | 
|                                                                                                  |  | (in thousands)           |         
|Cash Flows From Operating Activities                                                              |  |                          |          |   |      |   |          |      |  |   |          |  
|Net income                                                                                        |  | $                        | 43,504   |   |      | $ | 43,471   |      |  | $ | 42,243   |  
|Extraordinary item: Early extinguishment of debt, net of tax                                      |  |                          |         |   |      |   |         |      |  |   | (204     | )
|Cumulative effect of accounting change, net of tax                                                |  |                          |         |   |      |   |         |      |  |   | 225      |  
|Adjustments to reconcile net income from operations to net cash provided by operating activities: |  |                          |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization of premises and equipment                                           |  |                          | 6,649    |   |      |   | 5,921    |      |  |   | 6,400    |  
|Amortization and accretion of securities, net                                                     |  |                          | 11,123   |   |      |   | 6,772    |      |  |   | 3,361    |  
|Provision for loan losses                                                                         |  |                          | 24,917   |   |      |   | 12,574   |      |  |   | 16,700   |  
|Amortization of intangible assets                                                                 |  |                          | 141      |   |      |   | 141      |      |  |   | 2,103    |  
|Company owned life insurance income, net of death benefits                                        |  |                          | (6,506   | ) |      |   | (5,684   | )    |  |   | (5,249   | )
|Gain on sale of branches                                                                          |  |                          | (8,208   | ) |      |   |         |      |  |   | (10,591  | )
|Net securities (gains) losses                                                                     |  |                          | (4,375   | ) |      |   | (2,503   | )    |  |   | 303      |  
|Net (gain) loss on sale of loans                                                                  |  |                          | (2,491   | ) |      |   |         |      |  |   | 810      |  
|Net gain on sale of loans held for sale.                                                          |  |                          | (8,263   | ) |      |   | (11,886  | )    |  |   | (10,256  | )
|Originations of loans held for sale                                                               |  |                          | (822,580 | ) |      |   | (717,954 | )    |  |   | (653,905 | )
|Proceeds from sales of loans held for sale                                                        |  |                          | 860,993  |   |      |   | 751,778  |      |  |   | 588,937  |  
|Deferred income tax expense (benefit)                                                             |  |                          | 729      |   |      |   | (3,929   | )    |  |   | (3,396   | )
|Tax benefit on exercise of stock options                                                          |  |                          | 1,361    |   |      |   | 998      |      |  |   | 1,208    |  
|Other, net                                                                                        |  |                          | (2,745   | ) |      |   | 8,962    |      |  |   | 15,462   |  
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used for) operating activities                                              |  | $                        | 94,249   |   |      | $ | 88,661   |      |  | $ | (5,849   | )
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash Flows From Investing Activities                                                              |  |                          |          |   |      |   |          |      |  |   |          |  
|Proceeds from maturities of securities available for sale                                         |  | $                        | 623,012  |   |      | $ | 366,507  |      |  | $ | 336,677  |  
|Proceeds from sales of securities available for sale                                              |  |                          | 111,134  |   |      |   | 61,568   |      |  |   | 285,571  |  
|Purchase of securities available for sale                                                         |  |                          | (750,558 | ) |      |   | (491,307 | )    |  |   | (475,177 | )
|Net decrease (increase) in federal funds sold and other short-term investments                    |  |                          | 4,200    |   |      |   | (3,900   | )    |  |   | 35,700   |  
|Net decrease in interest earning deposits in banks                                                |  |                          | 405      |   |      |   | 936      |      |  |   | 18,475   |  
|Net (increase) decrease in loans                                                                  |  |                          | (288,614 | ) |      |   | (426,959 | )    |  |   | 63,544   |  
|Proceeds from the sale of loans                                                                   |  |                          | 107,734  |   |      |   | 499      |      |  |   | 3,248    |  
|Investment in company owned life insurance                                                        |  |                          | (1,055   | ) |      |   | (3,248   | )    |  |   | (40,000  | )
|Premises and equipment expenditures, net                                                          |  |                          | (23,813  | ) |      |   | (14,248  | )    |  |   | (4,748   | )
|Proceeds from the sale of foreclosed real estate                                                  |  |                          | 6,140    |   |      |   | 8,325    |      |  |   | 3,782    |  
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash (used for) provided by investing activities                                              |  | $                        | (211,415 | ) |      | $ | (501,827 | )    |  | $ | 227,072  |  
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash Flows From Financing Activities                                                              |  |                          |          |   |      |   |          |      |  |   |          |  
|Net increase in demand deposits and savings accounts                                              |  | $                        | 416,264  |   |      | $ | 83,484   |      |  | $ | 100,830  |  
|Net (decrease) increase in other time deposits                                                    |  |                          | (218,251 | ) |      |   | 317,441  |      |  |   | (180,752 | )
|Net (decrease) increase in short-term borrowings                                                  |  |                          | (63,489  | ) |      |   | 36,847   |      |  |   | 4,332    |  
|Proceeds from long-term borrowings                                                                |  |                          | 40,000   |   |      |   | 1,067    |      |  |   | 79,650   |  
|Payment of long-term borrowings                                                                   |  |                          | (15,806  | ) |      |   | (515     | )    |  |   | (51,516  | )
|Early extinguishment of debt                                                                      |  |                          |         |   |      |   |         |      |  |   | (15,000  | )
|Net payments to settle branch sales                                                               |  |                          | (65,439  | ) |      |   |         |      |  |   | (93,100  | )
|Dividends paid                                                                                    |  |                          | (16,446  | ) |      |   | (15,839  | )    |  |   | (16,331  | )
|Issuance of common shares for employee stock plan                                                 |  |                          | 843      |   |      |   | 843      |      |  |   | 672      |  
|Reissuance of treasury shares for incentive plans                                                 |  |                          | 8,559    |   |      |   | 3,230    |      |  |   | 6,073    |  
|Purchase of shares for treasury                                                                   |  |                          | (6,328   | ) |      |   | (2,412   | )    |  |   | (40,644  | )
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used for) financing activities                                              |  | $                        | 79,907   |   |      | $ | 424,146  |      |  | $ | (205,786 | )
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Net change in cash and cash equivalents                                                           |  | $                        | (37,259  | ) |      | $ | 10,980   |      |  | $ | 15,437   |  
|Cash and cash equivalents:                                                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Beginning of year                                                                                 |  |                          | 145,224  |   |      |   | 134,244  |      |  |   | 118,807  |  
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|End of year                                                                                       |  | $                        | 107,965  |   |      | $ | 145,224  |      |  | $ | 134,244  |  
|                                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Supplemental Disclosures of Cash Flow Information                                                 |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash payments for:                                                                                |  |                          |          |   |      |   |          |      |  |   |          |  
|Interest paid to depositors                                                                       |  | $                        | 78,369   |   |      | $ | 87,887   |      |  | $ | 130,818  |  
|Interest paid on borrowings                                                                       |  |                          | 21,844   |   |      |   | 31,534   |      |  |   | 42,729   |  
|Income tax payments                                                                               |  |                          | 19,350   |   |      |   | 13,699   |      |  |   | 16,002   |  
|Non-Cash Investing and Financing                                                                  |  |                          |          |   |      |   |          |      |  |   |          |  
|Foreclosed real estateacquired in settlement of loans                                            |  |                          | 7,702    |   |      |   | 6,467    |      |  |   | 7,055    |  
|Transfer current portion of long-term borrowings to short-term borrowings                         |  |                          | 25,039   |   |      |   | 82,950   |      |  |   | 10,750   |  
|Transfer of held to maturity securities to available for sale                                     |  |                          |         |   |      |   |         |      |  |   | 10,635   |  
|Capitalized Interest                                                                              |  |                          | 262      |   |      |   | 201      |      |  |   |         |  



Balance changes resulting from branch
sales are excluded from individual line items such as deposits, loans, and fixed assets.



See accompanying notes to consolidated financial statements.



50



---

##### Table of Contents

AMCORE FINANCIAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2003, 2002 and 2001



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The accounting and reporting policies of AMCORE Financial, Inc. and subsidiaries (Company)
conform to accounting principles generally accepted in the United States of America. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from those estimates.



Description of the Business



The Company is a bank holding company headquartered in Rockford, Illinois, and conducts its principal business activities at locations within northern Illinois, south
central Wisconsin and Iowa. The primary business of the Company is the extension of credit and the collection of deposits with commercial and industrial, agricultural, real estate and consumer loan customers throughout northern Illinois and south
central Wisconsin conducted through its banking subsidiary (BANK). The BANK also offers products and services through its mortgage-banking segment. Although the Company has a diversified loan portfolio, adverse changes in the local economy would
have a direct impact on the credit risk in the portfolio.



The Company also
offers a variety of financial products and services through its financial services subsidiaries. These include personal and employee benefit trust administration for individuals, estates and corporations, investment management, mutual fund
administration, brokerage, and credit life and accident and health insurance in conjunction with the lending activities of the BANK.



Principles of Consolidation



The financial statements include the consolidated accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.



Cash and Cash Equivalents



For purposes of reporting cash flows, the Company considers cash on hand, amounts due from
banks, and cash items in process of clearing to be cash and cash equivalents. Cash flows for federal funds sold and other short-term investments, interest-earning deposits in banks, loans, demand deposits and savings accounts, time deposits and
short-term borrowings are reported net.



Loans Held for Sale



Loans originated and intended for sale in the secondary market are recorded at the lower
of cost or fair value in the aggregate. The BANK routinely engages in forward sales contracts on mortgage loans originated and held for sale into the secondary market in order to minimize its risk of loss between the time the loan is originated and
the time it is sold. Mortgage loans subject to a forward contract are marked-to-market pursuant to Statement of Financial Accounting Standards (SFAS) No. 133. See discussion under Derivative Financial Instruments and Hedge Activities later in this
note. Gains and losses on the sale of loans are included in mortgage revenues and other non-interest income.



Securities and Other Investments



Debt
securities are classified into three categories: held to maturity, available for sale and trading. Securities for which the Company has the ability and the intent to hold to maturity are classified as held to maturity and are reported at amortized
cost. Securities held for resale are classified as trading securities and are reported at fair value with unrealized gains and losses recorded in earnings. Securities, which are neither held to maturity nor trading, are classified as available for
sale and are reported at fair value with unrealized gains and losses reported in Other Comprehensive Income (OCI). The level yield method is used for the amortization and accretion of premiums and discounts. The cost of securities sold is determined
on a specific identification method. There were no held to maturity or trading securities outstanding at December 31, 2003 and 2002.



51



---

##### Table of Contents

Non-marketable equity securities, which include private equity fund investments, are reported under the cost or equity
method depending on percentage of ownership. Also included are investments in Federal Reserve Bank, Federal Home Loan Bank and Federal Home Loan Mortgage Company stock. Investments in affordable housing tax credit projects without guaranteed yields
are reported on the equity method. Those with guaranteed yields are reported using the effective yield method. See discussion of Financial Accounting Standards Board Interpretation No. (FIN) 46 below. Private equity fund and affordable
housing tax credit investments are reported as other assets on the Consolidated Balance Sheet.



When it is determined that securities or other investments are impaired and the impairment is other than temporary, an impairment loss is recorded in earnings and a new basis is established. See Note 3 of the Notes to
Consolidated Financial Statements for additional information.



Loans and
Allowance for Estimated Losses



Loans that management has the ability and
intent to hold for the foreseeable future are recorded at the amount advanced to the borrower plus certain costs incurred by AMCORE to originate the loan, less certain origination fees that are collected from the borrower. The carrying amount of
loans is reduced as principal payments are made. Payments made by the borrower are allocated between interest income and principal payment based upon the outstanding principal amount, the contractual rate of interest and other contractual terms. The
carrying amount is further adjusted to reflect amortization of the origination costs net of origination fees. These items are amortized over the expected life of the loan using methods that approximate the level-yield method. Unearned interest on
discounted installment loans has been recognized as income using methods which approximate level rates of return over the terms of the loans.



The accrual of interest income is generally discontinued (Non-Accrual Status) when management believes that collection of principal and/or interest is doubtful or when
payment becomes 90 to 120 days past due, except for loans that are well secured and are in a well-defined, short-term process of collection. Payments received from the borrower after a loan is placed on Non-Accrual Status are applied to reduce the
principal balance of the loan until such time that collectibility of remaining principal and interest is no longer doubtful. Unpaid interest that has previously been recorded as income is written-off when a loan is placed on Non-Accrual Status. The
outstanding loan balance is written-off against the allowance for loan losses when management determines that probability of collection of principal will not occur. See Note 4 of the Notes to Consolidated Financial Statements for additional
information.



Management periodically evaluates the loan portfolio in order to
establish an estimated allowance for loan losses (Allowance) that are probable as of the respective reporting date. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan groups
or pools that are based on historical loss experience and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrowers ability to
repay, and current economic and industry conditions, among other things. Additions to the Allowance are charged against earnings for the period as a provision for loan losses (Provision). Actual loan losses are charged against (reduce) the Allowance
when management believes that the collection of principal will not occur. Unpaid interest attributable to prior years for loans that are placed on Non-Accrual Status are also charged against the Allowance. Unpaid interest for the current year for
loans that are placed on Non-Accrual Status are reversed against the interest income previously recognized. Subsequent recoveries of amounts previously charged to the Allowance, if any, are credited to (increase) the Allowance. See Note 4 of the
Notes to the Consolidated Financial Statements for additional information.



Premises and Equipment



Premises and equipment including
leasehold improvements are stated at cost less accumulated depreciation and amortization. Capitalized leases are recorded at the present value of minimum lease payments over the life of the lease (limited to the fair value of the property at the
inception of the lease) less accumulated amortization.



52



---

##### Table of Contents

Depreciation is computed principally on the straight-line method over the estimated useful life of the assets. Leasehold improvements and capitalized leases
are amortized using the straight-line method over the terms of the respective leases or their useful lives, whichever is shorter. See Note 5 of the Notes to Consolidated Financial Statements for additional information.



Intangible Assets



Certain intangible assets, such as core deposit intangibles and goodwill, have arisen from the purchase of subsidiaries. Core deposit
intangibles represent a valuation of acquired deposit relationships and are amortized based on the present value of the future net income or cost savings derived from the related deposits. Goodwill represents the excess of the purchase price over
the fair value of the identifiable net assets acquired.



On January 1, 2002,
the Company adopted SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, with respect to business combinations that were completed prior to July 1, 2001. These statements require that
the Company evaluate its existing intangible assets and goodwill classifications. Goodwill and intangible assets with indefinite useful lives may no longer be amortized, but instead must be tested for impairment at least annually. The useful life
and residual values of all other intangibles must also be reassessed. As of the date of adoption, the Company had unamortized goodwill in the amount of $15.6 million and unamortized identifiable intangible assets (the Core Deposit
Intangibles) in the amount of $282,000, which were subject to the transition provisions of SFAS Nos. 141 and 142. The Company had no other intangible assets subject to these standards. Fair value exceeded carrying value for all reporting units
that have allocated goodwill at both the transitional and annual evaluation dates. Thus, no transitional or annual impairment loss was recognized and no cumulative effect of a change in accounting principle was recorded.



In October 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 147,
Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 requires financial institutions to evaluate their accounting for past acquisitions to determine whether revisions are needed. SFAS No. 147 applies to all new and
past financial-institution acquisitions, including branch acquisitions that qualify as acquisitions of a business, but excludes acquisitions between mutual institutions. The Company does not have any acquisitions affected by this new
standard. See Note 6 of the Notes to Consolidated Financial Statements.



Foreclosed Real Estate



Foreclosed real estate comprises real
properties acquired in partial or full satisfaction of loans. These properties are carried as other assets at the lower of cost or fair value less estimated costs to sell the properties. When the property is acquired through foreclosure, any excess
of the related loan balance over the fair value less expected sales costs, is charged against the Allowance. Subsequent declines in value or losses and gains upon sale, if any, are charged or credited to other operating expense. Losses on the sales
within 90 days of foreclosure are charged against the Allowance.



Mortgage
Servicing Rights



The Company recognizes as separate assets the rights to
service mortgage loans for others. Mortgage servicing rights that are retained when mortgage loans are sold are recorded by allocating the previous carrying amount of the sold loan between the servicing rights retained and the loans that are sold.
This allocation is based upon the relative fair values of the mortgage servicing rights and the loans sold. Because it is retained as an asset, the amount allocated to mortgage servicing rights will have a favorable impact on the amount of gain or
loss that is recognized on the sale of the loans.



The mortgage servicing
rights asset is amortized over the projected period of and in proportion to the estimated amount of net servicing income. Amortization of the servicing rights asset will reduce the amount of income that is recorded in the respective period from the
servicing of the mortgage loans.



53



---

##### Table of Contents

Each reporting period, the Company re-evaluates the fair value of its remaining mortgage servicing rights assets. The
amount that the carrying amount of mortgage servicing rights exceeds the new estimate of fair value is charged against earnings for the period. Rather than directly reducing the carrying amount of the servicing rights asset, a valuation allowance is
established for the same amount as the charge against earnings. In subsequent reporting periods, depending upon current estimates of fair value, the valuation allowance may be reversed. The reversal is limited to the remaining amount of the
valuation allowance and will result in an increase in recorded earnings.



The
periodic re-evaluation of fair value is based upon current estimates of the present value of remaining net servicing cash flows that incorporate numerous assumptions including the cost of servicing the loans, discount rates and prepayment rates.
This re-evaluation is done by stratifying mortgage servicing rights assets into pools based upon one or more predominant risk characteristics of the underlying loans that are being serviced. Risk characteristics include loan type and interest rate.
Valuation allowances required for one pool cannot be offset by the amount that the fair value of another pool exceeds its carrying amount. See Note 7 of the Notes to Consolidated Financial Statements for additional information.



Loan Securitization and Sales of Receivables



When the Company sells receivables in securitizations of automobile loans, the net carrying
amount of the loans is removed from the balance sheet, and certain retained residual interests are recorded. The retained interests include rights to service the loans that are sold (the Servicing Rights) and an interest in residual cash
flows (the Interest Only Strip). The Interest Only Strip includes the excess of interest collected on the loans over the amount required to be paid to the investors and the securitization agent (the Excess Spread) plus an
interest in sales proceeds that are not remitted by the securitization trust at the time of the initial sale of the loans to the extent it exceeds projected credit losses (the Credit Enhancement or Overcollateralization). The
carrying value of the loans removed from the balance sheet include the unpaid principal balance of the loans, net of an allocable portion of the Allowance for Loan Losses, minus the portion of the carrying value of the loans that are allocated to
the retained residual interests. These allocations are based upon the relative fair values of the retained residual interests and the loans sold. Because they are retained assets, the amount allocated and recorded for the residual interests have a
favorable impact on the amount of gain or loss that is recognized on the sale of the loans.



Since the projected income from the Servicing Rights approximates what is considered adequate compensation for servicing the loans, no asset or liability is recorded for Servicing Rights. Income from
servicing is recognized as earned pursuant to the terms of the servicing agreement and to the extent cash collections from the borrowers exceed payments to the investors and agent. Cash collections in excess of the Servicing Rights income that is
earned is next applied to the Interest Only Strip. The value allocated to the Interest Only Strip is reduced and interest income is recorded assuming a constant yield based upon the discount rate used to estimate its fair value. At the end of the
estimated life of the securitization, the carrying value of the Interest Only Strip that is attributable to the Excess Spread will be fully amortized. At that time, the carrying value of the Interest Only Strip that is attributable to the
Overcollateralization will have accreted to the amount of the sales proceeds that were not remitted by the securitization trust at the time of the initial sale of the loans less credit losses and excess Overcollateralization previously refunded by
the securitization trust because it exceeded contractual requirements. At that time cash is expected to be released by the securitization trust in an amount that equals the accreted value of the Overcollateralization.



Because the Companys retained residual interests are subordinated to the interests of
securitization investors and the trust agent, there is risk that the carrying value of the Interest Only Strip will not be fully recovered, resulting in a loss charged to earnings. These include risk the asset will have a shorter life than
originally estimated (prepayment risk), that actual credit losses may exceed expected credit losses (credit risk) and that interest paid to the securitization trust and investors will be greater than projected (interest rate risk). The
Companys risk of loss is limited to its interest in the Interest Only Strip. Neither the investors nor the securitization trust have any other recourse to the Company, thus, a loss in excess of the accreted value of the Interest Only Strip is
not possible.



54



---

##### Table of Contents

Each reporting period, the fair values of the Interest Only Strips are re-evaluated based upon current estimates and assumptions of the net present value of
residual future cash flows net of remaining expected credit losses and anticipated refunds of Overcollateralization. Changes in fair value are generally recorded net of tax as a component of OCI. If this re-evaluation results in fair values that are
less than the amortized carrying value of the Interest Only Strip, and if the decline is considered other than temporary, in accordance with Emerging Issues Task Force (EITF) Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Interests in Securitized Financial Assets, the decline is charged against earnings for the current period. Finally, each reporting period, new Interest Only Strip amortization schedules are developed based
upon current estimates, assumptions, adjusted carrying values and revised constant yields. See Note 8 of the Notes to Consolidated Financial Statements for additional information.



Impairment of Long-Lived Assets



Long-lived assets including certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized by a reduction to the carrying amount of the asset, thus establishing a new cost basis, with an offsetting charge to expense.



Trust and Managed Assets



Assets that are held by subsidiaries in a fiduciary or agency capacity are not included in
the consolidated financial statements as they are not assets of the Company. The total assets either administered or managed by the Company at December 31, 2003 and 2002 were $4.3 billion and $4.6 billion, respectively.



Derivative Financial Instruments and Hedging Activities



The Company uses certain financial instruments called derivatives to help manage (Hedge) its
risk or exposure to changes in interest rates and in conjunction with its mortgage banking operations. The derivatives used most often are interest rate swaps, caps, collars and floors (collectively, Interest Rate Derivatives), mortgage
loan commitments and forward contracts. Interest Rate Derivatives are contracts with a third party (the Counter-party) to exchange interest payment streams based upon an assumed principal amount (the Notional Principal
Amount). The Notional Principal Amount is not advanced from the Counter-party. It is used only as a reference point to calculate the exchange of interest payment streams. The Company also has a deposit product whose interest rate is tied to
the S&P 500 Index.



Interest rate swaps are used by the Company to convert
assets and liabilities with variable-rate cash flows to assets and liabilities with fixed-rate cash flows (the Hedged Items). Under this arrangement, the Company receives payments from or makes payments to the Counter-party at a
specified floating-rate index that is applied to the Notional Principal Amount. This periodic receipt or payment essentially offsets floating-rate interest payments that the Company makes to its depositors or lenders or receives from its loan
customers. In exchange for the receipts from or payments to the Counter-party, the Company makes payments to or receives a payment from the Counter-party at a specified fixed-rate that is applied to the Notional Principal Amount. Thus, what was a
floating rate obligation or a floating rate asset before entering into the derivative arrangement is transformed into a fixed rate obligation or asset. These types of hedges are considered cash flow hedges. The Company also uses interest rate swaps
to convert fixed-rate liabilities to floating-rate liabilities. This is typically done when a fixed-rate liability has been incurred to fund a variable-rate loan or investment. The interest rate swap has the effect of matching the interest rate risk
on the funding with the interest rate risk on the loans or investment. This type of hedge is considered a fair value hedge.



Interest rate caps and collars are derivative instruments that are variations of an interest rate swap. They also involve an exchange of interest payment streams with a
Counter-party based upon a Notional Principal Amount. In the case of an interest rate cap, the exchange of income streams does not take effect unless the specified



55



---

##### Table of Contents

floating-rate index rises above a pre-determined level. In an interest rate cap, the Company retains the risk of rising interest rates up to the
pre-determined level, while benefiting from declines in interest rates. In the case of an interest rate collar, the exchange of income streams does not take effect unless the specified floating-rate index rises above or falls below pre-determined
levels. In an interest rate collar, the Company retains the risk and benefits of changes in interest rates within the pre-determined levels. The Company has also used interest rate floors to manage its exposure to declining mortgage interest rates
of its mortgage servicing rights asset. These floors were terminated during 2001. The net amount payable or receivable from each Interest Rate Derivative contract is recorded as an adjustment to interest income or interest expense.



Historically, most of the Interest Rate Derivatives have been accounted for off-balance sheet
since the Notional Principal Amount is never advanced from the Counter-party and, with the exception of the interest rate floor contracts, since they qualified as Hedges under previous accounting standards. Upon the adoption of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as modified by SFAS No. 138, effective beginning January 1, 2001, and amended by SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, effective beginning June 30, 2003, all derivatives must be recognized at fair value on the Companys Balance Sheet. In the event a derivative does not qualify for Hedge accounting treatment pursuant to SFAS No. 133, changes in
the fair value of the derivative are included in other income or expense as they occur. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset in the Income Statement or
recorded as a component of OCI in the Consolidated Statement of Stockholders Equity. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk
are recognized in the Income Statement. To the extent that fair value hedges are highly effective, changes in the fair value of the derivatives will largely be offset by changes in the fair values of the hedged items. If the derivative is designated
as a cash flow hedge, changes in the fair value due to the passage of time (Time Value) are excluded from the assessment of hedge effectiveness and therefore flow through the Income Statement for each period. The effective portion of the remaining
changes in the fair value of the derivative (Intrinsic Value) are recorded in OCI and are subsequently recognized in the Income Statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized in the Income Statement. Hedge ineffectiveness is caused when the change in expected future cash flows or fair value of a hedged item does not exactly offset the change in the future expected cash flows or fair value of the derivative
instrument, and is generally due to differences in the interest rate indices or interest rate reset dates. All derivatives, with the exception of the deposit product tied to the S&P 500 Index, qualify and have been designated as hedges pursuant
to SFAS No. 133.



Also considered derivatives under SFAS No. 133 are 1-4 family
residential mortgage loan commitments (the Commitments) and forward mortgage loan sales (the Forward Contracts) to the secondary market (collectively Mortgage Loan Derivatives). While historically Mortgage Loan
Derivatives were accounted for off-balance sheet, they are now reported at fair value on the Balance Sheet pursuant to SFAS No. 133. Changes in the fair value of the Mortgage Loan Derivatives are included in other income or expense as they occur.
However, since the Companys Forward Contracts qualify and have been designated as fair value Hedges of its portfolio of loans held for sale (the Warehouse Loans) as well as a Hedge of its Commitments, the Warehouse Loans are also
adjusted to fair value. The change in fair value of Warehouse Loans is recorded in other income or expense as they occur. To the extent that the Companys Forward Contracts are highly effective, the changes in the fair value of the Forward
Contracts will largely offset changes in fair value of the Commitments and Warehouse Loans.



Fees paid or received on derivative financial contracts and gains or losses on sales or terminations of derivative contracts are amortized over their contractual life as a component of the interest reported on the
asset or liability hedged. See Note 11 of the Notes to Consolidated Financial Statements for additional information.



Stock-Based Employee Compensation Plans



The Company has stock-based employee compensation plans, which are described more fully in Note 13 of the Notes to Consolidated Financial Statements. The Company accounts
for these plans under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to



56



---

##### Table of Contents

Employees, and related Interpretations, according to the intrinsic value method for all periods presented. No stock-based employee compensation cost is
reflected in net income because all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Therefore, the options have no intrinsic value at the date of grant. Had
compensation cost for these grants been determined based on the grant date fair values of awards (the method described in SFAS No. 123, Accounting for Stock-Based Compensation), reported net income and earnings per common share would
have been reduced to the pro forma amounts shown below:



|                                                                                                                                           |  |                                       |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                           |  | Years Ended December 31,              |       
|                                                                                                                                           |  | 2003                                  |        |   | 2002 |   |        | 2001 | 
|                                                                                                                                           |  | (in thousands, except per share data) |       
|Net Income:                                                                                                                                |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                |  | $                                     | 43,504 |   |      | $ | 43,471 |      |  | $ | 42,243 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effect |  |                                       | (2,355 | ) |      |   | (2,673 | )    |  |   | (781   | )
|                                                                                                                                           |  |                                       |        |   |      |   |        |      |  |   |        |  
|Pro forma                                                                                                                                  |  | $                                     | 41,149 |   |      | $ | 40,798 |      |  | $ | 41,462 |  
|                                                                                                                                           |  |                                       |        |   |      |   |        |      |  |   |        |  
|Basic earnings per share:                                                                                                                  |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                |  | $                                     | 1.75   |   |      | $ | 1.76   |      |  | $ | 1.66   |  
|Pro forma                                                                                                                                  |  |                                       | 1.65   |   |      |   | 1.65   |      |  |   | 1.63   |  
|Diluted earnings per share:                                                                                                                |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                |  | $                                     | 1.73   |   |      | $ | 1.75   |      |  | $ | 1.64   |  
|Pro forma                                                                                                                                  |  |                                       | 1.64   |   |      |   | 1.64   |      |  |   | 1.61   |  



The fair value of each option grant is
estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 2003, 2002 and 2001, respectively: dividend rates of 2.51%, 2.95%, and 2.86%, price volatility of 30.43%, 40.53%
and 33.86%; risk-free interest rates of 3.12%, 5.28% and 5.24%; and expected lives of 5.5, 5.5 and 6.1 years. The average fair value of each option granted during 2003 was $5.94.



Legal and Other Contingencies



The Company recognizes as an expense legal and other contingencies when, based upon available information, it is probable that a liability has been incurred and the
amount or range of amounts can be reasonably estimated. See Note 15 of the Notes to Consolidated Financial Statements for additional information.



Income Taxes



Deferred taxes are provided on a liability method whereby net operating losses, tax credit carryforwards, and deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. See Note 16
of the Notes to Consolidated Financial Statements for additional information.



Earnings Per Share



Basic earnings per share is based on
dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur if stock options granted pursuant to incentive stock option
plans were exercised or converted into common stock, based on the treasury stock method, and any shares contingently issuable, that then shared in the earnings of the Company. See Note 17 of the Notes to Consolidated Financial Statements for
additional information.



57



---

##### Table of Contents

Segment Information



The Company discloses operating segments based on the management approach. The management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the source of the Companys reportable segments. See Note 18 of the Notes to Consolidated Financial Statements for further information.



New Accounting Standards



The Company adopted SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill
and other intangible assets subsequent to their acquisition. See Note 6 of the Notes to Consolidated Financial Statements.



In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets to be held and used and for long-lived assets to be disposed of and supercedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 144 provides guidance for recognition and measurement of an impairment loss and how and when to test for impairment. The Company does not have any impaired long-lived assets at this time.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities (SFAS No. 146). Under previous accounting guidance, a company recognized a liability for an exit cost when it committed to an exit plan. SFAS No. 146 redefines the recognition and related measurement of a liability and
the timing of the reporting of expenses related to exit, disposal or restructuring activities initiated after December 31, 2002. Commitment to a plan to exit an activity, dispose of long-lived assets or restructure is no longer the determining
factor of when to record a liability for the anticipated costs. Instead, companies will record exit, disposal or restructuring costs when they are incurred (obligated) and can be measured at fair value, and they will subsequently adjust the recorded
liability for changes in estimated cash flows. Under SFAS No. 146, some of these costs might qualify for immediate recognition, others might be recognized over one or more quarters, and still others might not be recorded until incurred in some much
later period. The Company incurred some exit and disposal costs during 2003 related to the elimination of some retail positions and the termination of certain leases. The future impact to the Company will be determined by any future activities in
these areas.



In October 2002, the FASB issued SFAS No. 147, Acquisitions
of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 requires financial institutions to evaluate their accounting for past acquisitions to determine whether revisions are needed. SFAS No. 147 applies to all new and past
financial-institution acquisitions, including branch acquisitions that qualify as acquisitions of a business, but excludes acquisitions between mutual institutions. The Company does not have any acquisitions that qualify for this new
standard.



In November 2002, the FASB issued FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 expands the information required to be disclosed by guarantors for obligations under certain types of guarantees. It also requires
initial recognition at fair value of a liability for such guarantees. In addition, Financial Interpretation 34, Disclosure of Indirect Guarantees of Others, is rescinded, though the guidance contained therein has been carried forward
into FIN 45 without modification. The initial recognition and initial measurement requirements of the FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did not have a material effect on
the Companys Consolidated Financial Statements. See Note 15 of the Notes to the Consolidated Financial Statements.



58



---

##### Table of Contents

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS No. 148). SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this SFAS No. 148 amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. See Note 13 of the Notes to the Consolidated Financial Statements.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, which was subsequently replaced by a revised FIN 46 in December 2003.
FIN 46 is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, and applies to certain variable interest entities (VIEs) in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for the first reporting period ending after
December 15, 2003 or March 15, 2004, depending upon the nature of the VIE. The Company has no VIEs subject to the earlier effective date, and thus will adopt FIN 46 for the reporting period ending March 31, 2004. The Company invests in various
affordable housing tax credit projects (AHTCPs), but only one is potentially subject to FIN 46. The Company is still in the process of obtaining relevant information to determine whether consolidation of the AHTCP will be necessary.
Consolidation, if required, is not expected to have a material effect on the Companys Consolidated Financial Statements. Upon adoption of FIN 46, the Company will be required to de-consolidate its investment in AMCORE Capital Trust I
(Trust) a statutory business trust. See Note 10 of the Notes to the Consolidated Financial Statements. The Company expects that the de-consolidation of the Trust, including the impact on the Debt Extinguishment, will not have a material
effect on the Companys Consolidated Financial Statements. The Company has $25.0 million of capital securities (Trust Preferred) outstanding through the Trust that presently qualifies as Tier 1 Capital for regulatory capital
purposes. The classification of the Trust Preferred as Tier 1 Capital may be impacted by the potential de-consolidation of the Trust. Any such disqualification is not expected to have a material impact on the Companys capital adequacy. The
Company does not have any other investments affected by the Interpretation.



In
April 2003, the FASB issued SFAS No. 149 to amend and clarify financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. In
addition, SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 (with certain exceptions) and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Companys Consolidated Financial Statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150).
SFAS No. 150 establishes standards regarding the manner in which an issuer classifies and measures certain types of financial instruments having characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial
instruments (i.e., those entered into separately from an entitys other financial instruments or equity transactions or that are legally detachable and separately exercisable) must be classified as liabilities or, in some cases, assets. In
addition, SFAS No. 150 requires that financial instruments containing obligations to repurchase the issuing entitys equity shares and, under certain circumstances, obligations that are settled by delivery of the issuers shares be
classified as liabilities. SFAS No. 150 amends SFAS No. 128, Earnings Per Share, and SFAS No. 133, and nullifies (or partially nullifies) various EITF consensuses. SFAS No. 150 was effective for financial instruments entered into or
modified after May 31, 2003 and for contracts in existence at the start of the first interim period beginning after June 15, 2003. On November 7, 2003, the FASB issued Staff Position (FSP) No. 150-3 which deferred the application of
several provisions of SFAS No. 150. The adoption of SFAS No. 150 and FSP No. 150-3 did not, and are not expected to, have a material effect on the Companys Consolidated Financial Statements.



59



---

##### Table of Contents

In November 2003, the FASB ratified a consensus reached by the Emerging Issues Task Force in EITF 03-1, The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments, which is effective for fiscal years ending after December 15, 2003. The consensus requires certain quantitative and qualitative disclosures for debt and marketable
equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities that are impaired at the balance sheet date but for which an other-than-temporary
impairment has not been recognized. These disclosures are contained in Note 3 of the Notes to Consolidated Financial Statements.



Reclassifications



Certain prior year amounts may be reclassified to conform to the current year presentation.



NOTE 2  MERGERS, ACQUISITIONS AND DIVESTITURES



Completed Divestitures:



During 2003, the Company sold six Wisconsin branches in Clinton, Darien, Montello, Kingston, Dalton and Westfield, resulting in $8.2 million pre-tax or $4.9 million in after-tax gains, net of associated costs. For the
six branches sold, $47.8 million in loans, $124.6 in deposits and $2.1 million in premises and equipment were transferred to the respective buyers. The net cash paid by the Company to settle the divestitures was $65.4 million.



During 2001, the Company sold seven Illinois branches in Aledo, Gridley, Mount Morris,
Ashton, Rochelle, Wyanet and Sheffield. For the seven branches sold, $65.1 million in loans, $170.8 million in deposits and $1.4 million in premises and equipment were transferred to the respective buyers resulting in $10.6 million in pre-tax or
$6.3 million in after-tax gains, net of associated costs. The net cash paid by the Company to settle the divestitures was $93.1 million.



60



---

##### Table of Contents

NOTE 3  SECURITIES



Summary information for investment securities, categorized by security type, was as follows :



|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|----------------------------------- |  | -------------- | --------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ---------
|                                    |  | AmortizedCost  |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                                    |  | (in thousands)
|At December 31, 2003                |  |                |          
|Securities Available for Sale:      |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|U.S. Treasury                       |  | $              | 5,000     |                      | $ | 27                    |  | $ |           |   |  | $ | 5,027    
|U.S. Government agencies            |  |                | 78,582    |                      |   | 532                   |  |   | (1         | ) |  |   | 79,113   
|Agency mortgage-backed securities   |  |                | 835,986   |                      |   | 9,400                 |  |   | (5,169     | ) |  |   | 840,217  
|State and political subdivisions    |  |                | 144,580   |                      |   | 8,855                 |  |   |           |   |  |   | 153,435  
|Corporate obligations and other     |  |                | 87,725    |                      |   | 854                   |  |   | (989       | ) |  |   | 87,590   
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|Total Securities Available for Sale |  | $              | 1,151,873 |                      | $ | 19,668                |  | $ | (6,159     | ) |  | $ | 1,165,382
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|At December 31, 2002                |  |                |          
|Securities Available for Sale:      |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|U.S. Treasury                       |  | $              | 5,002     |                      | $ | 15                    |  | $ |           |   |  | $ | 5,017    
|U.S. Government agencies            |  |                | 3,841     |                      |   | 17                    |  |   | (4         | ) |  |   | 3,854    
|Agency mortgage-backed securities   |  |                | 730,969   |                      |   | 21,801                |  |   | (421       | ) |  |   | 752,349  
|State and political subdivisions    |  |                | 215,109   |                      |   | 11,129                |  |   | (4         | ) |  |   | 226,234  
|Corporate obligations and other     |  |                | 187,289   |                      |   | 2,304                 |  |   | (3,586     | ) |  |   | 186,007  
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|Total Securities Available for Sale |  | $              | 1,142,210 |                      | $ | 35,266                |  | $ | (4,015     | ) |  | $ | 1,173,461
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|At December 31, 2001                |  |                |          
|Securities Available for Sale:      |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|U.S. Treasury                       |  | $              | 18,984    |                      | $ | 243                   |  | $ |           |   |  | $ | 19,227   
|U.S. Government agencies            |  |                | 17,324    |                      |   | 112                   |  |   | (9         | ) |  |   | 17,427   
|Agency mortgage-backed securities   |  |                | 710,485   |                      |   | 3,528                 |  |   | (4,725     | ) |  |   | 709,288  
|State and political subdivisions    |  |                | 256,886   |                      |   | 6,004                 |  |   | (1,452     | ) |  |   | 261,438  
|Corporate obligations and other     |  |                | 79,567    |                      |   | 807                   |  |   | (52        | ) |  |   | 80,322   
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          
|Total Securities Available for Sale |  | $              | 1,083,246 |                      | $ | 10,694                |  | $ | (6,238     | ) |  | $ | 1,087,702
|                                    |  |                |           |                      |   |                       |  |   |            |   |  |   |          



Summary of unrealized loss information
for investment securities, categorized by security type, at December 31, 2003 was as follows:



|                                   |  |                     |         |                  |                     |        |           |       |                      |        |  |            |      |                  |  |   |         |  |   |        |  
|---------------------------------- |  | ------------------- | ------- | ---------------- | ------------------- | ------ | --------- | ----- | -------------------- | ------ |  | ---------- | ---- | ---------------- |  | - | ------- |  | - | ------ | -
|                                   |  | Less Than 12 Months |         |                  | 12 Months or Longer |        |           | Total |                     
|                                   |  | Fair Value          |         | UnrealizedLosses |                     |        | FairValue |       | UnrealizedLosses (1) |        |  | Fair Value |      | UnrealizedLosses | 
|Description of Securities          |  |                     |         |                  |                     |        |           |       |                      |        |  |            |      |                  |  |   |         |  |   |        |  
|Securities Available for Sale:     |  |                     |         |                  |                     |        |           |       |                      |        |  |            |      |                  |  |   |         |  |   |        |  
|U.S. Treasury                      |  |                     |        |                  |                     |       |           |       |                      |       |  |            |     |                  |  |   |        |  |   |       |  
|U.S. Government agencies           |  |                     |        |                  |                     |       |           |       |                      | 281    |  |            | (1   | )                |  |   | 281     |  |   | (1     | )
|Agency mortgage-backed securities  |  |                     | 384,313 |                  |                     | (5,169 | )         |       |                      |       |  |            |     |                  |  |   | 384,313 |  |   | (5,169 | )
|State and political subdivisions   |  |                     |        |                  |                     |       |           |       |                      |       |  |            |     |                  |  |   |        |  |   |       |  
|Corporate obligations and other    |  |                     | 12,676  |                  |                     | (34    | )         |       |                      | 10,058 |  |            | (955 | )                |  |   | 22,734  |  |   | (989   | )
|                                   |  |                     |         |                  |                     |        |           |       |                      |        |  |            |      |                  |  |   |         |  |   |        |  
|Total Securities Availablefor Sale |  | $                   | 396,989 |                  | $                   | (5,203 | )         |       | $                    | 10,339 |  | $          | (956 | )                |  | $ | 407,328 |  | $ | (6,159 | )
|                                   |  |                     |         |                  |                     |        |           |       |                      |        |  |            |      |                  |  |   |         |  |   |        |  

---

|(1) | Of the $956,000 total unrealized losses twelve months or longer, $952,000 related to a single asset-backed bond collateralized by fixed rate manufactured housing contracts and
installment loan agreements. At December 31, 2003, the S&P quality rating for this bond was an A and the security was sufficiently collateralized such that credit loss is considered remote. The security has an average life of seven
years and the Company has the ability to hold the security until all principal paydowns have been received. In the event of prepayment, it is expected that the Company would recover substantially all of its recorded investment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



61



---

##### Table of Contents

The amortized cost and fair value of securities available for sale as of December 31, 2003, by contractual maturity are
shown below. Mortgage-backed security maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the
following maturity summary.



|                                                  |  |                    |           |            |   |          
|------------------------------------------------- |  | ------------------ | --------- | ---------- | - | ---------
|                                                  |  | Available for Sale
|                                                  |  | AmortizedCost      |           | Fair Value
|                                                  |  | (in thousands)    
|Due in one year or less                           |  | $                  | 14,178    |            | $ | 14,388   
|Due after one year through five years             |  |                    | 124,380   |            |   | 127,136  
|Due after five years through ten years            |  |                    | 87,668    |            |   | 93,839   
|Due after ten years                               |  |                    | 57,494    |            |   | 58,366   
|Mortgage-backed securities (agency and corporate) |  |                    | 868,153   |            |   | 871,653  
|                                                  |  |                    |           |            |   |          
|Total Securities                                  |  | $                  | 1,151,873 |            | $ | 1,165,382
|                                                  |  |                    |           |            |   |          



At December 31, 2003, 2002, and 2001,
securities with a fair value of approximately $846.5 million, $908.7 million, and $846.0 million, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes required by law.



Realized gross gains resulting from the sale of securities available for sale
were $4.7 million, $2.6 million, $2.5 million for 2003, 2002 and 2001, respectively. Realized gross losses were $358,000, $90,000, and $2.8 million for 2003, 2002 and 2001, respectively. An impairment loss of $1.8 million was recorded during the
second quarter of 2001 related to specific securities for which a decision to sell had been made. All of these securities were disposed of prior to year end 2001 and were included in the gross losses of $2.8 million.



NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES



The composition of the loan portfolio at December 31, 2003 and 2002 was as follows:



|                                       |  |                |           |   |      |   |           |  
|-------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | -
|                                       |  | 2003           |           |   | 2002 |  
|                                       |  | (in thousands) |          
|Commercial, financial and agricultural |  | $              | 733,167   |   |      | $ | 760,950   |  
|Real estate-commercial                 |  |                | 1,147,592 |   |      |   | 925,003   |  
|Real estate-residential                |  |                | 362,254   |   |      |   | 449,330   |  
|Real estate-construction               |  |                | 194,495   |   |      |   | 142,844   |  
|Installment and consumer               |  |                | 554,514   |   |      |   | 604,663   |  
|Direct lease financing                 |  |                | 287       |   |      |   | 927       |  
|                                       |  |                |           |   |      |   |           |  
|Gross loans                            |  | $              | 2,992,309 |   |      | $ | 2,883,717 |  
|Allowance for loan losses              |  |                | (42,115   | ) |      |   | (35,214   | )
|                                       |  |                |           |   |      |   |           |  
|Net Loans                              |  | $              | 2,950,194 |   |      | $ | 2,848,503 |  
|                                       |  |                |           |   |      |   |           |  



62



---

##### Table of Contents

|                                                                                           |  |                |        |      |   |       
|------------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- | - | ------
|Non-performing loan information as of and for the years ended December 31, was as
follows:
|                                                                                           |  | 2003           |        | 2002
|                                                                                           |  | (in thousands)
|Impaired Loans:                                                                            |  |                |        |      |   |       
|Non-accrual:                                                                               |  |                |       
|Commercial                                                                                 |  | $              | 3,154  |      | $ | 8,760 
|Real estate                                                                                |  |                | 15,676 |      |   | 5,096 
|Other Non-performing:                                                                      |  |                |        |      |   |       
|Non-accrual loans (1)                                                                      |  |                | 12,841 |      |   | 18,679
|                                                                                           |  |                |        |      |   |       
|Total Non-performing Loans                                                                 |  | $              | 31,671 |      | $ | 32,535
|                                                                                           |  |                |        |      |   |       
|Loans 90 days or more past due and still accruing                                          |  | $              | 3,304  |      | $ | 3,555 
|                                                                                           |  |                |        |      |   |       
|Troubled debt restructurings                                                               |  | $              |       |      | $ | 3,327 
|                                                                                           |  |                |        |      |   |       

---

|(1) | These loans are not considered impaired since they are part of a small balance homogeneous portfolio.
|--- | -----------------------------------------------------------------------------------------------------



|                                               |  |                |        |      |   |       
|---------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                               |  | 2003           |        | 2002
|                                               |  | (in thousands)
|Impaired loans without an allowance allocation |  | $              | 142    |      | $ |      
|Impaired loans with an allowance allocation    |  |                | 18,688 |      |   | 13,856
|Allowance provided for impaired loans          |  |                | 7,219  |      |   | 5,575 
|Average recorded investment in impaired loans  |  |                | 19,586 |      |   | 15,316
|Interest income recognized from impaired loans |  |                | 329    |      |   | 550   



An analysis of the allowance for loan
losses for the years ended December 31, follows:



|                                           |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                           |  | 2003           |         |   | 2002 |   |         | 2001 | 
|                                           |  | (in thousands) |        
|Balance at beginning of year               |  | $              | 35,214  |   |      | $ | 33,940  |      |  | $ | 29,157  |  
|Provision charged to expense               |  |                | 24,917  |   |      |   | 12,574  |      |  |   | 16,700  |  
|Loans charged off                          |  |                | (19,579 | ) |      |   | (13,088 | )    |  |   | (12,853 | )
|Recoveries on loans previously charged off |  |                | 2,970   |   |      |   | 1,788   |      |  |   | 1,815   |  
|Reductions due to sale of loans            |  |                | (1,407  | ) |      |   |        |      |  |   | (879    | )
|                                           |  |                |         |   |      |   |         |      |  |   |         |  
|Balance at end of year                     |  | $              | 42,115  |   |      | $ | 35,214  |      |  | $ | 33,940  |  
|                                           |  |                |         |   |      |   |         |      |  |   |         |  



The Companys banking subsidiary
has had, and is expected to have in the future, banking transactions with directors, executive officers, their immediate families and affiliated companies in which they are a principal stockholder (commonly referred to as related parties). These
transactions were made in the ordinary course of business on substantially the same terms as comparable transactions with other borrowers.



Related party loan transactions during 2003 and 2002 were as follows:



|                             |  |                |        |   |      |   |         |  
|---------------------------- |  | -------------- | ------ | - | ---- | - | ------- | -
|                             |  | 2003           |        |   | 2002 |  
|                             |  | (in thousands) |       
|Balance at beginning of year |  | $              | 16,151 |   |      | $ | 14,543  |  
|New loans                    |  |                | 3,676  |   |      |   | 12,441  |  
|Repayments                   |  |                | (6,916 | ) |      |   | (10,833 | )
|                             |  |                |        |   |      |   |         |  
|Balance at end of year       |  | $              | 12,911 |   |      | $ | 16,151  |  
|                             |  |                |        |   |      |   |         |  



63



---

##### Table of Contents

NOTE 5  PREMISES, EQUIPMENT AND LEASE COMMITMENTS



A summary of premises and equipment at December 31, 2003 and 2002 follows:



|                                          |  |                |         |   |      |   |         |  
|----------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                          |  | 2003           |         |   | 2002 |  
|                                          |  | (in thousands) |        
|Land                                      |  | $              | 15,720  |   |      | $ | 10,361  |  
|Buildings and improvements                |  |                | 62,076  |   |      |   | 58,488  |  
|Furniture and equipment                   |  |                | 58,658  |   |      |   | 57,603  |  
|Leasehold improvements                    |  |                | 5,188   |   |      |   | 5,882   |  
|Construction in progress                  |  |                | 5,341   |   |      |   | 7,560   |  
|                                          |  |                |         |   |      |   |         |  
|Total premises and equipment              |  | $              | 146,983 |   |      | $ | 139,894 |  
|Accumulated depreciation and amortization |  |                | (74,556 | ) |      |   | (81,983 | )
|                                          |  |                |         |   |      |   |         |  
|Premises and Equipment, net               |  | $              | 72,427  |   |      | $ | 57,911  |  
|                                          |  |                |         |   |      |   |         |  



Certain branch offices and equipment
are leased under noncancellable operating leases. There were 27 leases in effect on branch locations and other properties at December 31, 2003. Of these, one branch lease is classified as a capital lease. All leases expire at various dates through
the year 2035. However, in the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties since most of the Companys leases contain renewal options for multi-year periods at fixed
rentals or calculable rentals. Some leases contain escalation clauses calling for rentals to be adjusted for increased operating expenses or proportionately adjusted for increases in the consumer or other price indices. The following summary
reflects the future minimum lease payments required under operating and capital leases that, as of December 31, 2003, have remaining noncancellable lease terms in excess of one year.



|                                            |  |                 |        |               |   |        |  
|------------------------------------------- |  | --------------- | ------ | ------------- | - | ------ | -
|Years ending December 31,                   |  | OperatingLeases |        | CapitalLeases |  
|                                            |  | (in thousands)  |       
|2004                                        |  | $               | 2,413  |               | $ | 163    |  
|2005                                        |  |                 | 2,071  |               |   | 163    |  
|2006                                        |  |                 | 1,782  |               |   | 169    |  
|2007                                        |  |                 | 1,486  |               |   | 173    |  
|2008                                        |  |                 | 1,316  |               |   | 173    |  
|Thereafter                                  |  |                 | 8,369  |               |   | 2,280  |  
|                                            |  |                 |        |               |   |        |  
|Total minimum lease payments                |  | $               | 17,437 |               | $ | 3,121  |  
|                                            |  |                 |        |               |   |        |  
|Less: Amount representing interest          |  |                 |        |               |   | (2,056 | )
|                                            |  |                 |        |               |   |        |  
|Present value of net minimum lease payments |  |                 |        |               | $ | 1,065  |  
|                                            |  |                 |        |               |   |        |  



|                                                |  |                |       |      |   |      |  |   |    
|----------------------------------------------- |  | -------------- | ----- | ---- | - | ---- |  | - | ---
|                                                |  | 2003           |       | 2002 |   | 2001
|                                                |  | (in thousands)
|Rental expense charged to net occupancy expense |  | $              | 1,373 |      | $ | 987  |  | $ | 783
|                                                |  |                |       |      |   |      |  |   |    



The following is an analysis of the
leased property under capital leases:



|                                               |  |                               |       |   |      |   |       |  
|---------------------------------------------- |  | ----------------------------- | ----- | - | ---- | - | ----- | -
|                                               |  | Asset balances atDecember 31, |      
|                                               |  | 2003                          |       |   | 2002 |  
|                                               |  | (in thousands)                |      
|Branch facilities  buildings and improvements |  | $                             | 1,070 |   |      | $ | 1,070 |  
|Less: Accumulated amortization                 |  |                               | (143  | ) |      |   | (89   | )
|                                               |  |                               |       |   |      |   |       |  
|                                               |  | $                             | 927   |   |      | $ | 981   |  
|                                               |  |                               |       |   |      |   |       |  





64



---

##### Table of Contents

NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSETS



On January 1, 2002, the Company adopted SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets, with respect to business combinations that were completed prior to July 1, 2001. These statements required that the Company evaluate its existing intangible assets and goodwill classifications. Goodwill and intangible assets
with indefinite useful lives may no longer be amortized, but instead must be tested for impairment at least annually. The useful life and residual values of all other intangibles were also reassessed. As of the date of adoption, the Company had
unamortized goodwill in the amount of $15.6 million and unamortized identifiable intangible assets (Core Deposit Intangibles) in the amount of $282,000, which were subject to the transition provisions of SFAS Nos. 141 and 142.



The Companys intangible asset values by segment at December 31, 2003 are as follows:



|                                    |  |                      |     |                          |   |                    |  |   |       
|----------------------------------- |  | -------------------- | --- | ------------------------ | - | ------------------ |  | - | ------
|                                    |  | Gross CarryingAmount |     | Accumulated Amortization |   | Net CarryingAmount
|                                    |  | (in thousands)      
|Amortized Intangible Assets         |  |                      |     |                          |   |                    |  |   |       
|Core Deposits  Retail Banking      |  | $                    | 683 |                          | $ | 683                |  | $ |      
| Commercial Banking                |  |                      | 293 |                          |   | 293                |  |   |      
|                                    |  |                      |     |                          |   |                    |  |   |       
|Total Amortized Intangible Assets   |  | $                    | 976 |                          | $ | 976                |  | $ |      
|                                    |  |                      |     |                          |   |                    |  |   |       
|Unamortized Intangible Assets       |  |                      |     |                          |   |                    |  |   |       
|Goodwill  Retail Banking           |  |                      |     |                          |   |                    |  | $ | 3,572 
| Commercial Banking                |  |                      |     |                          |   |                    |  |   | 2,381 
| Trust and Asset
Management        |  |                      |     |                          |   |                    |  |   | 9,622 
|                                    |  |                      |     |                          |   |                    |  |   |       
|Total Unamortized Intangible Assets |  |                      |     |                          |   |                    |  | $ | 15,575
|                                    |  |                      |     |                          |   |                    |  |   |       
|Total Intangibles (net)             |  |                      |     |                          |   |                    |  | $ | 15,575
|                                    |  |                      |     |                          |   |                    |  |   |       



The current and estimated amortization
expense by segment is as follows:



|                               |  |                |    |                   |   |       |  |   |    
|------------------------------ |  | -------------- | -- | ----------------- | - | ----- |  | - | ---
|                               |  | Retail Banking |    | CommercialBanking |   | Total
|                               |  | (in thousands)
|Aggregate Amortization Expense |  |                |    |                   |   |       |  |   |    
|For Year Ended 12/31/03        |  | $              | 99 |                   | $ | 42    |  | $ | 141



The core deposit intangibles are fully
amortized as of December 31, 2003.



Changes in the carrying amount of goodwill
for the year ended December 31, 2003 were related to the sale of six bank branches in the first quarter of 2003. The changes in the carrying amount of goodwill for the year ended December 31, 2003 are as follows:



|                                  |  |                |       |                   |   |                          |  |       |       |  |   |       
|--------------------------------- |  | -------------- | ----- | ----------------- | - | ------------------------ |  | ----- | ----- |  | - | ------
|                                  |  | RetailBanking  |       | CommercialBanking |   | Trust andAssetManagement |  | Total
|                                  |  | (in thousands)
|Balance as of January 1, 2003     |  | $              | 3,614 |                   | $ | 2,409                    |  | $     | 9,622 |  | $ | 15,645
|Goodwill related to branches sold |  |                | 42    |                   |   | 28                       |  |       |      |  |   | 70    
|                                  |  |                |       |                   |   |                          |  |       |       |  |   |       
|Balance as of December 31, 2003   |  | $              | 3,572 |                   | $ | 2,381                    |  | $     | 9,622 |  | $ | 15,575
|                                  |  |                |       |                   |   |                          |  |       |       |  |   |       



Fair value exceeded carrying value for
all reporting units that have allocated goodwill at both the transitional and annual evaluation dates. Thus, no transitional or annual impairment loss was recognized and no cumulative effect of a change in accounting principle was recorded.



65



---

##### Table of Contents

SFAS No. 142 requires disclosure of what reported income before extraordinary items and net income would have been in all
periods presented exclusive of amortization expense recognized in those periods related to goodwill, intangible assets that will no longer be amortized, any deferred credit related to an excess over cost, equity method goodwill, and changes in
amortization periods for intangible assets that will continue to be amortized. The table below reconciles net income as reported to how the prior period would have been reported had SFAS No. 142 been in effect.



|                                                          |  |                                          |        |      |   |        |  |   |        |  
|--------------------------------------------------------- |  | ---------------------------------------- | ------ | ---- | - | ------ |  | - | ------ | -
|                                                          |  | For the Twelve Months Ended December 31, |       
|                                                          |  | 2003                                     |        | 2002 |   | 2001   | 
|                                                          |  | (in thousands, except per shareamounts)  |       
|Net income as reported                                    |  | $                                        | 43,504 |      | $ | 43,471 |  | $ | 42,243 |  
|Add back: Goodwill amortization                           |  |                                          | N/A    |      |   | N/A    |  |   | 2,007  |  
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A    |      |   | N/A    |  |   | (48    | )
|                                                          |  |                                          |        |      |   |        |  |   |        |  
|Adjusted net income                                       |  | $                                        | 43,504 |      | $ | 43,471 |  | $ | 44,202 |  
|                                                          |  |                                          |        |      |   |        |  |   |        |  
|Basic earnings per share as reported                      |  | $                                        | 1.75   |      | $ | 1.76   |  | $ | 1.66   |  
|Add back: Goodwill amortization                           |  |                                          | N/A    |      |   | N/A    |  |   | 0.07   |  
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A    |      |   | N/A    |  |   |       |  
|                                                          |  |                                          |        |      |   |        |  |   |        |  
|Adjusted basic earnings per share                         |  | $                                        | 1.75   |      | $ | 1.76   |  | $ | 1.73   |  
|                                                          |  |                                          |        |      |   |        |  |   |        |  
|Diluted earnings per share as reported                    |  | $                                        | 1.73   |      | $ | 1.75   |  | $ | 1.64   |  
|Add back: Goodwill amortization                           |  |                                          | N/A    |      |   | N/A    |  |   | 0.08   |  
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A    |      |   | N/A    |  |   |       |  
|                                                          |  |                                          |        |      |   |        |  |   |        |  
|Adjusted diluted earnings per share                       |  | $                                        | 1.73   |      | $ | 1.75   |  | $ | 1.72   |  
|                                                          |  |                                          |        |      |   |        |  |   |        |  



See Note 7 of the Notes to
Consolidated Financial Statements for information regarding the Companys Originated Mortgage Servicing Right asset.



NOTE 7  MORTGAGE SERVICING RIGHTS



The unpaid principal balance of mortgage loans serviced for others, which are not included on the consolidated balance sheets, was $1.21 billion and $1.02 billion at
December 31, 2003 and 2002, respectively. Of this amount, the Company has recorded originated capitalized mortgage servicing rights on mortgage loans serviced balances of $1.18 billion and $1.00 billion at December 31, 2003 and 2002, respectively.
The remaining balance of originated loans sold and serviced for others also have servicing rights associated with them; however, these servicing rights arose prior to the adoption of SFAS No. 122, as amended by SFAS Nos. 125 and 140, and
accordingly, have not been capitalized.



The carrying value and fair value of
capitalized mortgage servicing rights consisted of the following as of December 31, 2003 and 2002.



|                                              |  |                |        |      |   |        |  
|--------------------------------------------- |  | -------------- | ------ | ---- | - | ------ | -
|                                              |  | 2003           |        | 2002 |  
|                                              |  | (in thousands) |       
|Unamortized cost of mortgage servicing rights |  | $              | 11,244 |      | $ | 10,645 |  
|Valuation allowance                           |  |                |       |      |   | (3,361 | )
|                                              |  |                |        |      |   |        |  
|Carrying value of mortgage servicing rights   |  | $              | 11,244 |      | $ | 7,284  |  
|                                              |  |                |        |      |   |        |  
|Fair value of mortgage servicing rights       |  | $              | 11,674 |      | $ | 6,770  |  
|                                              |  |                |        |      |   |        |  



66



---

##### Table of Contents

The following is a disclosure of the key assumptions used in estimating the fair value of originated capitalized mortgage
servicing rights.



Estimated fair market value of servicing is the present
value of the expected future cash flows over the projected life of the loan. Assumptions used in the present value calculation are based on actual performance of the underlying servicing along with general market consensus. The expected cash flow is
the net amount of all mortgage servicing income and expense items. The expected cash flow is discounted at an interest rate appropriate for the associated risk given current market conditions. Significant assumptions as of December 31, 2003 and 2002
include:



|                                  |  |      |       |   |      |   |       |  
|--------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                  |  | 2003 |       |   | 2002 |  
|Prepayment Speed (5 year average) |  |      | 19.25 | % |      |   | 33.21 | %
|Discount Rate                     |  |      | 8.75  | % |      |   | 9.00  | %
|Average Servicing Cost per Loan   |  | $    | 43.00 |   |      | $ | 43.00 |  
|Escrow Float Rate                 |  |      | 4.00  | % |      |   | 4.00  | %



The following is an analysis of the
mortgage servicing rights activity and the related valuation allowance for 2003 and 2002. For the purpose of measuring impairment, loans are stratified and evaluated based on loan type and investor as determined by materiality and reasonableness.



|                                                             |  |                |        |   |      |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                             |  | 2003           |        |   | 2002 |  
|                                                             |  | (in thousands) |       
|Unamortized Cost of Mortgage Servicing Rights                |  |                |        |   |      |   |        |  
|Balance at beginning of year                                 |  | $              | 10,645 |   |      | $ | 9,569  |  
|Additions of mortgage servicing rights                       |  |                | 7,253  |   |      |   | 6,141  |  
|Amortization                                                 |  |                | (6,654 | ) |      |   | (5,065 | )
|                                                             |  |                |        |   |      |   |        |  
|Balance at end of year                                       |  | $              | 11,244 |   |      | $ | 10,645 |  
|                                                             |  |                |        |   |      |   |        |  
|Valuation Allowance                                          |  |                |        |   |      |   |        |  
|Balance at beginning of year                                 |  | $              | 3,361  |   |      | $ | 780    |  
|Impairment valuation (recorded to income) charged to expense |  |                | (3,361 | ) |      |   | 2,581  |  
|                                                             |  |                |        |   |      |   |        |  
|Balance at end of year                                       |  | $              |       |   |      | $ | 3,361  |  
|                                                             |  |                |        |   |      |   |        |  



The estimated mortgage servicing
rights amortization expense, which is part of the Mortgage Banking Segment, is as follows:



|                          |  |   |       
|------------------------- |  | - | ------
|Years ending December 31, |  |  
|(in thousands)            |  |  
|2004                      |  | $ | 3,373 
|2005                      |  |   | 1,968 
|2006                      |  |   | 1,476 
|2007                      |  |   | 885   
|2008                      |  |   | 708   
|Thereafter                |  |   | 2,834 
|                          |  |   |       
|Total                     |  | $ | 11,244
|                          |  |   |       



The weighted-average amortization
period for mortgage servicing rights retained during the fourth quarter of 2003 was 10.8 years.



67



---

##### Table of Contents

NOTE 8  SALE OF RECEIVABLES



During 2003, the Company sold $106.0 million of indirect automobile loans, reporting a pre-tax gain of $2.5 million ($1.5 million
after-tax). There were no sales during the comparable period in 2002. Upon sale, the net carrying amount of the loans is removed from the consolidated balance sheet in exchange for cash and certain retained interests. The retained interests included
rights to service the loans that were sold (the Servicing Rights) and an interest in residual cash flows (the Interest-Only Strip). The Interest-Only Strip includes the excess of interest collected on the loans over the
amount required to be paid to the investors and the securitization agent (the Excess Spread) plus an interest in sales proceeds that were not remitted by the securitization trust at the time of the initial sale of the loans to the extent
it exceeds projected credit losses (the Credit Enhancement or Overcollateralization). These retained interests were allocated a carrying value of $9.2 million at the time of the sale.



The Company receives monthly servicing fees equal to 0.75 percent per annum of the
outstanding beginning principal balance of the loans serviced for the month and rights to future cash flows arising after the investors in the securitization trust have received the returns for which they have contracted. The investors and the
securitization trust have no other recourse to the Companys other assets for failure of debtors to pay when due. The Companys retained interests are subordinate to investor's interests. The value of the Interest-Only Strip is subject to
prepayment risk and interest rate risk on the Excess Spread and credit risk on the transferred automobile loans on the Overcollateralization.



Key economic assumptions used in measuring the retained interests at the date of the securitization and as of December 31, 2003 including the sensitivity of the current
fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows:



|                                             |  |                       |        |   |                         |                   |        |   |                   |   |        |   |  |   |        |  
|-------------------------------------------- |  | --------------------- | ------ | - | ----------------------- | ----------------- | ------ | - | ----------------- | - | ------ | - |  | - | ------ | -
|                                             |  | Loans SoldDuring 2003 |        |   | As of December 31, 2003 |                  
|                                             |  |                       | Actual |   |                         | 10% AdverseChange |        |   | 20% AdverseChange |  
|                                             |  | (in thousands)        |       
|Prepayment speed assumptions                 |  |                       |        |   |                         |                   |        |   |                   |   |        |   |  |   |        |  
|Prepayment speed                             |  |                       | 1.7    | % |                         |                   | 2.5    | % |                   |   | 2.8    | % |  |   | 3.0    | %
|Weighted average life (in months)            |  |                       | 19.5   |   |                         |                   | 13.3   |   |                   |   | 12.7   |   |  |   | 12.2   |  
|Fair value of retained interests             |  | $                     | 9,418  |   |                         | $                 | 12,738 |   |                   | $ | 12,737 |   |  | $ | 12,748 |  
|Change in fair value                         |  | $                     |       |   |                         | $                 |       |   |                   | $ | (1     | ) |  | $ | 10     |  
|Expected credit loss assumptions             |  |                       |        |   |                         |                   |        |   |                   |   |        |   |  |   |        |  
|Expected credit losses (loss to liquidation) |  |                       | 1.9    | % |                         |                   | 1.9    | % |                   |   | 2.1    | % |  |   | 2.3    | %
|Fair value of retained interests             |  | $                     | 9,418  |   |                         | $                 | 12,738 |   |                   | $ | 12,643 |   |  | $ | 12,552 |  
|Change in fair value                         |  | $                     |       |   |                         | $                 |       |   |                   | $ | (95    | ) |  | $ | (186   | )
|Residual cash flow discount rate assumptions |  |                       |        |   |                         |                   |        |   |                   |   |        |   |  |   |        |  
|Residual cash flow discount rate (annual)    |  |                       | 20     | % |                         |                   | 17.5   | % |                   |   | 19.2   | % |  |   | 20.9   | %
|Fair value of retained interests             |  | $                     | 9,418  |   |                         | $                 | 12,738 |   |                   | $ | 12,600 |   |  | $ | 12,467 |  
|Change in fair value                         |  | $                     |       |   |                         | $                 |       |   |                   | $ | (138   | ) |  | $ | (271   | )



These sensitivities are hypothetical
and should be used with caution. Changes in fair value based on a 10 percent variation should not be extrapolated because the relationship of the change in assumption to the change in fair value may not always be linear. Also, in this table, the
effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.



68



---

##### Table of Contents

Total cash flows attributable to the indirect automobile loan securitization transactions was an inflow of $6.4 million
and $2.1 million for 2003 and 2002, respectively. The following table summarizes the various cash flows received from and paid to the securitization trust:



|                                       |  |                               |        |                          |   |                  |  |           |       |  |   |  
|-------------------------------------- |  | ----------------------------- | ------ | ------------------------ | - | ---------------- |  | --------- | ----- |  | - | -
|                                       |  | Proceeds From Securitizations |        | Servicing Fees Collected |   | Other Cash Flows |  | Fees Paid
|                                       |  | (in thousands)               
|Cash flows received from trust in 2003 |  | $                             | 98,483 |                          | $ | 718              |  | $         | 5,695 |  | $ | 
|Cash flows received from trust in 2002 |  | $                             |       |                          | $ | 472              |  | $         | 1,659 |  | $ | 



Other retained interests represents
net cash flows received from retained interests by the transferor other than servicing fees. Other cash flows include, for example, gross cash flows from Interest-Only Strips, net of reductions in such cash flows for loan defaults, including the
release of excess Overcollateralization funds.



The following table presents
quantitative information about delinquencies (loans 30 or more days past due plus non-accruals), net credit losses, and components of securitized indirect automobile loans and other assets managed together with them. Loan amounts represent the
principal amount of the loan only. Retained interests held for securitized assets are excluded from this table because they are recognized separately.



|                  |  |                                 |         |                                     |   |                                |  |      |        |      |   |       |  |   |       |  |   |      
|----------------- |  | ------------------------------- | ------- | ----------------------------------- | - | ------------------------------ |  | ---- | ------ | ---- | - | ----- |  | - | ----- |  | - | -----
|                  |  | Total Principal Amount of Loans |         | Principal Amountof Delinquent Loans |   | Net Credit Losses Year-to-Date
|                  |  | As of December 31               |        
|                  |  | 2003                            |         | 2002                                |   | 2003                           |  | 2002 |        | 2003 |   | 2002 
|                  |  | (in thousands)                 
|Held in portfolio |  | $                               | 477,004 |                                     | $ | 505,963                        |  | $    | 8,108  |      | $ | 6,312 |  | $ | 5,151 |  | $ | 3,239
|Securitized       |  |                                 | 93,093  |                                     |   | 41,864                         |  |      | 2,010  |      |   | 1,373 |  |   | 1,283 |  |   | 990  
|                  |  |                                 |         |                                     |   |                                |  |      |        |      |   |       |  |   |       |  |   |      
|Total             |  | $                               | 570,097 |                                     | $ | 547,827                        |  | $    | 10,118 |      | $ | 7,685 |  | $ | 6,434 |  | $ | 4,229
|                  |  |                                 |         |                                     |   |                                |  |      |        |      |   |       |  |   |       |  |   |      



Actual and projected static pool
credit losses, as a percentage of indirect automobile loans securitized are 1.33%, 1.57% and 1.85% as of the years ended December 31, 2003, 2004, and 2005, respectively. Static pool losses are calculated by summing the actual and projected future
credit losses and dividing them by the original balance of each pool of assets. The amounts shown here for each year are a weighted average for all indirect automobile loan securitizations.



69



---

##### Table of Contents

NOTE 9  SHORT TERM BORROWINGS



At December 31, 2003, 2002 and 2001 short-term borrowings consisted of:



|                                               |  |                |         |      |   |         |  |   |        
|---------------------------------------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                                               |  | 2003           |         | 2002 |   | 2001   
|                                               |  | (in thousands)
|Securities sold under agreements to repurchase |  | $              | 435,029 |      | $ | 416,760 |  | $ | 388,533
|Federal Home Loan Bank borrowings              |  |                | 25,042  |      |   | 83,022  |  |   | 10,821 
|Federal funds purchased                        |  |                | 74,950  |      |   | 55,323  |  |   | 33,075 
|Commercial paper borrowings                    |  |                | 10,042  |      |   | 28,408  |  |   | 31,287 
|U.S. Treasury tax and loan note accounts       |  |                | 12,000  |      |   | 12,000  |  |   | 12,000 
|                                               |  |                |         |      |   |         |  |   |        
|Total Short-Term Borrowings                    |  | $              | 557,063 |      | $ | 595,513 |  | $ | 475,716
|                                               |  |                |         |      |   |         |  |   |        



Additional details on securities sold
under agreements to repurchase are as follows:



|                                          |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Average balance during the year           |  | $ | 378,099 |   |  | $ | 412,368 |   |  | $ | 372,863 |  
|Maximum month-end balance during the year |  |   | 435,029 |   |  |   | 434,675 |   |  |   | 403,335 |  
|Weighted average rate during the year     |  |   | 2.22    | % |  |   | 2.64    | % |  |   | 4.54    | %
|Weighted average rate at December 31      |  |   | 1.96    | % |  |   | 2.26    | % |  |   | 2.83    | %



The Company has a commercial paper
agreement with an unrelated financial institution (Agent) that provides for the Company to issue non-rated short-term unsecured debt obligations at negotiated rates and terms, not to exceed $50.0 million. In the event the Agent is unable to place
the Companys commercial paper on a particular day, the proceeds are provided by overnight borrowings on a line of credit with the same financial institution. This agreement may be terminated at any time by written notice of either the Agent or
the Company. As of December 31, 2003, $40.0 million was available.



NOTE 10
 LONG-TERM BORROWINGS



Long-term borrowings consisted of the
following at December 31, 2003 and 2002:



|                                   |  |                |         |      |   |        
|---------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                   |  | 2003           |         | 2002
|                                   |  | (in thousands)
|Federal Home Loan Bank borrowings  |  | $              | 158,545 |      | $ | 159,765
|Capital Trust preferred securities |  |                | 25,000  |      |   | 25,000 
|Capitalized Lease Obligation       |  |                | 1,065   |      |   | 1,067  
|                                   |  |                |         |      |   |        
|Total Long-Term Borrowings         |  | $              | 184,610 |      | $ | 185,832
|                                   |  |                |         |      |   |        



The Company periodically borrows
additional funds from the Federal Home Loan Bank (FHLB) in connection with the purchase of mortgage-backed securities and the financing of 1-4 family real estate loans. Certain FHLB borrowings have prepayment penalties and call features associated
with them. The average maturity of these borrowings at December 31, 2003 is 3.9 years, with a weighted average borrowing rate of 4.16%. The Company reclassifies FHLB borrowings to short term borrowings when the remaining maturity becomes less than
one year.



Reductions of FHLB borrowings with call features, assuming they are
called at the earliest call date, total $77.0 million in 2004.



The Company has
$25.0 million of capital securities outstanding through AMCORE Capital Trust I (Trust), a statutory business trust. All of the common securities of the Trust are owned by the Company. The capital securities pay cumulative cash
distributions semiannually at an annual rate of 9.35%. The securities are redeemable from March 25, 2007 until March 25, 2017 at a declining rate of 104.675% to 100% of the principal amount. After March 25, 2017, they are redeemable at par until
June 15, 2027 when redemption is mandatory.



70



---

##### Table of Contents

Prior redemption is permitted under certain circumstances such as changes in tax or regulatory capital rules. The proceeds of the capital securities were
invested by the Trust in junior subordinated debentures which represents all of the assets of the Trust. The Company fully and unconditionally guarantees the capital securities through the combined operation of the debentures and other related
documents. The Companys obligations under the guarantee are unsecured and subordinate to senior and subordinated indebtedness of the Company.



Other long-term borrowings includes a capital lease with a net carrying value of $1.1 million on a branch facility leased by the Company. The Company is amortizing the
capitalized lease obligation and depreciating the facility over the remaining non-cancelable term of the original lease, which expires or renews in 2021.



Scheduled reductions of long-term borrowings are as follows:



|           |  |                |        
|---------- |  | -------------- | -------
|           |  | Total         
|           |  | (in thousands)
|2004       |  | $              | 3      
|2005       |  |                | 35,187 
|2006       |  |                | 16,721 
|2007       |  |                | 28     
|2008       |  |                | 79,655 
|Thereafter |  |                | 53,016 
|           |  |                |        
|Total      |  | $              | 184,610
|           |  |                |        



During 2003, the Company extinguished
$15.8 million of above-market interest rate FHLB debt early and replaced the debt with lower cost funding. A prepayment penalty of $1.6 million on the early extinguishment is recorded in other operating expenses in the Consolidated Statements of
Income for the year ended December 31, 2003.



NOTE 11  DERIVATIVE
INSTRUMENTS AND HEDGE ACCOUNTING



The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001. This Statement, as amended by SFAS No. 138 and SFAS No. 149, outlines accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.



The Company uses certain financial instruments called derivatives to help manage (Hedge) its risk or exposure to changes in interest rates and in conjunction with its mortgage banking operations. The derivatives used most often
are interest rate swaps, caps, collars and floors (collectively, Interest Rate Derivatives), mortgage loan commitments and forward contracts. Interest Rate Derivatives are contracts with a third party (the Counter-party) to
exchange interest payment streams based upon an assumed principal amount (the Notional Principal Amount). The Notional Principal Amount is not advanced from the Counter-party. It is used only as a reference point to calculate the
exchange of interest payment streams. The Company also has a deposit product whose interest rate is tied to the S & P 500 Index.



Interest rate swaps are used by the Company to convert assets and liabilities with variable-rate cash flows to assets and liabilities with fixed-rate cash flows (the
Hedged Items). Under this arrangement, the Company receives payments from or makes payments to the Counter-party at a specified floating-rate index that is applied to the Notional Principal Amount. This periodic receipt or payment
essentially offsets floating-rate interest payments that the Company makes to its depositors or lenders or receives from its loan customers. In exchange for the receipts from or payments to the Counter-party, the Company makes payments to or
receives a payment from the Counter-party at a specified fixed-rate that is applied to the Notional Principal Amount. Thus, what was a floating rate obligation or a floating rate asset before entering into the derivative arrangement is transformed
into a fixed rate obligation or asset. These types of Hedges are considered cash flow Hedges. The Company also



71



---

##### Table of Contents

uses interest rate swaps to convert fixed-rate liabilities to floating-rate liabilities. This is typically done when a fixed rate liability has been incurred
to fund a variable-rate loan or investment. The interest rate swap has the effect of matching the interest rate risk on the funding with the interest rate risk on the loans or investment. This type of Hedge is considered a fair value Hedge. The
longest-term derivative that the Company has used to Hedge its interest rate exposure (cash flow Hedge) expires in September 2004, while the longest-term fair value Hedge expires in March 2013.



Interest rate caps and collars are derivative instruments that are variations of an interest
rate swap. They also involve an exchange of interest payment streams with a Counter-party based upon a Notional Principal Amount. In the case of an interest rate cap, the exchange of income streams does not take effect unless the specified
floating-rate index rises above a pre-determined level. In an interest rate cap, the Company retains the risk of rising interest rates up to the pre-determined level, while benefiting from declines in interest rates. In the case of an interest rate
collar, the exchange of income streams does not take effect unless the specified floating-rate index rises above or falls below pre-determined levels. In an interest rate collar, the Company retains the risk and benefits of changes in interest rates
within the pre-determined levels. The Company has also used interest rate floors to manage its exposure to declining mortgage interest rates of its mortgage servicing rights asset. These floors were terminated during 2001. The net amount payable or
receivable from each Interest Rate Derivative contract is recorded as an adjustment to interest income or interest expense.



All derivatives are recognized at fair value in the Consolidated Balance Sheets. Changes in fair value for derivatives that are not Hedges are recognized in the
Consolidated Statement of Income (Income Statement) as they arise. If the derivative is a Hedge, depending on the nature of the Hedge, changes in the fair value of the derivative are either offset in the Income Statement or recorded as a
component of other comprehensive income (OCI) in the Consolidated Statement of Stockholders Equity. If the derivative is designated as a fair value Hedge, the changes in the fair value of the derivative and of the Hedged Item
attributable to the Hedged risk are recognized in the Income Statement. To the extent that fair value Hedges are highly effective, changes in the fair value of the derivatives will largely be offset by changes in the fair values of the Hedged Items.
If the derivative is designated as a cash flow Hedge, changes in the fair value of the derivative due to the passage of time (Time Value) are excluded from the assessment of Hedge effectiveness and therefore flow through the Income
Statement for each period. The effective portion of the remaining changes in the fair value of the derivative (Intrinsic Value) are recorded in OCI and are subsequently recognized in the Income Statement when the Hedged Item affects
earnings. Ineffective portions of changes in the fair value of cash flow Hedges are recognized in the Income Statement. Hedge ineffectiveness is caused when the change in expected future cash flows or fair value of a Hedged Item does not exactly
offset the change in the future expected cash flows or fair value of the derivative instrument, and is generally due to differences in the interest rate indices or interest rate reset dates. All derivatives, with the exception of the deposit product
tied to the S&P 500 Index and $162,000 in swaps left unhedged due to the call of the Hedged Items, qualify and have been designated as Hedges.



Also considered derivatives under SFAS No. 133 are 1-4 family residential mortgage loan commitments (the Commitments) and forward mortgage loan sales (the
Forward Contracts) to the secondary market (collectively Mortgage Loan Derivatives) which are reported at fair value on the balance sheet. Changes in the fair value of the Mortgage Loan Derivatives are included in other
income or expense as they occur. However, since the Companys Forward Contracts qualify and have been designated as fair value Hedges of its portfolio of loans held for sale (the Warehouse Loans) as well a Hedge of its Commitments,
the Warehouse Loans are also adjusted to fair value. The change in fair value of Warehouse Loans is recorded in other income or expense as it occurs. To the extent that the Companys Forward Contracts are highly effective, the changes in the
fair value of the Forward Contracts will largely offset changes in the fair value of the Commitments and Warehouse Loans.



The method that the Company uses to assess whether or not a Hedge is expected to be highly effective in achieving offsetting changes in cash flows or fair values of the
risk that is being hedged (Prospective Considerations) and the method that it uses to determine that the Hedge has been highly effective in achieving those offsets (Retrospective Evaluations) are defined and documented at the inception of each
Hedge. Hedges that are similar in nature are assessed in a similar manner.



72



---

##### Table of Contents

Many of the Companys Hedges employ shortcut accounting because the critical terms of the derivative and
the Hedged Item are the same. As a result, complete offsets in cash flows or fair values are expected and no ineffectiveness is recognized in earnings. These Hedges are monitored on a quarterly basis to verify that there have been no changes in the
derivative or the Hedged Item that would invalidate this conclusion.



Those
Hedges that do not qualify for shortcut accounting use statistical analysis for the Prospective Consideration of expected Hedge effectiveness and calculations of actual dollar offsets for the Retrospective Evaluation of Hedge
effectiveness. In those instances where exact offset is not achieved, the difference (ineffectiveness) is recognized in earnings for the period. These assessments are performed quarterly using the defined and documented methodology consistently
throughout the period of the respective Hedge.



The Company implemented SFAS
No. 133 on January 1, 2001, and, as such, the impact of the transition to this standard on the Companys earnings and financial position was dependent on the composition of the hedging portfolio at that date. The after-tax transition adjustment
due to the adoption of SFAS No. 133 resulted in an increase in consolidated assets of $2.1 million, an increase in consolidated liabilities of $3.4 million, a reduction in OCI of $1.5 million, and an increase in net income of $225,000. The increase
in net income was mostly attributable to the $353,000 favorable Time Value component of the market value of the cash flow Hedges. As part of the adoption of this standard, $10.7 million of held to maturity securities were reclassified to available
for sale securities resulting in an unrealized loss of $15,000 recorded in OCI.



The Income Statement for 2003 included the following derivative related activity in other non-interest income: $3,000 loss due to the decrease in the Time Value component of the market value of cash flow Hedges, $4,000 income on the change
in value of derivatives that do not qualify for hedge accounting, $24,000 loss related to the ineffective portion of the fair value Hedges, $345,000 loss related to Mortgage Loan Derivatives (net of the corresponding mark-to-market adjustment on
Hedged Warehouse Loans held for sale), and no income or loss related to the S & P 500 Index embedded derivative. These items, net of taxes of $143,000, totaled a $225,000 loss recorded for the twelve months ended December 31, 2003.



The Income Statement for 2002 included the following derivative related activity in other
non-interest income: $47,000 loss due to the decrease in the Time Value component of the market value of cash flow Hedges, $29,000 income related to the ineffective portion of the cash flow Hedges, $350,000 income related to Mortgage Loan
Derivatives (net of the corresponding mark-to-market adjustment on Hedged Warehouse Loans held for sale), and no income or loss related to the S & P 500 Index embedded derivative. These items, net of taxes of $129,000, total $203,000 in income
recorded for the twelve months ended December 31, 2002.



In addition to the
transition adjustment, the Income Statement for 2001 included the following derivative related activity in other non-interest income: $303,000 loss due to the decrease in the Time Value component of the market value of cash flow Hedges, $29,000 loss
related to the ineffective portion of the cash flow Hedges, $48,000 income related to Mortgage Loan Derivatives (net of the corresponding mark-to-market adjustment on Hedged Warehouse Loans held for sale), and $9,000 income related to the S & P
500 Index embedded derivative. These items, net of taxes of $107,000, totaled a $168,000 loss recorded for the twelve months ended December 31, 2001.



Reclassification from OCI to the Income Statement occurs each period as continuing cash flow payments bring the Intrinsic Value component of the market value of each cash
flow Hedge closer to zero. Derivative losses of $4.0 million and $3.4 million (pre-tax) were reclassified from OCI to the Income Statement as additional interest expense during the twelve months ended December 31, 2002 and 2001, respectively, mostly
through the normal postings of cash receipts and cash payments related to the derivatives and the Hedged Items. During 2002, swaps that were Hedging loan cash flows were sold, for which the Company received $3.3 million plus accrued interest. The
gain continued to be classified in OCI and amortized into income over the original term of the swap. For the year ended December 31, 2003, $2.3 million of this pre-tax gain was amortized (reclassified) from OCI into



73



---

##### Table of Contents

income. For the year ended December 31, 2002, $96,000 of this pre-tax gain was amortized (reclassified) from OCI into income. The remaining pre-tax gain of
$970,000 included in OCI at December 31, 2003 is expected to be reclassified into earnings during the next twelve months. There were no other outstanding cash flow Hedges included in OCI during the twelve months ended December 31, 2003.



NOTE 12  FAIR VALUE OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET RISK



The fair value amounts have been estimated by the Company using available
market information and appropriate valuation methodologies as discussed below. Considerable judgment was required, however, to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented below are not
necessarily indicative of the amounts the Company could realize in a current market exchange.



The following table shows the carrying amounts and fair values of financial instruments at December 31, 2003 and 2002 that have liquid markets in which fair value is assumed to be equal to the carrying amount, have
readily available quoted market prices, are based on quoted prices for similar financial instruments or represent quoted surrender values:



|                                                    |  |                 |           |            |   |                 |  |            |           |  |   |          
|--------------------------------------------------- |  | --------------- | --------- | ---------- | - | --------------- |  | ---------- | --------- |  | - | ---------
|                                                    |  | 2003            |           | 2002      
|                                                    |  | Carrying Amount |           | Fair Value |   | Carrying Amount |  | Fair Value
|                                                    |  | (in thousands) 
|Cash and cash equivalents                           |  | $               | 107,965   |            | $ | 107,965         |  | $          | 145,224   |  | $ | 145,224  
|Interest earning deposits in banks                  |  |                 | 1,746     |            |   | 1,746           |  |            | 2,151     |  |   | 2,151    
|Federal funds sold and other short-term investments |  |                 |          |            |   |                |  |            | 4,200     |  |   | 4,200    
|Loans held for sale                                 |  |                 | 32,351    |            |   | 32,351          |  |            | 79,893    |  |   | 79,893   
|Securities available for sale                       |  |                 | 1,165,382 |            |   | 1,165,382       |  |            | 1,173,461 |  |   | 1,173,461
|Mortgage servicing rights                           |  |                 | 11,244    |            |   | 11,674          |  |            | 7,284     |  |   | 6,770    
|Company owned life insurance                        |  |                 | 116,475   |            |   | 116,475         |  |            | 108,914   |  |   | 108,914  



The carrying amounts and fair values
of accruing loans and leases at December 31, 2003 and 2002 were as follows:



|                                       |  |                 |           |            |   |                 |  |            |           |  |   |          
|-------------------------------------- |  | --------------- | --------- | ---------- | - | --------------- |  | ---------- | --------- |  | - | ---------
|                                       |  | 2003            |           | 2002      
|                                       |  | Carrying Amount |           | Fair Value |   | Carrying Amount |  | Fair Value
|                                       |  | (in thousands) 
|Commercial, financial and agricultural |  | $               | 724,283   |            | $ | 728,373         |  | $          | 749,658   |  | $ | 774,347  
|Real estate                            |  |                 | 1,683,533 |            |   | 1,761,252       |  |            | 1,497,453 |  |   | 1,588,754
|Installment and consumer, net          |  |                 | 552,573   |            |   | 587,502         |  |            | 603,319   |  |   | 649,895  
|Direct lease financing                 |  |                 | 249       |            |   | 289             |  |            | 752       |  |   | 795      
|                                       |  |                 |           |            |   |                 |  |            |           |  |   |          
|Total accruing loans and leases        |  | $               | 2,960,638 |            | $ | 3,077,416       |  | $          | 2,851,182 |  | $ | 3,013,791
|                                       |  |                 |           |            |   |                 |  |            |           |  |   |          



Fair values of loans were estimated
for portfolios with similar characteristics. The fair value of loans was calculated by discounting contractual and prepayment cash flows using estimated market discount rates which reflect the interest rate risk inherent in the loan. The fair value
of non-accrual loans was $31.7 million and $32.5 million in 2003 and 2002, respectively. (See Note 4 of the Notes to Consolidated Financial Statements for additional information).



The carrying value of interest receivable and payable approximates fair value due to the relatively short period of time between accrual and
expected realization. At December 31, 2003 and 2002, interest receivable was $18.9 million and $22.6 million, respectively, and interest payable was $14.2 million and $20.7 million, respectively.



74



---

##### Table of Contents

The following table shows the carrying amounts and fair values of financial instrument liabilities at December 31, 2003
and 2002:



|                              |  |                 |           |   |            |   |           |                 |  |   |            |   |  |   |           |  
|----------------------------- |  | --------------- | --------- | - | ---------- | - | --------- | --------------- |  | - | ---------- | - |  | - | --------- | -
|                              |  | 2003            |           |   | 2002       |  
|                              |  | Carrying Amount |           |   | Fair Value |   |           | Carrying Amount |  |   | Fair Value |  
|                              |  | (in thousands)  |          
|Demand deposits and savings   |  | $               | 1,859,979 |   |            | $ | 1,859,979 |                 |  | $ | 1,508,166  |   |  | $ | 1,508,166 |  
|Time deposits                 |  |                 | 1,508,515 |   |            |   | 1,539,344 |                 |  |   | 1,786,496  |   |  |   | 1,844,559 |  
|Short-term borrowings         |  |                 | 557,063   |   |            |   | 561,955   |                 |  |   | 595,513    |   |  |   | 608,281   |  
|Long-term borrowings          |  |                 | 184,610   |   |            |   | 198,567   |                 |  |   | 185,832    |   |  |   | 203,943   |  
|Letters of credit             |  |                 | 1,190     |   |            |   | 2,373     |                 |  |   | 433        |   |  |   | 2,018     |  
|Interest rate swap agreements |  |                 | (2,573    | ) |            |   | (2,573    | )               |  |   | (3,763     | ) |  |   | (3,763    | )
|Interest rate cap agreements  |  |                 | (47       | ) |            |   | (47       | )               |  |   | (125       | ) |  |   | (125      | )
|Forward contracts             |  |                 | 562       |   |            |   | 562       |                 |  |   | 2,881      |   |  |   | 2,881     |  
|Mortgage loan commitments     |  |                 | (342      | ) |            |   | (342      | )               |  |   | (1,694     | ) |  |   | (1,694    | )



The fair value of deposits with no
stated maturity, such as non-interest bearing demand deposits, savings, NOW and money market accounts, is equal to the carrying amount in accordance with SFAS No. 107. There is, however, additional value to the deposits of the Company, a significant
portion of which has not been recognized in the consolidated financial statements. This value results from the cost savings of these core funding sources versus obtaining higher-rate funding in the market. The fair value of time deposits was
determined by discounting contractual cash flows using currently offered rates for deposits with similar remaining maturities.



The fair value of derivatives was estimated based on the amount the Company would pay or would be paid to terminate the contracts or agreements, using current rates and,
when appropriate, the current creditworthiness of the counter-party. The carrying amounts of certain derivatives shown include accrued net settlements and the unamortized balance of premiums or discounts.



The above fair value estimates were made at a discrete point in time based on relevant market
information and other assumptions about the financial instruments. As no active market exists for a significant portion of the Companys financial instruments, fair value estimates were based on judgments regarding current economic conditions,
future expected cash flows and loss experience, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and therefore cannot be calculated with precision. There may be inherent weaknesses in
calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows could significantly affect the results. In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to assess the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant investments in subsidiaries, specifically the trust
and asset management operations, are not considered financial instruments and the franchise values have not been included in the fair value estimates. Similarly, premises and equipment and intangible assets have not been considered.



Many of the above financial instruments are also subject to credit risk. Credit risk is the
possibility that the Company will incur a loss due to the other partys failure to perform under its contractual obligations. The Companys exposure to credit loss in the event of non-performance by the other party with regard to
commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for actual extensions of credit.
The credit risk involved for commitments to extend credit and in issuing letters of credit is essentially the same as that involved in extending loans to customers. The amount of collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on managements credit evaluation of the customer. Collateral held varies, but may include accounts receivable, securities, inventory, property and equipment and income-producing commercial properties. The Company is also
exposed to credit risk with



75



---

##### Table of Contents

respect to its $116.5 million investment in BANK and Company owned life insurance. AMCORE manages this risk by diversifying its holdings among various
carriers and by periodic internal credit reviews. All carriers have Secure ratings from A. M. Best that range from a low of A (Excellent) to A++ (Superior).



The interest rate swap contracts involve the exchange of fixed for variable or variable for
fixed interest rate payments and are based on the notional amount of the contract. The cap contract is also based on the notional amount of the contract. The notional amounts of these contracts only identify the size of the contracts and are used to
calculate the interest payment amounts. The contracts are occasionally purchased at a premium or discount, which is amortized over the lives of the contracts. The only credit risk exposure AMCORE has is in relation to the counter-parties which all
have investment grade credit ratings. All counter-parties are expected to meet any outstanding interest payment obligations.



A summary of the contract amount of the Companys exposure to off-balance sheet credit risk as of December 31, 2003 and 2002, is as follows:



|                                                                        |  |                |         |      |   |        
|----------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                                        |  | 2003           |         | 2002
|                                                                        |  | (in thousands)
|Financial instruments whose contract amount represent credit risk only: |  |                |         |      |   |        
|Commitments to extend credit                                            |  | $              | 634,881 |      | $ | 687,262
|Letters of credit                                                       |  |                | 189,845 |      |   | 161,439



Commitments to extend credit are
contractual agreements entered into with customers as long as there is no violation of any condition established on the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.



Letters of credit are conditional, but irrevocable, commitments issued by the Company to guarantee the payment of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.



NOTE 13  STOCK INCENTIVE PLANS



At December 31, 2003, the Company has stock-based compensation plans as described below. The Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25 and related interpretations.



Stock
Incentive Plans. In 2000, stockholders approved the adoption of the AFI 2000 Stock Incentive Plan (Plan). The Plan provides for the grant of stock options, reload options, stock appreciation rights, performance units, restricted stock awards and
stock bonus awards to key employees. The total number of shares approved and available for grant under the Plan in its first year was 2.5% of the total shares of stock outstanding as of the effective date and 1.5% of outstanding shares in each
subsequent Plan year (not to exceed 425,000 in any such year). Options to purchase shares of common stock of the Company and restricted stock awards were granted to key employees pursuant to both the Plan and previous stock incentive plans.



76



---

##### Table of Contents

Stock Options.Non-Qualified Stock Options are issued at an option price equal to the fair market value of the
shares on the grant date. The options granted under the plans generally vest within three to five years and expire from seven to ten years from the date of grant. The following table presents certain information with respect to stock options issued
pursuant to these incentive plans.



|                                         |  |           |   |      |               |       |        |           |   |               |   |        |  |           |               |  |   |      
|---------------------------------------- |  | --------- | - | ---- | ------------- | ----- | ------ | --------- | - | ------------- | - | ------ |  | --------- | ------------- |  | - | -----
|                                         |  | 2003      |   | 2002 |               | 2001 
|                                         |  | Shares    |   |      | Average Price |       | Shares |           |   | Average Price |   | Shares |  |           | Average Price
|Options outstanding at beginning of year |  | 2,206,502 |   |      | $             | 20.96 |        | 1,876,786 |   |               | $ | 19.01  |  | 1,895,630 |               |  | $ | 18.36
|Options granted                          |  | 310,564   |   |      |               | 23.82 |        | 622,875   |   |               |   | 23.85  |  | 369,000   |               |  |   | 20.15
|Options issued pursuant to IMG earnout   |  |          |   |      |               |      |        |          |   |               |   |       |  | 57,372    |               |  |   |     
|Option reloads                           |  | 55,742    |   |      |               | 24.14 |        | 18,181    |   |               |   | 22.51  |  | 49,648    |               |  |   | 21.31
|Options exercised                        |  | (435,551  | ) |      |               | 17.45 |        | (244,141  | ) |               |   | 13.33  |  | (369,224  | )             |  |   | 12.72
|Options lapsed                           |  | (111,192  | ) |      |               | 22.84 |        | (67,199   | ) |               |   | 21.59  |  | (125,640  | )             |  |   | 23.17
|                                         |  |           |   |      |               |       |        |           |   |               |   |        |  |           |               |  |   |      
|Options outstanding at end of year       |  | 2,026,065 |   |      |               | 22.14 |        | 2,206,502 |   |               | $ | 20.96  |  | 1,876,786 |               |  | $ | 19.01
|                                         |  |           |   |      |               |       |        |           |   |               |   |        |  |           |               |  |   |      
|Options exercisable at end of year       |  | 1,249,651 |   |      |               | 21.63 |        | 1,122,838 |   |               | $ | 19.67  |  | 1,096,291 |               |  | $ | 17.90
|                                         |  |           |   |      |               |       |        |           |   |               |   |        |  |           |               |  |   |      



Investors Management Group (IMG) was
acquired by the Company in 1998. The above line item Options issued pursuant to IMG earnout were contingent based upon IMGs performance from 1998 through 2000.



Performance Units.Performance Units (Units) were granted prior to 1999 and entitled holders to cash or stock payments if certain
three-year return on equity performance targets were met. In addition, a dividend was paid on each Unit at a rate equivalent to the rate of dividends paid on each share of the Companys common stock. The expense related to these Units for the
years ended December 31, 2002 and 2001 was approximately $62,000 and $154,000, respectively. There was no expense in 2003. The following table presents certain information with respect to issuances and payouts pursuant to these incentive plans.



|                                       |  |          |   |      |           |      |       |          |   |           |   |     
|-------------------------------------- |  | -------- | - | ---- | --------- | ---- | ----- | -------- | - | --------- | - | ----
|                                       |  | 2002     |   | 2001
|                                       |  | Units    |   |      | UnitPrice |      | Units |          |   | UnitPrice
|Units outstanding at beginning of year |  | 129,883  |   |      |           |     |       | 275,606  |   |           |   |    
|Units paid                             |  | (129,883 | ) |      | $         | 4.97 |       | (129,666 | ) |           | $ | 6.42
|Units forfeited                        |  |         |   |      |           |     |       | (16,057  | ) |           |   |    
|                                       |  |          |   |      |           |      |       |          |   |           |   |     
|Units outstanding at end of year       |  |         |   |      |           |     |       | 129,883  |   |           |   |    
|                                       |  |          |   |      |           |      |       |          |   |           |   |     



Restricted Stock Awards.Pursuant to the Plan, the Company issued common stock with restrictions to certain key employees. The shares are restricted as to transfer, but are not restricted as to dividend payment and voting rights. Transfer restrictions lapse at the end
of three years contingent upon earnings and return on equity performance goals being met for each of the three years and contingent upon continued employment. If performance goals are not met, the restrictions lapse and shares vest at the end of
nine years. The Company amortizes the expense over the performance period or, if the goals are not met, the vesting period. The expense related to these awards for the years ended December 31, 2003, 2002 and 2001 was approximately $168,000, $305,000
and $222,000, respectively. The following table presents certain information with respect to restricted stock awards granted pursuant to these incentive plans.



|                                                         |  |         |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      
|-------------------------------------------------------- |  | ------- | - | ---- | ------------ | ----- | ------ | ------- | - | ------------ | - | ------ |  | ------- | ------------ |  | - | -----
|                                                         |  | 2003    |   | 2002 |              | 2001 
|                                                         |  | Shares  |   |      | AveragePrice |       | Shares |         |   | AveragePrice |   | Shares |  |         | AveragePrice
|Restricted stock awards outstanding at beginning of year |  | 46,436  |   |      | $            | 15.95 |        | 69,821  |   |              | $ | 20.74  |  | 24,164  |              |  | $ | 22.56
|Restricted stock awards granted                          |  |        |   |      |              |      |        |        |   |              |   |       |  | 63,784  |              |  |   | 19.98
|Release of restriction on stock due to vesting           |  | (14,095 | ) |      |              | 18.47 |        | (20,475 | ) |              |   | 20.58  |  | (11,087 | )            |  |   | 19.97
|Restricted stock awards forfeited                        |  | (2,489  | ) |      |              | 20.09 |        | (2,910  | ) |              |   | 21.05  |  | (7,040  | )            |  |   | 21.31
|                                                         |  |         |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      
|Restricted stock awards outstanding at end of year       |  | 29,852  |   |      | $            | 27.81 |        | 46,436  |   |              | $ | 15.95  |  | 69,821  |              |  | $ | 20.74
|                                                         |  |         |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      



77



---

##### Table of Contents

Directors Stock Plans. The Restricted Stock Plan for Non-Employee Directors provides that each current
eligible non-employee director and each subsequently elected non-employee director receive, in lieu of a cash retainer, shares of common stock of the Company, the fair value of which is equal to three times the annual retainer. The shares vest
annually over a three-year period based upon the anniversary date of the original award and continued service as a director. The expense related to the Stock Plan for the years ended December 31, 2003, 2002 and 2001 was approximately $93,000,
$69,000 and $88,000, respectively.



In 2001, stockholders approved the adoption
of the AFI 2001 Stock Option Plan for Non-Employee Directors (Option Plan). The Option Plan provides that each current eligible non-employee director and each subsequently elected non-employee director receive Options to purchase common stock of the
Company. Each option granted under the Option Plan is issued with an option price equal to the fair market value of the underlying common stock at the date of grant and expires in seven to ten years from the date of grant. Options granted are
generally exercisable one year after date of grant. In 2002 each eligible non-employee director received a grant that will vest at the rate of one-third per year beginning one year after the date of grant. The only grant issued in 2003 was to the
newly elected non-employee director. The following table presents certain information with respect to stock options issued pursuant to the Option Plan and previous stock option plans.



|                                         |  |          |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      
|---------------------------------------- |  | -------- | - | ---- | ------------ | ----- | ------ | ------- | - | ------------ | - | ------ |  | ------- | ------------ |  | - | -----
|                                         |  | 2003     |   | 2002 |              | 2001 
|                                         |  | Shares   |   |      | AveragePrice |       | Shares |         |   | AveragePrice |   | Shares |  |         | AveragePrice
|Options outstanding at beginning of year |  | 234,480  |   |      | $            | 20.34 |        | 230,980 |   |              | $ | 19.28  |  | 245,730 |              |  | $ | 18.65
|Options granted                          |  | 3,000    |   |      |              | 23.78 |        | 45,000  |   |              |   | 24.04  |  | 16,500  |              |  |   | 20.15
|Options exercised                        |  | (111,480 | ) |      |              | 19.72 |        | (25,250 | ) |              |   | 16.07  |  | (27,500 | )            |  |   | 14.61
|Options lapsed                           |  | (6,000   | ) |      |              | 24.59 |        | (16,250 | ) |              |   | 22.13  |  | (3,750  | )            |  |   | 16.32
|                                         |  |          |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      
|Options outstanding at end of year       |  | 120,000  |   |      | $            | 20.79 |        | 234,480 |   |              | $ | 20.34  |  | 230,980 |              |  | $ | 19.28
|                                         |  |          |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      
|Options exercisable at end of year       |  | 90,000   |   |      | $            | 19.71 |        | 189,480 |   |              | $ | 19.46  |  | 214,480 |              |  | $ | 19.21
|                                         |  |          |   |      |              |       |        |         |   |              |   |        |  |         |              |  |   |      



Options Summary.The following
table presents certain information as of December 31, 2003 with respect to issuances of stock options pursuant to all plans discussed above.



|                          |  |                     |  |                                         |  |                            |       |                          |           |                            |   |      
|------------------------- |  | ------------------- |  | --------------------------------------- |  | -------------------------- | ----- | ------------------------ | --------- | -------------------------- | - | -----
|                          |  | Options Outstanding |  | Options Exercisable                    
|Range of Exercise Prices  |  | NumberOutstanding   |  | Weighted-Avg Remaining Contractual Life |  | Weighted-AvgExercise Price |       | Exercisableas of12/31/03 |           | Weighted-AvgExercise Price
|$  5.54  $16.61          |  | 95,637              |  | 2.0 Years                               |  | $                          | 11.71 |                          | 95,637    |                            | $ | 11.71
|16.62    19.37           |  | 308,440             |  | 4.8                                     |  |                            | 19.09 |                          | 251,618   |                            |   | 19.05
|19.38    22.00           |  | 452,545             |  | 5.8                                     |  |                            | 20.63 |                          | 323,545   |                            |   | 20.82
|22.01    23.50           |  | 336,011             |  | 4.0                                     |  |                            | 22.95 |                          | 251,218   |                            |   | 23.04
|23.51    24.50           |  | 408,088             |  | 5.6                                     |  |                            | 23.82 |                          | 89,959    |                            |   | 23.93
|24.51    27.68           |  | 545,344             |  | 4.5                                     |  |                            | 24.88 |                          | 327,674   |                            |   | 25.08
|                          |  |                     |  |                                         |  |                            |       |                          |           |                            |   |      
|Total Options Outstanding |  | 2,146,065           |  | 4.8 Years                               |  | $                          | 22.06 |                          | 1,339,651 |                            | $ | 21.50
|                          |  |                     |  |                                         |  |                            |       |                          |           |                            |   |      



Employee Stock Purchase Plan.
In 1999, stockholders approved the adoption of the AMCORE Stock Option Advantage Plan through which eligible employees may purchase from the Company shares of its common stock. The Company intends that the plan be an employee stock purchase
plan (ESPP) within the meaning of Section 423 of the Internal Revenue Code of 1986. The Company has reserved 250,000 shares of common stock for issuance under the ESPP.



The Companys employee stock purchase plan is intended to give employees a convenient means of purchasing shares of common stock
through payroll deductions. Each employee of the Company whose customary employment with the Company is more than 20 hours per week and more than five months in any calendar year,



78



---

##### Table of Contents

is eligible to participate, subject to IRS contribution limitations. Each participating employees contributions are used to purchase the
Corporations common stock on the last day of each quarter at the exercise price. The exercise price is 85% of the lower of the closing price of the Companys common stock on the Nasdaq National Market on the first or last day of each
offering period. No charge to earnings is recorded with respect to the ESPP.



The shares issued pursuant to the ESPP were as follows: 44,180 shares at prices ranging from $18.51 to $22.29 in 2003; 46,468 shares at prices ranging from $17.21 to $19.70 in 2002 and 39,394 shares at prices ranging from $14.45 to $19.00
in 2001.



Shares issued pursuant to the ESPP are prohibited from sale by a
participant until two years after the date of purchase. Dividends earned are credited to a participants account and used to purchase shares at the next purchase date. The Company shall have the option to purchase all, or any portion of, the
shares owned by such participant that, at the time of termination, are subject to the restriction on transfer.



In accordance with APB Opinion No. 25, no compensation cost has been recognized for stock option grants issued during 2003 pursuant to all option plans. Had compensation cost for these grants been determined based on
the grant date fair values of awards (the method described in SFAS No. 123, Accounting for Stock-Based Compensation), reported net income and earnings per common share would have been reduced to the pro forma amounts shown below:



The fair value of each option grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 2003, 2002 and 2001, respectively: dividend rates of 2.51%, 2.95%, and 2.86%, price volatility of 30.43%, 40.53% and 33.86%; risk-free interest rates of
3.12%, 5.28% and 5.24%; and expected lives of 5.5, 5.5 and 6.1 years. The average fair value of each option granted during 2003 was $5.94.



|                                                                                                                                            |  |                                       |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                            |  | Years Ended December 31,              |       
|                                                                                                                                            |  | 2003                                  |        |   | 2002 |   |        | 2001 | 
|                                                                                                                                            |  | (in thousands, except per share data) |       
|Net Income:                                                                                                                                 |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                 |  | $                                     | 43,504 |   |      | $ | 43,471 |      |  | $ | 42,243 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                       | (2,355 | ) |      |   | (2,673 | )    |  |   | (781   | )
|                                                                                                                                            |  |                                       |        |   |      |   |        |      |  |   |        |  
|Pro forma                                                                                                                                   |  | $                                     | 41,149 |   |      | $ | 40,798 |      |  | $ | 41,462 |  
|                                                                                                                                            |  |                                       |        |   |      |   |        |      |  |   |        |  
|Basic earnings per share:                                                                                                                   |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                 |  | $                                     | 1.75   |   |      | $ | 1.76   |      |  | $ | 1.66   |  
|Pro forma                                                                                                                                   |  |                                       | 1.65   |   |      |   | 1.65   |      |  |   | 1.63   |  
|Diluted earnings per share:                                                                                                                 |  |                                       |        |   |      |   |        |      |  |   |        |  
|As reported                                                                                                                                 |  | $                                     | 1.73   |   |      | $ | 1.75   |      |  | $ | 1.64   |  
|Pro forma                                                                                                                                   |  |                                       | 1.64   |   |      |   | 1.64   |      |  |   | 1.61   |  



NOTE 14  BENEFIT PLANS



Employee Benefit Plans. All subsidiaries of the Company
participate in the AMCORE Financial Security Plan (Security Plan), a qualified profit sharing plan under Section 401(a) of the Internal Revenue Code. The Security Plan offers participants a personal retirement account, a cash profit sharing payment
and a personal savings account 401(k). The expense related to the Security Plan and other similar plans from acquired companies for the years ended December 31, 2003, 2002 and 2001 was approximately $5.01 million, $4.31 million and $3.79 million,
respectively.





79



---

##### Table of Contents

In addition to the Security Plan, certain health care and life insurance benefits are made available to active employees.
The Companys share of cost of these benefits is expensed as incurred. Group health benefits are offered to retirees with 100% of the cost borne by the retiree.



The Company provides a deferred compensation plan (entitled AMCORE Financial, Inc. Deferred Compensation Plan) for senior
officers. This plan provides the opportunity to defer salary and bonuses.



The
Company provides additional retirement benefits to certain key executives through plans that are non-qualified, non-contributory and unfunded.



Under one such arrangement, the additional retirement benefits replace what would have been provided under the qualified plans in the absence of limits placed on
qualified plan benefits by the Internal Revenue Code of 1986. The expense related to this arrangement was $206,000, $377,000 and $441,000 for 2003, 2002 and 2001, respectively.



Another arrangement provides supplemental retirement benefits that are based upon three percent of final base salary, times the number of
years of service. Benefits under this plan may not exceed 70% or be less than 45% of a participants final base salary less offsets for social security and other employer sponsored retirement plans. The measurement date for obligations for this
plan are determined in January when estimated offsets from employer sponsored retirement plans are annually re-evaluated. The following table summarizes the costs and obligations to participants for the years ended December 31.



|                                                                           |  |                |       |   |      |   |      
|-------------------------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | -----
|                                                                           |  | 2003           |       |   | 2002
|                                                                           |  | (in thousands)
|Supplemental Retirement Plan:                                              |  |                |      
|Projected benefit obligation at beginning of year                          |  | $              | 1,463 |   |      | $ | 671  
|Service cost                                                               |  |                | 67    |   |      |   | 64   
|Interest cost                                                              |  |                | 86    |   |      |   | 47   
|Actuarial losses and decrease in offsets                                   |  |                | 79    |   |      |   | 19   
|Modifications                                                              |  |                |      |   |      |   | 662  
|Benefits paid                                                              |  |                | (134  | ) |      |   |     
|                                                                           |  |                |       |   |      |   |      
|Projected benefit obligation at end of year                                |  | $              | 1,561 |   |      | $ | 1,463
|                                                                           |  |                |       |   |      |   |      
|                                                                           |  |               
|Accumulated benefit obligation at end of year:                             |  | $              | 1,509 |   |      | $ | 1,419
|                                                                           |  |                |       |   |      |   |      
|                                                                           |  |               
|Amounts recognized in the consolidated statements of condition consist of: |  |                |       |   |      |   |      
|Accrued benefit liability                                                  |  | $              | 1,561 |   |      | $ | 1,463
|                                                                           |  |                |       |   |      |   |      



|                                                            |  |                |      |   |      |   |      |      |  |   |      |  
|----------------------------------------------------------- |  | -------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                            |  | 2003           |      |   | 2002 |   |      | 2001 | 
|                                                            |  | (in thousands) |     
|Components of net periodic benefit cost:                    |  |                |      |  
|Service cost                                                |  | $              | 67   |   |      | $ | 64   |      |  | $ | 173  |  
|Interest cost                                               |  |                | 86   |   |      |   | 47   |      |  |   | 40   |  
|Actuarial losses (gains) and decrease (increase) in offsets |  |                | 79   |   |      |   | 19   |      |  |   | (111 | )
|Modifications                                               |  |                |     |   |      |   | 662  |      |  |   |     |  
|                                                            |  |                |      |   |      |   |      |      |  |   |      |  
|Net periodic cost                                           |  | $              | 232  |   |      | $ | 792  |      |  | $ | 102  |  
|                                                            |  |                |      |   |      |   |      |      |  |   |      |  
|                                                            |  |                |     
|Weighted-average assumptions:                               |  |                |      |   |      |   |      |      |  |   |      |  
|Discount rate                                               |  |                | 6.11 | % |      |   | 7.00 | %    |  |   | 7.00 | %
|Rate of compensation increase                               |  |                | 4.00 | % |      |   | 4.00 | %    |  |   | 4.00 | %



80



---

##### Table of Contents

The modifications in 2002 related to the retiring chairman and chief executive officer. The projected benefit obligation
was adjusted to accelerate the retirement date to January 1, 2003, convert the obligation to the form of a single-life fifteen-year certain annuity and to decrease the discount rate to six percent. Payments commenced for the retiring executive in
January of 2003.



Directors Benefits. The Company pays a lifetime annual
retainer to certain retired directors. Effective January 1, 1993, the Company adopted SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions to account for these benefits. This statement requires
employers to recognize postretirement benefits on an accrual basis rather than on a cash basis. The expense in 2003, 2002 and 2001 related to this plan was $70,000, $139,000 and $59,000, respectively. The transition obligation, representing the
present value of future payments upon adoption of accrual basis accounting was approximately $842,000 and is being amortized over a twenty-year period.



NOTE 15  CONTINGENCIES AND GUARANTEES



Contingencies:



Management believes that no litigation is threatened or pending in which the Company faces potential loss or exposure which will materially affect the Companys consolidated financial position or consolidated
results of operations. Since the Companys subsidiaries act as depositories of funds, trustee and escrow agents, they occasionally are named as defendants in lawsuits involving claims to the ownership of funds in particular accounts. This and
other litigation is incidental to the Companys business.



Guarantees:



The Company, in the normal course of its business, regularly offers
financial and performance standby letters of credit to its BANK customers. Financial and performance standby letters of credit are a conditional but irrevocable form of guarantee. Under a financial standby letter of credit, the Company guarantees
payment to a third party obligee upon the default of payment by the BANK customer, and upon receipt of complying documentation from the obligee. Under a performance standby letter of credit, the Company guarantees payment to a third party obligee
upon nonperformance by the BANK customer and upon receipt of complying documentation from the obligee.



Both financial and standby letters of credit are typically issued for a period of one year to five years, but can be extended depending on the BANK customers needs. As of December 31, 2003, the maximum remaining
term for any outstanding standby letters of credit was approximately seven years, expiring on December 15, 2010.



A fee of one to two percent of face value is normally charged to the BANK customer and is recognized as income over the life of the standby letter of credit. The carrying
value of deferred fees, as of December 31, 2003 was $1.3 million.



At December
31, 2003, the contractual amount of these letters of credit, which represents the maximum potential amount of future payments that the Company would be obligated to pay under the guarantees, was $185.1 million, with $156.7 million in financial
standby letters of credit and $28.4 million in performance standby letters of credit.



The issuance of either a financial or standby letter of credit is normally backed by collateral. The collateral can take various forms including bank accounts, investments, fixed assets, inventory, accounts receivable and real estate, among
other things. At the time that the letters of credit are issued, the value of the collateral is usually in an amount that is considered sufficient to cover the contractual amount of the standby letters of credit.



81



---

##### Table of Contents

NOTE 16  INCOME TAXES



The components of income tax expense were as follows:



|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|-------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                           |  | Years ended December 31, |       
|                           |  | 2003                     |        |   | 2002 |   |        | 2001 | 
|                           |  | (in thousands)           |       
|Currently paid or payable: |  |                          |        |   |      |   |        |      |  |   |        |  
|Federal                    |  | $                        | 14,607 |   |      | $ | 16,908 |      |  | $ | 17,488 |  
|State and local            |  |                          | 770    |   |      |   | 1,041  |      |  |   | 303    |  
|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|                           |  | $                        | 15,377 |   |      | $ | 17,949 |      |  | $ | 17,791 |  
|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|Deferred:                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Federal                    |  | $                        | (192   | ) |      | $ | (2,728 | )    |  | $ | (2,957 | )
|State and local            |  |                          | 921    |   |      |   | (1,201 | )    |  |   | (439   | )
|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|                           |  | $                        | 729    |   |      | $ | (3,929 | )    |  | $ | (3,396 | )
|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|Total                      |  | $                        | 16,106 |   |      | $ | 14,020 |      |  | $ | 14,395 |  
|                           |  |                          |        |   |      |   |        |      |  |   |        |  
|Effective Tax Rate         |  |                          | 27.0   | % |      |   | 24.4   | %    |  |   | 25.4   | %
|                           |  |                          |        |   |      |   |        |      |  |   |        |  



The effective tax rate for 2001
includes $130,000 of tax benefit and $143,000 of tax expense for the Extraordinary Item and the Accounting Change, respectively. Income tax expense was less than the amounts computed by applying the federal statutory rate of 35% due to the
following:



|                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                           |  | Years ended December 31, |       
|                                           |  | 2003                     |        |   | 2002 |   |        | 2001 | 
|                                           |  | (in thousands)           |       
|Income tax at statutory rate               |  | $                        | 20,864 |   |      | $ | 20,122 |      |  | $ | 19,823 |  
|(Decrease) increase resulting from:        |  |                          |        |   |      |   |        |      |  |   |        |  
|Tax-exempt income                          |  |                          | (3,020 | ) |      |   | (3,780 | )    |  |   | (4,267 | )
|Company owned life insurance               |  |                          | (2,458 | ) |      |   | (1,989 | )    |  |   | (1,837 | )
|State income taxes, net of federal benefit |  |                          | 1,099  |   |      |   | (104   | )    |  |   | (88    | )
|Non-deductible expenses, net               |  |                          | 443    |   |      |   | 374    |      |  |   | 1,107  |  
|Other, net                                 |  |                          | (822   | ) |      |   | (603   | )    |  |   | (343   | )
|                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|Total                                      |  | $                        | 16,106 |   |      | $ | 14,020 |      |  | $ | 14,395 |  
|                                           |  |                          |        |   |      |   |        |      |  |   |        |  



82



---

##### Table of Contents

The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are as follows:



|                                                                                                                          |  |                 |        |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | - | ---- | - | ------- | -
|                                                                                                                          |  | At December 31, |       
|                                                                                                                          |  | 2003            |        |   | 2002 |  
|                                                                                                                          |  | (in thousands)  |       
|Deferred tax assets:                                                                                                      |  |                 |        |  
|Deferred compensation                                                                                                     |  | $               | 6,460  |   |      | $ | 6,119   |  
|Allowance for loan losses                                                                                                 |  |                 | 15,634 |   |      |   | 12,988  |  
|Other, net of valuation allowance                                                                                         |  |                 | 1,610  |   |      |   | 1,083   |  
|                                                                                                                          |  |                 |        |   |      |   |         |  
|Total deferred tax assets                                                                                                 |  | $               | 23,704 |   |      | $ | 20,190  |  
|                                                                                                                          |  |                 |        |   |      |   |         |  
|Deferred tax liabilities:                                                                                                 |  |                 |        |   |      |   |         |  
|Premises and equipment                                                                                                    |  | $               | 4,226  |   |      | $ | 2,860   |  
|Mortgage servicing rights                                                                                                 |  |                 | 4,448  |   |      |   | 2,900   |  
|Securities                                                                                                                |  |                 | 5,408  |   |      |   | 12,265  |  
|Other                                                                                                                     |  |                 | 1,550  |   |      |   | 1,272   |  
|                                                                                                                          |  |                 |        |   |      |   |         |  
|Total deferred tax liabilities                                                                                            |  | $               | 15,632 |   |      | $ | 19,297  |  
|                                                                                                                          |  |                 |        |   |      |   |         |  
|Net Deferred Tax Asset                                                                                                    |  | $               | 8,072  |   |      | $ | 893     |  
|Less: Tax effect of net unrealized gain on securities available for saleand derivatives reflected in stockholders
equity |  |                 | (5,525 | ) |      |   | (13,433 | )
|                                                                                                                          |  |                 |        |   |      |   |         |  
|Net Deferred Tax Asset Excluding Net Unrealized Gain onSecurities Available for Sale and Derivatives                      |  | $               | 13,597 |   |      | $ | 14,326  |  
|                                                                                                                          |  |                 |        |   |      |   |         |  



Net operating loss carryforwards for
state income tax purposes of approximately $1.87 million at December 31, 2002 were fully utilized during 2003. As a result, the associated deferred tax asset of $148,000 ($96,000 net of federal) and the corresponding valuation allowance of $96,000
were reversed.



Realization of the deferred tax asset over time is dependent
upon the existence of taxable income in carryback periods or the Company generating sufficient taxable earnings in future periods. In determining that realization of the deferred tax asset was more likely than not, the Company gave consideration to
a number of factors including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future, and, where applicable, the expiration dates associated with tax carryforwards.



Retained earnings at December 31, 2003 includes $3.18 million for which no provision for
income tax has been made. This amount represents allocations of income to thrift bad debt deductions for tax purposes only. This amount will only be taxable upon the occurrence of certain events. At this time, management does not foresee the
occurrence of any of these events.



Tax benefits of $1.43 million, $1.08
million, and $1.21 million have been credited directly to paid in capital, with a corresponding decrease in the liability for current income taxes payable, for stock related incentives during the years ended December 31, 2003, 2002 and 2001
respectively.



83



---

##### Table of Contents

NOTE 17  EARNINGS PER SHARE



Earnings per share calculations are as follows:



|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                                                                            |  | 2003                                  |        | 2002 |   | 2001  
|                                                                                                                                                            |  | (in thousands, except per share data)
|Net Income                                                                                                                                                  |  | $                                     | 43,504 |      | $ | 43,471 |  | $ | 42,243
|Basic earnings per share:                                                                                                                                   |  |                                       |        |      |   |        |  |   |       
|Average basic shares outstanding                                                                                                                            |  |                                       | 24,896 |      |   | 24,701 |  |   | 25,490
|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       
|Earnings per share                                                                                                                                          |  | $                                     | 1.75   |      | $ | 1.76   |  | $ | 1.66  
|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       
|Diluted earnings per share:                                                                                                                                 |  |                                       |        |      |   |        |  |   |       
|Weighted average shares outstanding                                                                                                                         |  |                                       | 24,896 |      |   | 24,701 |  |   | 25,490
|Net effect of the assumed purchase of stock under the stock option and stock purchase plans  based on the treasury stock method using
average market price |  |                                       | 176    |      |   | 209    |  |   | 239   
|Contingently issuable shares                                                                                                                                |  |                                       | 18     |      |   | 1      |  |   | 1     
|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       
|Average diluted shares outstanding                                                                                                                          |  |                                       | 25,090 |      |   | 24,911 |  |   | 25,730
|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       
|Diluted earnings per share                                                                                                                                  |  | $                                     | 1.73   |      | $ | 1.75   |  | $ | 1.64  
|                                                                                                                                                            |  |                                       |        |      |   |        |  |   |       



As prescribed by SFAS No. 128,
Earnings Per Share, basic EPS is computed by dividing income available to common stockholders (numerator) by the weighted-average number of common shares outstanding (denominator) during the period. Shares issued during the period and
shares reacquired during the period are weighted for the portion of the period that they were outstanding.



The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued and to include shares contingently issuable pursuant to employee incentive plans. Securities (e.g. options) that do not have a current right to participate fully in earnings but that may do so in the future by
virtue of their option rights are potentially dilutive shares. The dilutive shares are calculated based on the treasury stock method meaning that, for the purposes of this calculation, all outstanding options are assumed to have been exercised
during the period and the resulting proceeds used to repurchase Company stock at the average market price during the period. In computing diluted EPS, only potential common shares that are dilutive  those that reduce earnings per share or
increase loss per share  are included. Exercise of options is not assumed if the result would be antidilutive.



NOTE 18  SEGMENT INFORMATION



AMCOREs internal reporting and planning process focuses on four primary lines of business or (Segment(s)): Commercial Banking, Retail Banking, Trust and Asset
Management, and Mortgage Banking. The financial information presented was derived from the Companys internal profitability reporting system that is used by management to monitor and manage the financial performance of the Company. This
information is based on internal management accounting policies which have been developed to reflect the underlying economics of the Segments and, to the extent practicable, to portray each Segment as if it operated on a stand-alone basis. Thus,
each Segment, in addition to its direct revenues, expenses, assets and liabilities, includes an appropriate allocation of shared support function expenses. The Commercial, Retail and Mortgage Banking Segments also include fund transfer adjustments
to appropriately reflect the cost of funds on loans made and funding credits on deposits generated. Apart from these adjustments, the accounting policies used are similar to those described in Note 1 of the Notes to Consolidated Financial
Statements.



84



---

##### Table of Contents

Since there are no comprehensive authorities for management accounting equivalent to accounting principles generally
accepted in the United States of America, the information presented is not necessarily comparable with similar information from other financial institutions. In addition, methodologies used to measure, assign and allocate certain items may change
from time-to-time to reflect, among other things, accounting refinements, changes in risk profiles, changes in customers or product lines, and changes in management structure. During the first quarter of 2003 the Company also changed the
classification of mortgage loans not sold into the secondary market that are retained by the BANK. All revenues from these loans, along with the related Provisions and expenses, are now reported as part of the Mortgage Banking Segment instead of the
Retail Banking Segment. Prior Period Segment results have been restated to reflect this change.



Total Segment results differ from consolidated results primarily due to intersegment elimination, certain corporate administration costs, items not otherwise allocated in the management accounting process and treasury
and investment activities. The impact of these items is aggregated to reconcile the amounts presented for the Segments to the consolidated results and are included in the Other column. For ease of comparison, the Segment profit
percentage in the following table is computed on earnings before the early extinguishment of debt and the cumulative effect of accounting change (the Operating Profit or Operating Loss).



The Company provides Commercial, Retail and Mortgage Banking services through its 63 banking
locations. The Commercial Banking Segment provides services including lending, business checking and deposits, cash management, merchant card services and other traditional as well as electronic commercial banking services to large and small
business customers. The Retail Banking Segment provides services including direct and indirect lending, checking, savings, money market and CD accounts, safe deposit rental, automated teller machines and other traditional and electronic retail
banking services to individual customers. The Mortgage Banking segment provides a variety of mortgage lending products to meet its customer needs. It sells the majority of the long-term, fixed rate loans to the secondary market and continues to
service most of the loans sold. The Trust and Asset Management segment provides trust, investment management, employee benefit recordkeeping and administration and brokerage services. It also acts as advisor and provides fund administration to the
Vintage Mutual Funds and various public fund programs. These products are distributed nationally (i.e. Vintage Equity Fund is available through Charles Schwab, One Source), regionally to institutional investors and corporations, and locally through the BANKs locations.



|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|------------------------------------ |  | ---------------------- | --------- | - | ------------- | - | ------- | ------------------------ |  | - | --------------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                     |  | Operating Segments     |           |   | Other         |   |         | Consolidated             | 
|                                     |  | CommercialBanking      |           |   | RetailBanking |   |         | Trust andAssetManagement |  |   | MortgageBanking |   |  |  
|                                     |  | (dollars in thousands) |          
|For the year ended December 31, 2003 |  |                        |           |  
|Net interest income                  |  | $                      | 77,303    |   |               | $ | 43,391  |                          |  | $ | 42              |   |  | $ | 12,786  |   |  | $ | 5,165     |   |  | $ | 138,687   |  
|Non-interest income                  |  |                        | 9,483     |   |               |   | 22,845  |                          |  |   | 25,899          |   |  |   | 17,261  |   |  |   | 16,500    |   |  |   | 91,988    |  
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Total revenue                        |  |                        | 86,786    |   |               |   | 66,236  |                          |  |   | 25,941          |   |  |   | 30,047  |   |  |   | 21,665    |   |  |   | 230,675   |  
|Provision for loan losses            |  |                        | 15,912    |   |               |   | 8,062   |                          |  |   |                |   |  |   | 943     |   |  |   |          |   |  |   | 24,917    |  
|Depreciation and amortization        |  |                        | 745       |   |               |   | 2,134   |                          |  |   | 419             |   |  |   | 42      |   |  |   | 3,309     |   |  |   | 6,649     |  
|Other non-interest expense           |  |                        | 31,649    |   |               |   | 39,792  |                          |  |   | 21,409          |   |  |   | 14,857  |   |  |   | 31,792    |   |  |   | 139,499   |  
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Pretax earnings (loss)               |  |                        | 38,480    |   |               |   | 16,248  |                          |  |   | 4,113           |   |  |   | 14,205  |   |  |   | (13,436   | ) |  |   | 59,610    |  
|Income taxes (benefits)              |  |                        | 13,661    |   |               |   | 6,006   |                          |  |   | 1,734           |   |  |   | 5,266   |   |  |   | (10,561   | ) |  |   | 16,106    |  
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Earnings (loss)                      |  | $                      | 24,819    |   |               | $ | 10,242  |                          |  | $ | 2,379           |   |  | $ | 8,939   |   |  | $ | (2,875    | ) |  | $ | 43,504    |  
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Segment profit percentage            |  |                        | 53.5      | % |               |   | 22.1    | %                        |  |   | 5.1             | % |  |   | 19.3    | % |  |   | N/A       |   |  |   | 100.0     | %
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Assets                               |  | $                      | 2,035,190 |   |               | $ | 810,364 |                          |  | $ | 18,845          |   |  | $ | 255,803 |   |  | $ | 1,423,426 |   |  | $ | 4,543,628 |  
|                                     |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  



85



---

##### Table of Contents

|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|------------------------------------------------------ |  | ---------------------- | --------- | - | ------------- | - | ------- | ------------------------ |  | - | --------------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                                       |  | Operating Segments     |           |   | Other         |   |         | Consolidated             | 
|                                                       |  | CommercialBanking      |           |   | RetailBanking |   |         | Trust andAssetManagement |  |   | MortgageBanking |   |  |  
|                                                       |  | (dollars in thousands) |          
|For the year ended December 31, 2002                   |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Net interest income                                    |  | $                      | 63,498    |   |               | $ | 43,280  |                          |  | $ | 116             |   |  | $ | 14,152  |   |  | $ | 9,722     |   |  | $ | 130,768   |  
|Non-interest income                                    |  |                        | 7,130     |   |               |   | 14,485  |                          |  |   | 27,357          |   |  |   | 8,293   |   |  |   | 13,047    |   |  |   | 70,312    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Total revenue                                          |  |                        | 70,628    |   |               |   | 57,765  |                          |  |   | 27,473          |   |  |   | 22,445  |   |  |   | 22,769    |   |  |   | 201,080   |  
|Provision for loan losses                              |  |                        | 5,574     |   |               |   | 6,203   |                          |  |   |                |   |  |   | 797     |   |  |   |          |   |  |   | 12,574    |  
|Depreciation and amortization                          |  |                        | 613       |   |               |   | 2,201   |                          |  |   | 357             |   |  |   | 26      |   |  |   | 2,865     |   |  |   | 6,062     |  
|Other non-interest expense                             |  |                        | 29,382    |   |               |   | 41,881  |                          |  |   | 20,905          |   |  |   | 12,311  |   |  |   | 20,474    |   |  |   | 124,953   |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Pretax earnings (loss)                                 |  |                        | 35,059    |   |               |   | 7,480   |                          |  |   | 6,211           |   |  |   | 9,311   |   |  |   | (570      | ) |  |   | 57,491    |  
|Income taxes (benefits)                                |  |                        | 12,350    |   |               |   | 2,546   |                          |  |   | 2,522           |   |  |   | 3,713   |   |  |   | (7,111    | ) |  |   | 14,020    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Earnings                                               |  | $                      | 22,725    |   |               | $ | 4,688   |                          |  | $ | 3,689           |   |  | $ | 5,828   |   |  | $ | 6,541     |   |  | $ | 43,471    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Segment profit percentage                              |  |                        | 61.5      | % |               |   | 12.7    | %                        |  |   | 10.0            | % |  |   | 15.8    | % |  |   | N/A       |   |  |   | 100.0     | %
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Assets                                                 |  | $                      | 1,867,393 |   |               | $ | 836,227 |                          |  | $ | 19,498          |   |  | $ | 394,146 |   |  | $ | 1,403,450 |   |  | $ | 4,520,714 |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|For the year ended December 31, 2001                   |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Net interest income                                    |  | $                      | 53,134    |   |               | $ | 40,701  |                          |  | $ | 206             |   |  | $ | 12,920  |   |  | $ | 12,912    |   |  | $ | 119,873   |  
|Non-interest income                                    |  |                        | 5,977     |   |               |   | 14,990  |                          |  |   | 28,649          |   |  |   | 12,940  |   |  |   | 14,510    |   |  |   | 77,066    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Total revenue                                          |  |                        | 59,111    |   |               |   | 55,691  |                          |  |   | 28,855          |   |  |   | 25,860  |   |  |   | 27,422    |   |  |   | 196,939   |  
|Provision for loan losses                              |  |                        | 10,429    |   |               |   | 5,996   |                          |  |   |                |   |  |   | 275     |   |  |   |          |   |  |   | 16,700    |  
|Depreciation and amortization                          |  |                        | 1,053     |   |               |   | 3,087   |                          |  |   | 1,172           |   |  |   | 40      |   |  |   | 3,151     |   |  |   | 8,503     |  
|Other non-interest expense                             |  |                        | 24,674    |   |               |   | 41,256  |                          |  |   | 21,328          |   |  |   | 11,174  |   |  |   | 16,700    |   |  |   | 115,132   |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Pretax earnings                                        |  |                        | 22,955    |   |               |   | 5,352   |                          |  |   | 6,355           |   |  |   | 14,371  |   |  |   | 7,571     |   |  |   | 56,604    |  
|Income taxes (benefits)                                |  |                        | 7,741     |   |               |   | 1,947   |                          |  |   | 2,873           |   |  |   | 5,750   |   |  |   | (3,929    | ) |  |   | 14,382    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Earnings before Extraordinary Item & Accounting Change |  | $                      | 15,214    |   |               | $ | 3,405   |                          |  | $ | 3,482           |   |  | $ | 8,621   |   |  | $ | 11,500    |   |  | $ | 42,222    |  
|Early Extinguishment of Debt (net of tax)              |  |                        |          |   |               |   |        |                          |  |   |                |   |  |   |        |   |  |   | (204      | ) |  |   | (204      | )
|Cumulative Effect of Accounting Change (net of tax)    |  |                        |          |   |               |   |        |                          |  |   |                |   |  |   | 16      |   |  |   | 209       |   |  |   | 225       |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Earnings                                               |  | $                      | 15,214    |   |               | $ | 3,405   |                          |  | $ | 3,482           |   |  | $ | 8,637   |   |  | $ | 11,505    |   |  | $ | 42,243    |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Segment profit percentage                              |  |                        | 49.5      | % |               |   | 11.1    | %                        |  |   | 11.3            | % |  |   | 28.1    | % |  |   | N/M       |   |  |   | 100.0     | %
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  
|Assets                                                 |  | $                      | 1,607,220 |   |               | $ | 954,843 |                          |  | $ | 21,326          |   |  | $ | 184,648 |   |  | $ | 1,253,810 |   |  | $ | 4,021,847 |  
|                                                       |  |                        |           |   |               |   |         |                          |  |   |                 |   |  |   |         |   |  |   |           |   |  |   |           |  



NOTE 19  RESTRICTIONS ON
SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES



Federal banking regulations place
certain restrictions on dividends paid and loans or advances made by the BANK to the Company and its affiliates. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the BANK. Loans or advances
to the Company and for each affiliate are limited to 10 percent of the BANKs capital stock and surplus, but no more than 20 percent in aggregate. Loans and advances must be made on a secured basis.



At December 31, 2003, the BANKs retained earnings available for the payment of
dividends without prior regulatory approval was $49.9 million. The amount available for loans or advances by the BANK to the Company and its affiliates amounted to $26.4 million.



In addition, dividends paid by the BANK to the Company would be prohibited if the effect thereof would cause the BANKs capital to be
reduced below applicable minimum capital requirements. See also Note 20 of the Notes to Consolidated Financial Statements.



86



---

##### Table of Contents

NOTE 20  CAPITAL REQUIREMENTS



The Company and the BANK (Regulated Companies) are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Companys consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Regulated Companies must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. Their capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the
Regulated Companies to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 Capital to average assets. Tier 1 Capital includes common stockholders equity,
qualifying preferred stock and Trust Preferred securities, less goodwill and certain other deductions (including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value). Total Capital
includes Tier 1 Capital plus preferred stock not qualifying as Tier 1 Capital, mandatory convertible debt, subordinated debt, certain unsecured senior debt issued by the Company, the allowance for loan and lease losses and net unrealized gains on
marketable equity securities, subject to limitations by the guidelines.



As of
December 31, 2003, the most recent notification from the Companys regulators categorized the BANK as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized a bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the BANKs category.



Management believes, as of December 31, 2003, that the Regulated Companies meet all capital
adequacy requirements to which they are subject. The Companys and the BANKs actual capital amounts and ratios are presented in the table.



|                                          |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|----------------------------------------- |  | ---------------------- | ------- | ----- | ----------------------------- | ---------------- | ------ | - | ------- |  | ----- | ------ |  | ----- | ------- |  | ------ | -
|                                          |  | Actual                 |         |       | For Capital Adequacy Purposes |                 
|                                          |  |                        | Minimum |       |                               | Well Capitalized |       
|                                          |  | Amount                 |         | Ratio |                               |                  | Amount |   | Ratio   |  |       | Amount |  | Ratio |        
|                                          |  | (dollars in thousands) |        
|As of December 31, 2003:                  |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Total Capital (to Risk Weighted Assets):  |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 417,580 |       | 11.76                         | %                |        | $ | 284,003 |  | 38.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 399,660 |       | 11.33                         | %                |        |   | 282,160 |  | 38.00 | %      |  | $     | 352,699 |  | 310.00 | %
|                                          |  |                        |         |       |                               |                 
|Tier 1 Capital (to Risk Weighted Assets): |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 375,330 |       | 10.57                         | %                |        | $ | 142,001 |  | 34.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 357,467 |       | 10.14                         | %                |        |   | 141,080 |  | 34.00 | %      |  | $     | 211,620 |  | 36.00  | %
|                                          |  |                        |         |       |                               |                 
|Tier 1 Capital (to Average Assets):       |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 375,330 |       | 8.49                          | %                |        | $ | 176,811 |  | 34.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 357,467 |       | 8.13                          | %                |        |   | 175,963 |  | 34.00 | %      |  | $     | 219,953 |  | 35.00  | %
|                                          |  |                        |         |       |                               |                 
|As of December 31, 2002:                  |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Total Capital (to Risk Weighted Assets):  |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 378,688 |       | 10.98                         | %                |        | $ | 275,954 |  | 38.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 367,395 |       | 10.70                         | %                |        |   | 274,645 |  | 38.00 | %      |  | $     | 343,307 |  | 310.00 | %
|                                          |  |                        |         |       |                               |                 
|Tier 1 Capital (to Risk Weighted Assets): |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 343,253 |       | 9.95                          | %                |        | $ | 137,977 |  | 34.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 332,171 |       | 9.68                          | %                |        |   | 137,323 |  | 34.00 | %      |  | $     | 205,984 |  | 36.00  | %
|                                          |  |                        |         |       |                               |                 
|Tier 1 Capital (to Average Assets):       |  |                        |         |       |                               |                  |        |   |         |  |       |        |  |       |         |  |        |  
|Consolidated                              |  | $                      | 343,253 |       | 7.82                          | %                |        | $ | 175,623 |  | 34.00 | %      |  |       | n/a     |  | n/a    |  
|AMCORE Bank, N.A.                         |  |                        | 332,171 |       | 7.59                          | %                |        |   | 174,954 |  | 34.00 | %      |  | $     | 218,693 |  | 35.00  | %



87



---

##### Table of Contents

NOTE 21  CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY



CONDENSED PARENT COMPANY BALANCE SHEETS



|                                           |  |                |         |   |      |   |         |  
|------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                           |  | December 31,   |        
|                                           |  | 2003           |         |   | 2002 |  
|                                           |  | (in thousands) |        
|ASSETS                                     |  |                |         |   |      |   |         |  
|Cash and cash equivalents                  |  | $              | 2,036   |   |      | $ | 976     |  
|Short-term investments                     |  |                | 13,500  |   |      |   | 29,000  |  
|Securities available for sale              |  |                | 2,040   |   |      |   | 2,455   |  
|Due from subsidiaries                      |  |                | 21      |   |      |   | 9       |  
|Loans to subsidiaries                      |  |                | 1,500   |   |      |   | 900     |  
|Investment in subsidiaries                 |  |                | 386,626 |   |      |   | 373,262 |  
|Company owned life insurance               |  |                | 20,964  |   |      |   | 17,595  |  
|Premises and equipment, net                |  |                | 221     |   |      |   | 909     |  
|Other assets                               |  |                | 9,809   |   |      |   | 9,119   |  
|                                           |  |                |         |   |      |   |         |  
|Total Assets                               |  | $              | 436,717 |   |      | $ | 434,225 |  
|                                           |  |                |         |   |      |   |         |  
|LIABILITIES                                |  |                |         |   |      |   |         |  
|Short-term borrowings                      |  | $              | 10,042  |   |      | $ | 28,408  |  
|Long-term borrowings                       |  |                | 41,238  |   |      |   | 41,238  |  
|Other liabilities                          |  |                | 9,853   |   |      |   | 8,898   |  
|                                           |  |                |         |   |      |   |         |  
|Total Liabilities                          |  | $              | 61,133  |   |      | $ | 78,544  |  
|                                           |  |                |         |   |      |   |         |  
|STOCKHOLDERS EQUITY                       |  |                |         |   |      |   |         |  
|Preferred stock                            |  | $              |        |   |      | $ |        |  
|Common stock                               |  |                | 6,625   |   |      |   | 6,615   |  
|Additional paid-in capital                 |  |                | 73,862  |   |      |   | 74,326  |  
|Retained earnings                          |  |                | 378,305 |   |      |   | 351,247 |  
|Treasury stock and other                   |  |                | (92,165 | ) |      |   | (97,566 | )
|Accumulated other comprehensive income .   |  |                | 8,957   |   |      |   | 21,059  |  
|                                           |  |                |         |   |      |   |         |  
|Total Stockholders Equity                 |  | $              | 375,584 |   |      | $ | 355,681 |  
|                                           |  |                |         |   |      |   |         |  
|Total Liabilities and Stockholders Equity |  | $              | 436,717 |   |      | $ | 434,225 |  
|                                           |  |                |         |   |      |   |         |  



CONDENSED PARENT COMPANY
STATEMENTS OF INCOME



|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------ | -
|                                                                                         |  | Years Ended December 31, |       
|                                                                                         |  | 2003                     |        | 2002 |   | 2001   | 
|                                                                                         |  | (in thousands)           |       
|INCOME:                                                                                  |  |                          |        |      |   |        |  |   |        |  
|Dividends from subsidiaries                                                              |  | $                        | 23,000 |      | $ | 30,500 |  | $ | 45,100 |  
|Interest income                                                                          |  |                          | 434    |      |   | 581    |  |   | 895    |  
|Company owned life insurance income                                                      |  |                          | 1,706  |      |   | 697    |  |   | 625    |  
|Other                                                                                    |  |                          | 328    |      |   | 3      |  |   | 1      |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Total Income                                                                             |  | $                        | 25,468 |      | $ | 31,781 |  | $ | 46,621 |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|EXPENSES:                                                                                |  |                          |        |      |   |        |  |   |        |  
|Interest expense                                                                         |  | $                        | 4,207  |      | $ | 4,676  |  | $ | 4,740  |  
|Compensation expense and employee benefits                                               |  |                          | 3,989  |      |   | 5,644  |  |   | 3,409  |  
|Other                                                                                    |  |                          | 2,797  |      |   | 2,624  |  |   | 2,967  |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Total Expenses                                                                           |  | $                        | 10,993 |      | $ | 12,944 |  | $ | 11,116 |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Income before income tax benefits and equity in undistributed net income of subsidiaries |  | $                        | 14,475 |      | $ | 18,837 |  | $ | 35,505 |  
|Income tax benefits                                                                      |  |                          | 3,947  |      |   | 5,380  |  |   | 3,947  |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Income before equity in undistributed net income of subsidiaries                         |  | $                        | 18,422 |      | $ | 24,217 |  | $ | 39,452 |  
|Equity in undistributed net income of subsidiaries                                       |  |                          | 25,082 |      |   | 19,254 |  |   | 2,995  |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Net income before extraordinary item                                                     |  | $                        | 43,504 |      | $ | 43,471 |  | $ | 42,447 |  
|Extraordinary item: Early extinguishment of debt (net of tax)                            |  |                          |       |      |   |       |  |   | (204   | )
|                                                                                         |  |                          |        |      |   |        |  |   |        |  
|Net Income                                                                               |  | $                        | 43,504 |      | $ | 43,471 |  | $ | 42,243 |  
|                                                                                         |  |                          |        |      |   |        |  |   |        |  



88



---

##### Table of Contents

CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS



|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Years ended December 31, |        
|                                                                                  |  | 2003                     |         |   | 2002 |   |         | 2001 | 
|                                                                                  |  | ( in thousands)          |        
|Cash Flows from Operating Activities                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                        | 43,504  |   |      | $ | 43,471  |      |  | $ | 42,243  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                     |  |                          | 474     |   |      |   | 975     |      |  |   | 1,305   |  
|Net securities (gains) losses                                                     |  |                          | (256    | ) |      |   | 28      |      |  |   |        |  
|Deferred compensation amortization                                                |  |                          | 336     |   |      |   | 1,592   |      |  |   | 577     |  
|Equity in undistributed net income of subsidiaries                                |  |                          | (25,082 | ) |      |   | (19,254 | )    |  |   | (2,995  | )
|(Increase) decrease in due from subsidiaries                                      |  |                          | (12     | ) |      |   | 13      |      |  |   | 220     |  
|Increase in other assets                                                          |  |                          | (2,330  | ) |      |   | (2,724  | )    |  |   | (633    | )
|Increase in other liabilities                                                     |  |                          | 955     |   |      |   | 1,248   |      |  |   | 2,894   |  
|Other, net                                                                        |  |                          | (87     | ) |      |   | 213     |      |  |   | 15      |  
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                         |  | $                        | 17,502  |   |      | $ | 25,562  |      |  | $ | 43,626  |  
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Purchase of securities                                                            |  | $                        |        |   |      | $ |        |      |  | $ | (1,821  | )
|Proceeds from sales of securities available for sale                              |  |                          | 506     |   |      |   | 177     |      |  |   |        |  
|Net decrease (increase) in short term investments                                 |  |                          | 15,500  |   |      |   | (29,000 | )    |  |   |        |  
|Net liquidation of (investment in) subsidiaries                                   |  |                          |        |   |      |   | 864     |      |  |   | (1,600  | )
|Loans to subsidiaries                                                             |  |                          | (1,000  | ) |      |   | (31,400 | )    |  |   | (44,850 | )
|Payments received on loans to subsidiaries                                        |  |                          | 400     |   |      |   | 53,450  |      |  |   | 23,500  |  
|Transfer of premises and equipment to affiliates                                  |  |                          | 194     |   |      |   | 17      |      |  |   |        |  
|Investment in company owned life insurance                                        |  |                          | (1,663  | ) |      |   | (3,248  | )    |  |   |        |  
|Premises and equipment expenditures, net                                          |  |                          | (2      | ) |      |   | (107    | )    |  |   | (2      | )
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used for) investing activities                              |  | $                        | 13,935  |   |      | $ | (9,247  | )    |  | $ | (24,773 | )
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in short-term borrowings                                  |  | $                        | (18,366 | ) |      | $ | (2,879  | )    |  | $ | 31,287  |  
|Payment of long-term borrowings                                                   |  |                          |        |   |      |   | (444    | )    |  |   | (445    | )
|Dividends paid                                                                    |  |                          | (16,446 | ) |      |   | (15,839 | )    |  |   | (16,331 | )
|Proceeds from the issuance of common stock                                        |  |                          | 843     |   |      |   | 843     |      |  |   | 672     |  
|Proceeds from exercise of incentive stock options                                 |  |                          | 9,920   |   |      |   | 4,228   |      |  |   | 7,281   |  
|Purchase of treasury stock                                                        |  |                          | (6,328  | ) |      |   | (2,412  | )    |  |   | (40,644 | )
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash used for financing activities                                            |  | $                        | (30,377 | ) |      | $ | (16,503 | )    |  | $ | (18,180 | )
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Net change in cash and cash equivalents                                           |  | $                        | 1,060   |   |      | $ | (188    | )    |  | $ | 673     |  
|Cash and cash equivalents:                                                        |  |                          |         |   |      |   |         |      |  |   |         |  
|Beginning of year                                                                 |  |                          | 976     |   |      |   | 1,164   |      |  |   | 491     |  
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|End of year                                                                       |  | $                        | 2,036   |   |      | $ | 976     |      |  | $ | 1,164   |  
|                                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  



89



---

##### Table of Contents

CONDENSED QUARTERLY EARNINGS & STOCK PRICE SUMMARY (unaudited)



|                           |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |        |  |      
|-------------------------- |  | ------ | ------ | ------------------------------------- | ----- | ------------- |  | ------------ | ------ | ------------- | ----- | ------------ |  | ------------- | ------ | ------------ | ----- | ------------- |  | ----- | ------ |  | ----- | ------ |  | -----
|                           |  |        |        | 2003                                  |       | 2002         
|                           |  |        |        | FirstQuarter                          |       | SecondQuarter |  | ThirdQuarter |        | FourthQuarter |       | FirstQuarter |  | SecondQuarter |        | ThirdQuarter |       | FourthQuarter
|                           |  |        |        | (in thousands, except per share data)
|Interest income            |  | $      | 59,753 |                                       | $     | 58,217        |  | $            | 54,899 |               | $     | 55,879       |  | $             | 60,711 |              | $     | 63,816        |  | $     | 65,282 |  | $     | 63,319
|Interest expense           |  |        | 25,237 |                                       |       | 23,124        |  |              | 21,874 |               |       | 19,826       |  |               | 30,532 |              |       | 31,623        |  |       | 31,424 |  |       | 28,781
|                           |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |        |  |      
|Net interest income        |  | $      | 34,516 |                                       | $     | 35,093        |  | $            | 33,025 |               | $     | 36,053       |  | $             | 30,179 |              | $     | 32,193        |  | $     | 33,858 |  | $     | 34,538
|Provision for loan losses  |  |        | 12,575 |                                       |       | 4,729         |  |              | 4,318  |               |       | 3,295        |  |               | 2,640  |              |       | 2,653         |  |       | 3,360  |  |       | 3,921 
|Non-interest income        |  |        | 29,431 |                                       |       | 20,511        |  |              | 22,961 |               |       | 19,085       |  |               | 17,108 |              |       | 16,009        |  |       | 17,405 |  |       | 19,790
|Operating expenses         |  |        | 37,003 |                                       |       | 35,386        |  |              | 35,182 |               |       | 38,577       |  |               | 31,431 |              |       | 31,488        |  |       | 33,958 |  |       | 34,138
|                           |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |        |  |      
|Income before income taxes |  | $      | 14,369 |                                       | $     | 15,489        |  | $            | 16,486 |               | $     | 13,266       |  | $             | 13,216 |              | $     | 14,061        |  | $     | 13,945 |  | $     | 16,269
|Income taxes               |  |        | 3,648  |                                       |       | 4,262         |  |              | 4,806  |               |       | 3,390        |  |               | 3,290  |              |       | 3,478         |  |       | 3,262  |  |       | 3,990 
|                           |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |        |  |      
|Net Income                 |  | $      | 10,721 |                                       | $     | 11,227        |  | $            | 11,680 |               | $     | 9,876        |  | $             | 9,926  |              | $     | 10,583        |  | $     | 10,683 |  | $     | 12,279
|                           |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |        |  |      
|Per share data:            |  |        |        |                                       |       |               |  |              |        |               |       |              |  |               |        |              |       |               |  |       |        |  |       |       
|Basic earnings             |  | $      | 0.43   |                                       | $     | 0.45          |  | $            | 0.47   |               | $     | 0.40         |  | $             | 0.40   |              | $     | 0.43          |  | $     | 0.43   |  | $     | 0.50  
|Diluted earnings           |  |        | 0.43   |                                       |       | 0.45          |  |              | 0.47   |               |       | 0.39         |  |               | 0.40   |              |       | 0.42          |  |       | 0.43   |  |       | 0.49  
|Dividends                  |  |        | 0.16   |                                       |       | 0.16          |  |              | 0.17   |               |       | 0.17         |  |               | 0.16   |              |       | 0.16          |  |       | 0.16   |  |       | 0.16  
|Stock price ranges         |  | -high  |        |                                       | 22.74 |               |  | 24.45        |        |               | 26.15 |              |  | 28.00         |        |              | 23.99 |               |  | 24.91 |        |  | 23.94 |        |  | 24.00
|                           |  | -low   |        |                                       | 20.35 |               |  | 21.56        |        |               | 23.00 |              |  | 25.15         |        |              | 20.60 |               |  | 20.70 |        |  | 20.40 |        |  | 20.65
|                           |  | -close |        |                                       | 21.77 |               |  | 23.23        |        |               | 25.16 |              |  | 27.12         |        |              | 23.51 |               |  | 23.17 |        |  | 21.96 |        |  | 21.70



The financial information contains all
normal and recurring reclassifications for a fair and consistent presentation.



Quotes have been obtained from the National Association of Security Dealers. These quotes do not reflect retail mark-ups, mark-downs or commissions nor are they necessarily representative of actual transactions.



90



---

##### Table of Contents

Independent Auditors Report



The Board of Directors

AMCORE Financial, Inc.:



We have audited the accompanying consolidated balance sheets of AMCORE
Financial, Inc. and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.



In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCORE Financial, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and
cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 6 to the consolidated financial statements, effective January, 1, 2002 the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. Additionally, as discussed in Note 11 to the consolidated financial statements, effective January 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138.



LOGO



Chicago, Illinois

March 10, 2004



91



---

##### Table of Contents

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None



ITEM 9A.    CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



The
Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective.



Changes in Internal Controls



There have not been any changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the last fiscal quarter that have materially affected, or are reasonable likely to materially affect, the Companys internal control over financial reporting.



PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



(a) Directors of the Registrant. The Proxy Statement and Notice of 2004 Annual Meeting, dated March 12, 2004, are incorporated herein by reference.



(b) Executive Officers of the Registrant. The
information is presented in Item 1 of this document.



(c)
Code of Ethics. The Company has adopted a code of ethics applicable to all employees, including the principal executive officer, principal financial officer and principal accounting officer of the Company. The AMCORE Financial, Inc. Code of
Ethics is posted on the Companys website at www.AMCORE.com/governance. See Part I, Item 1 of this report on Form 10-K for additional information.



ITEM 11.    EXECUTIVE COMPENSATION



The Proxy Statement and Notice of 2004 Annual Meeting, dated March 12, 2004, are incorporated herein by reference.



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The Proxy Statement and Notice of 2004 Annual Meeting, dated March 12, 2004, are incorporated herein by reference.



Equity Compensation Plan Information



The following table sets forth information as of the end of the Companys 2003 fiscal
year with respect to all incentive/option plans under which equity securities are authorized for issuance.



|                                                              |  |                                                                                                     |  |                                                                                 |       |                                                                                                                                                 |        
|------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                                 |  | (a) Number of securities to be issued upon exercise of outstanding options, warrants and
rights (1) |  | (b) Weighted average exercise price of outstanding options, warrants and rights |       | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|Equity compensation plans approved by security holders (2)(3) |  | 2,105,303                                                                                           |  | $                                                                               | 22.30 |                                                                                                                                                 | 654,448
|Equity compensation plans not approved by security holders    |  | N/A                                                                                                 |  |                                                                                 | N/A   |                                                                                                                                                 | N/A    
|                                                              |  |                                                                                                     |  |                                                                                 |       |                                                                                                                                                 |        
|Total                                                         |  | 2,105,303                                                                                           |  | $                                                                               | 22.30 |                                                                                                                                                 | 654,448
|                                                              |  |                                                                                                     |  |                                                                                 |       |                                                                                                                                                 |        



92



---

##### Table of Contents

---

|(1) | Does not include individual options to purchase 40,762 shares as of December 31, 2003, with a weighted average exercise price of $9.77 that were assumed by the Company in
acquisitions. Includes options that have not vested and, therefore, are not currently exercisable. See Note 13 of the Notes to Consolidated Financial Statements  Stock Incentive Plans for additional information on vesting schedules. For
purposes of determining diluted shares for earnings per share calculations, only options which are in-the-money are included in the calculation. See Note 17 of the Notes to Consolidated Financial Statements  Earnings Per Share for
additional information.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The AMCORE Financial, Inc. 2000 Stock Incentive Plan (Plan) provides for the grant of stock options, reload options, stock appreciation rights, performance units, restricted stock
awards and stock bonus awards to key employees. The Plan contains an evergreen provision that allows 2.5% of total outstanding shares be reserved for issuance under the Plan as of the effective date and 1.5% of total outstanding shares
in each subsequent plan year not to exceed 425,000 shares in any one year, plus shares reserved for issuance but unissued in a prior plan year during the term of the Plan provided that the total shares available for issuance under the Plan and other
similar plans does not exceed twelve percent of the total outstanding shares at the beginning of the plan year.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The Restricted Stock Plan for Non-Employee Directors only provides for the issuance of restricted shares. The remaining shares available for grant under this plan which are included
in the totals above is 223,030.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The Proxy Statement and Notice of 2004 Annual Meeting, dated March 12, 2004, are incorporated herein by reference. See also Note 4 of the Notes to Consolidated Financial Statements.



ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES



The Proxy Statement and Notice of 2004 Annual Meeting, dated March 12, 2004, are incorporated herein by reference.



PART IV



ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K



(a)1. FINANCIAL STATEMENTS



The following Consolidated Financial Statements of AMCORE are filed as a part of this document under Item 8. Financial Statements and Supplementary Data.



Consolidated Balance Sheets  December 31, 2003 and 2002



Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001



Consolidated Statements of Stockholders Equity for the years ended
December 31, 2003, 2002 and 2001



Consolidated Statements of
Cash Flows for the years ended December 31, 2003, 2002 and 2001



Notes to Consolidated Financial Statements  December 31, 2003, 2002 and 2001



Independent Auditors Report



(a)2.
FINANCIAL STATEMENT SCHEDULES



All financial statement schedules have been
included in the consolidated financial statements or are either not applicable or not significant.



93



---

##### Table of Contents

(a)3. EXHIBITS



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|3.1   |  | Amended and Restated Articles of Incorporation of AMCORE Financial, Inc., dated April 8, 1986 (Incorporated by reference to Exhibit 3 of AMCOREs Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986); as amended May 3, 1988 to Article 8 (Incorporated by reference to AMCOREs definitive 1988 Proxy Statement dated March 18, 1988); and as amended May 1, 1990 to Article 5 (Incorporated by reference to AMCOREs
definitive 1990 Proxy Statement dated March 21, 1990).
|      | 
|3.2   |  | By-laws of AMCORE Financial, Inc., as amended February, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | 
|4.1   |  | Rights Agreement, dated February 16, 2001, between AMCORE Financial, Inc. and Wells Fargo Bank Minnesota, N.A. (Incorporated by reference to AMCOREs Form 8-K as filed with the
Commission on February 27, 2001).                                                                                                                                                                                                                                                                            
|      | 
|4.2   |  | Indenture, dated as of March 25, 1997, between the Company and The First National Bank of Chicago (now known as Bank One Corporation) (Incorporated herein by reference to Exhibit 4.1 of the
Companys registration statement on Form S-4, Registration No. 333-25375 as filed with the Commission on April 17, 1997).                                                                                                                                                                       
|      | 
|4.3   |  | Form of New Guarantee between the Company and The First National Bank of Chicago (now known as Bank One Corporation) (Incorporated herein by reference to Exhibit 4.7 of the Companys
registration statement on Form S-4, Registration No. 333-25375 as filed with the Commission on April 17, 1997).                                                                                                                                                                                        
|      | 
|10.1  |  | AMCORE Stock Option Advantage Plan (Incorporated by reference to AMCOREs Proxy Statement, Appendix A, filed as Exhibit 22 to AMCOREs Annual Report on Form 10-K for year ended
December 31, 1998).                                                                                                                                                                                                                                                                                          
|      | 
|10.2  |  | AMCORE Financial, Inc. 2000 Stock Incentive Plan (Incorporated by reference to AMCOREs Proxy Statement, Appendix A, filed as Exhibit 22 to AMCOREs Annual Report on Form 10-K for
year ended December 31, 1999).                                                                                                                                                                                                                                                                            
|      | 
|10.3  |  | AMCORE Financial, Inc. 2001 Stock Option Plan for Non-Employee Directors (Incorporated by reference to AMCOREs Proxy Statement, Appendix A, filed as Exhibit 22 to AMCOREs Annual
Report on Form 10-K for year ended December 31, 2000).                                                                                                                                                                                                                                                    
|      | 
|10.4A |  | Amended and Restated Transitional Compensation Agreement, dated December 18, 2001, between AMCORE Financial, Inc. and the following individuals: Kenneth E. Edge, John R. Hecht and James S.
Waddell (Incorporated by reference to Exhibit 10.4D of AMCOREs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                
|      | 
|10.4B |  | Amended and Restated Transitional Compensation Agreement, dated December 18, 2001, between AMCORE Financial, Inc. and the following individuals: Joseph B. McGougan and Bruce W. Lammers
(Incorporated by reference to Exhibit 10.4E of AMCOREs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                            
|      | 
|10.4C |  | Amended and Restated Transitional Compensation Agreement, dated April 1, 2002, between AMCORE Financial, Inc. and Patricia M. Bonavia (Incorporated by reference to Exhibit 10 of AMCOREs
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).                                                                                                                                                                                                                               
|      | 
|10.4D |  | Separation, Release and Consulting Agreement, dated June 20, 2002, between AMCORE Financial, Inc. and Robert J. Meuleman (Incorporated by reference to Exhibit 10.1 of AMCOREs Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                                                                                                                                                                           
|      | 
|10.4E |  | Amended and Restated Transitional Compensation Agreement, dated May 7, 2003, between AMCORE Financial, Inc. and Eleanor F. Doar (Incorporated by reference to Exhibit 10.2 of AMCOREs
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).                                                                                                                                                                                                                                    



94



---

##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|10.5 |  | Executive Insurance Agreement, dated August 10, 1998, between AMCORE Financial, Inc. and the following executives: Kenneth E. Edge, John R. Hecht, and James S. Waddell (Incorporated by
reference to Exhibit 10.10 of AMCOREs Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
|     | 
|10.6 |  | Supplemental Executive Retirement Plan, dated May 20, 1998 (Incorporated by reference to Exhibit 10.9 of AMCOREs Annual Report on Form 10-K for the year ended December 31,
1999).                                                                                                                     
|     | 
|10.7 |  | Loan Agreement (as amended) with M & I Marshall and Ilsley Bank, dated April 30, 2003 (Incorporated by reference to Exhibit 10.1 of AMCOREs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003).                                                                                        
|     | 
|10.8 |  | AMCORE Financial, Inc. Supplemental Incentive Plan, effective July 1, 2001 (Incorporated by reference to Exhibit 10 of AMCOREs Quarterly Report on Form 10-Q for the quarter ended June
30, 2001).                                                                                                     
|     | 
|10.9 |  | AMCORE Financial, Inc. Amended and Restated Deferred Compensation Plan (Incorporated by reference to Exhibit 10.3 of AMCOREs Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).                                                                                                       
|     | 
|21   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                         
|     | 
|22   |  | Proxy Statement and Notice of 2004 Annual Meeting.                                                                                                                                                                                                                                                      
|     | 
|23   |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                    
|     | 
|24   |  | Power of Attorney.                                                                                                                                                                                                                                                                                      
|     | 
|31.1 |  | Certification of CEO pursuant to Rule 13a-14 and Rule 15d-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|     | 
|31.2 |  | Certification of CFO pursuant to Rule 13a-14 and Rule 15d-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|     | 
|32.1 |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                          
|     | 
|32.2 |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                          



(b) A report on Form 8-K, dated
October 14, 2003, was filed concerning the Companys results of operations for the quarter ended September 30, 2003.



95



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



AMCORE FINANCIAL, INC.Date: March 12, 2004

By:

LOGOJohn R. Hecht Executive Vice President and Chief Financial Officer




Pursuant to the requirements of
the Securities Act of 1934, this report has been signed below on the 12th day of March, 2004 by the following persons on behalf of the Registrant in the capacities indicated.



|     |  |      
|---- |  | -----
|Name |  | Title

LOGO

|                |  |                                                                   
|--------------- |  | ------------------------------------------------------------------
|                | 
|Kenneth E.
Edge |  | Chairman and Chief Executive Officer (principal
executive officer)
|                |  |                                                                   

LOGO

|              |  |                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------
|              | 
|John R.
Hecht |  | Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)
|              |  |                                                                                                                    



Directors: Paula A. Bauer, Karen L.
Branding, Paul Donovan, Kenneth E. Edge, John W. Gleeson, John A. Halbrook, Frederick D. Hay, William R. McManaman, Jack D. Ward and Gary L. Watson



LOGO

|                
|----------------
|                
|                
|Kenneth E. Edge*
|                

LOGO

|               
|---------------
|               
|               
|John R. Hecht *
|               

Attorney in Fact*



96



---

##### Table of Contents

EXHIBIT INDEX



| |  |     |  |      |  |                                                                                                                                                        
| |  | --- |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | 
| |  | (a) |  | 3.2  |  | By-laws of AMCORE Financial, Inc., as amended February, 2004.                                                                                          
| |  |     | 
| |  |     |  | 21   |  | Subsidiaries of the Registrant                                                                                                                         
| |  |     | 
| |  |     |  | 22   |  | Proxy Statement and Notice of 2004 Annual Meeting                                                                                                      
| |  |     | 
| |  |     |  | 23   |  | Consent of KPMG LLP                                                                                                                                    
| |  |     | 
| |  |     |  | 24   |  | Power of Attorney                                                                                                                                      
| |  |     | 
| |  |     |  | 31.1 |  | Certification of CEO pursuant to Rule 13a-14 and Rule 15d-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |     | 
| |  |     |  | 31.2 |  | Certification of CFO pursuant to Rule 13a-14 and Rule 15d-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |     | 
| |  |     |  | 32.1 |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                         
| |  |     | 
| |  |     |  | 32.2 |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.