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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549



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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, 2002



Commission file number 013393



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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



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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 daysX 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). XYes No



As of March 1, 2003, 24,789,513 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 $510,433,000.



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Documents Incorporated by Reference:



Portions of the 2003 Notice of Annual Meeting and Proxy Statement, dated March 17, 2003, are incorporated by reference into Part III of the Form 10-K for the fiscal year ended December 31, 2002.



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AMCORE FINANCIAL, INC.



Form 10K Table of Contents



|PART I         |  |                                                                                                |  | Page Number
|-------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------
|Item 1         |  | Business                                                                                       |  | 3          
|Item 2         |  | Properties                                                                                     |  | 10         
|Item 3         |  | Legal Proceedings                                                                              |  | 10         
|Item 4         |  | Submission of Matters to a Vote of Security Holders                                            |  | 11         
|PART II        |  |                                                                                                |  |            
|Item 5         |  | Market for the Registrants Common Equity and Related Stockholder Matters                      |  | 11         
|Item 6         |  | Selected Financial Data                                                                        |  | 12         
|Item 7         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 13         
|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           |  | 90         
|PART III       |  |                                                                                                |  |            
|Item 10        |  | Directors and Executive Officers of the Registrant                                             |  | 90         
|Item 11        |  | Executive Compensation                                                                         |  | 90         
|Item 12        |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 90         
|Item 13        |  | Certain Relationships and Related Transactions                                                 |  | 91         
|Item 14        |  | Controls and Procedures                                                                        |  | 91         
|PART IV        |  |                                                                                                |  |            
|Item 15        |  | Exhibits, Financial Statement Schedules and Reports on Form 8K                                |  | 91         
|Signatures     |  | 94                                                                                            
|Certifications |  | 95                                                                                            



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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 SEC. However, the information found on AMCOREs website is not part of this or any other report.



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 64
locations throughout northern Illinois and south central Wisconsin (the Service Area). 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 (Community Banking) which are located in the more rural areas of the Service Area. 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 where there are strong demographic growth rates and high concentrations of mid-size businesses. At the same time, AMCORE is exiting certain Community Banking markets that no
longer fit its growth objectives. For additional information see 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 limited growth potential and have a greater concentration of smaller-sized business and agricultural concentrations. At the end of 2002, 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 to
stable, primarily due to tightening of employment opportunities in the automobile industry with cutbacks and layoffs. The Rockford Service Area experienced the greatest increase in unemployment in the State of Illinois during the past year. 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 38 locations throughout northern Illinois, excluding the far northwestern counties, including the Illinois cities of Rockford, Elgin,
Carpentersville, Crystal Lake, Des Plaines, Lincolnshire, McHenry, Schaumburg, St. Charles, Woodstock, Dixon, Mendota, Peru, Princeton, Sterling and the surrounding



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communities. The BANK conducts business at 26 locations throughout south central Wisconsin, including the Wisconsin cities of Madison,
Monroe, Clinton, Argyle, Baraboo, Portage, Mt. Horeb, Montello 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 eight 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 and its shareholders, 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 an 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 from
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 credit 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 credit card programs are a fee service for originating the relationship and no
credit risk is retained by the BANK. The BANK manages its risk via a centralized credit administration process, risk scoring, loan-to-value and other underwriting standards and knowledge of its customers. As a general rule, the BANK does not
actively engage in retail lending activities outside its geographic market areas.



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AMCORE Vintage 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. While the BANK has a limited portfolio of equipment leases, it 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.



AMCORE manages its commercial lending risks by 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.



AMCORE earned Preferred Lender Status from the Small Business Administration in both Illinois and Wisconsin and has been ranked one of the top two
Illinois banks in the SBA program for four consecutive years ending December 31, 2002.



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, retail mortgage loans, and Vintage Funds; all from a completely automated system.



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.



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, AMCOREs Vintage Mutual Funds family, insurance companies, banks, public entities and individuals. IMG also provides the mutual fund administration
for the AMCORE Vintage Mutual Funds.



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Mortgage Segment



AMCORE Mortgage, Inc. (AMI), a whollyowned subsidiary
of the BANK, was incorporated under the laws of the State of Nevada in 1987. AMI is a full service mortgage banker providing a broad spectrum of mortgage products to their customers in addition to providing the BANK with a variety of mortgage
lending products to meet its customer needs. Residential mortgage loans are originated by AMI, of which non-conforming adjustable rate, fixed-rate and balloon residential mortgages are normally sold to the BANK. The conforming adjustable rate,
fixed-rate and balloon residential mortgage loans are sold in the secondary market. AMI continues to service most of the loans that are sold.



During January 2003, AMI was merged with and into AMCORE Bank, N.A., however, it continues as a reportable segment. See Note 18 of the Notes to
Consolidated Financial Statements included under Item 8 of this document for further financial information on AMCOREs business segments.



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.



Employment



AMCORE had 1,406 fulltime equivalent employees as of March 1, 2003.
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



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indirect ownership or control of more than five percent of the voting shares of any company which is not a bank 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 which 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. We do not believe that the GLB Act will have a material effect upon our operations in the near term.
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.



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AMCORE is supervised and
examined by the FRB. The BANK, AMI 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.



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 Securities and Exchange Commission (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, 2002, approximately $28.6 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, 2002, the maximum amount available to AMCORE and its
affiliates in the form of loans approximated $23.7 million. Loans outstanding to affiliates were $2.7 million at December 31, 2002. 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, 2002 and 2001. See 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.



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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     |  | 57  |  | 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.
|                   
|John R. Hecht       |  | 44  |  | Executive Vice President and Chief Financial Officer of AMCORE. Director of the BANK and AIG.                                                                                                                                                                                                                                                                                                                                                                                                                         
|                   
|Bruce W. Lammers    |  | 46  |  | Executive Vice President of AMCORE since May 2002. Executive Vice President and Commercial Line of Business Manager of
the BANK since March 1999. Executive Vice President  Commercial Services Division until March 1999. Director of the BANK and AIG.                                                                                                                                                                                                                                                             
|                   
|David W. Miles      |  | 45  |  | Executive Vice President, Chief Operating Officer and Director of the BANK since April 2001. President, Chief
Executive Officer and Director of AIG and Executive Vice President of AMCORE since March 2000. Chief Operating Officer of AIG until March 2000. Director of Vintage Mutual Funds Inc. since May 1999; President since 1998.                                                                                                                                                                             
|                   
|James S. Waddell    |  | 57  |  | Executive Vice President, Chief Administrative Officer and Corporate Secretary of AMCORE. Director of the BANK and
AIG.                                                                                                                                                                                                                                                                                                                                                                                               
|                   
|Joseph B. McGougan  |  | 42  |  | President and Chief Executive Officer of AMI. Group Vice President of AMCORE. Executive Vice President of the BANK
since October 2002. Director of the BANK and AIG.                                                                                                                                                                                                                                                                                                                                                  
|                   
|Eleanor F. Doar     |  | 46  |  | 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 BANK and AIG since January 2003.                                                                                                                                                                                                                            
|                   
|Patricia M. Bonavia |  | 52  |  | President of AIS since February 1998. Executive Vice President and Chief Operating Officer for AIG since March 2000.
Director of IMG since February 1998. Previously Vice President of IMG.                                                                                                                                                                                                                                                                                                                           
|                   
|Lori M. Burke       |  | 50  |  | Senior Vice President and Manager of Human Resources and Corporate Skills Development of the BANK since April 2001.
Senior Vice President and Manager Corporate Skills Development and Employment/Employee Relations from January 2001 to April 2001. Vice President and Manager Corporate Skills Development from June 1999 to January 2001. Previously Human Resources and
Training Consultant at HR Consulting Services, a division of The Furst Group.                                                            
|                   
|Melvin H. Buser     |  | 55  |  | Senior Vice President and Chief Credit Officer of the BANK since April 2001. Previously Senior Vice President and
Senior Credit Officer.                                                                                                                                                                                                                                                                                                                                                                              
|                   
|James M. Hansberry  |  | 40  |  | Senior Vice President and Manager, Private Banking Group of the BANK since February 2001. Senior Vice President and
Retail Product Manager from March 2000 to February 2001. Vice President and Retail Product Manager from July 1999 to March 2000. Vice President and Project Manager from February 1999 to December 1999. Vice President of Affiliate Banking until
February 1999.                                                                                                                                 



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|Name               |  | Age |  | Principal Occupation Within the Last Five Years                                                                                                                                                                                                                 
|------------------ |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Leon J. Holschbach |  | 49  |  | Senior Vice President and Community Markets Regional President of the BANK since December 2000. AMCORE Bank, North
Central Regional President from December 1999 to December 2000. Previously President of AMCORE Bank, North Central, N.A. until December 1999.
|                  
|Gregory Sprawka    |  | 52  |  | Senior Vice President and Director of Operations and Technology of the BANK since April 1999. Previously Vice
President and Controller of AMCORE and the BANK.                                                                                                  
|                  
|M. Shawn Way       |  | 40  |  | Senior Vice President, Board Secretary and Cashier of the BANK. Director of AIS since April 1999. Retail Division
Manager since April 2001. Regional Retail Manager until April 2001.                                                                           



ITEM 2.    PROPERTIES



On December 31, 2002, AMCORE had 82 locations, of which 55 were owned and 27 were leased. The Banking segments had 79 locations, of which 55 were owned and 24 were leased. The Trust and Asset Management segment had two leased
facilities and the Mortgage segment had one leased facility. 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 112 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 financial position or results of operations, other than as noted
below. 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.



The Company has
reached a negotiated agreement with its insurance carrier and Plaintiffs counsel to settle the lawsuit and other potential claims outlined below. The settlement agreement did not have a material effect on the Companys consolidated
financial condition and consolidated results of operations.



On
August 26, 1999, Willie Parker and five other plaintiffs filed a civil action in the Circuit Court of Humphreys County, Mississippi against AMCORE Consumer Finance Company, Inc., a subsidiary of the Company and other defendants containing twelve
separate counts related to the sale and financing of residential satellite dish systems. Though the actual purchase price for each of these systems involved a principal amount of less than $3,000, the complaint prayed for economic loss and
compensatory damages in the amount of $5 million for each plaintiff and punitive damages in the amount of $100 million for each plaintiff. The Company denied the plaintiffs allegations.



During the second quarter of 2001, the Company made a settlement offer to
Plaintiffs counsel. The Company recorded an accrual reflecting the amount offered. During the second quarter of 2002, the Companys counsel submitted a new offer to Plaintiffs counsel to resolve all claims and the Company adjusted
its accrual to reflect the offer. During the third quarter of 2002, Plaintiffs counsel and the Company entered into a settlement of all claims. All Plaintiffs and potential claimants have executed full releases and the United States District
Court for the Northern District of Mississippi has dismissed the lawsuit on file with prejudice.



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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 2002.



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 8,200 holders of record of AMCOREs common stock as of March 1, 2003. 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 its subsidiary banks. 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, Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note 19 of the Notes to the Consolidated Financial Statements.



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ITEM 6.    SELECTED FINANCIAL DATA



Five Year Comparison of Selected Financial Data



|                                                                   |  | 2002                                  |           |   | 2001 |   |           | 2000 |  |   | 1999      |   |  | 1998 |          
|------------------------------------------------------------------ |  | ------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ---------
|                                                                   |  | (in thousands, except per share data) |          
|FOR THE YEAR:                                                      |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Interest income                                                    |  | $                                     | 253,128   |   |      | $ | 281,387   |      |  | $ | 320,874   |   |  | $    | 300,322  
|Interest expense                                                   |  |                                       | 122,360   |   |      |   | 161,514   |      |  |   | 195,821   |   |  |      | 168,883  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net interest income                                                |  |                                       | 130,768   |   |      |   | 119,873   |      |  |   | 125,053   |   |  |      | 131,439  
|Provision for loan and lease losses                                |  |                                       | 12,574    |   |      |   | 16,700    |      |  |   | 9,710     |   |  |      | 10,550   
|Non-interest income                                                |  |                                       | 70,312    |   |      |   | 77,066    |      |  |   | 61,209    |   |  |      | 58,204   
|Operating expenses                                                 |  |                                       | 131,015   |   |      |   | 123,635   |      |  |   | 117,113   |   |  |      | 123,838  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Income before income taxes, extraordinary item & accounting change |  |                                       | 57,491    |   |      |   | 56,604    |      |  |   | 59,439    |   |  |      | 55,255   
|Income taxes                                                       |  |                                       | 14,020    |   |      |   | 14,382    |      |  |   | 16,356    |   |  |      | 15,106   
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net income before extraordinary item & accounting change           |  | $                                     | 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                                                         |  | $                                     | 43,471    |   |      | $ | 42,243    |      |  | $ | 43,083    |   |  | $    | 40,149   
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Return on average assets (1)(2)(3)                                 |  |                                       | 1.02      | % |      |   | 1.04      | %    |  |   | 1.00      | % |  |      | 0.95     
|Return on average equity (1)(2)(3)                                 |  |                                       | 13.19     |   |      |   | 13.50     |      |  |   | 14.92     |   |  |      | 12.96    
|Net interest margin                                                |  |                                       | 3.53      |   |      |   | 3.42      |      |  |   | 3.29      |   |  |      | 3.55     
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|AVERAGE BALANCE SHEET:                                             |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Total assets                                                       |  | $                                     | 4,242,499 |   |      | $ | 4,054,874 |      |  | $ | 4,314,593 |   |  | $    | 4,216,662
|Loans and leases, net of unearned income                           |  |                                       | 2,665,875 |   |      |   | 2,518,772 |      |  |   | 2,736,482 |   |  |      | 2,593,770
|Earning assets                                                     |  |                                       | 3,921,477 |   |      |   | 3,750,714 |      |  |   | 4,035,705 |   |  |      | 3,969,851
|Deposits                                                           |  |                                       | 3,085,333 |   |      |   | 2,930,452 |      |  |   | 3,079,212 |   |  |      | 2,953,023
|Long-term borrowings                                               |  |                                       | 212,997   |   |      |   | 288,680   |      |  |   | 316,680   |   |  |      | 300,490  
|Stockholders equity                                               |  |                                       | 329,548   |   |      |   | 312,855   |      |  |   | 288,820   |   |  |      | 309,723  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|ENDING BALANCE SHEET:                                              |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Total assets                                                       |  | $                                     | 4,520,714 |   |      | $ | 4,021,847 |      |  | $ | 4,244,106 |   |  | $    | 4,347,621
|Loans and leases, net of unearned income                           |  |                                       | 2,883,717 |   |      |   | 2,477,193 |      |  |   | 2,627,157 |   |  |      | 2,746,613
|Earning assets                                                     |  |                                       | 4,145,365 |   |      |   | 3,670,113 |      |  |   | 3,946,631 |   |  |      | 4,008,000
|Deposits                                                           |  |                                       | 3,294,662 |   |      |   | 2,893,737 |      |  |   | 3,143,561 |   |  |      | 3,016,408
|Long-term borrowings                                               |  |                                       | 185,832   |   |      |   | 268,230   |      |  |   | 265,830   |   |  |      | 285,270  
|Stockholders equity                                               |  |                                       | 355,681   |   |      |   | 301,660   |      |  |   | 308,497   |   |  |      | 293,728  
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|FINANCIAL CONDITION ANALYSIS:                                      |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Allowance for loan losses to year-end loans                        |  |                                       | 1.22      | % |      |   | 1.37      | %    |  |   | 1.11      | % |  |      | 1.03     
|Allowance to non-performing loans                                  |  |                                       | 108.24    |   |      |   | 128.28    |      |  |   | 132.12    |   |  |      | 159.16   
|Net charge-offs to average loans                                   |  |                                       | 0.42      |   |      |   | 0.44      |      |  |   | 0.29      |   |  |      | 0.33     
|Non-performing loans to net loans                                  |  |                                       | 1.13      |   |      |   | 1.07      |      |  |   | 0.84      |   |  |      | 0.65     
|Average long-term borrowings to average equity                     |  |                                       | 64.63     |   |      |   | 92.27     |      |  |   | 109.65    |   |  |      | 97.02    
|Average equity to average assets                                   |  |                                       | 7.77      |   |      |   | 7.72      |      |  |   | 6.69      |   |  |      | 7.35     
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|STOCKHOLDERS DATA:                                                |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          
|Basic earnings per share                                           |  | $                                     | 1.76      |   |      | $ | 1.66      |      |  | $ | 1.60      |   |  | $    | 1.42     
|Diluted earnings per share                                         |  |                                       | 1.75      |   |      |   | 1.64      |      |  |   | 1.58      |   |  |      | 1.40     
|Book value per share                                               |  |                                       | 14.35     |   |      |   | 12.26     |      |  |   | 11.87     |   |  |      | 10.51    
|Dividends per share                                                |  |                                       | 0.64      |   |      |   | 0.64      |      |  |   | 0.64      |   |  |      | 0.56     
|Dividend payout ratio                                              |  |                                       | 36.36     | % |      |   | 38.55     | %    |  |   | 40.00     | % |  |      | 39.44    
|Average common shares outstanding                                  |  |                                       | 24,701    |   |      |   | 25,490    |      |  |   | 26,930    |   |  |      | 28,304   
|Average diluted shares outstanding                                 |  |                                       | 24,911    |   |      |   | 25,730    |      |  |   | 27,237    |   |  |      | 28,730   
|                                                                   |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |          

---

|(1) | The 2000 ratios excluding the impact of the $258,000, or $0.01 per share, reversals of after-tax restructuring charges: return on average assets 0.99%; return on
average equity 14.83%
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The 1999 ratios excluding the impact of the $3.3 million, or $0.11 per share, after-tax restructuring charges: return on average assets 1.03%; return on average
equity 14.02%
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The 1998 ratios excluding the impact of the $3.3 million, or $0.11 per share, after-tax merger related charges: return on average assets 1.08%; return on average
equity 13.70%
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.s and its Subsidiaries (AMCORE or the
Company) financial condition as of December 31, 2002 compared to December 31, 2001 and the results of operations for the three years ended December 31, 2002. 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 annual 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 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 identify forward-looking statements. Forward-looking statements speak only as of the date they are made, and AMCORE undertakes no obligation to update publicly any forward-looking statements 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 policies; and (XVII) inability of third-party vendors to perform critical services for the Company or its customers.



CRITICAL ACCOUNTING POLICIES



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.



Presented below are discussions of those accounting policies that management believes are the most important (Critical
Accounting Policies) to the portrayal and understanding of the Companys financial condition and



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results of operations. These Critical Accounting Policies require managements most difficult, subjective and complex judgments about
matters that are inherently uncertain. 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, Leases and Allowance for Estimated Losses



Loans and leases 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 reviews the loan and lease portfolio in
order to establish an estimated allowance for loan and lease losses (Allowance) that are probable as of the respective reporting date. Additions to the Allowance are charged against earnings for the period as a provision for loan and lease losses
(Provision). Actual loan and lease 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 regularly reviewed by management to determine whether or not the amount is considered adequate to absorb probable losses. If not, an additional Provision is made to increase the Allowance. 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. The Allowance is also subject to periodic examination by
regulators whose review includes a determination as to its adequacy to absorb potential 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 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.



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 and lease



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losses could be materially different. These factors are most pronounced during economic downturns. Since, as described above, so many factors
can affect the amount and timing of losses on loans and leases 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 $3.5 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 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, prepayment rates and default rates. This re-evaluation is done by stratifying 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.



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 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 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.



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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 Securitization and Sale of Receivables



When the Company sells receivables in securitizations of indirect 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 included rights to service the loans that were sold (the Servicing Rights), the excess of interest collected on the loans over the amount required to be
paid to the investors and the securitization agent (the Interest Only Strip) and 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 Asset). 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 benefits to be received from the Servicing Rights represent adequate
compensation for the Companys servicing responsibilities, no asset 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 will be fully amortized. The value allocated to
the Overcollateralization Asset is accreted assuming a constant yield based upon the discount rate used to estimate its fair value. Accretion is recorded as other income for the period. At the end of the estimated life of the securitization, the
carrying value of the Overcollateralization Asset 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, net of projected credit losses. At that time
the cash is expected to be released from the securitization in an amount that equals the accreted value of the Overcollateralization Asset.



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. In addition, since actual credit losses may exceed projected credit losses over the life of the securitization, there is risk
that the accreted value of the Over collateralization Asset will not be fully realized, resulting in a loss charged to earnings. Recourse against the Company for credit losses is limited 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. Thus, a loss in excess of the accreted value of the Overcollateralization Asset is not possible. Each reporting period, the fair values of the Interest Only Strip and the
Overcollateralization Asset 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. If this re-evaluation results in fair values that are less than
the amortized carrying value of the Interest Only Strip and the accreted value of the Overcollateralization Asset, respectively, and if remaining projected cash flows are less than previously estimated, the carrying values are written-down to fair
value. The amount of the write-downs is charged against earnings for the current period. Finally, each reporting period, new Interest Only Strip amortization schedules and new Overcollateralization Asset accretion schedules are developed based upon
current estimates, assumptions, adjusted carrying values and revised constant yields.



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Judgments and assumptions that
are most critical to the application of this accounting policy are estimated defaults, delinquencies and credit losses, projected prepayment speeds and discount rates. These assumptions are based upon demonstrated credit and prepayment performance
of the underlying loans. 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 asset 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 retained residual interests 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 $891,000 would be necessary. See also Note 8 of the Notes to Consolidated Financial
Statements.



OVERVIEW OF OPERATIONS



AMCORE reported record net income of $43.5 million for the
year ended December 31, 2002. This compares to $42.2 million and $43.1 million reported for the years ended December 31, 2001 and 2000, respectively. This represents an increase of $1.2 million or 2.9% when comparing 2002 and 2001, and a decrease of
$840,000 or 1.9% when comparing 2001 and 2000. Results for 2001 and 2000 included amortization expense related to goodwill of $2.0 million. Amortization of goodwill was discontinued in 2002. See discussion of Accounting Changes.



Diluted earnings per share for 2002 were a record $1.75 compared to $1.64 in
2001 and $1.58 in 2000. This represents an increase of $0.11 per share or 6.7%, when comparing 2002 and 2001, and $0.06 per share or 3.8%, when comparing 2001 and 2000. The 6.7% increase in earnings on a diluted per share basis compares favorably to
the 2.9% increase on a dollar basis, reflecting the accretive impact to per share earnings of AMCOREs previously announced stock repurchase programs. During 2002, average diluted shares outstanding declined 819,000.



AMCOREs return on average realized equity for 2002 was 13.71% versus
13.67% in 2001 and 13.68% in 2000. Average realized equity excludes the average impact of unrealized gains and losses that are otherwise included in other comprehensive income, net of related income tax expense. AMCOREs return on average
assets for 2002 was 1.02% compared to 1.04% in 2001 and 1.00% in 2000.



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



During the second and third quarters of 2001, the BANK sold seven Illinois branches and during the first quarter of 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 transferred to the respective buyers resulting in net



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after-tax gains of $5.2 million and $1.1 million in the second and third quarters of 2001, respectively (the Branch Gains). Loans
and deposits for the closed branch were transferred to nearby BANK branches. In the fourth quarter of 2002, the Company announced it had reached definitive agreements to sell six Wisconsin branches. The sales closed in first quarter 2003. First
National Bank and Trust Company of Beloit, Wisconsin, acquired the Clinton and Darien branches with combined loans and deposits of approximately $22.1 million and $52.0 million, respectively. The National Exchange Bank and Trust of Fond du Lac,
Wisconsin, acquired the Montello, Kingston, Dalton and Westfield branches, which have combined loans and deposits of approximately $27.8 million and $77.0 million, respectively. For the Wisconsin Branch Sales, the Company will report a combined net
after-tax Branch Gain of approximately $5.2 million in the first quarter of 2003.



Branch Expansion activities in 2001 included two new offices: one on Rockfords fast-growing east side and one in Geneva, Illinois, an affluent Chicago suburb. During 2002, the BANK opened four commercial loan offices
and three full-service branches. The commercial loan offices 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, a limited branch office in Geneva, Illinois and a smaller full-service branch in downtown McHenry, Illinois were closed. Combined, the
nine new locations have generated $234.2 million in loans and $67.4 million in deposits as of December 31, 2002. The impact of the Branch Expansion was a decrease of $0.04 and $0.02 per diluted share in 2002 and 2001, respectively. In 2003 and early
2004, the Company plans to open an additional nine branches in the Illinois Fox River Valley, the Chicago suburbs and Madison, Wisconsin.



The nine branches planned for 2003 and early 2004, will require approximately $28 million in incremental capital expenditures and, when considered with
all the new offices opened since April, 2001, are expected to have a dilutive impact on 2003 earnings of 10 to 15 cents per share as start-up costs initially outpace net revenues. The impact of any gains or loss of earnings on the Wisconsin branch
sales was not factored into the decrease in earnings per share expected in 2003 from the Branch Expansion strategy. Despite this dilutive impact, AMCORE expects year-over-year growth in earnings per share from improvements in existing business
performance during 2003. For 2004 and thereafter, the Company expects earnings accretion from its Branch Expansion efforts.



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 primarily will be located in Kelley-Williamson Mobil stations as part of a co-branding relationship, and will be owned and operated by an unaffiliated third party. The BANK currently owns and operates 75 ATMs throughout Wisconsin
(24) and Illinois (51). Expansion of the BANKs ATM network through this co-branded relationship will increase its Wisconsin and Illinois ATM presence to 34 and 78, respectively, or 112 overall.



Organizational Changes and Related Charges



During 2002, Kenneth E. Edge was named President and Chief Executive Officer,
effective July 1, 2002, and Chairman of the Board, to be effective January 1, 2003. Mr. Edge, who most recently served as AMCOREs President and Chief Operating Officer, replaced Robert J. Meuleman. 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 will be charged to earnings as incurred.



During 2001, AMCORE announced additional business changes designed to better integrate banking and asset management services
to its customers. To better support these structural changes, AMCORE streamlined its



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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 (the Severance Charge(s)).



During 2000, the Company reversed $258,000 in excess net after-tax restructuring charges (the Restructuring Reversals), reflecting lower than
expected costs to complete the restructuring of its operations (the Restructuring) that occurred throughout 1999 and 2000.



Securities Sales and Loan Securitizations



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.



During 2001 and 2000, the BANK sold $29.9 million and $100.3 million, respectively, of indirect automobile loans in securitization transactions (the
Auto Loan Sales). Net after-tax gains of $494,000 and $812,000, were recorded for the respective years. Upon securitization, the BANK retained Servicing Rights, Interest Only Strips and Overcollateralization Assets. The Companys
retained interests are subordinate to investors interests. The value of the Companys Interest Only Strips subject to prepayment risk and the value of the Overcollateralization Asset are subject to credit risk on the transferred auto
loans. The investors and the securitization trust have no other recourse to the Companys other assets for failure of debtors to pay when due. There were no Auto Loan Sales in 2002. See Note 8 of the Notes to Consolidated Financial Statements.



During 2000, the Bank securitized $51.5 million of 1-4 family
mortgage loans (the Mortgage Securitization). No gain or loss was recognized during 2000, as the securities were retained by the BANK in its available for sale portfolio. These securities were disposed of during 2001 as part of the
Security Portfolio Restructuring. There were no Mortgage Securitizations in 2001 or 2002.



Accounting Changes



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, that were subject to the transition provisions of SFAS Nos. 141 and 142. The Company had no other intangible assets affected by this accounting change. Amortization expense related to goodwill was $2.0
million for 2001 and 2000. Amortization of Core Deposit Intangibles was $141,000 in 2002, compared to $96,000 in 2001 and $101,000 in 2000. 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 6 of the Notes to Consolidated Financial Statements.



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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. This statement outlines accounting and reporting standards for
derivative instruments and hedging activities. Net income for 2001 includes a cumulative effect increase to earnings 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



During 2001, AMCORE reacquired for its own portfolio at par $15.0 million in capital trust preferred securities, issued in March 1997, which was 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). See Note 10 of the Notes to Consolidated Financial Statements.



Stock Repurchase Programs



During 2002, 2001 and 2000 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, including the issuance of shares in connection with AMCOREs stock option plan and
other employee benefit plans. 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. During 2000, the Company repurchased 2.0 million
shares at an average price of $19.43. No shares remain to be purchased under any Stock Repurchase Program.



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,
|---------------------------------------- |  | ------------------------
|                                         |  | 2002                    
|Interest Income Book Basis . . . .       |  | $                       
|FTE Adjustment . . . . . . . . . . . . . |  |                         
|                                         |  |                         
|Interest Income FTE Basis . . . . .      |  |                         
|Interest Expense                         |  |                         
|                                         |  |                         
|Net Interest Income FTE Basis . .        |  | $                       
|                                         |  |                         



Net interest income on a
fully taxable equivalent basis increased $9.7 million or 7.6% in 2002 compared to a decline of $6.1 million or 4.5% in 2001. The increase in net interest income in 2002 was primarily the result of decreased funding costs and an increase in average
earning assets. In 2001, the decline in net interest income was attributable to lower average earning assets, partially offset by improved net interest spread.



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.



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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 27 basis points to
3.15% in 2002 from 2.88% in 2001, which was an improvement of 22 basis points from the 2000 level of 2.66%. The interest rate margin was 3.53% in 2002, an increase of 11 basis points from 3.42% in 2001. The 2001 level was an increase of 13 basis
points from 3.29% in 2000.



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 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. In 2001, net interest income on an FTE basis decreased due to average volume by $11.6
million. This was comprised of a $26.4 million decline in interest income that was partially offset by a $14.8 million decrease in interest expense.



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, notwithstanding the stricter pricing policies, tightened credit standards implemented in previous years and the
continuing sluggish business environment. 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 dropped to forty-year lows.



The 2002 increase in average earning assets was funded by a
$139.6 million increase in average interest-bearing deposits, plus a $15.3 million increase in non-interest bearing deposits. The combined increase was comprised of a $78.4 million increase in brokered deposits and a $76.5 million or 2.9% increase
in core deposits. The growth in core deposits reflects company-wide initiatives to attract additional core deposits as well as deposit growth attributable to the Branch Expansion. Over 95% of the core deposit growth was attributable to primary
transaction account business, which is the Companys lowest cost funding source. Growth in core deposits was insufficient to fund loan growth, leading to the increase in brokered deposits. AMCORE recognizes the importance of continued core
deposit growth, not only as a means of funding the Branch Expansion, but also to continue the strategy expressed in 2001 of reducing its reliance on wholesale funding sources. Strong well-established markets, the transition to full-service retail
branches in new markets as the Branch Expansion develops, continued emphasis on attracting and retaining primary transaction accounts, and asset securitization are all means by which the Company expects to implement these strategies.



The 2001 decline in interest income of $26.4 million was driven by a $217.7
million or 8.0% decline in average loans and a $141.8 million or 11.0% decline in average investment securities. The decrease in average loans was



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led by a $118.5 million average decrease in 1-4 family real estate loans due to refinancings and the Mortgage Securitization. Refinancings
were prompted by falling mortgage interest rates which reached a forty-year low during 2001. Installment and consumer loan volume decreased $54.9 million, on average, as a result of the Auto Loan Sales. Commercial loan volume declined an average
$26.5 million due to stricter pricing policies, tighter credit standards and the recession. These declines also reflect the impact of $65.1 million in loans transferred as part of the Branch Sales. The decline in average investment securities was
the result of AMCOREs Security Portfolio Restructuring, de-leveraging and prepayments driven by falling interest rates. Planned reductions primarily focused on mortgage-related securities with a higher degree of interest rate risk associated
with changing prepayment speeds. The strategy also focused on reducing certain other securities with low yields and/or longer durations.



The 2001 decline in average earning assets led to a $287.4 million or 8.0% decrease in average interest-bearing liabilities and the resulting $14.8
million volume related reduction in interest expense. This was largely attributable to a $235.8 million average reduction in wholesale funding, including brokered deposits. This was a deliberate strategy aimed at reducing the Companys reliance
on these higher-cost funding sources, which included the Debt Extinguishment, and to reduce interest rate risk. Also included in the decrease is the impact of $170.8 million in deposits that were assumed by the buyers as part of the Branch Sales.



Changes Due to Rate



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 $46.4 million decline in interest expense that was partly offset by a $41.4 million decrease in interest income. During 2001, net interest income on an FTE basis increased due to
average rates by $5.5 million, when compared with 2000. This was comprised of a $14.0 million decline in interest income that was more than offset by a $19.5 million decrease in interest expense.



The yield on average earning assets declined 107 basis points in 2002,
compared to 2001. The yield on average loans fell by 119 basis points, while the yield on average securities fell by 87 basis points. The decline in loan yields was primarily attributable to commercial real estate and commercial loans. Loans that
refinanced during the year, variable priced loans and new loan production were all adversely impacted by the decline in interest rates that occurred throughout 2001 and 2002, driving overall yields down year-over-year. The decline in security yields
was affected by the sale of higher risk securities in the 2001 Security Portfolio Restructuring and the prepayment of higher-yielding mortgage-related securities that occurred as mortgage interest rates fell. These securities were replaced with
lower yielding securities due to the current interest rate environment.



The rate on interest-bearing liabilities declined 134 basis points during 2002 compared to 2001, due to lower deposit and short-term borrowing rates. While rates fell on all deposit products, the decrease was most pronounced on
certificates of deposit (CDs) and the Companys indexed money market deposit accounts (AMDEX). 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 two years. The AMDEX accounts re-price monthly off the three-month Treasury bill discount rate, and have also benefited from the decline in short-term interest rates. The decrease in short-term borrowing rates was
largely the result of lower rates paid on reverse repurchase agreements as short-term interest rates have declined.



The yield on average earning assets declined 35 basis points in 2001, compared to 2000. The yield on average loans fell by 42 basis points and was
primarily attributable to commercial and commercial real estate 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 26 basis points, also the result of declining interest rates. Yields on securities were also affected by the sale of higher risk securities in the Security Portfolio Restructuring and de-Leveraging as well as the pre-payment of higher
yielding securities that occurred as interest rates fell.



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The rate paid on
interest-bearing liabilities declined 57 basis points in 2001, compared to 2000. This was primarily due to decreased rates paid on deposits and short-term borrowings. The decrease in deposit costs was largely driven by AMDEX deposit accounts 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 and projected interest rate environments are expected to result in
improved interest rate spreads and margins in 2003, compared to 2002. Specifically, the Company expects continuing benefits from deposit re-pricing during the coming year. It will also realize a full years benefit from an expired interest rate
swap that negatively impacted funding costs in 2002 by $5.2 million or 13 basis points. Among those factors that could cause margins and spreads not to improve as anticipated by the Company in 2003 include, unexpected changes in interest rates,
changes in the slope 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 reliance on expensive wholesale sources to fund the Branch
Expansion and Wisconsin Branch Sales and greater than expected delinquencies resulting in non-accrual status.



Provision for Loan and Lease Losses



The Provision (see Critical Accounting Policies discussion) was $12.6 million for 2002, a decrease of $4.1 million or 24.7% from the $16.7 million recorded in 2001. The Provision in 2001 was increased
to address a variety of factors as noted below. 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. Further
additions to the Allowance in 2002 were not necessary. As a result, although non-accrual loans and net-charge-offs were up, there was a decrease in the Provision year-over-year. During 2001, the provision increased $7.0 or 72.0% from the $9.7
million in 2000. The 2001 increase in provision was due to increases in non-accrual loans, higher net charge-offs and delinquencies compared to 2000, concentrations in industries that were impacted more than others by the recession, and concerns
over the economys impact on the loan portfolio, particularly in light of the unprecedented events on and subsequent to the terrorist attacks of September 11, 2001.

AMCORE recorded net charge-offs of $11.3 million, $11.0 million and $7.9 million in 2002, 2001 and 2000, respectively. Net charge-offs represented 42 basis points of average loans in 2002 versus 44
basis points in 2001 and 29 basis points in 2000. Commercial net charge-offs declined $1.5 million in 2002, compared to 2001, and reflects the settlement activity that occurred in 2001. Installment and consumer loan net charge-offs increased $1.4
million, 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. Commercial charge-offs increased during 2001, partially the result of
settlements reached with several borrowers to terminate or avoid costly litigation or protracted negotiation. Retail and installment loans also experienced increased charge-offs in 2001, the result of increasing unemployment and the weakening
economy that affected the borrowers ability to repay their loans.



Future growth in the loan portfolio, further weakening or continued uncertainties in economic conditions, changes in underlying collateral values, specific credit deterioration, or a change in managements workout strategies on
high-risk or non-performing loans, among other things, could result in Provisions in 2003 that are materially higher than those for 2002.



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 2001, this category also included Branch 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. Excluding the 2001 Branch Gains of $10.6 million, non-interest income increased $3.8 million or 5.8%. This increase was primarily attributable to increased service charges on deposits and net
security gains.



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Non-interest income totaled
$77.1 million in 2001, an increase of $15.9 million or 25.9% from the $61.2 million in 2000. The Branch Gains accounted for $10.6 million of the increase. The remaining $5.3 million increase was attributable to growth in mortgage revenues, increases
in CSV of COLI and increased service charges on deposits. These increases more than offset declines in trust and asset management income and security gains.



Trust and asset management income, the Companys largest source of fee based revenues, totaled $24.7 million in 2002, a decrease of $2.2 million or
8.1% from $26.9 million in 2001. This follows a decrease in 2001 of $3.2 million or 10.7% from $30.1 million in 2000. The overall decline in the stock market during the past two years negatively impacted the value of AMCORE-administered assets, upon
which fees are partially based, leading to the decrease in fee revenue. The loss of several larger employee benefit accounts at the end of 2000 and the beginning of 2001 also contributed to the decline.



Total assets under administration, excluding the BANKs investment
portfolio, were $4.6 billion at the end of 2002, compared to $4.9 billion and $5.0 billion at the end of 2001 and 2000, respectively. Assets under administration include both managed and custodial assets. 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. As witnessed over the last two years, investor confidence and market
performance can be affected by numerous uncontrollable factors such as the September 11, 2001 attacks, uncertainties surrounding the war on terrorism, bankruptcies of high-profile public companies and the proliferation of questionable accounting
practices by a variety of public companies that are reported in the financial press from time-to-time.



Service charges on deposits totaled $17.9 million in 2002, an increase of $3.1 million or 21.0% from the $14.8 million in 2001. During 2001, service charges on deposits increased $3.3 million or 28.6%
from $11.5 million in 2000. Deposit growth initiatives, which primarily affected retail accounts, and increased commercial account maintenance fees contributed to the increases both in 2002 and 2001.

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 Policies). Mortgage revenues were $7.9 million in 2002, a decline of $542,000 or 6.4% from the record of $8.5 million reported in 2001. During 2001, mortgage
revenues increased $4.3 million or 103.2% from $4.2 million in 2000. Mortgage revenues for 2002 included $2.6 million of net servicing rights impairment charges, compared to $780,000 in 2001. No impairment charges were required in 2000. For the
second year in a row, declining mortgage interest rates resulted in record closing volumes. In 2002, closing volumes were $718.0 million, compared to $634.2 million in 2001, compared to volume of $200.9 million in 2000. Continued strong performance
is expected in 2003, although not at the levels experienced during 2002 and 2001.



As of December 31, 2002, the carrying value of AMCOREs capitalized mortgage servicing rights was $7.3 million. This amount is net of a $3.4 million impairment valuation allowance. The fair value of the Companys
capitalized mortgage servicing rights was $7.4 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 $1.1 billion as of December 31,
2002. See Note 7 of the Notes to Consolidated Financial Statements.



COLI income totaled $5.7 million in 2002, a $435,000 or 8.3% increase over the $5.2 million in 2001. This compares to a $3.3 million increase in 2001 over the $1.9 million reported in 2000. The 2002 increase over 2001 was primarily
due to the impact of compounding. The 2001 increase over 2000 also included the impact of compounding, but was primarily the result of increased average investments year-over-year. 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, 2002, the CSV of COLI stood at $108.9 million, which included the purchase of $3.2
million during 2002.



Other non-interest income includes customer
service charges, debit card interchange income, ATM fees, brokerage commissions, insurance commissions, gains on fixed asset and loan sales and other miscellaneous



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income. In 2002, other non-interest income was $11.6 million, a $209,000 or 1.8% increase from $11.4 million in 2001. The increase was
attributable to improved brokerage commission income of $636,000, a $607,000 increase in derivative related income due to mark-to-market gains in 2002 as opposed to losses in 2001, higher debit card interchange income of $419,000, a $365,000 gain on
the sale of excess land and a $309,000 gain associated with an excess retirement plan asset reversion. These increases were partly offset by 2001 gains from Auto Loan Sales of $810,000 and a 2001 gain of $1.0 million from cash received on the merger
of an ATM service provider. In 2001, there was a decrease in other non-interest income of $354,000 or 3.0% from $11.8 million in 2000. The 2001 decrease was attributable to $656,000 less gains on loan sales that were primarily related to the Auto
Loan Sales, decreased brokerage and insurance commissions of $449,000 combined, and $275,000 in losses attributable to derivative mark-to-market adjustments and hedge ineffectiveness. These declines were nearly offset by the $1.0 million ATM service
provider gain.



Net securities gains totaled $2.5 million in
2002, compared to net losses of $303,000 in 2001 and net gains of $1.8 million in 2000. The level of security gains or losses is dependent on the size of the available for sale portfolio, interest rate levels, AMCOREs liquidity needs, and
balance sheet risk objectives. In 2001, the Companys balance sheet risk objectives included the Security Portfolio Restructuring in addition to continuation of the Security Portfolio de-leveraging strategy that began in 1999.



Operating Expenses



Total operating expenses were $131.0 million in 2002, an increase of $7.4
million from $123.6 million in 2001, which was a $6.5 million increase from $117.1 million in 2000. Operating expenses in 2002 included the $1.3 million Retirement Obligation and a $352,000 Severance Charge. Operating expenses in 2001 included
Severance Charges of $760,000. Operating expenses in 2000 were reduced by the Restructuring Reversal of $428,000. 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 for 2001 and 2000. The efficiency ratio, excluding the Retirement Obligation, the Severance Charges, the Restructuring Reversal, the Branch Gains and the Security Portfolio Restructuring was 61.71% in 2002,
61.87% in 2001 and 59.66% in 2000.



Compensation expense is the
largest component of operating expenses, totaling $60.5 million in 2002. This was a $5.1 million or 9.3% increase from $55.3 million in 2001, which was a $2.2 million or 4.1% increase from $53.2 million in 2000. The 2002 increase included $1.3
million in net staff additions associated with the Branch 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. The remaining $1.9 million or 3.2% increase was largely due to normal merit and cost-of-living increases. The 2001 increase was attributable to the $760,000 Severance Charge, $621,000 of normal merit and
cost-of-living adjustments net of cost savings attributable to the Restructuring and lower costs due to the impact of the Branch Sales, increased commissions of $599,000 associated with the record mortgage volumes and $188,000 related to the 2000
Restructuring Reversal. Excluding the Severance Accrual, the volume related mortgage commissions increase and the Restructuring Reversal, compensation expense increased 1.2% in 2001 from 2000.



Employee benefit costs were $16.2 million in 2002, an increase of $2.0 million
or 14% from $14.2 million in 2001, which was a $385,000 or 2.8% increase from $13.8 million in 2000. The 2002 increase was primarily attributable to $757,000 of the Retirement Obligation, $665,000 in increased retirement and deferred compensation
costs and $538,000 in increased payroll tax costs. The 2001 increase was primarily due to increased profit sharing, which was partially offset by decreased group medical costs associated with structural changes in the plan and other cost containment
measures.



Net occupancy expense was $7.9 million in 2002, an
increase of $303,000 or 4.0% from 2001. This follows an increase of $280,000 or 3.9% from 2000 levels. The 2002 and 2001 increases included net increases due to the Branch Strategy.





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Equipment expense decreased
$173,000 or 2.2% to $7.8 million in 2002. This followed a $501,000 or 5.9% decrease in 2001. The 2002 decrease reflects lower net electronic data processing equipment and software expense expenses. These costs also decreased in 2001, as did
depreciation on furniture and fixtures, when compared to 2000.



Data processing expenses include costs related to core bank data processing, trust and other external processing systems. This category increased $738,000 or 12.2% to $6.8 million in 2002, primarily due to increased core bank data
processing costs. Expenses in 2001 were $6.0 million, a $201,000 or 3.4% increase from $5.8 million in 2000. Excluding the impact of the Restructuring Reversal of $98,000 in 2000, data processing expenses increased only $103,000 or 1.7% in 2001. The
modest increase in 2001 also reflects processing and programming efficiencies associated with the Restructuring.



Professional fees totaled $4.3 million in 2002, an increase of $149,000 or 7.6% from 2001. Audit and consulting fee increases were partly offset by decreased legal fees. Professional fees were $4.1
million in 2001, an increase of $343,000 or 9.1% from 2000. This was due to increased legal fees, primarily associated with credit collection activities, and a $139,000 Restructuring Reversal in 2000.



Communication expense was $4.1 million in 2002, an increase of $196,000 or
5.0% from 2001. The increase was due to increased courier and postage costs due in part to the Branch Expansion and postal rate increases. Communication expense was $3.9 million in 2001, a decrease of $49,000 or 1.2% from 2000. Increased postage and
courier services were more than offset by lower telephone costs.



Advertising and business development expenses were $4.7 million in 2002, an increase of $120,000 or 2.6% from 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. Advertising and business development expenses were $4.6 million in 2001, an increase of $797,000 or 21.0% from 2000. Increased direct mail campaigns were the principal reasons for
the increase, partially offset by decreased customer relations spending. The increase in direct mail campaigns was due in part to Free Checking initiatives.



Intangibles amortization was $141,000 in 2002, compared to $2.1 million in 2001 and 2000. 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. See also Notes 1 and 6 of the Notes to Consolidated Financial Statements.



Other expenses were $18.6 million in 2002, an increase of $878,000 or 4.9%,
following an increase of $2.9 million or 19.5% in 2001. The 2002 increase was largely the result of higher loan processing expenses of $633,000, mainly associated with collection and repossession activities, $323,000 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. Higher loan processing expenses of $1.8 million, mainly related to heightened mortgage
origination and refinancing, plus $735,000 in increased credit losses and expenses from foreclosed real estate were primarily responsible for the 2001 increase. Other factors included increased charitable contributions, Branch Expansion expenses and
accruals for legal contingencies.



Income Taxes



Income tax expense totaled $14.0 million in 2002, compared
with $14.4 million and $16.4 million in 2001 and 2000, respectively. The effective tax rates, which for 2001 includes $130,000 of tax benefit and $143,000 of tax expense for the Extraordinary Item and the Accounting Change, respectively, were 24.4%,
25.4%, and 27.5% in 2002, 2001, and 2000, respectively. The effective tax rate was less than the statutory tax rates due primarily to investments in tax-exempt municipal bonds and loans and increases in CSV on COLI. The decrease in the effective
rate in 2002 primarily resulted from the discontinuation of goodwill amortization pursuant to SFAS No. 142 and the favorable resolution of various tax audits and other pending tax issues. The decrease in effective tax rate in 2001 was mainly due to
increases in CSV on COLI.



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EARNINGS
REVIEW BY BUSINESS SEGMENT



AMCOREs internal reporting
and planning process focuses on four primary lines of business or (Segments): 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 selected balance sheet information 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, 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 and Retail 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 refinements, changes in risk profiles, changes in customers or product lines, and changes in management structure. The presentation of Segments
was changed in the first quarter of 2002 to reflect the Companys shift to a line of business structure. The primary impact of this change was to segregate the previous Banking Segment into its Retail and Commercial components. However, due to
allocation methodologies for shared support costs, fund transfer pricing adjustments for loans (Cost of Funds Allocations) and deposits (Funds Credit Allocations) and the exclusion of investment and treasury activities from either the Retail or
Commercial Banking Segments, the sum of these two new Segments will not equal the total of the old Banking Segment presentation. Prior period Segment results have been restated to reflect the new line of business structure.
The Trust and Asset Management Segment and the Mortgage Banking Segment were not affected by the shift to a line of business structure and have not been restated.



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 are included in the Other column of Note 18 of the Notes to Consolidated Financial Statements. For ease of comparison, the discussion of each Segment, including the Segment profit percentage, focuses on earnings before the
Extraordinary Item and the Accounting Change (the Operating Profit or Operating Loss). In addition, due to its unusual and non-recurring nature, the Branch Gain has not been allocated to either the Commercial or Retail
segments. It is included in the Other column.



Commercial
Banking



The Commercial Banking Segment (Commercial)
provides commercial banking services to large and small business customers through the BANKs 64 banking locations in northern Illinois and south central Wisconsin. The services provided by this Segment include lending, business checking and
deposits, cash management, merchant card services and other traditional as well as e-commerce commercial banking services.



Commercial Operating Profit for 2002 was $22.5 million, an increase of $7.3 million or 48.2% from 2001. This followed a decline in 2001 of $1.9 million or
11.2% from an Operating Profit of $17.1 million in 2000. The 2002 increase was primarily attributable to increased net interest income, increases in non-interest income and decreased Provision. These were partially offset by increased operating
expenses and income taxes.



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Net interest income increased
$10.4 million in 2002. The increase was due to increased loan volumes, particularly commercial real estate loans, lower priced deposits and decreased net Cost of Funds Allocations, which more than compensated for lower yields on loans. The lower
yields on loans, reduced rates on deposits and decreased net Cost of Funds Allocations were all attributable to declining short-term interest rates over the previous year. 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 $1.2 million in 2002. The increase was attributable to increased service charge income associated with commercial deposit account analysis and letter-of-credit fees. Lower
short-term interest rates reduced the value of account balances maintained to compensate the BANK for deposit services, resulting in higher fees collected for account maintenance.



The 2002 Provision decrease from 2001 was $4.6 million. The decrease in the Provision was primarily related to decreased
charge-offs in 2002, as compared to 2001, and additions to the Allowance in 2001 prompted by concerns about delinquencies, concentrations and the economys impact on the commercial portfolio. Comparable additions were not necessary during 2002.



Operating expenses increased $4.3 million in 2002. The increase
was largely due to higher personnel expenses, which included the impact of the Branch Strategy, and a higher allocation of shared support function costs. These increases were partially offset by the discontinuation of goodwill amortization pursuant
to SFAS No. 142.



Income taxes increased $4.5 million in 2002,
primarily the result of higher income before taxes.



The
Commercial Segment represented 59.4%, 52.5% and 45.6% of total segment Operating Profit in 2002, 2001 and 2000, respectively.



Retail Banking



The Retail Banking Segment (Retail) provides retail-banking services to individual customers through the BANKs 64 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 e-commerce
retail banking services.



Retail Operating Profit for 2002 was
$9.4 million, an increase of $2.0 million or 26.5% from 2001. This followed a decline in 2001 of $5.6 million or 42.9% from an Operating Profit of $13.0 million in 2000. The 2002 increase was primarily attributable to increased net interest income.
Partially offsetting this increase was a decline in non-interest income, increased Provision and higher income taxes.



Net interest income increased $3.6 million in 2002. The increase was due to increased loan volumes, particularly indirect automobile loans net of reduced
residential real estate loans, and lower priced deposits, which more than offset lower yields on loans and reduced net Funds Credit Allocations. The lower yields on loans, reduced rates on deposits and decreased net Funds Credit Allocations were all
attributable to declining short-term interest rates over the previous year. Auto Loan Sales in 2001 and strong demand in 2002 led to the increase in indirect automobile loan volume year-over-year. Declining volumes on residential real estate loans
were driven by accelerated prepayments due to falling mortgage interest rates and the Branch Sales. In all other retail loan categories, the impact of the Branch Expansion was essentially offset, on average for the year, by the impact of the
Illinois Branch Sales.



Non-interest income declined $281,000 in
2002. Increased deposit service charge income, other customer service fees and a gain on the sale of excess land were more than offset by decreased commissions from mortgage originations and gain on Auto Loan Sales in 2001. The decrease in mortgage
origination commissions was due to the transfer of mortgage originator staff to the Mortgage Banking Segment.



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The 2002 Provision increase
from 2001 was $424,000. The increase in the Provision was primarily related to increased charge-offs and growth in loan balances in 2002. Increased allocations made in 2001 for specific non-conforming real estate loans were decreased in 2002 due to
the sale of a portion of that portfolio.



Operating expenses, in
total, were relatively unchanged year-to-year. Increased allocations of shared support function and home office costs, as well as increased personnel costs were essentially offset by the discontinuation of goodwill amortization pursuant to SFAS No.
142 and lower foreclosed real estate costs.



Income taxes
increased $833,000 in 2002, primarily the result of higher income before taxes.



The Retail Segment represented 24.8%, 25.7% and 34.8% of total segment Operating Profit in 2002, 2001 and 2000, respectively.



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 AMCOREs banking
locations.



The TAM Segments Operating Profit for 2002 was
$3.7 million, an increase of $207,000 or 5.9% from 2001. This followed a $2.4 million or 40.5% decline from an Operating Profit of $5.9 million in 2001. The increase was primarily due to lower operating expenses and income tax expense, which were
nearly offset by a decline in non-interest income.



Declines in
fee-based revenue, partly offset by increased brokerage commission income, were responsible for a $1.3 million decrease in non-interest income. The declines in the equity market have impacted the value of AMCORE-administered assets, which in turn
have caused a reduction in fee-based revenue. 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 $1.2 million in 2002 and is primarily related to the discontinuation of goodwill amortization pursuant to SFAS No. 142. Lower personnel costs and decreased allocations of
shared support function and home office costs, net of an increase in data processing costs and other losses, associated with reimbursements to customers and funds, also contributed to the decrease in operating expenses.



Income taxes declined $351,000 for 2002. The decrease in taxes is related to
declines in pre-tax Operating Profit, exclusive of the change related to the discontinuation of goodwill amortization, which was not tax deductible.



The TAM Segment manages or administers $5.8 billion of investments, inclusive of traditional assets as well as the management of the BANKs diverse
fixed income portfolio of approximately $1.2 billion. Assets in the AMCORE Vintage Mutual Funds totaled $877 million.



The TAM Segment represented 9.7%, 12.0% and 15.6% of total segment Operating Profit in 2002, 2001 and 2000, respectively.



Mortgage Banking



The Mortgage Banking Segment (Mortgage) provides a variety of mortgage
lending products to meet its customer needs. It sells these loans to the BANK and the secondary market and continues to service most of the loans sold.



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The Mortgage Segments
Operating Profit was $2.3 million in 2002, compared to $2.9 in 2001, a decline of $530,000 or 18.6%. This follows an increase of $1.3 million or 88.3% from $1.5 million in 2000. The 2002 decrease was primarily attributable to higher operating costs
and lower non-interest income.



Net interest income increased
$228,000 during 2002. This was primarily due to higher average mortgage loans held for sale in 2002 compared to 2001, net of associated funding costs.



Non-interest income for 2002, which for the Mortgage Segment is net of servicing right amortization and impairment, declined $302,000 from 2001. Closing
volumes were $718.0 million in 2002, a second consecutive year of record closings, compared to $634.2 million in 2001. Increased amortization and impairment of servicing rights, due to the accelerated run-off of the portfolio and increasing
prepayment speeds, and a lower-of-cost-or-market write-down on mortgages held for sale more than offset otherwise strong revenue gains from the increased volumes.



Operating expenses increased $791,000 in 2002 compared to 2001. The increase was primarily due to higher commissions that
were paid due to the increase in mortgage volumes. Other increases in personnel costs, due to the transfer of the mortgage originators from the Retail Segment, were essentially offset by the elimination of affiliate commissions due to the transfer.



The unpaid principal balance of mortgage loans serviced at
December 31, 2002, including loans held for sale and loans serviced for the BANK, was unchanged from a year ago at $1.35 billion.



The Mortgage Segment represented 6.1%, 9.8% and 4.0% of total segment Operating Profit in 2002, 2001 and 2000, respectively.



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 secured
deposits and borrowings, paying dividends to shareholders, 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 from operations; and access to other funding sources. Other funding sources include brokered CDs, federal funds purchased lines (FED funds),
Federal Home Loan Bank (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 2002, dividends from subsidiaries amounted to $30.5 million, compared to $45.1 million in 2001. While the BANK is limited in the
amount of dividends it can pay, as of December 31, 2002, approximately $28.6 million was available for payment to the parent in the form of dividends without prior regulatory approval.



Cash and Cash Equivalents



Cash and cash equivalents increased $11.0 million from December 31, 2001 to December 31, 2002, as the net cash provided from financing activities of
$426.1 million, plus the cash provided from operating activities of



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$86.7 million more than offset the net cash used for investing activities of $501.8 million during 2002. This compares to an increase in cash
and cash equivalents of $15.4 million from December 31, 2000 to December 31, 2001, as the net cash provided from investing activities of $227.1 million more than offset the net cash used for financing activities of $203.4 million, plus the net cash
used in operating activities of $8.3 million during 2001.



The
$86.7 million of cash provided from operating activities during 2002 contrasts with $8.3 million in net cash used during 2001, representing a $94.9 million increase in cash provided between the two years. The change was attributable to a $98.8
million 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 $501.8 million of cash used for investing activities during 2002 contrasts
with $227.1 million provided in 2001, for an increase of $728.9 million in cash used between the two years. This was primarily the result of a $490.5 million net increase in loans and leases and a $224.0 million decrease in the amount of proceeds
from investment sales. The net increase in loans and leases was due in large part to Branch Expansion in 2002 compared to Branch Sales in 2001, while the decrease in proceeds from investment sales was mainly due to the 2001 Security Portfolio
Restructuring.



The $426.1 million of cash provided by financing
activities during 2002 contrasts with $203.4 million used during 2001, or an increase of $629.5 million in cash provided. This was primarily the result of a $480.8 million net increase in cash provided by demand, savings and time deposit accounts,
$93.1 million in cash required in 2001 to fund the Branch Sales and a $38.2 million decrease in cash used for net treasury stock repurchases. The net increase in deposit accounts reflects company-wide initiatives to attract additional core deposits
as well as the Branch Expansion in 2002 compared to the Branch Sales in 2001. The decrease in cash used to fund treasury stock repurchases is due to the completion of the Companys Stock Repurchase Programs.



Securities



Total securities as of December 31, 2002 were $1.17 billion, an increase of
$85.8 million or 7.9% from the prior year-end. At December 31, 2002 and 2001, the total securities portfolio comprised 28.3% and 29.6%, respectively, of total earning assets.



In connection with the adoption of SFAS No. 133 on January 1, 2001, $10.7 million of held to maturity securities were
reclassified to available for sale. Thus, as of December 31, 2002, all securities are classified as available for sale. The Company believes the reclassification will improve AMCOREs ability to manage interest rate and liquidity risk.
Fluctuations in the unrealized gain or loss component of total stockholders equity may result; however, federal banking regulations generally exclude this component from regulatory risk-based capital calculations.



The securities portfolio serves an important role in the overall context of
balance sheet management in terms of balancing capital utilization and liquidity. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment,
liquidity and credit considerations. The portfolios scheduled maturities and the prepayment of mortgage and asset backed securities represent a significant source of liquidity. Approximately $24.2 million, or 2.1%, of the securities portfolio
will contractually mature in 2003. 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
with or without penalties. For example, scheduled maturities for 2002, excluding mortgage and asset backed securities, were $36.1 million, whereas proceeds from actual maturities, which included prepayments of mortgage and asset backed securities,
were $366.5 million. This compares to proceeds of $336.7 million and $175.9 million in 2001 and 2000, respectively. As of December 31, 2002, $264.8 million of investment securities were unpledged and available as a source of liquidity.



Mortgage and asset backed securities as of December 31, 2002 totaled $849.6
million and represent 72.4% of total securities. The distribution of mortgage and asset backed securities includes $438.5 million of U.S.



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government agency mortgage-backed pass through securities, $313.8 million of agency collateralized mortgage obligations and $97.2 million of
private issue collateral mortgage obligations, all of which are rated AAA except for $7.6 million of securities rated either Aa2 and A2.



At December 31, 2002, securities available for sale totaled $1.17 billion, which included gross unrealized gains of $35.3 million and gross unrealized
losses of $4.0 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, 2001, gross unrealized gains of $10.7 million and
gross unrealized losses of $6.2 million were included in the securities available for sale portfolio. There were no held to maturity securities at December 31, 2002. For further analysis of the securities portfolio see Table 4 and Note 3 of
the Notes to Consolidated Financial Statements.



Loans
and Leases Held for Sale



At December 31, 2002, mortgage
origination fundings awaiting delivery to the secondary market were $79.9 million, compared to $101.8 million at December 31, 2001. Residential mortgage loans are originated by AMCOREs mortgage segment, of which non-conforming adjustable rate,
fixed-rate and balloon residential mortgages are normally sold to 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. In 2002, closing volumes were $718.0 million, compared to $634.2 million in 2001. Continued strong performance is expected in 2003, although not at the levels experienced during 2002 and 2001. Outstanding residential
mortgage commitments, a potential use of liquidity, were $99.8 million at December 31, 2002.



Loans and Leases



Loans represent the largest component of AMCOREs earning asset base, while the funding of loan originations is its most significant liquidity need. At December 31, 2002, total loans and leases were $2.88 billion, an
increase of $406.5 million or 16.4% as compared to 2001. Average loans increased $147.1 million or 5.8% during 2002. See Table 2 and Note 4 of the Notes to Consolidated Financial Statements.



Total real estate loans increased $191.8 million or 14.5%, and was net of a
$50.7 million decline in residential real estate loans. Installment and consumer loans increased $161.6 million or 36.5%. Commercial, financial and agricultural loans increased $55.5 million or 7.9%. The Branch Expansion and indirect automobile loan
volumes were the primary reasons for the increase in loan balances. Residential real estate loan balances continue to be affected by refinancings, as mortgage interest rates continued at forty-year lows.



The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 3 shows selected loan maturity data as of December 31, 2002. The increasing indirect automobile loan balances, which at December 31, 2002 were $505.8 million, represent a potential source of liquidity through an additional
Loan Securitization. In addition to same branch and Branch Expansion loan growth, potential uses of liquidity include $587.4 million in commitments to extend credit and $161.4 in standby and performance letters of credit.



Deposits



Total deposits at December 31, 2002, were $3.29 billion, an increase of $400.9 million or 13.9% when compared to 2001.
Average deposits increased $154.9 million or 5.3% during 2002.



Core deposits, which exclude brokered CDs, are considered by management to be the primary, most stable and cost-effective source of funding and liquidity. Total core deposits were $2.77 billion at the end of 2002, a $148.1



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million or 5.6% increase from the prior year-end. The increase is attributable to company-wide initiatives to attract additional core
deposits as well as the Branch Expansion. Core deposits represent 84.2% and 90.7% of total deposits at December 31, 2002 and 2001, respectively. Table 5 shows the maturity distribution of time deposits $100,000 and over. Although it has no
commitment from brokered deposit sources, the BANK has capacity, over time, to place sufficient amounts of additional brokered CDs as a source of mid to long-term liquidity.



Borrowings



Borrowings totaled $781.3 million at year-end 2002 and were comprised of $595.5 million of short-term and $185.8 million of long-term borrowings. See
Notes 9 and 10 of the Notes to Consolidated Financial Statements.



AMCORE has $25.0 million of capital securities outstanding through AMCORE Capital Trust I (Trust), a statutory business trust, of which all common securities are owned by AMCORE. 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 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 capital trust preferred securities with the coupon rate of 9.35 percent.
Prior to the Debt Extinguishment that occurred in 2001, $40.0 million of capital securities were outstanding.



The 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 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, 2002, $28.4 million in commercial paper was outstanding.



As of December 31, 2002, available sources of liquidity from borrowings included $144.9 million of unused FED funds lines, $70.4 million of FHLB advances,
unused collateral to sufficient to support $8.9 million in FED discount window advances and $21.6 million in unused commercial paper and backup line of credit borrowings.



ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT



AMCOREs credit risk is centered in the loan and lease portfolio, which
on December 31, 2002 totaled $2.88 billion, or 69.6%, 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 $108.9 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 and Lease
Losses



The determination by management of the appropriate
level of the Allowance (see Critical Accounting Policies discussion) amounted to $35.2 million at December 31, 2002, compared to $33.9 million at December 31, 2001, an increase of $1.3 million or 3.8%. A detailed analysis of the Allowance and the
allocation of the Allowance by category for the past five years are shown in Table 2.



Allocations of the Allowance for commercial, financial and agricultural loans declined $666,000, primarily reflecting additions to the Allowance in 2001 that were prompted by concerns about delinquencies,



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concentrations and the economys impact on the commercial portfolio. Comparable additions were not necessary during 2002. Allocations of
the Allowance for real estate loans increased $355,000 primarily due to an increase in historical loss factors on increasing commercial real estate balances. Allocations of the Allowance for installment and consumer loans increased $435,000. This
increase was attributable to the impact of historical loss factors on increasing balances. Allocations for specifically identified impaired loans increased $1.5 million during the year. Over 50% of the allocation for impaired loans relate to five
credits. The amount of the unallocated Allowance declined $329,000 from one year ago to $1.5 million.



As of December 31, 2002, the Allowance as a percent of total loans and of non-accrual loans was 1.22% and 108%, respectively. These compare to the same ratios for the prior year of 1.37% and 128%. Net
charge-offs as a percent of average loans decreased to 42 basis points for 2002 versus 44 basis points in 2001. Commercial net charge-offs declined $1.5 million in 2002, compared to 2001, and reflects the settlement activity that occurred in 2001.
Installment and consumer loan net charge-offs increased $1.4 million, 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-performing Assets



Non-performing assets consist of non-accrual loans, other real estate owned
and other foreclosed assets. Non-performing assets totaled $38.0 million as of year-end 2002, an increase of $4.2 million or 12.4% from the $33.8 million at year-end 2001. Total non-performing assets represented 0.84% of total assets at December 31,
2002 and December 31, 2001.



Non-accrual loans increased $6.1
million or 23.0% to total $32.5 million at December 31, 2002, when compared to the prior year-end. As of December 31, 2002, non-accrual loans to total loans were 1.13% compared to 1.07% at year-end 2001. Table 2 presents non-accrual loans for each
of the past five years.



Foreclosed real estate and other
foreclosed assets declined $1.9 million, or 25.8%, to $5.4 million at December 31, 2002, when compared to year-end 2001. The decrease is primarily attributable to the sale of two large foreclosures that occurred in 2001; one a hotel loan and the
other a condominium complex.



Loans 90 days or more past due and
still accruing interest were $3.6 million at December 31, 2002, a decline of $10.4 million from the $14.0 million at December 31, 2001. These amounts represented 0.12% and 0.57% of loans outstanding as of the end of 2002 and 2001, respectively.



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 $761.0 million at December 31, 2002, and comprised 26.4% of gross loans, of which 1.48% were
non-performing. Net charge-offs of commercial loans represented 0.45% during 2002, and 0.70% during 2001, of the year-end balance of the category.



Construction, commercial real estate loans, and loans for farmland were $1.1 billion at December 31, 2002, comprising 37.0% of gross loans, of which 1.26%
were classified as non-performing. Net charge-offs of this category of loans represent 0.12% during 2002, and 0.18% during 2001, of the year-end balance of the category.



Residential real estate loans, which includes home equity and permanent residential financing, totaled $449.3 million at
December 31, 2002, and represent 15.6% of gross loans, of which 1.39% were non-performing. Net charge-offs of residential real estate loans represent 0.24% of the category total in 2002 and 0.17% of the year-end balance in 2001.



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Installment and consumer loans
were $604.7 million at December 31, 2002, and comprised 21.0% of gross loans, of which 0.22% were non-performing. Net charge-offs of consumer loans represented 0.85% and 0.83% of the year-end category total for 2002 and 2001, respectively. Consumer
loans are comprised primarily of in-market indirect auto loans and direct installment loans. Indirect auto loans totaled $506.0 million at December 31, 2002. Both direct loans and indirect auto loans are approved and funded through a centralized
underwriting unit utilizing the same credit scoring system and related policies to provide a standard and consistent methodology for the extension of credit.



CAPITAL MANAGEMENT



Capital Management



Total stockholders equity at December 31, 2002, was $355.7 million, an increase of $54.0 million or 17.9% from December 31, 2001. The increase in
stockholders equity was primarily due to $27.6 million in earnings for the year in excess of dividends paid and an increase in OCI of $22.6 million. The increase in OCI relates to increases $16.3 million in net after-tax unrealized gains on
the Companys available for sale investment portfolio and $5.0 million of net after-tax mark-to-market adjustments on cash flow hedges.



AMCORE paid $15.8 million of cash dividends during 2002, which represent $0.64 per share, or a dividend payout ratio of 36.4%. This compares to $0.64 per
share paid in 2001, which represented a payout ratio of 38.7%. The book value per share increased $2.09 per share to $14.35 at December 31, 2002, up from $12.26 at December 31, 2001.



During 2002, 2001 and 2000 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. During 2000, the Company repurchased 2.0 million shares at an average price of $19.43. No shares
remain to be purchased under any Stock Repurchase Program.



AMCORE has outstanding $25.0 million of capital securities through AMCORE Capital Trust I (Trust), a statutory business trust, of which all common securities are owned by AMCORE. The capital securities qualify as Tier 1 capital for
regulatory capital purposes.



The BANK is considered a
well-capitalized institution based on regulatory guidelines. AMCOREs ratio of Tier 1 capital at 9.95% and total risk based capital at 10.97% significantly exceed the regulatory minimums (as the following table indicates), as of
December 31, 2002. See Note 20 of the Notes to Consolidated Financial Statements.



|(Dollars in thousands)                 |  | December 31, 2002 |           |       | December 31, 2001 |  
|-------------------------------------- |  | ----------------- | --------- | ----- | ----------------- | -
|                                       |  | Amount            |           | Ratio |                   |  
|Tier 1 Capital                         |  | $                 | 343,253   |       | 9.95              | %
|Tier 1 Capital Minimum                 |  |                   | 137,977   |       | 4.00              | %
|                                       |  |                   |           |       |                   |  
|Amount in Excess of Regulatory Minimum |  | $                 | 205,276   |       | 5.95              | %
|                                       |  |                   |           |       |                   |  
|                                      
|                                       |  | Amount            |           | Ratio |                   |  
|Total Capital                          |  | $                 | 378,688   |       | 10.98             | %
|Total Capital Minimum                  |  |                   | 275,954   |       | 8.00              | %
|                                       |  |                   |           |       |                   |  
|Amount in Excess of Regulatory Minimum |  | $                 | 102,734   |       | 2.98              | %
|                                       |  |                   |           |       |                   |  
|Risk Adjusted Assets                   |  | $                 | 3,449,428 |       |                   |  
|                                       |  |                   |           |       |                   |  



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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 continue to 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 2002, 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, 2002. 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 portfolios 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 profitability, liquidity and interest rate risk, there are opportunities to enhance revenues through
controlled 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, loan and deposit pricing compared to its competition, 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. 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.



Management will, from
time-to-time, use derivative contracts to help manage its exposure to interest rate risk by modifying the existing interest rate risk characteristics of certain assets and liabilities. The derivatives most commonly utilized in the asset/liability
management program are described in Note 11 of the Notes to Consolidated Financial Statements. 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.



36



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The total notional amount of
swap contracts outstanding was $90.0 million and $130.0 million as of December 31, 2002 and 2001, respectively. As of December 31, 2002, swap contracts had an aggregate positive carrying and fair value of $3.9 million. The total notional amount of
collars outstanding was zero at December 31, 2002, versus $10.0 million outstanding as of the end of 2001. The total notional amount of caps outstanding was $40.0 million at December 31, 2002, with $60.0 million of outstanding caps as of the end of
2001. As of the end of 2002, the caps had an aggregate carrying and fair value of $2,000. 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 increase in net interest income for 2003 would be approximately $3.3 million or 2.12% 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 2001, comparable assumptions would have resulted in a potential decrease in 2002 net income of $566,000 or 0.41%. AMCORE has moved to an asset sensitive position with net
interest income projected to increase if rates were to rise. This shift reflects the Companys repositioning of its balance sheet in anticipation of economic recovery and increased interest rates. A material factor in this repositioning is the
significant increase in the amount of floating rate commercial loans on the balance sheet. At December 31, 2001, variable-rate loans comprised 40% of the commercial loan portfolio. At December 31, 2002, this percentage had increased to 54%.



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 2003 of $7.7 million or 5.01% of base forecasted net interest income. At the end of 2001, a similar decrease in rates would have
resulted in a potential decrease in net interest income of $3.1 million or 2.24%. AMCOREs sensitivity to declining interest rates has more than doubled since the end of 2001. With further declines in interest rates the decrease in asset yields
would outpace liability rate reductions due to compression on non-maturity and indexed liability products, the increased volume of floating-rate commercial loans, and the negative convexity of the mortgage-backed products.



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.



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TABLE 1

ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET



|                                             |  | Years Ended December 31, |          
|-------------------------------------------- |  | ------------------------ | ---------
|                                             |  | 2002                     |          
|                                             |  | Average Balance          |          
|                                             |  | (dollars in thousands)   |          
|Assets                                       |  |                          |          
|Interest-Earning Assets:                     |  |                          |          
|Taxable securities                           |  | $                        | 932,227  
|Tax-exempt securities (1)                    |  |                          | 234,514  
|                                             |  |                          |          
|Total Securities (2)                         |  | $                        | 1,166,741
|Loans held for sale (3)                      |  |                          | 51,644   
|Loans (1) (4)                                |  |                          | 2,665,875
|Other earning assets                         |  |                          | 15,061   
|Fees on loans held for sale (3)              |  |                          |         
|                                             |  |                          |          
|Total Interest-Earning Assets                |  | $                        | 3,899,321
|Non Interest-Earning Assets                  |  |                          | 343,178  
|                                             |  |                          |          
|Total Assets                                 |  | $                        | 4,242,499
|                                             |  |                          |          
|Liabilities and Stockholders Equity         |  |                          |          
|Interest-Bearing Liabilities:                |  |                          |          
|Interest-bearing demand and savings deposits |  | $                        | 1,086,721
|Time deposits                                |  |                          | 1,637,285
|                                             |  |                          |          
|Total interest-bearing deposits              |  | $                        | 2,724,006
|Short-term borrowings                        |  |                          | 540,548  
|Long-term borrowings                         |  |                          | 212,997  
|                                             |  |                          |          
|Total Interest-Bearing Liabilities           |  | $                        | 3,477,551
|Noninterest-Bearing Liabilities:             |  |                          |          
|Demand deposits                              |  |                          | 361,327  
|Other liabilities                            |  |                          | 74,073   
|                                             |  |                          |          
|Total Liabilities                            |  | $                        | 3,912,951
|Stockholders Equity                         |  |                          | 329,548  
|                                             |  |                          |          
|Total Liabilities and Stockholders Equity   |  | $                        | 4,242,499
|                                             |  |                          |          
|Net Interest Income (FTE)                    |  |                          |          
|                                             |  |                          |          
|Net Interest Spread (FTE)                    |  |                          |          
|                                             |  |                          |          
|Interest Rate Margin (FTE)                   |  |                          |          
|                                             |  |                          |          



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|                                                |  | Years Ended December 31,           |       
|----------------------------------------------- |  | ---------------------------------- | ------
|                                                |  | 2002/2001                          |       
|                                                |  | Increase (Decrease) Average Volume |       
|                                                |  | (in thousands)                     |       
|Interest Income:                                |  |                                    |       
|Taxable securities                              |  | $                                  | 3,268 
|Tax-exempt securities (1)                       |  |                                    | (2,696
|                                                |  |                                    |       
|Total Securities (2)                            |  |                                    | 1,111 
|Loans held for sale (3)                         |  |                                    | 261   
|Loans (1) (4)                                   |  |                                    | 11,509
|Other earning assets                            |  |                                    | (273  
|Fees on loans held for sale (3)                 |  |                                    |      
|                                                |  |                                    |       
|Total Interest-Earning Assets                   |  | $                                  | 11,917
|                                                |  |                                    |       
|Interest Expense:                               |  |                                    |       
|Interest-bearing demand and savings deposits    |  | $                                  | 1,103 
|Time deposits                                   |  |                                    | 3,858 
|                                                |  |                                    |       
|Total interest-bearing deposits                 |  |                                    | 6,304 
|Short-term borrowings                           |  |                                    | 3,916 
|Long-term borrowings                            |  |                                    | (4,573
|                                                |  |                                    |       
|Total Interest-Bearing Liabilities              |  | $                                  | 7,266 
|                                                |  |                                    |       
|Net Interest Margin / Net Interest Income (FTE) |  | $                                  | 4,651 
|                                                |  |                                    |       



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, $3.3 million, and
$3.1 million for 2002, 2001, and 2000, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TABLE 2



ANALYSIS OF LOAN AND LEASE PORTFOLIO AND LOSS EXPERIENCE



|                                                            |  | 2002           |           |   | 2001 |   |           | 2000 |  |   | 1999      |   |  | 1998 |          
|----------------------------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ---------
|                                                            |  | (in thousands) |          
|LOAN AND LEASE PORTFOLIO AT YEAR END:                       |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Commercial, financial and agricultural                      |  | $              | 760,950   |   |      | $ | 705,486   |      |  | $ | 697,056   |   |  | $    | 710,302  
|Real estate                                                 |  |                | 1,374,333 |   |      |   | 1,224,989 |      |  |   | 1,425,098 |   |  |      | 1,422,149
|Real estate-construction                                    |  |                | 142,844   |   |      |   | 100,349   |      |  |   | 111,156   |   |  |      | 121,216  
|Installment and consumer                                    |  |                | 604,663   |   |      |   | 443,106   |      |  |   | 390,970   |   |  |      | 489,586  
|Direct lease financing                                      |  |                | 927       |   |      |   | 3,263     |      |  |   | 2,877     |   |  |      | 3,489    
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Gross Loans and Leases                                      |  | $              | 2,883,717 |   |      | $ | 2,477,193 |      |  | $ | 2,627,157 |   |  | $    | 2,746,742
|Unearned income                                             |  |                |          |   |      |   |          |      |  |   |          |   |  |      | (129     
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Loans and leases, net of unearned income                    |  | $              | 2,883,717 |   |      | $ | 2,477,193 |      |  | $ | 2,627,157 |   |  | $    | 2,746,613
|Allowance for loan and lease losses                         |  |                | (35,214   | ) |      |   | (33,940   | )    |  |   | (29,157   | ) |  |      | (28,377  
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net Loans and Leases                                        |  | $              | 2,848,503 |   |      | $ | 2,443,253 |      |  | $ | 2,598,000 |   |  | $    | 2,718,236
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|SUMMARY OF LOSS EXPERIENCE:                                 |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Allowance for loan and lease losses, beginning of year      |  | $              | 33,940    |   |      | $ | 29,157    |      |  | $ | 28,377    |   |  | $    | 26,403   
|Allowance for loan and lease losses acquired through merger |  |                |          |   |      |   |          |      |  |   |          |   |  |      |         
|Amounts charged-off:                                        |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Commercial, financial and agricultural                      |  |                | 3,876     |   |      |   | 5,332     |      |  |   | 3,401     |   |  |      | 5,055    
|Real estate                                                 |  |                | 2,673     |   |      |   | 2,500     |      |  |   | 1,663     |   |  |      | 965      
|Installment and consumer                                    |  |                | 6,142     |   |      |   | 4,858     |      |  |   | 4,639     |   |  |      | 4,068    
|Direct lease financing                                      |  |                | 397       |   |      |   | 163       |      |  |   | 148       |   |  |      | 221      
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Total Charge-offs                                           |  | $              | 13,088    |   |      | $ | 12,853    |      |  | $ | 9,851     |   |  | $    | 10,309   
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Recoveries on amounts previously charged off:               |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Commercial, financial and agricultural                      |  |                | 448       |   |      |   | 411       |      |  |   | 691       |   |  |      | 424      
|Real estate                                                 |  |                | 297       |   |      |   | 202       |      |  |   | 98        |   |  |      | 48       
|Installment and consumer                                    |  |                | 1,026     |   |      |   | 1,190     |      |  |   | 1,188     |   |  |      | 1,258    
|Direct lease financing                                      |  |                | 17        |   |      |   | 12        |      |  |   | 12        |   |  |      | 3        
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Total Recoveries                                            |  | $              | 1,788     |   |      | $ | 1,815     |      |  | $ | 1,989     |   |  | $    | 1,733    
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Net Charge-offs                                             |  | $              | 11,300    |   |      | $ | 11,038    |      |  | $ | 7,862     |   |  | $    | 8,576    
|Provision charged to expense                                |  |                | 12,574    |   |      |   | 16,700    |      |  |   | 9,710     |   |  |      | 10,550   
|Reductions due to sale of loans                             |  |                |          |   |      |   | 879       |      |  |   | 1,068     |   |  |      |         
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Allowance for Loan and Lease Losses, end of year            |  | $              | 35,214    |   |      | $ | 33,940    |      |  | $ | 29,157    |   |  | $    | 28,377   
|                                                            |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|RISK ELEMENTS:                                              |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Non-accrual loans                                           |  | $              | 32,535    |   |      | $ | 26,457    |      |  | $ | 22,069    |   |  | $    | 17,829   
|Past due 90 days or more not included above                 |  | $              | 3,555     |   |      | $ | 14,001    |      |  | $ | 13,136    |   |  | $    | 10,197   
|Troubled debt restructuring                                 |  | $              | 3,327     |   |      | $ |          |      |  | $ |          |   |  | $    |         
|RATIOS:                                                     |  |                |           |   |      |   |           |      |  |   |           |   |  |      |          
|Allowance for loan and lease losses to year-end loans       |  |                | 1.22      | % |      |   | 1.37      | %    |  |   | 1.11      | % |  |      | 1.03     
|Allowance to non-accrual loans                              |  |                | 108.24    | % |      |   | 128.28    | %    |  |   | 132.12    | % |  |      | 159.16   
|Net charge-offs to average loans                            |  |                | 0.42      | % |      |   | 0.44      | %    |  |   | 0.29      | % |  |      | 0.33     
|Recoveries to charge-offs                                   |  |                | 13.66     | % |      |   | 14.12     | %    |  |   | 20.19     | % |  |      | 16.81    
|Non-accrual loans to loans, net of unearned income          |  |                | 1.13      | % |      |   | 1.07      | %    |  |   | 0.84      | % |  |      | 0.65     



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



|                                       |  | 2002           |        |                              | 2001  |   |        | 2000 |                              |  | 1999  |        |  | 1998                         |       
|-------------------------------------- |  | -------------- | ------ | ---------------------------- | ----- | - | ------ | ---- | ---------------------------- |  | ----- | ------ |  | ---------------------------- | ------
|                                       |  | Amount         |        | Percent of Loans in Category |       |   | Amount |      | Percent of Loans in Category |  |       | Amount |  | Percent of Loans in Category |       
|                                       |  | (in thousands) |       
|Commercial, financial and agricultural |  | $              | 15,470 |                              | 26.4  | % |        | $    | 16,136                       |  | 28.6  | %      |  | $                            | 13,065
|Real estate                            |  |                | 4,881  |                              | 52.6  |   |        |      | 4,526                        |  | 53.5  |        |  |                              | 3,940 
|Installment and consumer               |  |                | 7,794  |                              | 21.0  |   |        |      | 7,359                        |  | 17.9  |        |  |                              | 6,322 
|Impaired loans                         |  |                | 5,575  |                              | *     |   |        |      | 4,096                        |  | *     |        |  |                              | 3,457 
|Unallocated                            |  |                | 1,494  |                              | *     |   |        |      | 1,823                        |  | *     |        |  |                              | 2,373 
|                                       |  |                |        |                              |       |   |        |      |                              |  |       |        |  |                              |       
|Total                                  |  | $              | 35,214 |                              | 100.0 | % |        | $    | 33,940                       |  | 100.0 | %      |  | $                            | 29,157
|                                       |  |                |        |                              |       |   |        |      |                              |  |       |        |  |                              |       

---

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



TABLE 3



MATURITY AND INTEREST SENSITIVITY OF LOANS



|                                       |  | December 31, 2002         
|-------------------------------------- |  | --------------------------
|                                       |  | Time Remaining to Maturity
|                                       |  | Due Within One Year       
|                                       |  | (in thousands)            
|Commercial, financial and agricultural |  | $                         
|Real estate-construction               |  |                           
|                                       |  |                           
|Total                                  |  | $                         
|                                       |  |                           



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TABLE 4



MATURITY OF SECURITIES



|                                    |  | December 31, 2002 |      
|----------------------------------- |  | ----------------- | -----
|                                    |  | U.S. Treasury     |      
|                                    |  | Amount            |      
|                                    |  | (in thousands)    |      
|Securities Available for Sale (2):  |  |                   |      
|One year or less                    |  | $                 | 5,017
|After one through five years        |  |                   |     
|After five through ten years        |  |                   |     
|After ten years                     |  |                   |     
|Mortgage-backed and asset-backed    |  |                   |      
|securities (3)                      |  |                   |     
|                                    |  |                   |      
|Total Securities Available for Sale |  | $                 | 5,017
|                                    |  |                   |      

---

|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



TABLE 5



MATURITY OF TIME DEPOSITS $100,000 OR MORE



|                        |  | December 31, 2002         
|----------------------- |  | --------------------------
|                        |  | Time Remaining to Maturity
|                        |  | Due Within Three Months   
|                        |  | (in thousands)            
|                       
|Certificates of deposit |  | $                         
|Other time deposits     |  |                           
|                        |  |                           
|Total                   |  | $                         
|                        |  |                           



42



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##### Table of Contents

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, caps, and collars, 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, 2002:                            |  | 2003                   |           |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | 2007 |         |   | There-after |   |         | Total |  |   | Fair Value
|------------------------------------------------ |  | ---------------------- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ----------- | - | ------- | ----- |  | - | ----------
|                                                 |  | (dollars in thousands)
|Rate Sensitive Assets:                           |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Fixed Interest Rate Loans                        |  | $                      | 648,894   |   |      | $ | 371,640 |      |  | $ | 241,043 |   |  | $    | 183,531 |   |             | $ | 131,763 |       |  | $ | 57,605    
|Average Interest Rate                            |  |                        | 6.95      | % |      |   | 7.42    | %    |  |   | 7.09    | % |  |      | 7.01    | % |             |   | 6.88    | %     |  |   | 6.47      
|Variable Interest Rate Loans                     |  |                        | 545,570   |   |      |   | 155,716 |      |  |   | 139,432 |   |  |      | 104,808 |   |             |   | 164,874 |       |  |   | 138,841   
|Average Interest Rate                            |  |                        | 5.16      | % |      |   | 4.96    | %    |  |   | 5.00    | % |  |      | 4.79    | % |             |   | 4.73    | %     |  |   | 5.12      
|Fixed Interest Rate Securities                   |  |                        | 472,469   |   |      |   | 189,686 |      |  |   | 94,207  |   |  |      | 88,780  |   |             |   | 56,355  |       |  |   | 227,336   
|Average Interest Rate                            |  |                        | 4.23      | % |      |   | 4.88    | %    |  |   | 5.13    | % |  |      | 5.04    | % |             |   | 5.34    | %     |  |   | 4.98      
|Variable Interest Rate Securities                |  |                        | 9,420     |   |      |   | 1,669   |      |  |   | 407     |   |  |      | 385     |   |             |   | 382     |       |  |   | 1,114     
|Average Interest Rate                            |  |                        | 3.96      | % |      |   | 3.71    | %    |  |   | 3.34    | % |  |      | 3.29    | % |             |   | 3.27    | %     |  |   | 3.27      
|Other Interest-Bearing Assets                    |  |                        | 6,351     |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   |        |       |  |   |          
|Average Interest Rate                            |  |                        | 1.20      | % |      |   |        |      |  |   |        |   |  |      |        |   |             |   |        |       |  |   |          
|                                                
|Rate Sensitive Liabilities:                      |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Non-Interest-bearing checking                    |  | $                      | 146,773   |   |      | $ | 40,090  |      |  | $ | 33,419  |   |  | $    | 27,881  |   |             | $ | 23,279  |       |  | $ | 120,704   
|Average Interest Rate                            |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   |        |       |  |   |          
|Savings & Interest-bearing checking              |  |                        | 795,444   |   |      |   | 68,602  |      |  |   | 53,199  |   |  |      | 43,261  |   |             |   | 32,380  |       |  |   | 123,134   
|Average Interest Rate                            |  |                        | 0.89      | % |      |   | 0.85    | %    |  |   | 0.83    | % |  |      | 0.93    | % |             |   | 0.81    | %     |  |   | 0.69      
|Time-deposits                                    |  |                        | 1,101,880 |   |      |   | 357,416 |      |  |   | 120,544 |   |  |      | 50,660  |   |             |   | 151,476 |       |  |   | 4,520     
|Average Interest Rate                            |  |                        | 3.89      | % |      |   | 4.27    | %    |  |   | 5.09    | % |  |      | 4.69    | % |             |   | 5.09    | %     |  |   | 1.68      
|Fixed Interest Rate Borrowings                   |  |                        | 376,282   |   |      |   | 96,843  |      |  |   | 15,682  |   |  |      | 11,710  |   |             |   | 25,316  |       |  |   | 118,100   
|Average Interest Rate                            |  |                        | 2.52      | % |      |   | 5.97    | %    |  |   | 6.51    | % |  |      | 5.27    | % |             |   | 9.32    | %     |  |   | 4.99      
|Variable Interest Rate Borrowings                |  |                        | 137,412   |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   |        |       |  |   |          
|Average Interest Rate                            |  |                        | 0.98      | % |      |   |        |      |  |   |        |   |  |      |        |   |             |   |        |       |  |   |          
|                                                
|Rate Sensitive Derivative Financial Instruments: |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Pay variable/received fixed swap                 |  | $                      |          |   |      | $ |        |      |  | $ |        |   |  | $    |        |   |             | $ | 10,000  |       |  | $ |          
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 1.18    | %     |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 5.15    | %     |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 10,000  |       |  |   |          
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 1.51    | %     |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 5.15    | %     |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 10,000  |       |  |   |          
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 1.67    | %     |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 4.35    | %     |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           
|Pay variable/received fixed swap                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 10,000  |       |  |   |          
|Average pay rate                                 |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 1.94    | %     |  |   |          
|Average receive rate                             |  |                        |          |   |      |   |        |      |  |   |        |   |  |      |        |   |             |   | 4.40    | %     |  |   |          
|Index: 3 mo. Libor-resets quarterly              |  |                        |           |   |      |   |         |      |  |   |         |   |  |      |         |   |             |   |         |       |  |   |           



43



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##### Table of Contents

|At December 31, 2002:                            |  | 2003                   |         |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | 2007 |         |   | Thereafter |   |         | Total |  |   | Fair Value |  
|------------------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | - | ---------- | -
|                                                 |  | (dollars in thousands) |        
|                                                
|Pay variable/received fixed swap                 |  | $                      |        |   |      | $ |        |      |  | $ |        |   |  | $    |        |   |            | $ |        |       |  | $ | 20,000     |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.78       | %
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 4.00       | %
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000     |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.39       | %
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 4.25       | %
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000     |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.35       | %
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 4.60       | %
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Pay variable/received fixed swap                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 10,000     |  
|Average pay rate                                 |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 1.37       | %
|Average receive rate                             |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   | 5.00       | %
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Interest rate caps                               |  |                        | 20,000  |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average strike rate                              |  |                        | 5.75    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Index: 3 mo. Treasury-resets monthly             |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Interest rate caps                               |  |                        |        |   |      |   | 20,000  |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average strike rate                              |  |                        |        |   |      |   | 8.00    | %    |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|At December 31, 2001:                            |  | 2002                   |         |   | 2003 |   |         | 2004 |  |   | 2005    |   |  | 2006 |         |   | Thereafter |   |         | Total |  |   | Fair Value |  
|                                                 |  | (dollars in thousands) |        
|Rate Sensitive Assets:                           |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Fixed Interest Rate Loans                        |  | $                      | 635,990 |   |      | $ | 354,016 |      |  | $ | 290,839 |   |  | $    | 105,270 |   |            | $ | 145,290 |       |  | $ | 61,701     |  
|Average Interest Rate                            |  |                        | 7.81    | % |      |   | 8.13    | %    |  |   | 7.71    | % |  |      | 7.84    | % |            |   | 7.30    | %     |  |   | 7.18       | %
|Variable Interest Rate Loans                     |  |                        | 423,708 |   |      |   | 129,204 |      |  |   | 95,914  |   |  |      | 59,398  |   |            |   | 75,798  |       |  |   | 100,065    |  
|Average Interest Rate                            |  |                        | 5.81    | % |      |   | 5.77    | %    |  |   | 5.57    | % |  |      | 5.64    | % |            |   | 5.44    | %     |  |   | 5.85       | %
|Fixed Interest Rate Securities                   |  |                        | 179,562 |   |      |   | 128,577 |      |  |   | 117,002 |   |  |      | 122,306 |   |            |   | 110,685 |       |  |   | 405,896    |  
|Average Interest Rate                            |  |                        | 5.63    | % |      |   | 5.65    | %    |  |   | 5.56    | % |  |      | 5.30    | % |            |   | 5.43    | %     |  |   | 6.29       | %
|Variable Interest Rate Securities                |  |                        | 1,951   |   |      |   | 4,348   |      |  |   | 3,583   |   |  |      | 2,983   |   |            |   | 2,490   |       |  |   | 3,863      |  
|Average Interest Rate                            |  |                        | 3.97    | % |      |   | 4.50    | %    |  |   | 4.50    | % |  |      | 4.48    | % |            |   | 4.47    | %     |  |   | 3.78       | %
|Other Interest-Bearing Assets                    |  |                        | 3,387   |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average Interest Rate                            |  |                        | 1.24    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|                                                
|Rate Sensitive Liabilities:                      |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Non-Interest-bearing checking                    |  | $                      | 150,781 |   |      | $ | 40,515  |      |  | $ | 33,763  |   |  | $    | 28,158  |   |            | $ | 23,502  |       |  | $ | 121,655    |  
|Average Interest Rate                            |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Savings & Interest-bearing checking              |  |                        | 809,131 |   |      |   | 37,558  |      |  |   | 30,263  |   |  |      | 26,439  |   |            |   | 20,152  |       |  |   | 102,765    |  
|Average Interest Rate                            |  |                        | 1.46    | % |      |   | 1.22    | %    |  |   | 1.20    | % |  |      | 1.33    | % |            |   | 1.14    | %     |  |   | 0.97       | %
|Time-deposits                                    |  |                        | 647,160 |   |      |   | 468,605 |      |  |   | 271,052 |   |  |      | 55,283  |   |            |   | 26,104  |       |  |   | 851        |  
|Average Interest Rate                            |  |                        | 4.93    | % |      |   | 5.71    | %    |  |   | 4.57    | % |  |      | 6.61    | % |            |   | 4.79    | %     |  |   | 6.83       | %
|Fixed Interest Rate Borrowings                   |  |                        | 294,115 |   |      |   | 82,950  |      |  |   | 95,150  |   |  |      | 15,681  |   |            |   | 11,700  |       |  |   | 142,376    |  
|Average Interest Rate                            |  |                        | 2.31    | % |      |   | 6.10    | %    |  |   | 6.01    | % |  |      | 6.50    | % |            |   | 5.26    | %     |  |   | 5.69       | %
|Variable Interest Rate Borrowings                |  |                        | 101,974 |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average Interest Rate                            |  |                        | 1.82    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|                                                
|Rate Sensitive Derivative Financial Instruments: |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Pay fixed/received variable swap                 |  | $                      | 100,000 |   |      | $ |        |      |  | $ |        |   |  | $    |        |   |            | $ |        |       |  | $ |           |  
|Average pay rate                                 |  |                        | 5.96    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average receive rate                             |  |                        | 1.79    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Index: 90 day Treasury-resets monthly            |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  
|Pay fixed/received variable swap                 |  |                        | 30,000  |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average pay rate                                 |  |                        | 7.43    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Average receive rate                             |  |                        | 1.87    | % |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |           |  
|Index: 3 mo. Libor-resets quarterly              |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |            |   |         |       |  |   |            |  



44



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##### Table of Contents

|At December 31, 2001:                |  | 2002                   |        |   | 2003 |   |        | 2004 |  |   | 2005   |   | 2006 |   | Thereafter |  | Total |   |  | Fair Value |  
|------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - | ---- | - | ---------- |  | ----- | - |  | ---------- | -
|                                     |  | (dollars in thousands) |       
|                                    
|Interest rate caps                   |  | $                      |       |   |      | $ | 20,000 |      |  | $ |       |   |      | $ |           |  | $     |  |  | $          | 
|Average strike rate                  |  |                        |       |   |      |   | 5.75   | %    |  |   |       |   |      |   |           |  |       |  |  |            | 
|Index: 3 mo. Treasury-resets monthly |  |                        |        |   |      |   |        |      |  |   |        |   |      |   |            |  |       |   |  |            |  
|Interest rate caps                   |  |                        | 20,000 |   |      |   |       |      |  |   |       |   |      |   |           |  |       |  |  |            | 
|Average strike rate                  |  |                        | 6.75   | % |      |   |       |      |  |   |       |   |      |   |           |  |       |  |  |            | 
|Index: 3 mo. Treasury-resets monthly |  |                        |        |   |      |   |        |      |  |   |        |   |      |   |            |  |       |   |  |            |  
|Interest rate caps                   |  |                        |       |   |      |   |       |      |  |   | 20,000 |   |      |   |           |  |       |  |  |            | 
|Average strike rate                  |  |                        |       |   |      |   |       |      |  |   | 8.00   | % |      |   |           |  |       |  |  |            | 
|Index: 3 mo. Libor-resets quarterly  |  |                        |        |   |      |   |        |      |  |   |        |   |      |   |            |  |       |   |  |            |  
|Interest rate collars                |  |                        | 10,000 |   |      |   |       |      |  |   |       |   |      |   |           |  |       |  |  |            | 
|Floor rate                           |  |                        | 5.61   | % |      |   |       |      |  |   |       |   |      |   |           |  |       |  |  |            | 
|Cap rate                             |  |                        | 6.31   | % |      |   |       |      |  |   |       |   |      |   |           |  |       |  |  |            | 
|Index: 3 mo. Libor-resets monthly    |  |                        |        |   |      |   |        |      |  |   |        |   |      |   |            |  |       |   |  |            |  



The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, on January 1, 2001. This Statement outlines accounting and
reporting standards for derivative instruments and hedging activities.



Under this standard, 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 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.





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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                         |  | As of December 31,                |          
|------------------------------------------------------------------------ |  | --------------------------------- | ---------
|                                                                         |  | 2002                              |          
|                                                                         |  | (in thousands, except share data) |          
|ASSETS                                                                   |  |                                   |          
|Cash and cash equivalents                                                |  | $                                 | 145,224  
|Interest earning deposits in banks                                       |  |                                   | 2,151    
|Federal funds sold and other short-term investments                      |  |                                   | 4,200    
|Loans and leases held for sale                                           |  |                                   | 79,893   
|Securities available for sale                                            |  |                                   | 1,173,461
|Gross loans and leases                                                   |  |                                   | 2,883,717
|Allowance for loan and lease losses                                      |  |                                   | (35,214  
|                                                                         |  |                                   |          
|Net Loans and Leases                                                     |  | $                                 | 2,848,503
|Company owned life insurance                                             |  |                                   | 108,914  
|Premises and equipment, net                                              |  |                                   | 57,911   
|Goodwill                                                                 |  |                                   | 15,645   
|Foreclosed real estate                                                   |  |                                   | 3,415    
|Other assets                                                             |  |                                   | 81,397   
|                                                                         |  |                                   |          
|Total Assets                                                             |  | $                                 | 4,520,714
|                                                                         |  |                                   |          
|LIABILITIES                                                              |  |                                   |          
|Deposits:                                                                |  |                                   |          
|Demand deposits                                                          |  | $                                 | 1,372,446
|Savings deposits                                                         |  |                                   | 135,720  
|Other time deposits                                                      |  |                                   | 1,786,496
|                                                                         |  |                                   |          
|Total Deposits                                                           |  | $                                 | 3,294,662
|Short-term borrowings                                                    |  |                                   | 595,513  
|Long-term borrowings                                                     |  |                                   | 185,832  
|Other liabilities                                                        |  |                                   | 89,026   
|                                                                         |  |                                   |          
|Total Liabilities                                                        |  | $                                 | 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;              |  |                                   |          

|                                                             
|-------------------------------------------------------------
|                                                             
|Issued                                                       
|Outstanding                                                  
|Additional paid-in capital                                   
|Retained earnings                                            
|Deferred compensation                                        
|Treasury stock (20024,997,351 shares; 20015,136,888
shares)
|Accumulated other comprehensive income (loss)                
|                                                             
|Total Stockholders Equity                                   
|                                                             
|Total Liabilities and Stockholders Equity                   
|                                                             



See
accompanying notes to consolidated financial statements.





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AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME



|                                                                     |  | Years ended December 31,             
|-------------------------------------------------------------------- |  | -------------------------------------
|                                                                     |  | 2002                                 
|                                                                     |  | (in thousands, except per share data)
|INTEREST INCOME                                                      |  |                                      
|Interest and fees on loans and leases                                |  | $                                    
|Interest on securities:                                              |  |                                      
|Taxable                                                              |  |                                      
|Tax-exempt                                                           |  |                                      
|                                                                     |  |                                      
|Total Income from Securities                                         |  | $                                    
|Interest on federal funds sold and other short-term investments      |  |                                      
|Interest and fees on loans and leases held for sale                  |  |                                      
|Interest on deposits in banks                                        |  |                                      
|                                                                     |  |                                      
|Total Interest Income                                                |  | $                                    
|INTEREST EXPENSE                                                     |  |                                      
|Interest on deposits                                                 |  | $                                    
|Interest on short-term borrowings                                    |  |                                      
|Interest on long-term borrowings                                     |  |                                      
|                                                                     |  |                                      
|Total Interest Expense                                               |  | $                                    
|                                                                     |  |                                      
|Net Interest Income                                                  |  | $                                    
|Provision for loan and lease losses                                  |  |                                      
|                                                                     |  |                                      
|Net Interest Income After Provision for Loan and Lease Losses        |  | $                                    
|NON-INTEREST INCOME                                                  |  |                                      
|Trust and asset management income                                    |  | $                                    
|Service charges on deposits                                          |  |                                      
|Mortgage revenues                                                    |  |                                      
|Company owned life insurance income                                  |  |                                      
|Gain on branch sales                                                 |  |                                      
|Other                                                                |  |                                      
|                                                                     |  |                                      
|Total Non-Interest Income, Excluding Net Security Gains (Losses)     |  | $                                    
|Net security gains (losses)                                          |  |                                      
|                                                                     |  |                                      
|Total Non-Interest Income                                            |  | $                                    
|OPERATING EXPENSES                                                   |  |                                      
|Compensation expense                                                 |  | $                                    
|Employee benefits                                                    |  |                                      
|Net occupancy expense                                                |  |                                      
|Equipment expense                                                    |  |                                      
|Data processing expense                                              |  |                                      
|Professional fees                                                    |  |                                      
|Communication expense                                                |  |                                      
|Advertising and business development                                 |  |                                      
|Amortization of intangible assets                                    |  |                                      
|Other                                                                |  |                                      
|                                                                     |  |                                      
|Total Operating Expenses                                             |  | $                                    
|                                                                     |  |                                      
|Income Before Income Taxes, Extraordinary Item and Accounting
Change |  | $                                    
|Income taxes                                                         |  |                                      
|                                                                     |  |                                      
|Net Income Before Extraordinary Item and Accounting Change           |  | $                                    
|Extraordinary item: Early extinguishment of debt (net of tax)        |  |                                      
|Cumulative effect of accounting change (net of tax)                  |  |                                      
|                                                                     |  |                                      
|Net Income                                                           |  | $                                    
|                                                                     |  |                                      
|                                                                    
|EARNINGS PER COMMON SHARE (EPS)                                      |  |                                      
|Basic EPS                                                            |  |                                      
|Income Before Extraordinary Item and Accounting Change               |  | $                                    
|Extraordinary item: Early extinguishment of debt                     |  |                                      
|Cumulative effect of accounting change                               |  |                                      
|                                                                     |  |                                      
|Basic net income                                                     |  | $                                    
|                                                                     |  |                                      
|Diluted
EPS                                                          |  |                                      
|Income Before Extraordinary Item and Accounting Change               |  | $                                    
|Extraordinary item: Early extinguishment of debt                     |  |                                      
|Cumulative effect of accounting change                               |  |                                      
|                                                                     |  |                                      
|Diluted net income                                                   |  | $                                    
|                                                                     |  |                                      
|DIVIDENDS PER COMMON SHARE                                           |  | $                                    
|AVERAGE COMMON SHARES OUTSTANDING                                    |  |                                      
|Basic                                                                |  |                                      
|Diluted                                                              |  |                                      
|                                                                    



See
accompanying notes to consolidated financial statements



47



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AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



|                                                                                    |  | Common Stock                      |       | Additional Paid-in Capital |   |        | Retained Earnings |  |   | Deferred Compensation |   |  | Treasury Stock |        |   | Accumulated Other Comprehensive Income (Loss) |   |          | Total Stockholders' Equity | 
|----------------------------------------------------------------------------------- |  | --------------------------------- | ----- | -------------------------- | - | ------ | ----------------- |  | - | --------------------- | - |  | -------------- | ------ | - | --------------------------------------------- | - | -------- | -------------------------- | 
|                                                                                    |  | (in thousands, except share data) |      
|                                                                                   
|Balance at December 31, 1999                                                        |  | $                                 | 6,585 |                            | $ | 74,244 |                   |  | $ | 271,781               |   |  | $              | (1,533 | ) |                                               | $ | (30,442  | )                          | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Comprehensive Income:                                                               |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Net Income                                                                          |  |                                   |      |                            |   |       |                   |  |   | 43,083                |   |  |                |       |   |                                               |   |         |                            | 
|Unrealized holding gains on securities available for sale arising during the
period |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|Less reclassification adjustment for security gains included in net
income          |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|Income tax effect related to items of other comprehensive income                    |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Net unrealized gains on securities available for sale                               |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Comprehensive Income                                                                |  |                                   |      |                            |   |       |                   |  |   | 43,083                |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Cash dividends on common stock-$.64 per share                                       |  |                                   |      |                            |   |       |                   |  |   | (17,161               | ) |  |                |       |   |                                               |   |         |                            | 
|Purchase of 2,208,164 shares for the treasury                                       |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   | (42,882  | )                          | 
|Reissuance of 9,841 treasury shares under non-employee directors stock
plan         |  |                                   |      |                            |   | 4      |                   |  |   |                      |   |  |                | (6     | ) |                                               |   | 147      |                            | 
|Deferred compensation expense                                                       |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                | 524    |   |                                               |   |         |                            | 
|Reissuance of 182,694 treasury shares for incentive plans                           |  |                                   |      |                            |   | (120   | )                 |  |   |                      |   |  |                | (636   | ) |                                               |   | 3,792    |                            | 
|Issuance of 51,630 common shares for Employee Stock Plan                            |  |                                   | 11    |                            |   | 772    |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Balance at December 31, 2000                                                        |  | $                                 | 6,596 |                            | $ | 74,900 |                   |  | $ | 297,703               |   |  | $              | (1,651 | ) |                                               | $ | (69,385  | )                          | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Comprehensive Income:                                                               |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Net income before extraordinary item & accounting change                            |  |                                   |      |                            |   |       |                   |  |   | 42,222                |   |  |                |       |   |                                               |   |         |                            | 
|Early extinguishment of debt, net of tax                                            |  |                                   |      |                            |   |       |                   |  |   | (204                  | ) |  |                |       |   |                                               |   |         |                            | 
|                                                                                   
|Cumulative effect of accounting change, net of tax                                  |  |                                   |      |                            |   |       |                   |  |   | 225                   |   |  |                |       |   |                                               |   |         |                            | 
|Current period SFAS No. 133 transactions, net of tax                                |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|SFAS No. 133 reclassification to earnings, net of tax                               |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Net cumulative effect of SFAS No. 133                                               |  |                                   |      |                            |   |       |                   |  |   | 225                   |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Unrealized holding gains on securities available for sale arising during the
period |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|Less reclassification adjustment for security losses included in net
income         |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|Income tax effect related to items of other comprehensive income                    |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Net unrealized gains on securities available for sale                               |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Comprehensive Income (Loss)                                                         |  |                                   |      |                            |   |       |                   |  |   | 42,243                |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Cash dividends on common stock-$.64 per share                                       |  |                                   |      |                            |   |       |                   |  |   | (16,331               | ) |  |                |       |   |                                               |   |         |                            | 
|Purchase of 1,888,678 shares for the treasury                                       |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                |       |   |                                               |   | (40,644  | )                          | 
|Reissuance of 4,520 treasury shares under non-employee directors stock
plan         |  |                                   |      |                            |   | 17     |                   |  |   |                      |   |  |                | (110   | ) |                                               |   | 93       |                            | 
|Deferred compensation expense.                                                      |  |                                   |      |                            |   |       |                   |  |   |                      |   |  |                | 577    |   |                                               |   |         |                            | 
|Reissuance of 461,837 treasury shares for incentive plans                           |  |                                   |      |                            |   | (1,535 | )                 |  |   |                      |   |  |                | (923   | ) |                                               |   | 9,739    |                            | 
|Issuance of 39,394 common shares for Employee Stock Plan                            |  |                                   | 9     |                            |   | 663    |                   |  |   |                      |   |  |                |       |   |                                               |   |         |                            | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 
|Balance at December 31, 2001                                                        |  | $                                 | 6,605 |                            | $ | 74,045 |                   |  | $ | 323,615               |   |  | $              | (2,107 | ) |                                               | $ | (100,197 | )                          | 
|                                                                                    |  |                                   |       |                            |   |        |                   |  |   |                       |   |  |                |        |   |                                               |   |          |                            | 



48



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|                                                                                    |  | Common Stock |       | Additional Paid-in Capital |   |        | Retained Earnings                 |  |   | Deferred Compensation |   |  | Treasury Stock |       |   | Accumulated Other Comprehensive Income (Loss) |   |         | Total Stockholders' Equity | 
|----------------------------------------------------------------------------------- |  | ------------ | ----- | -------------------------- | - | ------ | --------------------------------- |  | - | --------------------- | - |  | -------------- | ----- | - | --------------------------------------------- | - | ------- | -------------------------- | 
|                                                                                    |  |              |       |                            |   |        | (in thousands, except share data) |  |   |                       |  
|Comprehensive Income:                                                               |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Net Income                                                                          |  |              |      |                            |   |       |                                   |  |   | 43,471                |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                   
|Current period SFAS No. 133 transactions, net of tax                                |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|SFAS No. 133 reclassification to earnings, net of tax                               |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Net cumulative effect of SFAS No. 133                                               |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Unrealized holding gains on securities available for sale arising during the
period |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|Less reclassification adjustment for security gains included in net
income          |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|Income tax effect related to items of other comprehensive income                    |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Net unrealized gains on securities available for sale                               |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Comprehensive Income                                                                |  |              |      |                            |   |       |                                   |  |   | 43,471                |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Cash dividends on common stock-$.64 per share                                       |  |              |      |                            |   |       |                                   |  |   | (15,839               | ) |  |                |      |   |                                               |   |        |                            | 
|Purchase of 109,448 shares for the treasury                                         |  |              |      |                            |   |       |                                   |  |   |                      |   |  |                |      |   |                                               |   | (2,412  | )                          | 
|Reissuance of 1,635 treasury shares under non-employee directors stock
plan         |  |              |      |                            |   | 5      |                                   |  |   |                      |   |  |                | (47   | ) |                                               |   | 42      |                            | 
|Deferred compensation expense and other                                             |  |              |      |                            |   | 778    |                                   |  |   |                      |   |  |                | 1,592 |   |                                               |   |        |                            | 
|Reissuance of 247,350 treasury shares for incentive plans                           |  |              |      |                            |   | (1,335 | )                                 |  |   |                      |   |  |                | 39    |   |                                               |   | 5,524   |                            | 
|Issuance of 46,468 common shares for Employee Stock Plan                            |  |              | 10    |                            |   | 833    |                                   |  |   |                      |   |  |                |      |   |                                               |   |        |                            | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 
|Balance at December 31, 2002                                                        |  | $            | 6,615 |                            | $ | 74,326 |                                   |  | $ | 351,247               |   |  | $              | (523  | ) |                                               | $ | (97,043 | )                          | 
|                                                                                    |  |              |       |                            |   |        |                                   |  |   |                       |   |  |                |       |   |                                               |   |         |                            | 







See accompanying notes to consolidated financial statements.



49



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AMCORE FINANCIAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                  |  | Years ended December 31, |         
|------------------------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                                  |  | 2002                     |         
|                                                                                                  |  | (in thousands)           |         
|Cash Flows From Operating Activities                                                              |  |                          |         
|Net income                                                                                        |  | $                        | 43,471  
|Extraordinary item: Early extinguishment of debt, net of tax                                      |  |                          |        
|Cumulative effect of accounting change, net of tax                                                |  |                          |        
|Gain on branch sales                                                                              |  |                          |        
|Adjustments to reconcile net income from operations to net cash provided by operating
activities: |  |                          |         
|Depreciation and amortization of premises and equipment                                           |  |                          | 5,921   
|Amortization and accretion of securities, net                                                     |  |                          | 6,772   
|Provision for loan and lease losses                                                               |  |                          | 12,574  
|Amortization of intangible assets                                                                 |  |                          | 141     
|Net securities (gains) losses                                                                     |  |                          | (2,503  
|Deferred income taxes (benefits)                                                                  |  |                          | (3,929  
|Net gain on sale of loans held for sale                                                           |  |                          | (11,886 
|Originations of loans held for sale                                                               |  |                          | (717,954
|Proceeds from sales of loans held for sale                                                        |  |                          | 751,778 
|Tax benefit on exercise of stock options                                                          |  |                          | (998    
|Other, net                                                                                        |  |                          | 3,278   
|                                                                                                  |  |                          |         
|Net cash provided by (used for) operating activities                                              |  | $                        | 86,665  
|                                                                                                  |  |                          |         
|Cash Flows From Investing Activities                                                              |  |                          |         
|Proceeds from maturities of securities available for sale                                         |  | $                        | 366,507 
|Proceeds from maturities of securities held to maturity                                           |  |                          |        
|Proceeds from sales of securities available for sale                                              |  |                          | 61,568  
|Purchase of securities available for sale                                                         |  |                          | (491,307
|Net (increase) decrease in federal funds sold and other short-term
investments                    |  |                          | (3,900  
|Net decrease (increase) in interest earning deposits in banks                                     |  |                          | 936     
|Proceeds from the sale of loans and leases                                                        |  |                          | 499     
|Net (increase) decrease in loans and leases                                                       |  |                          | (426,959
|Investment in company owned life insurance                                                        |  |                          | (3,248  
|Premises and equipment expenditures, net                                                          |  |                          | (14,248 
|Proceeds from the sale of foreclosed real estate                                                  |  |                          | 8,325   
|                                                                                                  |  |                          |         
|Net cash (used for) provided by investing activities                                              |  | $                        | (501,827
|                                                                                                  |  |                          |         
|Cash Flows From Financing Activities                                                              |  |                          |         
|Net increase in demand deposits and savings accounts                                              |  | $                        | 83,484  
|Net increase (decrease) in other time deposits                                                    |  |                          | 317,441 
|Net increase (decrease) in short-term borrowings                                                  |  |                          | 36,847  
|Proceeds from long-term borrowings                                                                |  |                          | 1,067   
|Payment of long-term borrowings                                                                   |  |                          | (515    
|Early extinguishment of debt                                                                      |  |                          |        
|Net payments to settle branch sales                                                               |  |                          |        
|Dividends paid                                                                                    |  |                          | (15,839 
|Issuance of common shares for employee stock plan                                                 |  |                          | 843     
|Reissuance of treasury shares for incentive plans                                                 |  |                          | 5,226   
|Purchase of shares for the treasury                                                               |  |                          | (2,412  
|                                                                                                  |  |                          |         
|Net cash provided by (used for) financing activities                                              |  | $                        | 426,142 
|                                                                                                  |  |                          |         
|Net change in cash and cash equivalents                                                           |  | $                        | 10,980  
|Cash and cash equivalents:                                                                        |  |                          |         
|Beginning of year                                                                                 |  |                          | 134,244 
|                                                                                                  |  |                          |         
|End of year                                                                                       |  | $                        | 145,224 
|                                                                                                  |  |                          |         
|Supplemental Disclosures of Cash Flow Information                                                 |  |                          |         
|Cash payments for:                                                                                |  |                          |         
|Interest paid to depositors                                                                       |  | $                        | 87,887  
|Interest paid on borrowings                                                                       |  |                          | 31,534  
|Income tax payments                                                                               |  |                          | 13,699  
|                                                                                                 
|Non-Cash Investing and Financing                                                                  |  |                          |         
|Non-cash transfer of loans to securities                                                          |  |                          |        
|Foreclosed real estateacquired in settlement of loans                                            |  |                          | 6,467   
|Transfer of long-term borrowings to short-term borrowings                                         |  |                          | 82,950  
|Transfer of held to maturity securities to available for sale                                     |  |                          |        



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.



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AMCORE FINANCIAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2002, 2001 and 2000



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). 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 mortgage banking, personal and employee benefit trust administration for individuals, estates and corporations, consumer finance, investment management, brokerage, and credit life
and accident and health insurance in conjunction with the lending activities of the BANK.



Principles of Consolidation



The
consolidated financial statements include the accounts of the Company and its subsidiaries. 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 and Leases 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 Company 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



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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. 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, 2002 and 2001.



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 and Federal Home Loan Bank 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. 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, Leases and Allowance for Estimated Losses



Loans and leases 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. A liability is recorded for the estimated amount of recourse due to uncollectible leases and is a component of the
gain or loss recognized on sale.



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 and lease 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 reviews the loan and lease portfolio in order to establish an estimated allowance for loan and lease losses (Allowance) that are
probable as of the respective reporting date. Additions to the Allowance are charged against earnings for the period as a provision for loan and lease losses (Provision). Actual loan and lease 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.



The Allowance is regularly reviewed by management to determine whether or not
the amount is considered adequate to absorb probable losses. If not, an additional Provision is made to increase the Allowance. This



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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. 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. 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 being 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, that 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 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



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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 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 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 are 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), the excess of interest collected on the loans over the amount required to be paid to the investors and the securitization agent (the Interest Only Strip) and
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
Asset). 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 and Lease 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 benefits to be received from the Servicing Rights represent adequate compensation for the Companys servicing responsibilities,
no asset 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 will be fully amortized. The value allocated to the Overcollateralization Asset is accreted assuming
a constant yield based upon the discount rate used to estimate its fair value. Accretion is recorded as other income for the period. At the end of the estimated life of the securitization, the carrying value of the Overcollateralization Asset 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, net of projected credit losses. At that time the cash is expected to be released from the
securitization in an amount that equals the accreted value of the Overcollateralization Asset.



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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. In
addition, since actual credit losses may exceed projected credit losses over  the life of the securitization, there is risk that the accreted value of the Overcollateralization Asset will not be fully realized, resulting in a loss charged to
earnings. Recourse against the Company for credit losses is limited 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. Thus, a loss in excess of the accreted value of
the Overcollateralization Asset is not possible. Each reporting period, the fair values of the Interest Only Strip and the Overcollateralization Asset 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. If this re-evaluation results in fair values that are less than the amortized carrying value of the Interest Only Strip and the accreted value of the Overcollateralization Asset,
respectively, and if remaining projected cash flows are less than previously estimated, the carrying values are written-down to fair value. The amount of the write-downs is charged against earnings for the current period. Finally, each reporting
period, new Interest Only Strip amortization schedules and new Overcollateralization accretion 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 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 under management at December 31, 2002 were $4.6 billion.



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 liabilities with variable-rate cash flows to 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



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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 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, 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 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 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.



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Stock-Based Employee
Compensation Plans



At December 31, 2002, the Company had
two stock-based employee compensation plans, which are described more fully in Note 13. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to 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. See Note 13 for a tabular presentation of the reconciliation between net income, basic earnings per share and diluted
earnings per share as reported in the financial statements and as the information would have been reported (pro forma) if the Company had chosen to implement the fair value based method for all options.



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.



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.



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In August 2001, the Financial
Accounting Standards Board (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 will spread out the reporting of expenses related to exit, disposal or restructuring activities initiated after December 31, 2002
because commitment to a plan to exit an activity, dispose of long-lived assets or restructure will no longer be 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 spread over one or more quarters, and still others might not be recorded until incurred in some much later period. The future impact to the Company will be determined by any future activities in these areas.
The Company does not currently have plans in any of these areas, but has occasionally conducted these types of activities in the past.



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 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 Statement 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 November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FASB Interpretation 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, Interpretation 34, Disclosure of Indirect Guarantees of Others, is rescinded, though the guidance contained therein has been carried forward into Interpretation 45 without modification. The initial
recognition and initial measurement requirements of the Interpretation are effective prospectively for guarantees issued or modified after December 31, 2002. The Company continues to evaluate the effect, if any, that adoption of the interpretation
will have on the Companys Consolidated Financial Statements. However, the disclosure requirements are effective for financial-statement periods ending after December 15, 2002, thereby covering guarantees in place as of the balance sheet date.
See Note 15 of the Notes to the Consolidated Financial Statements.



In November 2002, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation 46 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements and
establishes new standards regarding the consolidation of a variable interest entity when the controlling enterprise does not hold a majority voting interest in the entity. Consolidation is required by the entitys primary beneficiary



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(i.e. enterprise with control through a majority voting interest). Previously, variable interest entities (VIEs) were referred to as
special-purpose entities (SPEs), however, pursuant to Interpretation 46, some SPEs will not quality as VIEs. The Company does not have any investments affected by the Interpretation.



Reclassifications



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



NOTE 2  MERGERS, ACQUISITIONS AND DIVESTITURES



Completed Divestitures:



During 2001 the Company sold seven branches as part of its strategic objective to invest in and reallocate capital to higher growth Midwestern markets.
The branches included 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 gains, net of associated costs. The net cash paid by the Company to settle the divestitures was $93.1 million.



Pending Divestitures:



On November 30, 2002, the Company announced that it had reached a definitive agreement for the sale of its Clinton and Darien branch locations to First
National Bank and Trust Company of Beloit, WI. On November 27, 2002, the Company announced that it had reached a definitive agreement for the sale of its Montello, Kingston, Dalton and Westfield branch locations to National Exchange Bank of Fond du
Lac, WI. Combined the six branches represent approximately $49.9 million in loans and $129.0 million in deposits. The buyers are not required to purchase all loans. The difference between deposits assumed by the buyer net of loans and other assets
purchased will be settled with a cash payment by the Company to the buyers. The amount of the cash payment is estimated not to exceed $70 million.



NOTE 3  SECURITIES



A summary of securities at December 31, 2002, 2001, and 2000 were as follows:



|                                    |  | Amortized Cost |           | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Fair Value
|----------------------------------- |  | -------------- | --------- | ---------------------- | - | ----------------------- |  | - | ----------
|                                    |  |                |           | (in thousands)         |   |                         | 
|At December 31, 2002                |  |                |           |                        |   |                         |  |   |           
|Securities Available for Sale:      |  |                |           |                        |   |                         |  |   |           
|U.S. Treasury                       |  | $              | 5,002     |                        | $ | 15                      |  | $ |          
|U.S. Government agencies            |  |                | 3,841     |                        |   | 17                      |  |   | (4        
|Agency mortgage-backed securities   |  |                | 730,969   |                        |   | 21,801                  |  |   | (421      
|State and political subdivisions    |  |                | 215,109   |                        |   | 11,129                  |  |   | (4        
|Corporate obligations and other     |  |                | 187,289   |                        |   | 2,304                   |  |   | (3,586    
|                                    |  |                |           |                        |   |                         |  |   |           
|Total Securities Available for Sale |  | $              | 1,142,210 |                        | $ | 35,266                  |  | $ | (4,015    
|                                    |  |                |           |                        |   |                         |  |   |           
|At December 31, 2001                |  |               
|Securities Available for Sale:      |  |                |           |                        |   |                         |  |   |           
|U.S. Treasury                       |  | $              | 18,984    |                        | $ | 243                     |  | $ |          
|U.S. Government agencies            |  |                | 17,324    |                        |   | 112                     |  |   | (9        
|Agency mortgage-backed securities   |  |                | 710,485   |                        |   | 3,528                   |  |   | (4,725    
|State and political subdivisions    |  |                | 256,886   |                        |   | 6,004                   |  |   | (1,452    
|Corporate obligations and other     |  |                | 79,567    |                        |   | 807                     |  |   | (52       
|                                    |  |                |           |                        |   |                         |  |   |           
|Total Securities Available for Sale |  | $              | 1,083,246 |                        | $ | 10,694                  |  | $ | (6,238    
|                                    |  |                |           |                        |   |                         |  |   |           



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|                                    |  | Amortized Cost |           | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Fair Value
|----------------------------------- |  | -------------- | --------- | ---------------------- | - | ----------------------- |  | - | ----------
|                                    |  | (in thousands)
|At December 31, 2000                |  |               
|Securities Available for Sale:      |  |                |           |                        |   |                         |  |   |           
|U.S. Treasury                       |  | $              | 35,751    |                        | $ | 215                     |  | $ | (34       
|U.S. Government agencies            |  |                | 51,091    |                        |   | 142                     |  |   | (18       
|Agency mortgage-backed securities   |  |                | 728,782   |                        |   | 4,737                   |  |   | (7,634    
|State and political subdivisions    |  |                | 289,496   |                        |   | 5,630                   |  |   | (2,060    
|Corporate obligations and other     |  |                | 118,201   |                        |   | 296                     |  |   | (810      
|                                    |  |                |           |                        |   |                         |  |   |           
|Total Securities Available for Sale |  | $              | 1,223,321 |                        | $ | 11,020                  |  | $ | (10,556   
|                                    |  |                |           |                        |   |                         |  |   |           
|Securities Held to Maturity:        |  |                |           |                        |   |                         |  |   |           
|U.S. Treasury                       |  | $              | 802       |                        | $ | 4                       |  | $ |          
|U.S. Government agencies            |  |                | 24        |                        |   |                        |  |   |          
|State and political subdivisions    |  |                | 9,835     |                        |   | 47                      |  |   | (77       
|                                    |  |                |           |                        |   |                         |  |   |           
|Total Securities Held to Maturity   |  | $              | 10,661    |                        | $ | 51                      |  | $ | (77       
|                                    |  |                |           |                        |   |                         |  |   |           
|Total Securities                    |  | $              | 1,233,982 |                        | $ | 11,071                  |  | $ | (10,633   
|                                    |  |                |           |                        |   |                         |  |   |           



Realized gross gains
resulting from the sale of securities available for sale were $2.6 million, $2.5 million and $1.8 million for 2002, 2001 and 2000, respectively. Realized gross losses were $90,000, $2.8 million and $3,000 for 2002, 2001 and 2000, 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.



The amortized cost and fair value of
securities available for sale as of December 31, 2002, 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
|------------------------------------------------- |  | ------------------
|                                                  |  | Amortized Cost    
|                                                  |  | (in thousands)    
|                                                 
|Due in one year or less                           |  | $                 
|Due after one year through five years             |  |                   
|Due after five years through ten years            |  |                   
|Due after ten years                               |  |                   
|Mortgage-backed securities (agency and corporate) |  |                   
|                                                  |  |                   
|Total Securities                                  |  | $                 
|                                                  |  |                   



At December 31, 2002,
2001, and 2000, securities with a fair value of approximately $908.7 million, $846.0 million and $911.0 million, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes required by
law.



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NOTE 4  LOANS AND
LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES



The
composition of the loan and lease portfolio at December 31, 2002 and 2001 was as follows:



|                                       |  | 2002           |           |   | 2001 |  
|-------------------------------------- |  | -------------- | --------- | - | ---- | -
|                                       |  | (in thousands) |          
|                                      
|Commercial, financial and agricultural |  | $              | 760,950   |   |      | $
|Real estate-construction               |  |                | 142,844   |   |      |  
|Real estate-commercial                 |  |                | 925,003   |   |      |  
|Real estate-residential                |  |                | 449,330   |   |      |  
|Installment and consumer               |  |                | 604,663   |   |      |  
|Direct lease financing                 |  |                | 927       |   |      |  
|                                       |  |                |           |   |      |  
|Gross loans and leases                 |  | $              | 2,883,717 |   |      | $
|Allowance for loan and lease losses    |  |                | (35,214   | ) |      |  
|                                       |  |                |           |   |      |  
|Net Loans and Leases                   |  | $              | 2,848,503 |   |      | $
|                                       |  |                |           |   |      |  



Non-performing loan
information as of and for the years ended December 31, was as follows:



|                                                  |  | 2002           |        | 2001
|------------------------------------------------- |  | -------------- | ------ | ----
|                                                  |  | (in thousands)
|Impaired Loans:                                   |  |                |        |     
|Non-accrual:                                      |  |                |        |     
|Commercial                                        |  | $              | 12,185 |     
|Real estate                                       |  |                | 1,671  |     
|Other Non-performing:                             |  |                |        |     
|Non-accrual loans (1)                             |  |                | 18,679 |     
|                                                  |  |                |        |     
|Total Non-performing Loans                        |  | $              | 32,535 |     
|                                                  |  |                |        |     
|Loans 90 days or more past due and still accruing |  | $              | 3,555  |     
|                                                  |  |                |        |     
|Troubled debt restructurings (2)                  |  | $              | 3,327  |     
|                                                  |  |                |        |     

---

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

|(2) | These loans are on accrual status.
|--- | ----------------------------------



|                                               |  | 2002           |        | 2001
|---------------------------------------------- |  | -------------- | ------ | ----
|                                               |  | (in thousands)
|                                              
|Impaired loans without an allowance allocation |  | $              |       |     
|Impaired loans with an allowance allocation    |  |                | 13,856 |     
|Allowance provided for impaired loans          |  |                | 5,575  |     
|Average recorded investment in impaired loans  |  |                | 15,316 |     
|Interest income recognized from impaired loans |  |                | 550    |     



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



|                                           |  | 2002           |         |   | 2001 |   |         | 2000 | 
|------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | ---- | 
|                                           |  | (in thousands) |        
|                                          
|Balance at beginning of year               |  | $              | 33,940  |   |      | $ | 29,157  |      | 
|Provision charged to expense               |  |                | 12,574  |   |      |   | 16,700  |      | 
|Loans charged off                          |  |                | (13,088 | ) |      |   | (12,853 | )    | 
|Recoveries on loans previously charged off |  |                | 1,788   |   |      |   | 1,815   |      | 
|Reductions due to sale of loans            |  |                |        |   |      |   | (879    | )    | 
|                                           |  |                |         |   |      |   |         |      | 
|Balance at end of year                     |  | $              | 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



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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 2002 and 2001 were as follows:



|                             |  | 2002           |         |   | 2001 |  
|---------------------------- |  | -------------- | ------- | - | ---- | -
|                             |  | (in thousands) |        
|                            
|Balance at beginning of year |  | $              | 14,543  |   |      | $
|New loans                    |  |                | 12,441  |   |      |  
|Repayments                   |  |                | (10,833 | ) |      |  
|                             |  |                |         |   |      |  
|Balance at end of year       |  | $              | 16,151  |   |      | $
|                             |  |                |         |   |      |  



NOTE 5 
PREMISES, EQUIPMENT AND LEASE COMMITMENTS



A summary of
premises and equipment at December 31, 2002 and 2001 follows:



|                                          |  | 2002           |         |   | 2001 |  
|----------------------------------------- |  | -------------- | ------- | - | ---- | -
|                                          |  | (in thousands) |        
|                                         
|Land                                      |  | $              | 10,361  |   |      | $
|Buildings and improvements                |  |                | 58,488  |   |      |  
|Furniture and equipment                   |  |                | 57,603  |   |      |  
|Leasehold improvements                    |  |                | 5,882   |   |      |  
|Construction in progress                  |  |                | 7,560   |   |      |  
|                                          |  |                |         |   |      |  
|Total premises and equipment              |  | $              | 139,894 |   |      | $
|Accumulated depreciation and amortization |  |                | (81,983 | ) |      |  
|                                          |  |                |         |   |      |  
|Premises and Equipment, net               |  | $              | 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, 2002. 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, 2002, have remaining noncancellable lease terms in excess of one year.



|Years ending December 31,                   |  | Operating Leases |        | Capital Leases |  
|------------------------------------------- |  | ---------------- | ------ | -------------- | -
|                                            |  | (in thousands)   |       
|                                           
|2003                                        |  | $                | 2,218  |                | $
|2004                                        |  |                  | 2,211  |                |  
|2005                                        |  |                  | 1,889  |                |  
|2006                                        |  |                  | 1,683  |                |  
|2007                                        |  |                  | 1,289  |                |  
|Thereafter                                  |  |                  | 8,590  |                |  
|                                            |  |                  |        |                |  
|Total minimum lease payments                |  | $                | 17,880 |                | $
|                                            |  |                  |        |                |  
|Less: Amount representing interest          |  |                  |        |                |  
|                                            |  |                  |        |                |  
|Present value of net minimum lease payments |  |                  |        |                | $
|                                            |  |                  |        |                |  



|                                                |  | 2002           |     | 2001 |   | 2000
|----------------------------------------------- |  | -------------- | --- | ---- | - | ----
|                                                |  | (in thousands)
|                                               
|Rental expense charged to net occupancy expense |  | $              | 987 |      | $ | 783 
|                                                |  |                |     |      |   |     



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



|                                               |  | Asset balances at December 31,
|---------------------------------------------- |  | ------------------------------
|                                               |  | 2002                          
|                                               |  | (in thousands)                
|                                              
|Branch facilities  buildings and improvements |  | $                             
|Less: Accumulated amortization                 |  |                               
|                                               |  |                               
|                                               |  | $                             
|                                               |  |                               



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 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 (Core Deposit Intangibles) in the amount
of $282,000, which are subject to the transition provisions of SFAS Nos. 141 and 142.



The Companys intangible asset values by segment at December 31, 2002 are as follows:



|                                      |  | Gross Carrying Amount |     | Accumulated Amortization |   | Net Carrying Amount
|------------------------------------- |  | --------------------- | --- | ------------------------ | - | -------------------
|                                      |  | (in thousands)       
|Amortized Intangible Assets           |  |                       |     |                          |   |                    
|Core Deposits  Retail Banking        |  | $                     | 683 |                          | $ | 584                
| Commercial Banking                  |  |                       | 293 |                          |   | 251                
|                                      |  |                       |     |                          |   |                    
|Total Amortized Intangible Assets     |  | $                     | 976 |                          | $ | 835                
|                                      |  |                       |     |                          |   |                    
|Unamortized Intangible Assets         |  |                       |     |                          |   |                    
|Goodwill  Trust and Asset Management |  |                       |     |                          |   |                    
| Retail Banking                      |  |                       |     |                          |   |                    
| Commercial Banking                  |  |                       |     |                          |   |                    
|                                      |  |                       |     |                          |   |                    
|Total Unamortized Intangible Assets   |  |                       |     |                          |   |                    
|                                      |  |                       |     |                          |   |                    
|Total Intangibles (net)               |  |                       |     |                          |   |                    
|                                      |  |                       |     |                          |   |                    



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



|                                     |  | Retail Banking |    | Commercial Banking |   | Total
|------------------------------------ |  | -------------- | -- | ------------------ | - | -----
|                                     |  | (in thousands)
|Aggregate Amortization Expense       |  |                |    |                    |   |      
|For Year Ended 12/31/02              |  | $              | 98 |                    | $ | 43   
|Estimated Amortization Expense       |  |                |    |                    |   |      
|For Year Ending 12/31/03             |  | $              | 99 |                    | $ | 42   
|                                     |  |                |    |                    |   |      
|Total estimated amortization expense |  |                |    |                    |   |      
|                                     |  |                |    |                    |   |      



There have been no
changes in the carrying amount of goodwill for the year ended December 31, 2002. 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.



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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 the how the
prior period would have been reported had SFAS No. 142 been in effect.

|                                                          |  | For the Twelve Months Ended December 31, |       
|--------------------------------------------------------- |  | ---------------------------------------- | ------
|                                                          |  | 2002                                     |       
|                                                          |  | (in thousands, except per share amounts) |       
|                                                         
|Net income as reported                                    |  | $                                        | 43,471
|Add back: Goodwill amortization                           |  |                                          | N/A   
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A   
|                                                          |  |                                          |       
|Adjusted net income                                       |  | $                                        | 43,471
|                                                          |  |                                          |       
|Basic earnings per share as reported                      |  | $                                        | 1.76  
|Add back: Goodwill amortization                           |  |                                          | N/A   
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A   
|                                                          |  |                                          |       
|Adjusted basic earnings per share                         |  | $                                        | 1.76  
|                                                          |  |                                          |       
|Diluted earnings per share as reported                    |  | $                                        | 1.75  
|Add back: Goodwill amortization                           |  |                                          | N/A   
|Adjust: Core Deposit amortization (change in useful life) |  |                                          | N/A   
|                                                          |  |                                          |       
|Adjusted diluted earnings per share                       |  | $                                        | 1.75  
|                                                          |  |                                          |       



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 $1.02 billion and
$905.0 million at December 31, 2002 and 2001, respectively. Of this amount, the Company has recorded originated capitalized mortgage servicing rights on mortgage loans serviced balances of $1.00 billion and $892.2 million at December 31, 2002 and
2001, 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, 2002 and 2001, respectively.



|                                              |  | 2002           |        |   | 2001 |  
|--------------------------------------------- |  | -------------- | ------ | - | ---- | -
|                                              |  | (in thousands) |       
|                                             
|Unamortized cost of mortgage servicing rights |  | $              | 10,645 |   |      | $
|Valuation allowance                           |  |                | (3,361 | ) |      |  
|                                              |  |                |        |   |      |  
|Carrying value of mortgage servicing rights   |  | $              | 7,284  |   |      | $
|                                              |  |                |        |   |      |  
|Fair value of mortgage servicing rights       |  | $              | 6,770  |   |      | $
|                                              |  |                |        |   |      |  



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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 include:



|                                  |  | 2002 |       |   | 2001 |  
|--------------------------------- |  | ---- | ----- | - | ---- | -
|Prepayment Speed (5 year average) |  |      | 33.21 | % |      |  
|Discount Rate                     |  |      | 9.00  | % |      |  
|Servicing Cost per Loan           |  | $    | 43.00 |   |      | $
|Escrow Float Rate                 |  |      | 4.00  | % |      |  



The following is an
analysis of the mortgage servicing rights activity and the related valuation allowance for 2002 and 2001. For the purpose of measuring impairment, loans are stratified and evaluated based on loan type and investor as determined by materiality and
reasonableness.



|                                              |  | 2002           |        |   | 2001 |  
|--------------------------------------------- |  | -------------- | ------ | - | ---- | -
|                                              |  | (in thousands) |       
|Unamortized Cost of Mortgage Servicing Rights |  |                |        |   |      |  
|Balance at beginning of year                  |  | $              | 9,569  |   |      | $
|Additions of mortgage servicing rights        |  |                | 6,141  |   |      |  
|Amortization                                  |  |                | (5,065 | ) |      |  
|                                              |  |                |        |   |      |  
|Balance at end of year                        |  | $              | 10,645 |   |      | $
|                                              |  |                |        |   |      |  
|Valuation Allowance                           |  |                |        |   |      |  
|Balance at beginning of year                  |  | $              | 780    |   |      | $
|Impairment valuation charged to expense       |  |                | 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)            |  |  
|2003                      |  | $
|2004                      |  |  
|2005                      |  |  
|2006                      |  |  
|2007                      |  |  
|Thereafter                |  |  
|                          |  |  
|Total                     |  | $
|                          |  |  



The weighted-average
amortization period for mortgage servicing rights retained during the fourth quarter of 2002 was 11.3 years.



NOTE 8  SALE OF RECEIVABLES



There were no sales of indirect automobile loans into securitization transactions during 2002. During 2001 and 2000, the Company sold $29.9 million and $100.3 million, respectively, of indirect automobile loans into
securitization transactions. Upon securitization, the net carrying amount of the loans were removed from the



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balance sheet and certain retained residual interests were recorded. The retained interests included
rights to service the loans that were sold (the Servicing Rights), the excess of interest collected on the loans over the amount required to be paid to the investors and the securitization agent (the Interest Only Strip), and
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
Asset).



At the date of each securitization, these retained
interests were allocated a carrying value of $8.1 million. 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 the value of the Overcollateralization Asset is subject to credit risk on the transferred
auto loans.



Key economic assumptions used in measuring the
retained interests at the date of the securitization and as of December 31, 2002 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:



|                                             |  |                        |          |   |                        |   |          | As Of December 31, 2002 | 
|-------------------------------------------- |  | ---------------------- | -------- | - | ---------------------- | - | -------- | ----------------------- | 
|                                             |  | Loans Sold During 2001 |          |   | Loans Sold During 2000 |   |          | Actual                  | 
|                                             |  | (in thousands)         |         
|Prepayment speed assumptions                 |  |                        |          |   |                        |   |          |                         | 
|Prepayment speed                             |  |                        | 1.5      | % |                        |   | 1.5      | %                       | 
|Weighted average life (in months)            |  |                        | 22.0     |   |                        |   | 22.4     |                         | 
|Fair value of retained interests             |  | $                      | 2,239    |   |                        | $ | 6,070    |                         | 
|Change in fair value                         |  | $                      |         |   |                        | $ |         |                         | 
|Expected credit loss assumptions             |  |                        |          |   |                        |   |          |                         | 
|Expected credit losses (loss to liquidation) |  |                        | 1.3%1.7 | % |                        |   | 1.3%1.7 | %                       | 
|Fair value of retained interests             |  | $                      | 2,239    |   |                        | $ | 6,070    |                         | 
|Change in fair value                         |  | $                      |         |   |                        | $ |         |                         | 
|Residual cash flow discount rate assumptions |  |                        |          |   |                        |   |          |                         | 
|Residual cash flow discount rate (annual)    |  |                        | 7.4%7.5 | % |                        |   | 8.3%9.1 | %                       | 
|Fair value of retained interests             |  | $                      | 2,239    |   |                        | $ | 6,070    |                         | 
|Change in fair value                         |  | $                      |         |   |                        | $ |         |                         | 



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.



Total cash flows attributable to the indirect auto loan securitization transactions was an inflow of $2.1 million and $30.4 million for 2002 and 2001,
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 (paid to) trust in 2002 |  | $                             |       |                          | $ | 472              |  | $         | 1,659
|Cash flows received from (paid to) trust in 2001 |  | $                             | 28,373 |                          | $ | 737              |  | $         | 1,313



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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.



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 auto 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 Amount of Delinquent Loans |   |        
|----------------- |  | ------------------------------- | ------- | ------------------------------------ | - | -------
|                  |  | As of December 31               |         | Net Credit Losses During the Year   
|                  |  | 2002                            |         | 2001                                 |   | 2002   
|                  |  | (in thousands)                 
|                 
|Held in portfolio |  | $                               | 505,963 |                                      | $ | 334,778
|Securitized       |  |                                 | 41,864  |                                      |   | 75,917 
|                  |  |                                 |         |                                      |   |        
|Total             |  | $                               | 547,827 |                                      | $ | 410,695
|                  |  |                                 |         |                                      |   |        



Actual and projected
static pool credit losses, as a percentage of indirect auto loans securitized are 1.43%, 1.88% and 1.98% as of the years ended December 31, 2002, 2003 and 2004, 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 amount shown here for each year is a weighted average for all securitizations during the period.



NOTE 9  SHORT TERM BORROWINGS



At December 31, 2002, 2001 and 2000 short-term borrowings consisted of:



|                                               |  | 2002           |         | 2001 |   | 2000   
|---------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                               |  | (in thousands)
|                                              
|Securities sold under agreements to repurchase |  | $              | 416,760 |      | $ | 388,533
|Federal Home Loan Bank borrowings              |  |                | 83,022  |      |   | 10,821 
|Federal funds purchased                        |  |                | 55,323  |      |   | 33,075 
|Commercial paper borrowings                    |  |                | 28,408  |      |   | 31,287 
|U.S. Treasury tax and loan note accounts       |  |                | 12,000  |      |   | 12,000 
|                                               |  |                |         |      |   |        
|Total Short-Term Borrowings                    |  | $              | 595,513 |      | $ | 475,716
|                                               |  |                |         |      |   |        





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



|                                          |  | 2002           |         |   | 2001 |   |         | 2000 | 
|----------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- | 
|                                          |  | (in thousands) |        
|                                         
|Average balance during the year           |  | $              | 412,368 |   |      | $ | 372,863 |      | 
|Maximum month-end balance during the year |  |                | 434,675 |   |      |   | 403,335 |      | 
|Weighted average rate during the year     |  |                | 2.64    | % |      |   | 4.54    | %    | 
|Weighted average rate at December 31      |  |                | 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, 2002, $21.6 million was available.



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NOTE 10  LONG-TERM
BORROWINGS



Long-term borrowings consisted of the following
at December 31, 2002 and 2001:



|                                       |  | 2002           |         | 2001
|-------------------------------------- |  | -------------- | ------- | ----
|                                       |  | (in thousands)
|                                      
|Federal Home Loan Bank borrowings      |  | $              | 159,765 |     
|Capital Trust preferred securities     |  |                | 25,000  |     
|Capitalized Lease Obligation and other |  |                | 1,067   |     
|                                       |  |                |         |     
|Total Long-Term Borrowings             |  | $              | 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, 2002 is 4.8 years, with a weighted average borrowing rate of 5.21%. 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, are as follows:



|                               |  | Total         
|------------------------------ |  | --------------
|                               |  | (in thousands)
|                              
|2003                           |  | $             
|                               |  |               
|Total callable FHLB borrowings |  | $             
|                               |  |               



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. 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.



During the third quarter of 2001, the Company retired, at par, $15.0 million in capital trust preferred securities with the coupon rate of 9.35 percent. This early extinguishment of long-term borrowings resulted in an after
tax extraordinary charge of $204,000, or $0.01 per diluted share. The charge was attributable to unamortized pro rata issuance costs and broker fees.



Other long-term borrowings includes a capital lease on a branch facility leased by the Company. The Company is amortizing the capitalized lease obligation
over the remaining life of the original lease, which expires or renews in 2021.



Scheduled reductions of long-term borrowings are as follows:



|           |  | Total         
|---------- |  | --------------
|           |  | (in thousands)
|          
|2003       |  | $             
|2004       |  |               
|2005       |  |               
|2006       |  |               
|2007       |  |               
|Thereafter |  |               
|           |  |               
|Total      |  | $             
|           |  |               



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NOTE 11  DERIVATIVE
INSTRUMENTS AND HEDGE ACCOUNTING



The Company adopted SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 138, on January 1, 2001. This Statement 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. The longest-term derivative that the Company has used to hedge its interest rate exposure expires in September 2004.



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 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.



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 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.



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Under SFAS No. 133, 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 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.



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 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 mortgage 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.



During 2002, swaps that were hedging prime based loan cash flows were sold back to the issuer, for which the Company received $3.3 million plus accrued interest. The pre-tax gain on the sale will be amortized into income over the
remaining life of the original swaps as yield adjustments in the same period the hedged items affect earnings. For the year ended December 31, 2002, $96,000 of this pre-tax gain was amortized (reclassified) from OCI into income. Of the remaining
pre-tax gain of $3.2 million included in OCI at December 31, 2002, $2.3 million (pre-tax) is expected to be reclassified into earnings during the next twelve months. There were no other cash flow hedges included in OCI at 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 mortgage 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.



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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. Of the net derivative losses included in OCI, $4.0 million and $3.4 million
(pre-tax) were reclassified 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. Reclassifications may also occur, as yield adjustments in the same period the hedged items affect earnings, in the event cash flow hedges no longer meet the requirements to qualify for hedge accounting or are sold.



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, 2002 and 2001 that have liquid markets in which
fair value is assumed to be equal to the carrying amount, or have readily available quoted market prices, or are based on quoted prices for similar financial instruments:



|                                                    |  | 2002            |           | 2001      
|--------------------------------------------------- |  | --------------- | --------- | ----------
|                                                    |  | Carrying Amount |           | Fair Value
|                                                    |  | (in thousands) 
|                                                   
|Cash and cash equivalents                           |  | $               | 145,224   |           
|Interest earning deposits in banks                  |  |                 | 2,151     |           
|Federal funds sold and other short-term investments |  |                 | 4,200     |           
|Loans and leases held for sale                      |  |                 | 79,893    |           
|Securities available for sale                       |  |                 | 1,173,461 |           
|Mortgage servicing rights                           |  |                 | 7,284     |           



The carrying amounts and
fair values of accruing loans and leases at December 31, 2002 and 2001 were as follows:



|                                       |  | 2002           |                 | 2001
|-------------------------------------- |  | -------------- | --------------- | ----
|                                       |  |                | Carrying Amount |     
|                                       |  | (in thousands)
|                                      
|Commercial, financial and agricultural |  | $              | 749,658         |     
|Real estate                            |  |                | 1,497,453       |     
|Installment and consumer, net          |  |                | 603,319         |     
|Direct lease financing                 |  |                | 752             |     
|                                       |  |                |                 |     
|Total accruing loans and leases        |  | $              | 2,851,182       |     
|                                       |  |                |                 |     



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 with a recorded book value of $32.5 million and $26.5 million in 2002 and 2001, respectively, was not estimated because it was not practicable to reasonably assess the credit risk adjustment that would be applied
in the marketplace for such loans (See Note 4 of the Notes to Consolidated Financial Statements for additional information).



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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, 2002 and 2001, interest receivable was $22.6 million and $23.2 million, respectively, and interest
payable was $20.7 million and $19.4 million, respectively.



The
following table shows the carrying amounts and fair values of financial instrument liabilities at December 31, 2002 and 2001:



|                                |  | 2002            |           |   | 2001       |  
|------------------------------- |  | --------------- | --------- | - | ---------- | -
|                                |  | Carrying Amount |           |   | Fair Value |  
|                                |  | (in thousands)  |          
|                               
|Demand deposits and savings     |  | $               | 1,508,166 |   |            | $
|Time deposits                   |  |                 | 1,786,496 |   |            |  
|Short-term borrowings           |  |                 | 595,513   |   |            |  
|Long-term borrowings            |  |                 | 185,832   |   |            |  
|Standby letters of credit       |  |                 | 433       |   |            |  
|Interest rate swap agreements   |  |                 | (3,763    | ) |            |  
|Interest rate collar agreements |  |                 |          |   |            |  
|Interest rate cap agreements    |  |                 | (125      | ) |            |  
|Forward contracts               |  |                 | 2,881     |   |            |  
|Mortgage loan commitments       |  |                 | (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 and mortgage 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 standby 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 standby letters of



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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 respect to its $108.9 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 collar and cap contracts are 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, 2002 and 2001, is as follows:



|                                                                        |  | 2002           |         | 2001
|----------------------------------------------------------------------- |  | -------------- | ------- | ----
|                                                                        |  | (in thousands)
|Financial instruments whose contract amount represent credit risk only: |  |                |         |     
|Commitments to extend credit                                            |  | $              | 687,262 |     
|Standby letters of credit                                               |  |                | 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.



Standby letters of credit are conditional commitments issued by the Company to guarantee the performance 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, 2002, the Company has stock-based compensation plans as described below. Grants under those plans are
accounted for following 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.



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 vest within three to five years and expire from



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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.



|                                         |  | 2002      |   | 2001 |               | 2000 
|---------------------------------------- |  | --------- | - | ---- | ------------- | -----
|                                         |  | Shares    |   |      | Average Price |      
|                                         |  |           |   |      |               |      
|Options outstanding at beginning of year |  | 1,876,786 |   |      | $             | 19.01
|Options granted                          |  | 622,875   |   |      |               | 23.85
|Options issued pursuant to IMG earnout   |  |          |   |      |               |     
|Option reloads                           |  | 18,181    |   |      |               | 22.51
|Options exercised                        |  | (244,141  | ) |      |               | 13.33
|Options lapsed                           |  | (67,199   | ) |      |               | 21.59
|                                         |  |           |   |      |               |      
|Options outstanding at end of year       |  | 2,206,502 |   |      | $             | 20.96
|                                         |  |           |   |      |               |      
|Options exercisable at end of year       |  | 1,122,838 |   |      | $             | 19.67
|                                         |  |           |   |      |               |      



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, 2001 and 2000 was approximately $62,000, $154,000 and $666,000, respectively. The following table presents certain information with respect to issuances and
payouts pursuant to these incentive plans



|                                       |  | 2002     |   | 2001 |            | 2000
|-------------------------------------- |  | -------- | - | ---- | ---------- | ----
|                                       |  | Units    |   |      | Unit Price |     
|                                       |  |          |   |      |            |     
|Units outstanding at beginning of year |  | 129,883  |   |      |            |    
|Units paid                             |  | (129,883 | ) |      | $          | 4.97
|Units forfeited                        |  |         |   |      |            |    
|                                       |  |          |   |      |            |     
|Units outstanding at end of year       |  |         |   |      |            |    
|                                       |  |          |   |      |            |     



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, 2002, 2001 and 2000 was approximately $305,000,
$222,000 and $61,000, respectively. The following table presents certain information with respect to restricted stock awards granted pursuant to these incentive plans.



|                                                         |  | 2002    |   | 2001 |               | 2000 
|-------------------------------------------------------- |  | ------- | - | ---- | ------------- | -----
|                                                         |  | Shares  |   |      | Average Price |      
|Restricted stock awards outstanding at beginning of year |  | 69,821  |   |      | $             | 20.74
|Restricted stock awards granted                          |  |        |   |      |               |     
|Release of restriction on stock due to vesting           |  | (20,475 | ) |      |               | 20.58
|Restricted stock awards forfeited                        |  | (2,910  | ) |      |               | 21.05
|                                                         |  |         |   |      |               |      
|Restricted stock awards outstanding at end of year       |  | 46,436  |   |      | $             | 15.95
|                                                         |  |         |   |      |               |      



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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, 2002, 2001 and 2000 was approximately $69,000, $88,000 and $153,000, 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 on the date of grant and has a ten-year term. Options granted are exercisable one year after date of grant. The following table presents certain information with respect to stock options issued pursuant to the
Option Plan and previous stock option plans.



|                                         |  | 2002    |   | 2001 |               | 2000 
|---------------------------------------- |  | ------- | - | ---- | ------------- | -----
|                                         |  | Shares  |   |      | Average Price |      
|Options outstanding at beginning of year |  | 230,980 |   |      | $             | 19.28
|Options granted                          |  | 45,000  |   |      |               | 24.04
|Options exercised                        |  | (25,250 | ) |      |               | 16.07
|Options lapsed                           |  | (16,250 | ) |      |               | 22.13
|                                         |  |         |   |      |               |      
|Options outstanding at end of year       |  | 234,480 |   |      | $             | 20.34
|                                         |  |         |   |      |               |      
|Options exercisable at end of year       |  | 189,480 |   |      | $             | 19.46
|                                         |  |         |   |      |               |      



Options Summary.
The following table presents certain information as of December 31, 2002 with respect to issuances of stock options pursuant to all plans discussed above.



|                          |  | Options Outstanding |  | Options Exercisable                    
|------------------------- |  | ------------------- |  | ---------------------------------------
|Range of Exercise Prices  |  | Number Outstanding  |  | Weighted-Avg Remaining Contractual Life
|$  2.60  $13.00          |  | 110,941             |  | 2.6 Years                              
|13.01    19.00           |  | 344,842             |  | 3.1                                    
|19.01    20.50           |  | 673,252             |  | 7.1                                    
|20.51    22.50           |  | 246,407             |  | 4.2                                    
|22.51    24.50           |  | 451,641             |  | 5.0                                    
|24.51    25.50           |  | 613,899             |  | 5.3                                    
|                          |  |                     |  |                                        
|Total Options Outstanding |  | 2,440,982           |  | 5.2 Years                              
|                          |  |                     |  |                                        



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, 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.



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The shares issued pursuant to
the ESPP were as follows: 46,468 shares at prices ranging from $17.21 to $19.70 in 2002; 39,394 shares at prices ranging from $14.45 to $19.00 in 2001 and 51,630 shares at prices ranging from $14.45 to $17.11 in 2000.



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 2002 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 2002, 2001 and 2000, respectively: dividend rates of 2.95%, 2.86%, and 3.09%, price volatility of 38.71%, 33.86% and 38.10%;
risk-free interest rates of 5.28%, 5.24% and 6.79%; and expected lives of 6.8, 6.1 and 6.1 years. The average fair value of each option granted during 2002 was $8.49.



|                                                                                                                                            |  | Years Ended December 31,              |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------
|                                                                                                                                            |  | 2002                                  |       
|                                                                                                                                            |  | (in thousands, except per share data) |       
|Net Income:                                                                                                                                 |  |                                       |       
|As reported                                                                                                                                 |  | $                                     | 43,471
|Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects |  |                                       | (2,238
|                                                                                                                                            |  |                                       |       
|Pro forma                                                                                                                                   |  | $                                     | 41,233
|                                                                                                                                            |  |                                       |       
|Basic earnings per share:                                                                                                                   |  |                                       |       
|As reported                                                                                                                                 |  | $                                     | 1.76  
|Pro forma                                                                                                                                   |  |                                       | 1.67  
|Diluted earnings per share:                                                                                                                 |  |                                       |       
|As reported                                                                                                                                 |  | $                                     | 1.75  
|Pro forma                                                                                                                                   |  |                                       | 1.66  



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,
profit sharing payment and personal savings account 401(k). In 1998, the Security Plan was amended to provide for a higher match percent to employee contributions and the profit sharing portion converted to a cash payment rather than contributed to
employee accounts. The expense related to the Security Plan and other similar plans from acquired companies for the years ended December 31, 2002, 2001 and 2000 was approximately $4.31 million, $3.79 million and $3.36 million, respectively.



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.



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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 $377,000,
$441,000 and $289,000 for 2002, 2001 and 2000, 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 following table summarizes the costs and obligations to participants for the years ended December 31.



|                                                                           |  | 2002           |       | 2001 |  
|-------------------------------------------------------------------------- |  | -------------- | ----- | ---- | -
|                                                                           |  | (in thousands) |      
|Supplemental Retirement Plan:                                              |  |                |       |      |  
|Projected benefit obligation at beginning of year                          |  | $              | 671   |      | $
|Service cost                                                               |  |                | 64    |      |  
|Interest cost                                                              |  |                | 47    |      |  
|Actuarial (gains) losses and (increase) decrease in offsets                |  |                | 19    |      |  
|Modifications                                                              |  |                | 662   |      |  
|                                                                           |  |                |       |      |  
|Projected benefit obligation at end of year                                |  | $              | 1,463 |      | $
|                                                                           |  |                |       |      |  
|Amounts recognized in the consolidated statements of condition consist
of: |  |                |       |      |  
|Accrued benefit liability                                                  |  | $              | 1,463 |      | $
|                                                                           |  |                |       |      |  



|                                                            |  | 2002 |      |   | 2001 |   |      | 2000 | 
|----------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Components of net periodic benefit cost:                    |  |      |      |   |      |   |      |     
|Service cost                                                |  | $    | 64   |   |      | $ | 173  |      | 
|Interest cost                                               |  |      | 47   |   |      |   | 40   |      | 
|Actuarial (gains) losses and (increase) decrease in offsets |  |      | 19   |   |      |   | (111 | )    | 
|Modifications                                               |  |      | 662  |   |      |   |     |      | 
|                                                            |  |      |      |   |      |   |      |      | 
|Net periodic cost                                           |  | $    | 792  |   |      | $ | 102  |      | 
|                                                            |  |      |      |   |      |   |      |      | 
|Weighted-average assumptions:                               |  |      |      |   |      |   |      |      | 
|Discount rate                                               |  |      | 7.00 | % |      |   | 7.00 | %    | 
|Rate of compensation increase                               |  |      | 4.00 | % |      |   | 4.00 | %    | 



The modifications
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 will commence 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 2002, 2001 and 2000 related to
this plan was $139,000, $59,000 and $71,000, 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.



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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 financial position or results of operations, other than as noted below. 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.



The Company has reached a negotiated agreement with its insurance carrier and
Plaintiffs counsel to settle the lawsuit and other potential claims outlined below. The settlement agreement did not not have a material adverse effect on the Companys consolidated financial condition and consolidated results of
operations.



On August 26, 1999, Willie Parker and five other
plaintiffs filed a civil action in the Circuit Court of Humphreys County, Mississippi against AMCORE Consumer Finance Company, Inc., a subsidiary of the Company and other defendants containing twelve separate counts related to the sale and financing
of residential satellite dish systems. Though the actual purchase price for each of these systems involved a principal amount of less than $3,000, the complaint prayed for economic loss and compensatory damages in the amount of $5 million for each
plaintiff and punitive damages in the amount of $100 million for each plaintiff. The Company denied the plaintiffs allegations.



During the second quarter of 2001, the Company made a settlement offer to Plaintiffs counsel. The Company recorded an accrual reflecting the amount
offered. During the second quarter of 2002, the Companys counsel submitted a new offer to Plaintiffs counsel to resolve all claims and the Company adjusted its accrual to reflect the offer. During the third quarter of 2002,
Plaintiffs counsel and the Company entered into a settlement of all claims. All Plaintiffs and potential claimants have executed full releases and the United States District Court for the Northern District of Mississippi has dismissed the
lawsuit on file with prejudice.



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, 2002, the
maximum remaining term for any outstanding standby letters of credit was approximately five years, expiring on December 15, 2007.



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, 2002 was $433,000.



At December 31, 2002, 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 $161.1 million,
with $142.9 million in financial standby letters of credit and $18.2 million in performance standby letters of credit.



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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.



NOTE 16  INCOME TAXES



The components of income tax expense were as follows:



|                           |  | Years ended December 31, |       
|-------------------------- |  | ------------------------ | ------
|                           |  | 2002                     |       
|                           |  | (in thousands)           |       
|Currently paid or payable: |  |                          |       
|Federal                    |  | $                        | 16,908
|State and local            |  |                          | 1,041 
|                           |  |                          |       
|                           |  | $                        | 17,949
|                           |  |                          |       
|Deferred:                  |  |                          |       
|Federal                    |  | $                        | (2,728
|State and local            |  |                          | (1,201
|                           |  |                          |       
|                           |  | $                        | (3,929
|                           |  |                          |       
|Total                      |  | $                        | 14,020
|                           |  |                          |       
|Effective Tax Rate         |  |                          | 24.4  
|                           |  |                          |       



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, |       
|------------------------------------------ |  | ------------------------ | ------
|                                           |  | 2002                     |       
|                                           |  | (in thousands)           |       
|                                          
|Income tax at statutory rate               |  | $                        | 20,122
|(Decrease) increase resulting from:        |  |                          |       
|Tax-exempt income                          |  |                          | (3,780
|State income taxes, net of federal benefit |  |                          | (104  
|Non-deductible expenses, net               |  |                          | 374   
|Company owned life insurance               |  |                          | (1,989
|Other, net                                 |  |                          | (603  
|                                           |  |                          |       
|Total                                      |  | $                        | 14,020
|                                           |  |                          |       



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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,
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|                                                                                                                                  |  | 2002           
|                                                                                                                                  |  | (in thousands) 
|Deferred tax assets:                                                                                                              |  |                
|Deferred compensation                                                                                                             |  | $              
|Allowance for loan and lease losses                                                                                               |  |                
|Other, net of valuation allowance                                                                                                 |  |                
|                                                                                                                                  |  |                
|Total deferred tax assets                                                                                                         |  | $              
|                                                                                                                                  |  |                
|Deferred tax liabilities:                                                                                                         |  |                
|Premises and equipment                                                                                                            |  | $              
|Mortgage servicing rights                                                                                                         |  |                
|Securities                                                                                                                        |  |                
|Other                                                                                                                             |  |                
|                                                                                                                                  |  |                
|Total deferred tax liabilities                                                                                                    |  | $              
|                                                                                                                                  |  |                
|Net Deferred Tax Asset                                                                                                            |  | $              
|Less: Tax effect of net unrealized (gain) loss on securities available for sale
and derivatives reflected in stockholders equity |  |                
|                                                                                                                                  |  |                
|Net Deferred Tax Asset Excluding Net Unrealized (Gain) Loss on Securities Available for Sale and Derivatives                      |  | $              
|                                                                                                                                  |  |                



Net operating loss
carryforwards for state income tax purposes were approximately $1.87 million at December 31, 2002. The associated deferred asset is $148,000 ($96,000 net of federal). The carryforwards expire beginning December 31, 2013 through December 31,
2014. A valuation allowance of $96,000 has been established at December 31, 2002 against the deferred tax asset, due to the uncertainty surrounding the utilization of state net operating loss carryforwards. This compares to a valuation allowance of
$239,000 as of December 31, 2001. The decrease in the valuation allowance is attributable to utilization of loss carryforwards in 2002.



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, 2002 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 $1.08 million, $1.21 million, and $320,000 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, 2002, 2001, and 2000, respectively.



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NOTE 17  EARNINGS PER
SHARE



Earnings per share calculations are as follows:



|                                                                                                                                                          |  | 2002                                  |        | 2001 |   | 2000  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------
|                                                                                                                                                          |  | (in thousands, except per share data)
|Net Income                                                                                                                                                |  | $                                     | 43,471 |      | $ | 42,243
|Basic earnings per share:                                                                                                                                 |  |                                       |        |      |   |       
|Average basic shares outstanding                                                                                                                          |  |                                       | 24,701 |      |   | 25,490
|                                                                                                                                                          |  |                                       |        |      |   |       
|Earnings per share                                                                                                                                        |  | $                                     | 1.76   |      | $ | 1.66  
|                                                                                                                                                          |  |                                       |        |      |   |       
|Diluted earnings per share:                                                                                                                               |  |                                       |        |      |   |       
|Weighted average shares outstanding                                                                                                                       |  |                                       | 24,701 |      |   | 25,490
|                                                                                                                                                         
|Net effect of the assumed purchase of stock under the stock option andstock purchase
plans  based on the treasury stock method usingaverage market price |  |                                       | 209    |      |   | 239   
|                                                                                                                                                         
|Contingently issuable shares                                                                                                                              |  |                                       | 1      |      |   | 1     
|                                                                                                                                                          |  |                                       |        |      |   |       
|Average diluted shares outstanding                                                                                                                        |  |                                       | 24,911 |      |   | 25,730
|                                                                                                                                                          |  |                                       |        |      |   |       
|Diluted earnings per share                                                                                                                                |  | $                                     | 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 and Retail 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.



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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. The presentation of Segments was changed in the first quarter of 2002 to reflect the Companys shift to a line of business structure. The primary impact of this change was to segregate the previous Banking
Segment into its Retail and Commercial components. However, due to allocation methodologies for shared support costs, funds transfer adjustments and the exclusion of investment and treasuries activities from the Retail and Commercial Banking
Segments, the sum of these two new Segments will not equal the total of the old Banking Segment presentation. Prior period Segment results have been restated to reflect the new line of business structure. The Trust and Asset
Management Segment and the Mortgage Banking Segment were not affected by the shift to a line of business structure and have not been restated.



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, the cumulative effect of accounting change and the restructuring reversal (the
Operating Profit or Operating Loss). In addition, due to their unusual and non-recurring nature, the branch gains have not been allocated to either the Commercial or Retail segments. They are included in the Other column.



The Company provides Commercial and Retail banking services
through its 63 banking locations in northern Illinois and south-central Wisconsin. The Commercial Banking Segment provides services including lending, business checking and deposits, cash management, merchant card services and other traditional as
well as e-commerce 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 e-commerce retail banking services to individual customers. 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 AMCOREs banking locations. The
Mortgage Banking segment provides a variety of mortgage lending products to meet its customer needs. It sells these loans to the BANK and the secondary market and continues to service most of the loans sold.



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|                                                       |  | Operating Segments     |           |   |                |   |           |                            | 
|------------------------------------------------------ |  | ---------------------- | --------- | - | -------------- | - | --------- | -------------------------- | 
|                                                       |  | Commercial Banking     |           |   | Retail Banking |   |           | Trust and Asset Management | 
|                                                       |  | (dollars in thousands) |          
|For the year ended December 31, 2002                   |  |                        |           |   |                |   |           |                            | 
|Net interest income                                    |  | $                      | 63,498    |   |                | $ | 52,853    |                            | 
|Non-interest income                                    |  |                        | 7,130     |   |                |   | 14,709    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Total Revenue                                          |  |                        | 70,628    |   |                |   | 67,562    |                            | 
|Provision for loan and lease losses                    |  |                        | 5,879     |   |                |   | 6,695     |                            | 
|Depreciation and amortization                          |  |                        | 613       |   |                |   | 2,201     |                            | 
|Other non-interest expense                             |  |                        | 29,382    |   |                |   | 43,697    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Pretax earnings (loss)                                 |  |                        | 34,754    |   |                |   | 14,969    |                            | 
|Income taxes (benefits)                                |  |                        | 12,213    |   |                |   | 5,543     |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Earnings                                               |  | $                      | 22,541    |   |                | $ | 9,426     |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Segment profit percentage                              |  |                        | 59.4      | % |                |   | 24.8      | %                          | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Assets                                                 |  | $                      | 1,867,393 |   |                | $ | 1,135,847 |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|For the year ended December 31, 2001                   |  |                        |           |   |                |   |           |                            | 
|                                                      
|Net interest income                                    |  | $                      | 53,134    |   |                | $ | 49,270    |                            | 
|Non-interest income                                    |  |                        | 5,977     |   |                |   | 14,990    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Total Revenue                                          |  |                        | 59,111    |   |                |   | 64,260    |                            | 
|Provision for loan and lease losses                    |  |                        | 10,429    |   |                |   | 6,271     |                            | 
|Depreciation and amortization                          |  |                        | 1,053     |   |                |   | 3,087     |                            | 
|Other non-interest expense                             |  |                        | 24,674    |   |                |   | 42,740    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Pretax earnings                                        |  |                        | 22,955    |   |                |   | 12,162    |                            | 
|Income taxes (benefits)                                |  |                        | 7,741     |   |                |   | 4,710     |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Earnings before Extraordinary Item & Accounting Change |  | $                      | 15,214    |   |                | $ | 7,452     |                            | 
|Early Extinguishment of Debt (net of tax)              |  |                        |          |   |                |   |          |                            | 
|Cumulative effect of Accounting Change (net of tax)    |  |                        |          |   |                |   |          |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Earnings                                               |  | $                      | 15,214    |   |                | $ | 7,452     |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Segment profit percentage                              |  |                        | 52.5      | % |                |   | 25.7      | %                          | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Assets                                                 |  | $                      | 1,607,220 |   |                | $ | 1,021,863 |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|For the year ended December 31, 2000                   |  |                        |           |   |                |   |           |                            | 
|                                                      
|Net interest income                                    |  | $                      | 53,094    |   |                | $ | 61,076    |                            | 
|Non-interest income                                    |  |                        | 4,245     |   |                |   | 12,666    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Total Revenue                                          |  |                        | 57,339    |   |                |   | 73,742    |                            | 
|Provision for loan and lease losses                    |  |                        | 7,074     |   |                |   | 2,636     |                            | 
|Depreciation and amortization                          |  |                        | 1,249     |   |                |   | 3,445     |                            | 
|Other non-interest expense                             |  |                        | 23,565    |   |                |   | 47,093    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Pretax earnings                                        |  |                        | 25,451    |   |                |   | 20,568    |                            | 
|Income taxes (benefits)                                |  |                        | 8,326     |   |                |   | 7,526     |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Earnings before restructuring (charges) reversals      |  | $                      | 17,125    |   |                | $ | 13,042    |                            | 
|After tax restructuring (charges) reversals            |  |                        |          |   |                |   |          |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Earnings                                               |  | $                      | 17,125    |   |                | $ | 13,042    |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Segment profit percentage                              |  |                        | 45.6      | % |                |   | 34.8      | %                          | 
|                                                       |  |                        |           |   |                |   |           |                            | 
|Assets                                                 |  | $                      | 1,641,528 |   |                | $ | 1,161,070 |                            | 
|                                                       |  |                        |           |   |                |   |           |                            | 



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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, 2002, the BANKs retained earnings available for the
payment of dividends without prior regulatory approval was $28.6 million. The amount available for loans or advances by the BANK to the Company and its affiliates amounted to $23.7 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.



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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, 2002, 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, 2002, 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.



|                                          |  |                        |         |         |        | For Capital Adequacy Purposes
|----------------------------------------- |  | ---------------------- | ------- | ------- | ------ | -----------------------------
|                                          |  | Actual                 |         | Minimum |        | Well Capitalized             
|                                          |  | Amount                 |         | Ratio   |        | Amount                       
|                                          |  | (dollars in thousands)
|As of December 31, 2002:                  |  |                        |         |         |        |                              
|Total Capital (to Risk Weighted Assets):  |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 378,688 |         | 10.98% |                              
|AMCORE Bank, N.A.                         |  |                        | 367,395 |         | 10.70% |                              
|                                         
|Tier 1 Capital (to Risk Weighted Assets): |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 343,253 |         | 9.95%  |                              
|AMCORE Bank, N.A.                         |  |                        | 332,171 |         | 9.68%  |                              
|                                         
|Tier 1 Capital (to Average Assets):       |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 343,253 |         | 7.82%  |                              
|AMCORE Bank, N.A.                         |  |                        | 332,171 |         | 7.59%  |                              
|                                         
|As of December 31, 2001:                  |  |                        |         |         |        |                              
|Total Capital (to Risk Weighted Assets):  |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 344,318 |         | 11.68% |                              
|AMCORE Bank, N.A.                         |  |                        | 342,708 |         | 11.70% |                              
|                                         
|Tier 1 Capital (to Risk Weighted Assets): |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 310,378 |         | 10.53% |                              
|AMCORE Bank, N.A.                         |  |                        | 309,223 |         | 10.55% |                              
|                                         
|Tier 1 Capital (to Average Assets):       |  |                        |         |         |        |                              
|Consolidated                              |  | $                      | 310,378 |         | 7.84%  |                              
|AMCORE Bank, N.A.                         |  |                        | 309,223 |         | 7.83%  |                              



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NOTE 21  CONDENSED
FINANCIAL INFORMATION OF PARENT COMPANY



CONDENSED
PARENT COMPANY BALANCE SHEETS



|                                              |  | December 31,   |        
|--------------------------------------------- |  | -------------- | -------
|                                              |  | 2002           |        
|                                              |  | (in thousands) |        
|ASSETS                                        |  |                |        
|Cash and cash equivalents                     |  | $              | 976    
|Short-term investments                        |  |                | 29,000 
|Securities available for sale                 |  |                | 2,455  
|Due from subsidiaries                         |  |                | 9      
|Loans to subsidiaries                         |  |                | 900    
|Investment in subsidiaries.                   |  |                | 373,262
|Company owned life insurance                  |  |                | 17,595 
|Premises and equipment, net                   |  |                | 909    
|Other assets                                  |  |                | 9,119  
|                                              |  |                |        
|Total Assets                                  |  | $              | 434,225
|                                              |  |                |        
|LIABILITIES                                   |  |                |        
|Short-term borrowings                         |  | $              | 28,408 
|Long-term borrowings                          |  |                | 41,238 
|Other liabilities                             |  |                | 8,898  
|                                              |  |                |        
|Total Liabilities                             |  | $              | 78,544 
|                                              |  |                |        
|STOCKHOLDERS EQUITY                          |  |                |        
|Preferred stock                               |  | $              |       
|Common stock                                  |  |                | 6,615  
|Additional paid-in capital                    |  |                | 74,326 
|Retained earnings                             |  |                | 351,247
|Treasury stock and other                      |  |                | (97,566
|Accumulated other comprehensive income (loss) |  |                | 21,059 
|                                              |  |                |        
|Total Stockholders Equity                    |  | $              | 355,681
|                                              |  |                |        
|Total Liabilities and Stockholders Equity    |  | $              | 434,225
|                                              |  |                |        



CONDENSED PARENT
COMPANY STATEMENTS OF INCOME



|                                                                                         |  | Years Ended December 31,
|---------------------------------------------------------------------------------------- |  | ------------------------
|                                                                                         |  | 2002                    
|                                                                                         |  | (in thousands)          
|INCOME:                                                                                  |  |                         
|Dividends from subsidiaries                                                              |  | $                       
|Interest income                                                                          |  |                         
|Company owned life insurance income                                                      |  |                         
|Other                                                                                    |  |                         
|                                                                                         |  |                         
|Total Income                                                                             |  | $                       
|                                                                                         |  |                         
|EXPENSES:                                                                                |  |                         
|Interest expense                                                                         |  | $                       
|Compensation expense and employee benefits                                               |  |                         
|Other                                                                                    |  |                         
|                                                                                         |  |                         
|Total Expenses                                                                           |  | $                       
|                                                                                         |  |                         
|Income before income tax benefits and equity in undistributed net income of
subsidiaries |  | $                       
|Income tax benefits                                                                      |  |                         
|                                                                                         |  |                         
|Income before equity in undistributed net income of subsidiaries                         |  | $                       
|Equity in undistributed net income of subsidiaries                                       |  |                         
|                                                                                         |  |                         
|Net income before extraordinary item                                                     |  | $                       
|Extraordinary item: Early extinguishment of debt (net of tax)                            |  |                         
|                                                                                         |  |                         
|Net Income                                                                               |  | $                       
|                                                                                         |  |                         



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CONDENSED PARENT COMPANY
STATEMENTS OF CASH FLOWS



|                                                                                  |  | Years ended December 31, |        
|--------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                  |  | 2002                     |        
|                                                                                  |  | (in thousands)           |        
|Cash Flows from Operating Activities                                              |  |                          |        
|Net income                                                                        |  | $                        | 43,471 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                          |        
|Depreciation and amortization                                                     |  |                          | 975    
|Deferred compensation amortization                                                |  |                          | 1,592  
|Equity in undistributed net income of subsidiaries                                |  |                          | (19,254
|Decrease in due from subsidiaries                                                 |  |                          | 13     
|(Increase) decrease in other assets                                               |  |                          | (2,724 
|Increase (decrease) in other liabilities                                          |  |                          | 1,248  
|Other, net                                                                        |  |                          | 213    
|                                                                                  |  |                          |        
|Net cash provided by operating activities                                         |  | $                        | 25,534 
|                                                                                  |  |                          |        
|Cash Flows from Investing Activities                                              |  |                          |        
|Purchase of securities                                                            |  | $                        |       
|Sale of securities                                                                |  |                          | 205    
|Net increase in short term investments                                            |  |                          | (29,000
|Net liquidation of (investment in) subsidiaries                                   |  |                          | 864    
|Loans to subsidiaries                                                             |  |                          | (31,400
|Payments received on loans to subsidiaries                                        |  |                          | 53,450 
|Transfer of premises and equipment to affiliates                                  |  |                          | 17     
|Investment in company owned life insurance                                        |  |                          | (3,248 
|Premises and equipment expenditures, net                                          |  |                          | (107   
|                                                                                  |  |                          |        
|Net cash provided by (used for) investing activities                              |  | $                        | (9,219 
|                                                                                  |  |                          |        
|Cash Flows from Financing Activities                                              |  |                          |        
|Net (decrease) increase in short-term borrowings                                  |  | $                        | (2,879 
|Payment of long-term borrowings                                                   |  |                          | (444   
|Dividends paid                                                                    |  |                          | (15,839
|Proceeds from the issuance of common stock                                        |  |                          | 843    
|Proceeds from exercise of incentive stock options                                 |  |                          | 4,228  
|Purchase of treasury stock                                                        |  |                          | (2,412 
|                                                                                  |  |                          |        
|Net cash used for financing activities                                            |  | $                        | (16,503
|                                                                                  |  |                          |        
|Net change in cash and cash equivalents                                           |  | $                        | (188   
|Cash and cash equivalents:                                                        |  |                          |        
|Beginning of year                                                                 |  |                          | 1,164  
|                                                                                  |  |                          |        
|End of year                                                                       |  | $                        | 976    
|                                                                                  |  |                          |        



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CONDENSED QUARTERLY
EARNINGS & STOCK PRICE SUMMARY (unaudited)



|                                                              |  | 2002                                  |        | 2001          
|------------------------------------------------------------- |  | ------------------------------------- | ------ | --------------
|                                                              |  | First Quarter                         |        | Second Quarter
|                                                              |  | (in thousands, except per share data)
|                                                             
|Interest income                                               |  | $                                     | 60,711 |               
|Interest expense                                              |  |                                       | 30,532 |               
|                                                              |  |                                       |        |               
|Net interest income                                           |  | $                                     | 30,179 |               
|Provision for loan losses                                     |  |                                       | 2,640  |               
|Other income                                                  |  |                                       | 17,108 |               
|Other expense                                                 |  |                                       | 31,431 |               
|                                                              |  |                                       |        |               
|Income before income taxes                                    |  | $                                     | 13,216 |               
|Income taxes                                                  |  |                                       | 3,290  |               
|                                                              |  |                                       |        |               
|Net Income before Extraordinary item and Accounting change    |  | $                                     | 9,926  |               
|Extraordinary item: Early extinguishment of debt (net of tax) |  |                                       |       |               
|Cumulative effect of accounting change (net of tax)           |  |                                       |       |               
|                                                              |  |                                       |        |               
|Net Income                                                    |  | $                                     | 9,926  |               
|                                                              |  |                                       |        |               
|Per share data:                                               |  |                                       |        |               
|Basic earnings                                                |  | $                                     | 0.40   |               
|Diluted earnings                                              |  |                                       | 0.40   |               
|Dividends                                                     |  |                                       | 0.16   |               
|Stock price rangeshigh                                       |  |                                       | 23.99  |               
|low                                                          |  |                                       | 20.60  |               
|close                                                        |  |                                       | 23.51  |               



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.



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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, 2002 and 2001,
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, 2002. 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, 2002 and 2001, and the results of their operations and cash flows for each of the years in the three-year period
ended December 31, 2002 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

January 20, 2003



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##### Table of Contents

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

FINANCIAL DISCLOSURE



None



PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



(a) Directors of the Registrant.The 2003 Notice of Annual Meeting and Proxy Statement, dated March 17, 2003, is incorporated
herein by reference.



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



ITEM 11.    EXECUTIVE COMPENSATION



The 2003 Notice of Annual Meeting and Proxy Statement, dated March 17, 2003, is incorporated herein by reference.



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS



The 2003
Notice of Annual Meeting and Proxy Statement, dated March 17, 2003, is incorporated herein by reference.



Equity Compensation Plan Information



The following table sets forth information as of the end of the Companys 2002 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) |  | 2,327,352                                                                                           |  | $                                                                               | 21.42 |                                                                                                                                                
|Equity compensation plans not approved by security holders    |  | N/A                                                                                                 |  |                                                                                 | N/A   |                                                                                                                                                
|                                                              |  |                                                                                                     |  |                                                                                 |       |                                                                                                                                                
|Total                                                         |  | 2,327,352                                                                                           |  | $                                                                               | 21.42 |                                                                                                                                                
|                                                              |  |                                                                                                     |  |                                                                                 |       |                                                                                                                                                

---

|(1) | Does not include individual options to purchase 113,630 shares as of December 31, 2002, with a weighted average exercise price of $10.29 that were assumed by the
Company in acquisitions. Includes options that have not vested and, therefore, are not currently exercisable. See Note 13  Stock Incentive Plans for additional information on vesting schedules. Furthermore, not all of these options are
in-the-money, meaning not all options would result in a profit to the optionee if exercised at the year-end stock price. 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  Earnings Per Share of the Notes to Consolidated Financial Statements for additional information.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(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 230,061.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The 2003 Notice of Annual Meeting and Proxy Statement, dated March 17, 2003, is incorporated herein by reference. See also Note 4 to the Notes to Consolidated Financial Statements.



ITEM 14.    CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company required to be included in the Companys
periodic filings under the Exchange Act.



Changes in Internal
Controls



Since the Evaluation Date, there have been no
significant changes in the Companys internal controls or in other factors that could significantly affect such controls.



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,
2002 and 2001



Consolidated Statements of Income
for the years ended December 31, 2002, 2001 and 2000



Consolidated Statements of Stockholders Equity for the years ended December 31, 2002, 2001 and 2000



Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000



Notes to Consolidated Financial Statements  December
31, 2002, 2001 and 2000



Independent
Auditors Report



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(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.



|(a)3. | EXHIBITS
|----- | --------



|3     |  | 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).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|3.1   |  | By-laws of AMCORE Financial, Inc., as amended December 7, 2001 (Incorporated by reference to Exhibit 3.1 of
AMCOREs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                        
|     
|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 |  | Transitional Compensation Agreement, dated February 22, 2000, between AMCORE Financial, Inc. and James M. Hansberry
(Incorporated by reference to Exhibit 10.4G of AMCOREs Annual Report on Form 10-K for the year ended December 31, 1999).                                                                                                                                                                                                                                                 
|     
|10.4B |  | 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).                                                                                                                                                                
|     
|10.4C |  | Amended and Restated Transitional Compensation Agreement, dated December 18, 2001, between AMCORE Financial, Inc. and
the following individuals: David W. Miles, 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).                                                                                                                                                            



92



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##### Table of Contents

|     
|-----
|10.4D



|     
|-----
|10.4E
|     
|10.5 
|     
|10.6 
|     
|10.7 
|     
|10.8 
|     
|10.9 
|     
|21   
|     
|22   
|     
|23   
|     
|24   
|     
|99   
|     
|99.1 



(b) No reports on Form
8-K were filed during the fourth quarter of 2002.



93



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##### 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, in the City of Rockford, State of Illinois, on this 17th day of
March, 2003.



AMCORE
FINANCIAL, INC.

LOGO

By:John 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 17th day of March, 2003 by the following persons on behalf of the Registrant in the capacities indicated.



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

LOGO

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

LOGO

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



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



LOGO

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

LOGO

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

Attorney in Fact*



94



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##### Table of Contents

Certifications



I, Kenneth E. Edge,
the Chief Executive Officer of AMCORE Financial, Inc., certify that:



|1. | I have reviewed this annual report on Form 10-K of AMCORE Financial, Inc;
|-- | -------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



LOGO

|                                                      
|------------------------------------------------------
|Kenneth E. Edge Chief Executive Officer March 17,
2003
|                                                      



95



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##### Table of Contents

Certifications



I, John R. Hecht, the Chief Financial Officer of AMCORE Financial, Inc., certify that:



|1. | I have reviewed this annual report on Form 10-K of AMCORE Financial, Inc;
|-- | -------------------------------------------------------------------------



|2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LOGO



|                                                    
|----------------------------------------------------
|John R. Hecht Chief Financial Officer March 17,
2003
|                                                    



96



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##### Table of Contents



EXHIBIT
INDEX





|(a) |  | 3    |  | 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).
|--- |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 3.1  |  | By-laws of AMCORE Financial, Inc., as amended December 7, 2001 (Incorporated by reference to Exhibit 3.1 of
AMCOREs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                        
|   
|    |  | 4    |  | 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).                                                                                                                                                                                                                                                                             
|   
|    |  | 21   |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | 22   |  | 2003 Notice of Annual Meeting and Proxy Statement                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | 23   |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | 24   |  | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | 99   |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | 99.1 |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.