UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~ 2009

Commission file number 0–13393

AMCORE Financial, Inc.


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

501 Seventh Street, Rockford, Illinois 61104

Telephone Number (815) 968–2241

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

Common Stock, $0.22 par value

Common Stock Purchase Rights

The NASDAQ Stock Market

(Name of Exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes x No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ 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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x¨ Non-accelerated filer ¨ Smaller reporting company ¨x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No

As of February 1311, ~~2009~~2010, 2223,~~682~~103,000 shares of common stock were outstanding. The aggregate market value of the common equity held by non-affiliates, computed by reference to the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $~~112~~16.32 million.

Documents Incorporated by Reference:

Portions of the Proxy Statement and Notice of ~~2009~~2010 Annual Meeting, dated March 1922, ~~2009~~2010 are incorporated by reference into Part III of the Form 10-K for the fiscal year ended December 31, ~~2008~~2009.

AMCORE FINANCIAL, INC.

Form 10–K Table of Contents

PART I		PageNumber
Item 1	Business	1
Item 1A	Risk Factors	910
Item 1B	Unresolved Staff Comments	1217
Item 2	Properties	1217
Item 3	Legal Proceedings	1317
Item 4	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved	1317
PART II
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters	1418
Item 6	Selected Financial Data	1519
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1620
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	4552
Item 8	Financial Statements and Supplementary Data	5158
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	99108
Item 9A	Controls and Procedures	99108
Item 9B	Other Information	99108
PART III
Item 10	Directors, Executive Officers and Corporate Governance	~~100~~109
Item 11	Executive Compensation	~~100~~109
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~100~~109
Item 13	Certain Relationships and Related Transactions, and Director Independence	~~101~~110
Item 14	Principal Accountant Fees and Services	~~101~~110
PART IV
Item 15	Exhibits and Financial Statements Schedules	~~101~~110
Signatures		~~104~~113

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 Company’s corporate headquarters is located at 501 Seventh Street in Rockford, Illinois. The operations are divided into ~~four~~three business segments: Commercial Banking, ~~Retail~~Consumer Banking, and Investment Management and Trust ~~and Mortgage Banking~~. For expanded discussion on the Company’s segments, see Note 1615 of the Notes to Consolidated Financial Statements. AMCORE owns directly or indirectly all of the outstanding common stock of each of its subsidiaries and provides its subsidiaries with advice and counsel on policies and operating matters among other things.

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

Banking Segments

General – AMCORE directly owns AMCORE Bank, N.A. (the “Bank”), a nationally chartered bank. AMCORE ~~also~~dissolved ~~indirectly owns Property Exchange Company,~~ a qualified intermediary, ~~which is a~~ subsidiary of the Bank, ~~and~~Property ~~dissolved~~Exchange ~~the consumer finance subsidiary, AMCORE Consumer Finance~~ Company, ~~Inc.~~ in ~~June~~September of ~~2007~~2009.

Geographic and Economic Information – The Bank conducts business at 7466 branch locations throughout northern Illinois and southern Wisconsin (the “Service Area”). The Banking segments’ Service Area is dispersed among five basic economic areas: the Rockford, Illinois metropolitan area (Rockford), the Madison, Wisconsin metropolitan area (Madison), the Chicago, Illinois metropolitan area (Chicagoland), the Milwaukee, Wisconsin suburbs (Milwaukee) and community banking branches which are not otherwise specified (Community Banking). Locations in the Chicagoland, Rockford, Madison and Milwaukee economic areas are generally bounded by Interstates 94 in the north, 294 and 94 in the east, 80 in the south and 90 and 39 in the west ~~where population growth, homeownership and household income are high and where there is a high concentration of mid-sized businesses~~.

Among the five economic areas, Rockford has the highest concentration of manufacturing activities. Community banking has a greater concentration of smaller-sized business and agricultural activities. All five economic areas are experiencing higher unemployment, compared to a year ago, with the Rockford Metropolitan Statistical Areas or MSA, showing the greatest increase in unemployment. The Midwest economy continues to experience deterioration in the real estate markets with tightened liquidity, lengthening of the sales cycle and declining collateral values.

The Bank has locations throughout northern Illinois, excluding the far northwestern counties, including the Illinois cities of Algonquin, Antioch, Aurora, Belvidere, Carol Stream, Carpentersville, Chicago, Crystal Lake, Deerfield, Dixon, Elgin, Freeport, Joliet, ~~Lake Zurich,~~ Lombard, Machesney Park, McHenry, Mendota, Mt. Prospect, Naperville, Northbrook, Oregon, Orland Park, Peru, Princeton, Rock Falls, Rockford, Roscoe, St. Charles, Schaumburg, South Beloit, Sterling, Vernon Hills, Wheaton, Willowbrook, Woodstock and the surrounding communities. The Bank conducts business at 2014 locations throughout southern Wisconsin, including the Wisconsin cities of Baraboo, Lodi, Madison, Mt. Horeb, Portage, Sauk City, Verona, Waukesha and the surrounding communities.

In fourth quarter 2009, the ~~Wisconsin~~Company ~~cities~~sold offour ~~Argyle,~~branches ~~Baraboo,~~in ~~Belleville,~~rural ~~Darlington,~~Wisconsin: ~~Lodi~~Argyle, ~~Madison~~Belleville, Monroe, Mtand New Glarus (the “Wisconsin Branch Sales”) in two separate transactions. ~~Horeb,~~These ~~New~~transactions ~~Glarus,~~included ~~Portage,~~approximately ~~Sauk~~$87 ~~City~~million in loans, ~~Verona~~$166 million in deposits and sweep accounts, ~~Wauwatosa~~and $42 million in related trust accounts. The brokerage and 401(k) plan businesses were not part of the ~~surrounding~~ ~~communities~~Wisconsin Branch Sales and will remain with AMCORE.

In fourth quarter 2009, the Company announced an agreement had been reached to sell 12 branches and two stand-alone drive-ups in the following rural Illinois communities: Dixon, Freeport, Mendota, Oregon, Peru, Princeton, Rock Falls and Sterling (the “Illinois Branch Sale”). This transaction includes approximately $483 million in loans, $540 million in deposits and sweep accounts, and up to $400 million in related trust and brokerage accounts. The 401(k) plan business is not part of the Illinois Branch Sale and will remain with AMCORE. In connection with the Illinois Branch Sale, which is expected to close in March 2010, the Company reclassified the $483 million of loans to held-for-sale.

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

Investment Portfolio and Policies – As a complement to its Commercial, Consumer Banking and ~~Retail~~Investment ~~Banking~~Management and Trust 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., including ~~Chief among these factors is~~ the efficient utilization of the Company’s liquidity and capital. After consideration of loan demand, excess capital may be available to allocate to high-quality investment activities that can generate additional income for the ~~Company, while still maintaining strong~~ ~~capital ratios~~Company. Conversely, when capital ratios are on the decline, securities may be decreased in order to preserve capital. 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 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 third-party professional investment manager, under the direction of Company management within parameters established by the Company.~~ Portfolio performance and changing risk profiles are regularly monitored by the Asset and Liability Committee (ALCO) and the Investment Committee of AMCORE’s Board of Directors.

Sources of Funding – Liquidity management is the process by which the Company, through ALCO and its capital markets 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, mortgage originations pending sale, withdrawals by depositors, ~~and~~ repayment of debt when due or called;, maintaining adequate collateral for secured deposits and borrowings; , payment of dividends by the Company;, payment of operating expenses;, funding capital expenditures and maintaining deposit reserve requirements.

Liquidity is derived primarily from bank-issued deposit growth and retention; principal and interest payments on loans; principal and interest payments ~~from investment securities~~, sale, maturity and prepayment of investment securities; net cash provided byfrom operations; and access to other funding sources. Other funding sources ~~include~~have typically included brokered ~~certificates~~certificate of ~~deposit~~deposits (CDCDs), federal funds purchased lines ~~(Fed Funds)~~, Federal Reserve Bank discount window advances, Treasury Tax & Loan note accounts, Term Auction Facility borrowings, Federal Home Loan Bank ~~(FHLB)~~ advances, repurchase agreements, ~~subordinated debentures,~~ the sale or securitization of loans, subordinated debentures, balances maintained at correspondent banks and access to other capital market instruments. In the current environment and due to the recent performance of the Bank, the Bank has been subject to increased collateral requirements and other limitations to secured funding. Bank-issued deposits, which exclude wholesale deposits, are ~~generally~~ considered by management to be the primary, most stable and most cost-effective source of funding and liquidity. ~~The Bank also has capacity, over time, to place additional brokered CDs as a source of mid to long-term funds.~~

Retail Banking Segment – Retail banking provides services to individual customers through the Bank’s branch locations. The services provided by retail banking include direct and indirect lending, checking, savings, money market accounts, CDs, safe deposit rental, ATMs, and other traditional and electronic services.

~~for~~As ~~originating~~of the ~~relationship~~end ~~and~~of 2009, the ~~Bank~~Company ~~retains~~and nothe ~~credit risk. The~~ Bank ~~manages~~were ~~its~~below ~~retail~~adequacy ~~lending~~minimums ~~risk~~for ~~via~~regulatory acapital purposes. ~~centralized~~The ~~credit~~Bank ~~process,~~was ~~risk scoring,~~“undercapitalized” ~~loan-to-value~~for ~~and~~its ~~other~~Total ~~underwriting~~Capital ~~standards,~~ and ~~knowledge~~Tier of1 ~~its~~Capital ~~customers~~Ratios and ~~their~~“significantly ~~credit~~undercapitalized” ~~history.~~for Asits aleverage ~~general~~ratio ~~rule,~~under ~~the~~applicable ~~Bank~~regulatory ~~does~~guidelines. ~~not~~The ~~actively~~leverage ~~engage~~capital inratio ~~retail~~reflects, ~~lending activities outside its geographic market areas. For segment~~in ~~financial information~~part, ~~see~~the ~~Note~~effect 16 of ~~the~~maintaining ~~Notes~~high ~~to Consolidated Financial Statements~~liquidity.

As a result, the Bank is no longer eligible to participate in the brokered CD market and is also subject to limitations with respect to interest rates it can offer on deposits, generally limited to rates equal to no more than 75 basis points above prevailing market rates. These limitations, as well as recent increased collateral requirements and advance limitations with respect to other funding sources, may have a material impact on the Bank’s deposit levels and liquidity.

Consumer Banking Segment – Consumer banking provides services to individual customers through the Bank’s branch locations. The services provided by consumer banking include direct and indirect lending, checking, savings, money market accounts, CDs, safe deposit rental, automated teller machines (ATMs), and other traditional and electronic services.

Historically, home equity lending had the lowest risk profile due to the nature of the collateral. Recent declines in home values have increased the risk profile of home equity lending. Installment loans have an intermediate risk due to the lower principal amounts and the depreciating nature of the collateral. Personal lines and overdraft protection have the highest degree of risk since the loans are unsecured. The bankcard programs are a fee service for originating the relationship and the Bank retains no credit risk. The Bank manages its consumer lending risk via a centralized credit process, risk scoring, loan-to-value and other underwriting standards, and knowledge of its customers and their credit history. As a general rule, the Bank does not actively engage in consumer lending activities outside of its geographic market areas.

Consumer banking also provides a variety of mortgage lending products to meet its customers’ needs. The Company sells most of the loans it originates to a national mortgage services company, which provides private-label loan processing and servicing support on both sold and retained loans. As part of this arrangement, the Company sold the majority of its Originated Mortgage Servicing Rights (OMSR) portfolio. The arrangement offers AMCORE a greater breadth of products, more competitive pricing and greater processing efficiencies. Additionally, the cost structure in the mortgage banking business has become more variable in nature, allowing the Company to better absorb fluctuations in mortgage volumes. These include the costs of originating loans that are netted against mortgage banking income or interest income, as well as processing and servicing costs of loans retained in the Bank’s portfolio and that are a component of operating expenses. For segment financial information, see Note 15 of the Notes to Consolidated Financial Statements.

Commercial Banking Segment – Commercial banking provides services to middle market and small business customers through the Bank’s branch locations. The services provided by commercial banking include lending, business checking and deposits, treasury management and other traditional as well as electronic services.

Commercial lending has a higher risk profile than does ~~retail~~consumer lending due to the larger dollar amounts involved, the nature of the collateral and a greater variety of economic risks that could potentially affect the loan customer. The Bank manages its commercial lending risks through a centralized underwriting process, serial sign-off requirements as dollar amounts increase, lending limits, monitoring concentrations, regular loan review and grading of credits, and an active work-out management process for troubled credits. For segment financial information, see Note 1615 of the Notes to Consolidated Financial Statements.

The Bank is a lender in the Small Business Administration (SBA) program, with a total loan portfolio of $34 million as of December 31, 2008, and has earned National Preferred Lender Status from the SBA. AMCORE has also achieved National Express Lender status, a national designation which significantly shortens the turnaround time from application to loan acceptance. The Bank received a rating of “Acceptable” from the most recent audit by the SBA. SBA loans are popular with small business customers, offering them another source of financing.

Mortgage Banking Segment – The Mortgage Banking Segment provides a variety of mortgage lending products to meet its customers’ needs. The Company sells most of the loans it originates to a national mortgage services company, which provides private-label loan processing and servicing support on both sold and retained loans, a relationship that the Company entered into during first quarter 2007. See Note 16 of the Notes to Consolidated Financial Statements.

As part of this arrangement, the Company sold the majority of its Originated Mortgage Servicing Rights (OMSR) portfolio. The arrangement offers AMCORE a greater breadth of products, more competitive pricing and greater processing efficiencies. As a result of this arrangement, AMCORE better controls the risks associated with its mortgage banking business. Additionally, the cost structure in the mortgage banking business has become more variable in nature, allowing the Company to better absorb fluctuations in mortgage volumes. These include the costs of originating loans that are netted against mortgage banking income or interest income, as well as processing and servicing costs of loans retained in the Bank’s portfolio and that are a component of operating expenses. The transition to the new processing and servicing arrangement was completed during the second quarter of 2007.

Other Financial Services – The Bank provides various services to consumers, commercial customers and correspondent banks. Services available include safe deposit box rental, securities safekeeping, international services, remote deposit capture, and lock box, among other things.

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 checks and pay bills. AMCORE Online For Business facilitates access to commercial customers’ accounts via personal computers. It also permits the transfer of funds between accounts and the initiation of wire transfers and ACH activity to accounts at other financial institutions. The AMCORE TeleBank service provides retail and commercial customers the opportunity to use their telephone 24 hours a day to obtain balance and other information on their checking and savings accounts, certificates of deposit, personal installment loans and retail mortgage loans; all from a completely automated system. Automated teller machines located throughout AMCORE’s market area make banking transactions available to customers when the bank facilities or hours of operation are not convenient.

~~Investment~~The ~~Management~~Bank ~~and~~also ~~Trust~~offers ~~Segment~~several –electronic ~~Effective~~banking ~~December 31,~~services ~~2008,~~to commercial and retail customers. AMCORE Online ~~Investment~~provides ~~Group,~~retail ~~N.A.~~customers ~~(the~~with ~~“Investment~~online ~~Group”),~~capability ato ~~nationally~~access ~~chartered~~deposit ~~non-depository~~and ~~bank~~loan account balances, ~~was~~transfer ~~merged~~funds ~~into~~between ~~AMCORE~~accounts, ~~Bank~~make loan payments, ~~N.A.~~view ~~(Bank)~~checks and pay bills. ~~The~~AMCORE ~~Investment~~Online ~~Group~~For ~~operates~~Business asfacilitates aaccess ~~separate~~to ~~business~~commercial ~~segment~~customers’ accounts via personal computers. It also permits the transfer of funds between accounts and the ~~Bank~~initiation of wire transfers and ACH activity to accounts at other financial institutions. The AMCORE TeleBank service provides ~~its~~retail ~~clients~~and ~~with~~commercial ~~wealth~~customers ~~management~~the ~~services,~~opportunity ~~which~~to ~~include~~use ~~trust~~their ~~services~~telephone 24 hours a day to obtain balance and other information on their checking and savings accounts, ~~estate~~CDs, ~~administration~~personal installment loans and ~~financial~~retail ~~planning~~mortgage loans; all from a completely automated system. Automated ~~The~~teller ~~Investment~~machines ~~Group~~located ~~also~~throughout ~~provides~~AMCORE’s ~~employee~~market ~~benefit~~area ~~plan~~make ~~administration~~banking ~~and~~transactions ~~recordkeeping~~available ~~services~~to customers when the bank facilities or hours of operation are not convenient.

~~AMCORE~~ Investment ~~Services,~~Management ~~Inc.~~and ~~(AIS)~~Trust isSegment ~~now~~– aEffective ~~wholly~~December 31, ~~owned subsidiary of the Bank~~2008, ~~which~~AMCORE isInvestment aGroup, ~~wholly~~N.A. ~~owned subsidiary of~~ (the ~~Company.~~“Investment ~~AIS~~Group”), ~~was previously~~ a ~~wholly~~nationally ~~owned~~chartered ~~subsidiary~~non-depository ofbank, ~~the~~was ~~Investment~~merged ~~Group until its merger~~ into the Bank. onThe ~~December 31,~~Investment ~~2008.~~Group ~~AIS~~operates isas ~~incorporated~~a ~~under~~separate ~~the~~business ~~laws~~segment of the ~~State~~Bank ~~of Illinois~~ and isprovides aits ~~member~~clients ~~of the~~with ~~Financial~~wealth ~~Industry~~management ~~Regulatory Authority (FINRA). AIS is a full–service brokerage company that offers a full range of investment alternatives including annuities~~services, which ~~mutual~~include ~~funds,~~trust ~~stocks~~services, ~~bonds~~estate administration and ~~other~~financial ~~insurance products~~planning. ~~AIS~~The ~~customers~~Investment ~~can get~~Group ~~real~~also ~~time~~provides ~~stock~~employee ~~market~~benefit ~~quotes,~~plan ~~investment~~administration ~~account information,~~ and ~~place~~recordkeeping ~~trades during market hours execution 24 hours a day, 7 days a week through AMCORETrade~~services.~~com.~~

InAs ~~2005,~~a ~~the~~result ~~Company~~of ~~transitioned~~the ~~assets~~merger of ~~its~~the ~~three~~Investment ~~Company-managed~~Group ~~Vintage~~into ~~equity~~the ~~funds~~Bank, ~~into~~AMCORE ~~two~~Investment ~~mutual~~Services, ~~funds~~Inc. ~~managed~~(AIS) bybecame ~~Federated~~a ~~Investors,~~wholly ~~Inc~~owned subsidiary of the Bank. ~~and sold~~AIS ~~its~~was ~~asset~~previously ~~management~~a wholly owned subsidiary, ~~Investors~~of ~~Management~~the ~~Group,~~Investment ~~Ltd~~Group. ~~(IMG),~~AIS tois ~~West~~incorporated ~~Bancorporation,~~under ~~Inc.~~the ~~With~~laws ~~these~~of ~~transactions,~~the ~~AMCORE~~State ~~transitioned~~of ~~from~~Illinois ~~being~~and is a ~~developer~~member of ~~proprietary~~the ~~investment~~Financial ~~products~~Industry toRegulatory ~~being~~Authority (FINRA). AIS is a full–service ~~provider~~brokerage company and registered investment advisor that offers ~~its customers~~ a ~~wider~~full ~~array~~range of investment ~~product~~alternatives ~~choices.~~including ~~The~~managed ~~results~~accounts, ofannuities, ~~IMG~~mutual ~~for~~funds, ~~prior periods~~stocks, ~~the~~bonds ~~related~~and ~~sale~~other insurance products. AIS customers can get real time market quotes and ~~subsequent~~account ~~adjustments~~information ~~are~~24 ~~reported~~hours asa ~~discontinued~~day, ~~operations~~7 days a week through AMCORETrade.com.

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, safety of and access to deposits and reputation.

Employment

AMCORE had 962 full–time equivalent employees as of February 11, 2010. This compares to 1,272 full–-time equivalent employees as of February 13, 2009. 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~~Fed) 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~~ Fed may require and is subject, along with its subsidiaries, to examination by the ~~FRB~~Fed.

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~~Fed and is subject to certain other federal and state law limitations. The Act also prohibits, with certain exceptions, a bank holding company from acquiring direct or ~~indirect ownership or control of more than five percent of the voting shares of any company which is not a bank 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.”

~~Under~~ indirect ~~current~~ownership ~~regulations~~or control of ~~the~~more ~~FRB,~~than afive ~~bank~~percent ~~holding~~of ~~company~~the ~~and~~voting ~~its~~shares ~~non–bank~~of ~~subsidiaries~~any ~~are~~company ~~permitted,~~which ~~among other~~is ~~activities,~~not toa ~~engage~~bank ~~in such banking–related businesses as sales~~ and ~~consumer~~from ~~finance,~~engaging ~~equipment~~in ~~leasing,~~any ~~computer~~business ~~service~~other ~~bureau~~than ~~and software operations, mortgage~~ banking, ~~brokerage~~managing and ~~financial advisory services. The Act does not~~controlling ~~place~~banks ~~territorial~~or ~~restrictions~~furnishing onservices ~~the~~to ~~activities~~banks ofand ~~non–bank~~their subsidiaries, ofexcept ~~bank~~that holding companies. Inmay ~~addition~~engage in, ~~federal~~and ~~legislation~~may ~~prohibits~~own ~~acquisition~~shares of ~~“control”~~companies ofengaged ain, ~~bank~~certain orbusinesses ~~bank~~found ~~holding~~by ~~company~~the ~~without~~Fed ~~prior notice~~ to ~~certain federal~~be ~~bank regulators.~~ “~~Control”~~so isclosely ~~defined~~related into ~~certain~~banking ~~cases~~ as ~~acquisition~~to ofbe ~~ten percent or more of the outstanding shares of~~ a ~~bank~~proper incident ~~or bank holding company~~thereto.”

Under current regulations of the Fed, 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. In general, 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 addition, federal banking agencies have the authority to impose, among other things, (i) higher minimum capital ratios beyond the “well-capitalized” level depending on the risk profile and performance of the insured depository institution; and (ii) institute receivership proceedings against institutions that fall below required capital levels. At December 31, 2009, the Bank was “significantly undercapitalized”, as defined by regulation, and is subject to a Consent Order with its primary regulator to achieve and maintain capital ratios that exceed “well-capitalized”. See Regulatory Developments, below.

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

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

Effective in 2007, pursuant to the Federal Deposit Insurance Reform Act of 2005 and implementing regulations, FDIC-insured financial institutions are subject to a new risk-based premium assessment system that significantly ~~increases the premiums that are paid on FDIC-insured deposits. As part of the new rules, the Bank, like many financial institutions, was eligible~~ for a one-time assessment credit that offset the increase in premiums. The credit completely offset the Bank’s 2007 premium increase and offset a portion of the 2008 increase. This partial offset notwithstanding, the Bank realized a significant increase in its FDIC premiums in 2008.

~~thereafter,~~increases the premiums ~~Federal~~that ~~banking~~are ~~agencies~~paid ~~announced~~on ~~the~~FDIC-insured ~~Troubled~~deposits. As ~~Asset~~part ~~Relief~~of ~~Program~~the ~~(TARP)~~new ~~and~~rules, the ~~Capital Purchase Program (CPP). Collectively~~Bank, ~~these~~like ~~actions provided~~many ~~a variety of programs that~~ financial institutions ~~could participate in~~, was ~~including~~eligible ~~the~~for ~~potential~~a ~~sale~~one-time ofassessment credit ~~certain~~that ~~troubled~~offset ~~loans to~~ the ~~United~~increase ~~States~~in ~~Government,~~premiums. The ~~sale~~credit ofcompletely ~~preferred~~offset ~~stock to~~ the Bank’s ~~United~~2007 ~~States~~premium ~~Treasury~~increase and ~~temporary~~offset ~~expansion~~a portion of ~~FDIC~~ ~~insured~~the ~~deposit~~2008 ~~levels (some voluntary and some automatic)~~increase. ~~These~~This ~~programs~~partial ~~continue~~offset tonotwithstanding, ~~evolve as~~ the Bank realized ~~administration~~a ~~strives to keep pace with rapidly changing economic conditions. AMCORE continues to review these programs for their potential to~~significant ~~add~~increase ~~value to~~ in its ~~customers~~FDIC ~~and~~premiums ~~business~~in 2008 and ~~the potential impact of the ESA or related programs on its future financial position, results of operation, cash flows or liquidity~~2009.

ItIn isresponse to ~~not~~the ~~yet~~financial ~~clear~~crises ~~what~~affecting ~~impact~~ the ~~ESA,~~banking ~~TARP,~~system ~~including~~and ~~the~~financial ~~CPP,~~markets ~~the~~and ~~temporary~~going ~~FDIC~~concern ~~guarantee~~threats ~~expansion~~to investment banks and other ~~liquidity~~financial ~~and~~institutions, ~~funding initiatives~~subsequent ofto the ~~FRB~~end ~~and~~of ~~other~~third ~~agencies~~quarter 2008, Congress enacted and ~~any~~the ~~additional~~President ~~programs~~signed ~~that~~into law ~~may~~the beEmergency ~~initiated~~Economic inStabilization ~~the~~Act ~~future~~of 2008 (ESA). Shortly thereafter, ~~will~~the ~~ultimately~~Federal ~~have~~banking onagencies announced the ~~financial~~Troubled ~~markets~~Asset Relief Program (TARP) and ~~the~~Capital ~~other~~Purchase ~~difficulties~~Program ~~described~~(CPP). ~~above~~Collectively, these actions provided a variety of programs that financial institutions could participate in, including the ~~extreme~~potential ~~levels~~sale of ~~volatility~~certain ~~and limited~~troubled ~~credit~~loans ~~availability~~to ~~currently~~the ~~being~~United ~~experienced~~States Government, orsale onof preferred stock to the ~~U.S.~~United ~~banking~~States Treasury and ~~financial~~temporary ~~industries~~expansion of FDIC insured deposit levels (some voluntary and some automatic). To date, AMCORE has not directly benefited from any of the ~~broader~~government ~~U.S.~~programs ~~and~~other ~~global~~than ~~economies~~the temporary expansion of FDIC insured deposit levels.

It is not entirely clear what impact the ESA, TARP, including the CPP, the temporary FDIC guarantee expansion and other liquidity and funding initiatives of the Fed and other agencies have had on the financial markets given the other difficulties described above, including the continued volatility and limited credit availability, or on the U.S. banking and financial industries and the broader U.S. and global economies.

On November 6, 2009, the President signed into law the Worker, Homeownership, and Business Act. Subject to certain limitations, the new law permits businesses, such as AMCORE, with losses in either 2008 or 2009 to claim refunds of taxes paid within the prior five years. As a result of tax legislation, the Company has filed refund claims in the amount of $36.9 million.

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

AMCORE is supervised and examined by the FRB. The Bank is supervised and regularly examined by the Office of the Comptroller of the Currency (OCC) and is subject to examination by the FRB. In addition, the Bank is subject to periodic examination by the FDIC. AIS is supervised and examined by FINRA and the SEC.

Regulatory ~~Agreements~~ Developments

On May 3115, ~~2005~~2008, the Bank entered into a ~~Formal~~written ~~Agreement~~agreement ~~with~~ (the “OCC, ~~the~~Agreement”) ~~Bank’s~~with ~~primary regulator, to strengthen~~ the ~~Bank’s consumer compliance program~~OCC. OnThe ~~August 10,~~OCC ~~2006,~~Agreement ~~the~~described ~~Bank~~commitments ~~entered~~made ~~into~~by ~~a Consent Order with~~ the ~~OCC~~Bank to ~~strengthen~~address ~~its~~and ~~compliance~~strengthen ~~monitoring policies, procedures, training and~~banking ~~overall~~practices ~~program~~ relating to ~~the~~asset ~~Bank~~quality ~~Secrecy Act/Anti-Money Laundering (BSA/AML) regulations. The commitments~~ and ~~requirements imposed by these two items were completed and, on April 14, 2008,~~ the ~~Bank~~overall ~~was~~administration ~~notified~~of ~~that~~ the ~~OCC~~credit ~~had~~function ~~terminated the~~at ~~Formal Agreement and~~ the ~~Consent Order~~Bank.

OnThe ~~May~~Company entered into a written agreement (the “FRB Agreement”) with the Federal Reserve Bank of Chicago (the “FRB”) dated June 1526, ~~2008~~2009, and on June 25, 2009, the Bank ~~entered~~agreed ~~into~~to the issuance of a ~~written~~consent ~~agreement~~order (the “~~Agreement~~Consent Order”) ~~with~~by the OCC. ~~The~~In ~~Agreement~~general, ~~describes~~the ~~commitments~~FRB ~~made~~Agreement byand the ~~Bank~~Consent Order contained requirements to ~~address~~develop plans to raise capital and ~~strengthen~~to ~~banking~~revise ~~practices~~and ~~relating~~maintain a liquidity risk management program. The Consent Order required the Bank to, ~~asset~~among ~~quality~~other things, (i) develop and submit a capital plan (the ~~overall~~“Capital ~~administration~~Plan”) ofto the ~~credit~~OCC by July 25, 2009, (ii) achieve and maintain by September 30, 2009, Tier 1 ~~function~~capital at ~~the~~least ~~Bank.~~equal ~~The~~to ~~Bank~~8% ~~has~~of ~~implemented~~adjusted ~~enhancements~~total toassets, ~~its~~Tier ~~credit~~1 ~~processes~~risk-based tocapital ~~address~~at ~~the~~least ~~matters~~equal ~~identified~~to by9% ~~the~~of ~~OCC~~risk-weighted assets and ~~continues~~total ~~its~~risk-based ~~efforts~~capital at least equal to ~~comply~~12% ~~with~~of ~~all~~risk-weighted ~~the~~assets, ~~requirements~~and ~~specified~~(iii) revise inand maintain a liquidity risk management program within 60 days from the ~~Agreement.~~date Inof the ~~meantime~~Consent Order. In addition, the FRB Agreement ~~results~~ inrequired the ~~Bank’s~~development ~~ineligibility~~of a capital plan for ~~certain~~the ~~actions~~Company, ~~and~~restricted ~~expedited~~the ~~approvals~~payment ~~without~~of dividends by the ~~prior~~Company, ~~written~~as ~~consent~~well ~~and~~as ~~approval~~the taking of dividends or any other payment representing a reduction in capital from the ~~OCC~~Bank. ~~These~~The ~~actions~~FRB ~~include,~~Agreement ~~among~~further ~~other~~required ~~things,~~that the ~~appointment~~Company ofnot ~~directors~~incur, ~~and~~increase, ~~senior~~or ~~executives~~guarantee any debt, ~~making~~repurchase or ~~agreeing~~ toredeem ~~make~~any ~~certain~~shares ~~payments~~of toits ~~executives~~stock, or ~~directors~~pay any interest or principal on subordinated debt or trust preferred securities, ~~business~~in ~~combinations~~each ~~and~~case ~~branching~~without the prior approval of the FRB. In consultation with its professional

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 the “Agencies). Dividends paid by the Bank to AMCORE Financial, Inc. would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. In 2009, dividends are not expected to be paid by the Bank. There were no loans outstanding from the Bank to affiliates at December 31, 2008. See Note 17 of the Notes to Consolidated Financial Statements included under Item 8.

~~The~~ advisors, ~~FRB~~and ~~issues~~in ~~risk–based~~compliance ~~capital~~with ~~guidelines~~the ~~for~~Consent ~~bank~~Order, ~~holding~~the ~~companies.~~Bank ~~These~~developed ~~capital~~and ~~rules~~timely ~~require~~submitted ~~minimum~~the ~~capital levels~~Capital asPlan aand ~~percent~~liquidity of risk~~–weighted~~ ~~assets.~~management Inprogram ~~order~~ to bethe ~~adequately capitalized under these guidelines~~OCC, ~~banking organizations must have minimum capital ratios of 4%~~ and 8%the ~~for~~Company ~~Tier~~developed ~~1 capital~~ and ~~total capital, respectively. The FRB also~~timely ~~established~~submitted ~~leverage~~the capital ~~requirements~~plan ~~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 ~~Liquidity~~FRB ~~and Capital Management section of Item 7 for a summary of AMCORE’s capital ratios~~ as ofrequired ~~December 31,~~under ~~2008 and 2007. See also Note 18 of~~ the ~~Notes~~FRB ~~to Consolidated Financial Statements included under Item 8~~Agreement.

~~Governmental~~By ~~Monetary~~letter ~~Policies~~dated November 4, 2009 (the “Letter”), the OCC notified the Bank of its finding that the Capital Plan was “not acceptable”, stating that the OCC was unable to determine that the Capital Plan “is likely to succeed in restoring the Bank’s capital at this time.” The OCC further advised the Bank that it was being treated as “significantly undercapitalized” within the meaning of the prompt corrective action (the “PCA”) provisions of the Federal Deposit Insurance Act and ~~Economic~~implementing ~~Conditions~~OCC regulations. As a result of this regulatory determination, the Bank thereupon became subject to the PCA activity and operational restrictions applicable to “significantly undercapitalized” depository institutions, including, among other things, the mandatory requirement that the Bank submit an acceptable Capital Restoration Plan (“CRP”), as required under the PCA guidelines, no later than December 4, 2009. The Letter also indicated that the OCC was requiring the Bank to prepare and submit to the OCC a plan for the sale or merger of the Bank (a “Disposition Plan”) by December 4, 2009, as specified under the Consent Order.

~~The earnings~~On ~~of all subsidiaries are affected not only by general economic conditions~~November 6, ~~but also by the policies of various regulatory authorities. In particular~~2009, the FRB ~~influences~~notified ~~general~~the Company ~~economic~~in ~~conditions~~writing ~~and~~that ~~interest~~the ~~rates~~Company’s ~~through~~capital ~~various~~plan ~~monetary policies~~submitted ~~and~~under ~~tools.~~the Itterms ~~does~~of sothe ~~primarily~~FRB ~~through~~Agreement ~~open–market~~was ~~operations~~unacceptable in ~~U.S.~~addressing ~~Government securities, varying~~ the ~~discount~~capital ~~rate~~erosion onof ~~member~~the ~~and~~Company ~~non-member bank borrowings,~~ and ~~setting~~the ~~reserve requirements against bank deposits~~Bank. The FRB ~~monetary policies~~concluded ~~have~~that, ~~had~~based ~~a significant effect~~ on the ~~operating~~information ~~results~~provided ofby ~~banks in~~ the Company, ~~past~~as ~~and~~well ~~are~~as ~~expected to do so in~~ the ~~future.~~Company’s ~~The~~current ~~general~~negative ~~effect~~financial oftrends, ~~such policies upon~~ the ~~future~~Company’s ~~business~~capital ~~and~~plan ~~earnings~~was ofnot ~~each of the subsidiary companies cannot accurately be predicted~~viable.

~~Interest~~Further, ~~rate~~the ~~sensitivity~~Bank ~~has~~was aunable ~~major~~to ~~impact~~meet on the ~~earnings~~ ofregulatory ~~banks.~~capital Asmaintenance ~~market~~requirements ~~rates~~of ~~change,~~the ~~yields~~Consent ~~earned~~Order onby ~~assets~~the ~~may~~required ~~not~~September 30, ~~necessarily~~2009 ~~move~~date. toAs a result of the ~~same~~OCC ~~degree~~Agreement, as ~~rates~~well ~~paid~~as onthe ~~liabilities.~~FRB ~~For this reason~~Agreement, ~~AMCORE~~the ~~attempts~~Consent toOrder ~~minimize~~and ~~earnings~~the ~~volatility~~Letter, ~~related~~the toCompany ~~fluctuations~~was inineligible ~~interest~~for ~~rates through~~certain ~~the~~actions ~~use~~and ofexpedited aapprovals ~~formal~~without ~~asset/liability~~the ~~management~~prior ~~program~~written consent and ~~certain~~approval ~~derivative~~of ~~activities~~the applicable regulatory agency. These ~~See~~actions ~~Item 7A~~include, ~~and~~among ~~Note~~other 9things, the appointment of ~~the~~directors ~~Notes~~and tosenior ~~Consolidated~~executives, ~~Financial~~making ~~Statements~~or ~~included~~agreeing ~~under~~to ~~Item 8~~make ~~for~~certain ~~additional~~payments ~~discussion~~to ofexecutives ~~interest~~or ~~rate sensitivity~~directors, ~~and~~business ~~related~~combinations ~~derivative~~and ~~activities~~branching.

~~Executive~~In ~~Officers~~consultation with its professional advisors, the Bank resubmitted a combined CRP and Disposition Plan by the required December 4, 2009 due date. By return letter dated January 8, 2010 (the “Response Letter”), the OCC notified the Bank that its CRP was not acceptable. According to the OCC, the CRP was not accepted because, among other things, it did not meet the statutory requirements that the CRP be based on “realistic assumptions” and be likely to succeed in restoring the Bank’s capital. In addition, on January 12, 2010, the FRB notified the Company that the Company’s capital plan previously submitted to the FRB continued to be unacceptable in addressing the capital erosion of the Company and the Bank. The Response Letter provided that even if the Bank’s capital ~~Registrant~~ratios improve to the undercapitalized category, the Bank would continue to be subject to operational restrictions applicable to significantly undercapitalized institutions until such time as the Bank has submitted to the OCC an acceptable CRP. The OCC also stated its view that the recently announced asset sales by the Bank have increased the overall risk to the Bank’s capital base.

The ~~following~~Company ~~table~~and ~~contains~~the ~~certain~~Bank ~~information~~continue ~~about~~to ~~the~~diligently work with their financial and professional advisors in seeking qualified sources of outside capital, and in ~~executive~~achieving ~~officers~~compliance with the requirements of ~~AMCORE~~the Consent Order, the FRB Agreement, the Letter and the Response Letter. ~~There~~The ~~are~~Company and the Bank continue to consult with the OCC, FRB and FDIC on a regular basis concerning the Company’s and Bank’s proposals to obtain outside capital and to develop action plans that will be acceptable to federal regulatory authorities, but there can be no ~~family~~assurance ~~relationships~~that ~~between~~these ~~any~~actions ~~director~~will be successful, or ~~executive~~that ~~officer~~even if one or more of ~~AMCORE~~the Company’s and Bank’s proposals are accepted by the Company’s and Bank’s Federal regulators, that these proposals will be successfully implemented. While the Company’s management continues to exert maximum effort to attract new capital, significant operating losses in 2008 and 2009, significant levels of criticized assets and low levels of capital raise substantial doubt as to the Company’s ability to continue as a going concern. Doubt as to the Company’s ability to continue as a going concern was previously disclosed in the Company’s December 31, 2009 earnings release furnished with its February 2, 2010 Form 8-K, Current Report. If the Company is unable to achieve compliance

Name	Age	Principal Occupation Within the Last Five Years
William R. McManaman	61	Chairman of the Board since May 2008 and Director of the Company since 1997. Chief Executive Officer of the Company and Chairman of the Board of the Bank since February 2008. Previously Executive Vice President and Chief Financial Officer, Ubiquity Brands from April 2006 to September 2007; and Senior Vice President and Chief Financial Officer of First Health Group Corporation from March 2004 until January 2005. Prior to that Executive Vice President and Chief Financial Officer of Aurora Foods, Inc. until March 2004.
Donald H. Wilson	49	President and Chief Operating Officer of AMCORE since August 2007 and Director of the Bank since February 2006, and was Executive Vice President and Chief Financial Officer from February 2006 to August 2007. He was previously Senior Vice President and Corporate Treasurer of Marshall & Ilsley Corporation.
Judith Carré Sutfin	47	Executive Vice President and Chief Financial Officer of AMCORE since December 2007, and Director of the Bank since January 2008. Previously held various executive positions at LaSalle Bank Corporation, Chicago, Illinois, with the most recent position being that of Executive Vice President and Head of Business Decision Support.

Name	Age	Principal Occupation Within the Last Five Years
Lori M. Burke	56	Executive Vice President, Administrative Services of the Company since May 2008 and Executive Vice President, Administrative Services of the Bank since October 2007. Executive Vice President and Chief Human Resources Officer from October 2006 to October 2007 and previously Senior Vice President and Human Resources Manager.
Russell Campbell	52	Executive Vice President, Investment Group since January 2009. Executive Vice President and Director of AIGNA from March 2007 to December 2008. Previously President and Chief Executive Officer at ABN AMRO Asset Management Holdings, Inc.
Guy W. Francesconi	49	Executive Vice President and General Counsel since February 2006, Corporate Secretary since May 2008, and Corporate Secretary of the Bank since October 2007. Previously General Counsel to Merrill Lynch Capital and Merrill Lynch Business Financial Services.
John M. Gvozdjak	52	Senior Vice President and Director of Operations/Technology of the Bank since March 2004.
Kathy Roos	49	Senior Vice President, Mortgage Group since February 2009; Senior Vice President and Regional Sales Manager of the Bank since January 2008. Previously Mortgage Sales Manager since February 2006. Previous to that Mortgage Loan Originator of the Bank until November 2005, and at Rockford Bank and Trust from December 2005 to January 2006.
Richard E. Stiles	53	Executive Vice President, Commercial Banking Group and Director of the Bank since April 2007. Previously Senior Vice President in the commercial banking group for Popular Inc.
Thomas R. Szmanda	49	Executive Vice President, Retail Banking Group since September 2005 and Director of the Bank since November 2005. Previously Senior Vice President and Chief Retail Officer of the Bank.

with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter with the OCC and the FRB, or an acceptable CRP under the OCC’s Prompt Corrective Action guidelines, and if the Company cannot otherwise comply with such commitments and regulations, the OCC could force a sale, liquidation or federal conservatorship or receivership of the Bank. For further discussion on going concern and federal receivership issues, see Item 1A Risk Factors.

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 Fed and regulations issued by the FDIC and the OCC (collectively the “Agencies”). Dividends paid by the Bank to AMCORE are currently prohibited since the Bank’s capital is below applicable minimum capital requirements. In 2010, dividends are not expected to be paid by the Bank. There were no loans outstanding from the Bank to affiliates at December 31, 2009. See Note 16 of the Notes to Consolidated Financial Statements included under Item 8.

The Fed 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 Fed 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 Liquidity and Capital Management section of Item 7 for a summary of AMCORE’s capital ratios as of December 31, 2009 and 2008. See also Note 17 of the Notes to Consolidated Financial Statements included under Item 8.

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 Fed 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. Fed 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 8 of the Notes to Consolidated Financial Statements included under Item 8 for additional discussion of interest rate sensitivity and related derivative activities.

~~ITEM~~Executive ~~1A.~~Officers ~~Risk~~of ~~Factors~~the Registrant

The ~~Company~~following ~~faces~~table acontains ~~variety~~certain ofinformation ~~risks~~about ~~that~~the ~~are~~executive ~~inherent~~officers ~~in its business, including interest rate, credit, liquidity, capital, price/market, transaction/operation, compliance/legal, strategic and reputation. Following is a discussion~~ of ~~these risk factors~~AMCORE. ~~While~~There ~~the~~are ~~Company’s~~no ~~business,~~family ~~financial~~relationships between ~~condition and results of operations could be harmed by~~ any ofdirector ~~the following risks~~ or ~~other~~executive ~~factors~~officer ~~discussed elsewhere in this report, including Management’s Discussion and Analysis and Notes to the Consolidated Financial Statements, the mere existence~~ of ~~risk is not necessarily reason for concern~~AMCORE. ~~However, the following risks could cause actual results to materially differ from those discussed in any forward-looking statement.~~

Interest Rate Risk


Name	Age	Principal Occupation Within the Last Five Years
William R. McManaman	62	Chairman of the Board since May 2008 and Director of the Company since 1997. Chief Executive Officer of the Company and Chairman of the Board of the Bank since February 2008. Previously Executive Vice President and Chief Financial Officer, Ubiquity Brands from April 2006 to September 2007; and Senior Vice President and Chief Financial Officer of First Health Group Corporation from March 2004 until January 2005.

Judith Carré Sutfin	48	Executive Vice President and Chief Financial Officer of AMCORE since December 2007, and Director of the Bank since January 2008. Previously held various executive positions at LaSalle Bank Corporation, Chicago, Illinois, with the most recent position being that of Executive Vice President and Head of Business Decision Support.

Lori M. Burke	57	Executive Vice President and Chief Administrative Officer since February 2010. Director of the Bank since April 2009. Executive Vice President, Administrative Services of the Company from May 2008 to February 2010 and Executive Vice President, Administrative Services of the Bank from October 2007 to February 2010. Executive Vice President and Chief Human Resources Officer from October 2006 to October 2007 and previously Senior Vice President and Human Resources Manager.

Russell Campbell	53	Executive Vice President, Investment Group since January 2009. Director of the Bank since December 2008. Executive Vice President and Director of the Investment Group from March 2007 to December 2008. Previously President and Chief Executive Officer at ABN AMRO Asset Management Holdings, Inc.

Guy W. Francesconi	50	Executive Vice President and General Counsel since February 2006, Corporate Secretary since May 2008, and Corporate Secretary of the Bank since October 2007. Previously General Counsel to Merrill Lynch Capital and Merrill Lynch Business Financial Services.

Thomas R. Szmanda	50	Executive Vice President, Consumer Banking Group since September 2005 and Director of the Bank since November 2005. Previously Senior Vice President and Chief Retail Officer of the Bank.

As part of its normal operations, the Company, like most financial institutions, is subject to interest-rate risk on the interest-earning assets in which it invests (primarily loans and securities) and the interest-bearing liabilities with which it funds (primarily customer deposits, brokered deposits and borrowed funds). This includes the risk that interest-earning assets may be more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk that the individual interest rates or rate indices underlying various interest-earning assets and interest-bearing liabilities may not change to the same degree over a given time period (basis risk), and the risk of changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability maturities (yield curve risk).

Interest rates are sensitive to many factors that are beyond the Company’s control, including general economic conditions, the policies of various governmental and regulatory agencies and competition. These factors may cause fluctuations in interest rates that adversely affect the fair market values of the Company’s financial instruments, cash flows, and net income.

Credit Risk

The Company is exposed to the risk that third parties that owe it money, securities, or other assets will not perform their obligations. Credit risk arises anytime the Company extends, commits, invests, or otherwise exposes Company funds through contractual agreements, whether reflected on or off the balance sheet. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. Credit risk includes the risk that the Company’s rights against third parties (including guarantors) may not be enforceable or realizable in all circumstances.

The Company’s credit risk is concentrated in its loan portfolio (including commitments) and its investment portfolio. The Company also has credit risk through other financial instruments including derivative contracts and Company owned life insurance policies. Credit risk is affected by a variety of factors including the credit-worthiness of the borrower or other party, the sufficiency of underlying collateral, the enforceability of third-party guarantees, errors in underwriting, changing economic and industry conditions and concentrations of credit by loan type, terms or geographic area, changes in the financial condition of the borrower or other party, and by credit and underwriting policies. Due to declining economic conditions and the Bank’s concentration in commercial real estate loans, credit risk in the Bank’s portfolio is high, with significant deterioration in asset quality and collateral values.

Liquidity Risk

Liquidity risk is the potential that the Company will be unable to meet its obligations as they come due, capitalize on growth opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or obtain adequate funding in a timely basis, at a reasonable cost and within acceptable risk tolerances.

~~expenditures,~~ITEM ~~among other things~~1A. ~~Liquidity~~Risk is derived primarily from bank-issued deposit growth and retention; principal and interest payments on loans; principal and interest payments from investment securities, sale, maturity and prepayment of investment securities; net cash provided from operations and access to other funding sources. Factors

The Company’s ~~liquidity~~faces ~~can~~a bevariety ~~affected~~of byrisks athat ~~variety~~are ofinherent ~~factors~~in its business, including ~~general~~interest ~~economic~~rate, ~~conditions~~credit, ~~market~~liquidity, ~~disruption~~capital, ~~operational~~price/market, ~~problems~~transaction/operation, ~~affecting~~compliance/legal, ~~third~~strategic ~~parties~~and orreputation. Following is a discussion of these risk factors. While the Company’s business, ~~unfavorable~~financial ~~pricing,~~condition ~~competition,~~and results of operations could be harmed by any of the ~~Company~~following risks or other factors discussed elsewhere in this report, including Management’s ~~credit~~Discussion ~~rating~~ and ~~regulatory~~Analysis ~~restrictions~~and ~~applicable~~Notes to the ~~Company~~Consolidated ~~and~~Financial ~~its~~Statements, ~~subsidiaries~~the mere existence of risk is not necessarily reason for concern. However, the following risks could cause actual results to materially differ from those discussed in any forward-looking statement.

~~Capital~~There ~~Risk~~is substantial doubt about AMCORE’s ability to continue as a going concern.

~~Maintaining~~As ~~sufficient~~discussed ~~capital~~in ~~serves~~Note as1 aof ~~buffer against potential credit and other losses that~~ the ~~Company~~Notes ~~may~~to ~~encounter~~Consolidated ~~during~~Financial ~~difficult times. There are five levels of capital defined by regulation: well-capitalized~~Statements, ~~adequately~~significant ~~capitalized,~~operating ~~undercapitalized,~~losses ~~significantly~~in ~~undercapitalized~~2008 and ~~critically undercapitalized. AMCORE~~2009, ~~like~~significant ~~many~~levels ~~financial~~of ~~institutions has historically~~criticized ~~maintained~~assets ~~capital~~and atlow ~~or above the well-capitalized minimum. Also, like many financial institutions this year, AMCORE has experienced steady declines in its capital~~ levels asof ~~credit losses have risen. Capital risk includes the potential effect on the Company’s reputation as well as certain other potential consequences should the~~ capital ~~level~~raise ~~fall~~substantial ~~below~~doubt ~~well-capitalized.~~about ~~These consequences could include, among other things, changes in~~ the Company’s ~~borrowing costs and terms from regulatory authorities and other third parties, the Bank’s FDIC deposit insurance premiums, and AMCORE’s~~ ability to ~~access~~continue ~~the~~as ~~brokered~~a CDgoing ~~markets~~concern.

~~Price/Market~~The ~~Risk~~Company’s Board of Directors continues to actively pursue strategic alternatives. The Company can give no assurance that AMCORE will identify an alternative that allows its stockholders to realize an increase in the value of the Company’s stock. The Company also can give no assurance that a transaction or other strategic alternative, once identified, evaluated and consummated, will provide greater value to its stockholders than that reflected in the current stock price. In addition, a transaction, which would likely involve equity financing, would result in substantial dilution to its current stockholders and could adversely affect the price of AMCORE’s common stock.

~~Price/market~~The ~~risk is the risk to earnings or capital arising from adverse changes in the value of financial instruments. While this includes credit~~ Company and ~~liquidity risk,~~ the ~~Company~~Bank ~~considers~~are ~~interest-rate~~subject ~~risk~~ to ~~be its~~Regulatory ~~most~~Agreements ~~significant~~and ~~market~~Orders ~~risk.~~that ~~When~~restrict ~~interest rates increase,~~ the ~~fair~~Company ~~value~~from oftaking acertain ~~financial instrument on the asset side of the balance sheet will decrease~~actions. ~~Conversely, when rates decline the fair value of the same instrument will increase.~~

~~While~~On ~~this~~May 15, ~~relationship~~2008, ~~applies~~the toBank ~~all~~entered ~~fixed-rate~~into ~~financial~~the ~~instruments,~~OCC ~~the primary~~Agreement ~~instruments~~with ~~whose~~the ~~carrying~~OCC. ~~values~~The ~~are~~OCC ~~affected~~Agreement bydescribed ~~price/market~~commitments ~~risk~~made ~~are~~by ~~traded~~the ~~instruments.~~Bank ~~Since~~to ~~the~~address ~~Company~~and strengthen ~~currently~~banking ~~has~~practices ~~only~~relating anto ~~available-for-sale~~asset ~~portfolio~~quality and ~~does~~the ~~not~~overall ~~maintain~~administration ~~investment~~of ~~securities~~the incredit afunction ~~trading~~at ~~account,~~the ~~market fluctuations~~Bank. ~~are~~The ~~recorded~~Company ~~through~~entered ~~equity~~into ~~and~~a ~~not~~written agreement (the ~~statements~~“FRB ofAgreement”) ~~operations.~~with ~~On-going~~the ~~adverse~~FRB ~~fair~~dated ~~values~~June 26, ~~could~~2009, ~~cause~~and ~~some~~on June 25, ~~security~~2009, ~~fair~~the ~~values~~Bank toagreed ~~deteriorate~~ to the ~~extent~~issuance ~~that~~of ~~they~~a ~~are~~consent ~~considered~~order to(the be“Consent ~~other~~Order”) ~~than~~by ~~temporary~~the OCC. AtIn ~~that time~~general, the ~~Company~~ ~~would~~FRB beAgreement ~~required~~and tothe ~~write-down~~Consent ~~security~~Order ~~values~~contained requirements to ~~their~~develop ~~fair~~plans ~~value~~to asraise acapital ~~charge~~and to ~~earnings~~revise and maintain a liquidity risk management program.

~~Transaction/Operation~~By ~~Risk~~letter dated November 4, 2009 (the “Letter”), the OCC notified the Bank of its finding that the capital plan submitted pursuant to the Consent Order (the “Capital Plan”) was “not acceptable”, stating that the OCC was unable to determine that the Capital Plan “was likely to succeed in restoring the Bank’s capital at this time.” The OCC further advised the Bank that it was being treated as “significantly undercapitalized” within the meaning of the prompt corrective action (the “PCA”) provisions of the Federal Deposit Insurance Act and implementing OCC regulations. The Bank was required to submit a capital restoration plan and a disposition plan pursuant to the Letter. On November 6, 2009, the FRB notified the Company in writing that the Company’s capital plan submitted under the terms of the FRB Agreement was unacceptable in addressing the capital erosion of the Company and the Bank. For further information regarding the requirements and limitations of the OCC Agreement, the FRB Agreement, the Consent Order and the Letter, see Note 17 of the Notes to the Consolidated Financial Statements.

~~Transaction/operation~~Further, ~~risk~~the isBank awas ~~function~~unable ofto ~~internal~~meet ~~controls,~~the ~~information~~regulatory ~~systems,~~capital ~~employee~~maintenance requirements ~~integrity~~of ~~and~~the ~~operating~~Consent ~~processes.~~Order ~~Significant~~by ~~deficiencies~~the orrequired ~~material weaknesses in internal processes~~September 30, ~~controls,~~2009 ~~staff~~date. orAs ~~systems~~a ~~could~~result ~~lead to impairment~~ of ~~liquidity,~~the ~~financial~~OCC ~~loss~~Agreement, ~~disruption~~as ofwell as the ~~business,~~FRB ~~liability to clients~~Agreement, ~~regulatory~~the ~~intervention~~Consent orOrder ~~damage~~and to the ~~Company’s reputation. For example~~Letter, the Company iswas ~~highly~~ineligible ~~dependent~~for oncertain ~~its~~actions ~~ability~~and toexpedited ~~process,~~approvals without onthe aprior ~~daily~~written ~~basis, a~~consent ~~large~~and ~~number~~approval of ~~transactions.~~the ~~Failure~~applicable ofregulatory ~~financial,~~agency. ~~accounting,~~These ~~data~~actions ~~processing~~include, oramong other ~~operating~~things, ~~systems~~the ~~and~~appointment ~~controls~~of todirectors ~~operate~~and ~~properly,~~senior ~~becoming disabled~~executives, making or agreeing to ~~keep~~make ~~pace~~certain ~~with~~payments ~~increasing~~to ~~volumes,~~executives ~~could adversely affect the Company’s~~or ~~ability to capture~~directors, ~~process~~business combinations and ~~accurately report these transactions~~branching.

Compliance/Legal Risk

The Company is subject to compliance with an expanding body of regulatory, supervisory and examination requirements including capital adequacy, safety/soundness, customer privacy, anti-money laundering, truth-in-savings/lending and financial reporting, to name a few. Failure or the inability to comply with these

~~various~~In ~~requirements~~consultation ~~can~~with ~~lead~~its toprofessional ~~diminished~~advisors, ~~reputation~~the Bank resubmitted a combined CRP and ~~investor~~Disposition ~~confidence~~Plan by the required December 4, ~~reduced~~2009 ~~franchise~~due ~~value~~date. By return letter dated January 8, ~~loss~~2010 of(the ~~business~~“Response Letter”), ~~curtailment~~the ofOCC ~~expansion opportunities~~notified the Bank that its CRP was not acceptable. According to the OCC, ~~fines~~the ~~and~~CRP ~~penalties~~was not accepted because, ~~intervention~~among other orthings, ~~sanctions~~it bydid ~~regulators~~not ~~and~~meet ~~costly~~the ~~litigation~~statutory orrequirements ~~expensive~~that ~~additional~~the ~~controls~~CRP be based on “realistic assumptions” and ~~systems~~be likely to succeed in restoring the Bank’s capital. ~~Refer~~In addition, on January 12, 2010, the FRB notified the Company that the Company’s capital plan previously submitted to ~~discussion~~the ~~included~~FRB continued to be unacceptable in ~~Key~~addressing ~~Initiatives~~the ~~and~~capital ~~Other~~erosion ~~Significant~~of ~~Items~~the Company and ~~Events~~the inBank. ~~Item 7~~The ~~for~~Response Letter provided that even if the Bank’s capital ratios improve to the aundercapitalized ~~summary~~category, ofthe ~~recent~~Bank ~~regulatory~~would ~~developments~~continue to be subject to operational restrictions applicable to significantly undercapitalized institutions until such time as the Bank has submitted to the OCC an acceptable CRP. The OCC also stated its view that the recently announced asset sales by the Bank have increased the overall risk to the Bank’s capital base.

~~Strategic~~The ~~Risk~~Company and the Bank continue to diligently work with their financial and professional advisors in seeking qualified sources of outside capital, and in achieving compliance with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter. The Company and the Bank continue to consult with the OCC, FRB and FDIC on a regular basis concerning the Company’s and Bank’s proposals to obtain outside capital and to develop action plans that will be acceptable to federal regulatory authorities, but there can be no assurance that these actions will be successful, or that even if one or more of the Company’s and Bank’s proposals are accepted by the Company’s and Bank’s Federal regulators, that these proposals will be successfully implemented. While Company’s management continues to exert maximum effort to attract new capital, significant operating losses in 2008 and 2009, significant levels of criticized assets and low levels of capital raise substantial doubt as to Company’s ability to continue as a going concern. Doubt as to the Company’s ability to continue as a going concern was previously disclosed in the Company’s December 31, 2009 earnings release furnished with its February 2, 2010 Form 8-K, Current Report. If the Company is unable to achieve compliance with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter with the OCC and the FRB, or an acceptable CRP under the OCC’s Prompt Corrective Action guidelines, and if the Company cannot otherwise comply with such commitments and regulations, the OCC could force a sale, liquidation or federal conservatorship or receivership of the Bank.

~~Strategic~~The ~~risk~~Bank ismay ~~the~~be ~~potential~~subject ~~for adverse consequences~~ to ~~the~~a ~~Company~~federal ofconservatorship ~~poor business decisions~~ or ~~improper~~receivership ~~implementation~~if ofit ~~those~~cannot ~~decisions.~~comply Itwith ~~includes identifying and defining goals for~~ the ~~continued~~Consent ~~growth~~Order, ~~and success of~~ the ~~Company~~FRB Agreement, ~~developing strategies to accomplish~~ the ~~goals~~Letter, ~~and acquiring, developing and retaining~~ the ~~physical~~Response ~~resources~~Letter, ~~and~~or ~~human~~if ~~capital~~its ~~necessary~~condition continues to ~~successfully execute the strategies~~deteriorate.

~~Presently~~As noted above, the ~~Company~~Consent ~~has~~Order ~~four~~requires ~~primary~~the ~~strategic~~Bank ~~initiatives:~~to ~~credit~~create ~~quality,~~and ~~cost~~implement ~~efficiencies,~~a capital ~~and~~plan. ~~liquidity,~~The Bank has twice submitted capital restoration plans that have been rejected by the OCC and ~~broadening~~there ~~customer~~is ~~relationships~~no assurance it will be able to submit an acceptable plan. ~~The~~Moreover, ~~Company~~the condition of the Bank’s ~~ability~~loan toportfolio ~~successfully~~may ~~execute~~continue ~~these~~to ~~initiatives~~deteriorate ~~depends upon~~in athe ~~variety~~current ofeconomic ~~factors,~~environment ~~including~~and ~~its~~thus ~~ability~~continue to ~~attract~~deplete the Bank’s capital and ~~retain~~other ~~experienced~~financial ~~personnel~~resources. Therefore, should the ~~continued~~Bank fail ~~availability~~to ofimplement ~~desirable~~an ~~business~~acceptable ~~opportunities~~CRP and ~~locations~~comply with its terms, ~~the~~or ~~competitive~~fail ~~responses~~to ~~from~~comply ~~other~~with ~~financial~~capital ~~institutions~~and liquidity funding requirements, or suffer a continued deterioration in its ~~new~~financial ~~market areas~~condition, the ~~stability~~Bank ofmay ~~the~~be ~~Bank’s~~subject ~~commercial~~to ~~real~~being ~~estate~~placed ~~loan~~into ~~portfolio~~a federal conservatorship or receivership by the OCC, ~~and~~with the ~~ability~~FDIC toappointed ~~manage~~as ~~client~~conservator ~~relationships~~or ~~across~~receiver. ~~all~~If ~~four~~these ofevents ~~its~~occur, ~~business~~AMCORE ~~segments.~~probably ~~For~~would ansuffer ~~expanded~~a ~~discussion~~complete onloss ~~these~~of ~~initiatives,~~the ~~see~~value ~~Item 7~~of its ownership interest in the Bank, and the Company subsequently may ~~Management’s~~be ~~Discussion~~exposed ~~and~~to ~~Analysis~~significant ofclaims ~~Financial~~by ~~Condition~~the FDIC and ~~Results~~the ofOCC. ~~Operations~~See Regulatory Developments, under Item 1.

~~Reputation~~The ~~Risk~~Company is exposed to the risk that third parties that owe it money, securities, or other assets will not perform their obligations.

~~Reputation~~Credit risk arises ~~from~~ ~~the~~anytime ~~possibility that negative publicity regarding~~ the Company’s ~~business~~extends, ~~practices~~commits, ~~whether~~invests, ~~true~~ or ~~not,~~otherwise exposes ~~will~~Company ~~cause~~funds athrough ~~decline~~contractual inagreements, ~~its~~whether ~~customer~~reflected ~~base~~on or ~~result~~off inthe ~~costly~~balance ~~litigation~~sheet. InThese aparties ~~service~~may ~~industry,~~default ~~such~~on astheir ~~the~~obligations ~~financial~~due ~~services industry~~to bankruptcy, ~~where~~lack ~~product~~of ~~choices~~liquidity, ~~between~~operational ~~companies~~failure ~~are~~or ~~not~~other ~~always~~reasons. ~~clearly~~Credit ~~distinguishable~~risk ~~and~~includes ~~which~~the risk inthat ~~many~~the ~~cases are interchangeable, a company~~Company’s ~~reputation~~rights ~~for~~against ~~honesty,~~third ~~fair-dealing~~parties ~~and~~(including ~~good~~guarantors) ~~corporate governance~~ may not be ~~one~~enforceable ~~of its most important assets. Loss of~~ or ~~damage~~realizable toin ~~that~~all ~~reputation can have severe consequences~~circumstances.

Additional Risk Factors

There can be no assurance that the recently enacted legislation will help stabilize the U.S. financial system.

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the “ESA”). The legislation was the result of a proposal by Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008 in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in the banking system. There can be no assurance, however, as to the actual impact that the ESA will have on the Company, or on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the ESA to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect the Company’s business, financial condition, results of operations, access to credit or the trading price of its common stock. Changes to the plan are presently under consideration by the new administration that may add to or change these provisions.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for more than 12 months. In recent weeks, the volatility and disruption has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen,

~~there~~The ~~can~~Company’s becredit norisk ~~assurance~~is ~~that~~concentrated ~~AMCORE~~in ~~will~~its ~~not~~loan ~~experience~~portfolio an(including ~~adverse~~commitments) ~~effect,~~and ~~which~~its investment ~~may~~portfolio. beThe ~~material,~~Company onalso ~~the~~has ~~Company’s~~credit ~~ability~~risk tothrough ~~access~~other ~~capital~~financial ~~and~~instruments ~~on its~~including ~~business,~~derivative ~~financial~~contracts ~~condition~~ and ~~results~~Company ofowned ~~operations~~life insurance policies.

Credit risk is affected by a variety of factors including the credit-worthiness of the borrower or other party, the sufficiency of underlying collateral, the enforceability of third-party guarantees, errors in underwriting, changing economic and industry conditions and concentrations of credit by loan type, terms or geographic area, changes in the financial condition of the borrower or other party, and by credit and underwriting policies.

In addition to the risk of loss of principal associated with the loan portfolio, profitability is adversely affected by non-performing loans, which include non-accrual loans and loans past due 90 days or more.

Credit risk in the Bank’s portfolio is high due to a concentration in commercial real estate loans with significant deterioration in asset quality and collateral values. The value of real estate collateral supporting many construction and land development loans, commercial loans and multi-family loans have declined and may continue to decline. Extensions of credit for these types of loans has generally ceased, and AMCORE is working actively to manage its remaining construction and development and commercial real estate loan portfolios. However, AMCORE could experience further delinquencies and credit losses in these challenging economic times, if current trends in housing and real estate markets continue to deteriorate, and if efforts to limit losses through workouts of bad loans are unsuccessful.

Recent negative developments in the financial industry and credit markets may continue to adversely impact the Company’s financial condition and results of operations. There is no precise method of predicting loan losses, and therefore there is a risk that charge-offs in future periods will exceed the allowance for loan losses or that additional increases in the allowance for loan losses will otherwise be required. Additions to the allowance for loan losses would cause results of operations to decline in the period(s) in which such additions occur and could also have a material adverse impact on the Company’s capital and financial position. For further information regarding provisions for loan losses, concentrations, credit losses, and non-performing loans, see the discussion of provision for loan losses, and the Asset Quality Review and Credit Risk Management section of Item 7. Management’s Discussion and Analysis.

The Company’s earnings and cash flows are largely dependent upon net interest income.

The Company, like most financial institutions, is subject to interest-rate risk on the interest-earning assets in which it invests (primarily loans and securities) and the interest-bearing liabilities with which it funds (primarily customer deposits, brokered deposits and borrowed funds). This includes the risk that interest-earning assets may be more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk that the individual interest rates or rate indices underlying various interest-earning assets and interest-bearing liabilities may not change to the same degree over a given time period (basis risk), and the risk of changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability maturities (yield curve risk).

Interest rates are sensitive to many factors that are beyond the Company’s control, including general economic conditions, the policies of various governmental and regulatory agencies and competition. Changes in monetary policy, including changes in interest rates, could influence not only the interest that the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the ability to originate loans and obtain deposits, (ii) the fair value of financial assets and liabilities, and (iii) the average duration of loans and securities which are collateralized by mortgages. Earnings and cash flows could be adversely affected by interest rate changes.

The Company has experienced steady declines in its capital levels as credit losses have risen.

Maintaining sufficient capital serves as a buffer against potential credit and other losses that the Company may encounter during difficult times. There are five levels of capital defined by regulation: “well-capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”. The OCC has advised the Bank that it is being treated as “significantly undercapitalized”. Capital risk includes the potential effect on the Company’s reputation as well as certain other potential consequences should the capital level fall below well-capitalized. As a result of the Bank being “significantly undercapitalized”, the Bank is currently experiencing changes in the Bank’s borrowing costs and terms from regulatory authorities and other third parties, the Bank’s FDIC deposit insurance premiums, and AMCORE’s ability to access brokered CD markets.

The Company’s capital has declined due to recent credit losses. The Company lost $98 million during the year ended December 31, 2008 and lost $224 million during the year ended December 31, 2009. While it expects to be able to generate profits at some point in the future, there can be no assurance of when, or if, it will return to profitability. Given recent losses, asset quality issues, and overall financial condition, the Company must raise additional capital to provide it with sufficient capital resources and liquidity to comply with regulatory requirements and to meet its commitments and business needs. AMCORE may not be able to raise the necessary capital on favorable terms, or at all. An inability to raise additional capital on acceptable terms could have a materially adverse effect on the Company’s business, financial condition and results of operations.

Liquidity risk could impair the Company’s ability to fund operations.

Liquidity risk is the potential that the Company will be unable to meet its obligations as they come due, capitalize on growth opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances.

Liquidity is required to fund credit obligations to borrowers, mortgage originations pending sale, withdrawals by depositors, repayment of debt when due or called, dividends to shareholders, operating expenses and capital expenditures, among other things. Liquidity is derived primarily from bank-issued deposit growth and retention; principal and interest payments on loans; principal and interest payments from investment securities, sale, maturity and prepayment of investment securities; net cash provided from operations and access to other funding sources.

The Company’s liquidity can be affected by a variety of factors, including general economic conditions, market disruption, operational problems affecting third parties or the Company, unfavorable pricing, competition, the Company’s credit rating and regulatory restrictions applicable to the Company and its subsidiaries.

As of December 31, 2009, the Bank was considered “significantly undercapitalized” under applicable regulatory guidelines. As a result of this designation, the Bank is no longer eligible to participate in the brokered CD market and is also subject to limitations with respect to interest rates it can offer on deposits, generally limited to rates equal to no more than 75 basis points above prevailing market rates. These limitations, as well as recent increased collateral requirements and advance limitations with respect to other funding sources, may have a material impact on the Bank’s deposit levels and liquidity. In particular, the inability to accept, renew, or roll over brokered deposits could put a severe strain on the Bank’s liquidity because of the limited ability to replace maturing brokered deposits with core deposits.

Current market developments may adversely affect AMCORE’s industry, business, financial condition and results of operations.

Dramatic declines in the housing market during the ~~prior~~past ~~year~~two years, with falling home prices and increasing foreclosures and unemployment, have resulted in ~~significant~~ significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. Reflecting concern about ~~the stability of the financial markets generally and the strength of counterparties,~~ many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers including other financial institutions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect the Company’s business, financial condition and results of operations. For example:

the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers including other financial institutions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect the Company’s business, financial condition and results of operations. For example:

•

Market developments may affect borrower confidence levels, behaviors and financial condition, which could impact their borrowing and payment activities, and the Company’s ability to assess creditworthiness, which could impact lending activities, charge-offs and provision for loan losses.

•

Estimates of inherent losses in the loan portfolio rely on complex judgments, including forecasts of economic conditions and may no longer be capable of accurate estimation.

•

The ability to borrow from other financial institutions or other funding transactions could be adversely affected.

• AMCORE may be required to pay significantly higher Federal Deposit Insurance ~~Corp.~~Corporation (FDIC) premiums due to depletion of the insurance fund, and a reduction of the ratio of reserves to insured deposits.

•

Increased regulation in the financial services industry, including as a result of the ESA, could increase compliance costs and challenges, and limit the Company’s ability to pursue business opportunities.

•

Industry competition could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for over two years. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that AMCORE will not experience an adverse effect, which may be material, on the Company’s ability to access capital and on its business, financial condition and results of operations.

AMCORE’s deposit insurance premiums have increased which could have a material adverse effect on future earnings.

Due to the impact on the FDIC insurance fund resulting from the recent increase in bank failures, the FDIC raised its insurance premiums and levied special assessments on all financial institutions. In addition, the FDIC uses a risk-based premium system that assesses higher rates on those institutions that pose greater risks to the deposit insurance fund. The FDIC places all financial institutions into one of four risk categories using a two-step process based first on the respective institution’s capital ratios and then on the CAMELS composite supervisory rating assigned to the institution by its primary federal regulator in connection with its periodic regulatory examinations. As of December 31, 2009, the Bank is “significantly undercapitalized” under regulatory guidelines. Due to the “significantly undercapitalized” status of the Bank and other factors indicating higher risk, the FDIC will charge the Bank a higher premium for deposit insurance. The combination of the general increase in FDIC insurance rates and higher FDIC insurance rates resulting from the classification of the Bank in a higher risk category will have an adverse impact on the Company’s results of operations. At this time, the Company is unable to predict the impact in future periods in the event the economic crisis continues or the Bank continues to be deemed “significantly undercapitalized”.

The Company and the Bank are subject to extensive regulation, supervision and examination by federal banking authorities.

Changes in applicable regulations or legislation could have a substantial impact on the Company and its operations. Additional legislation and regulations that could significantly affect the Company’s powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on the Company’s financial condition and results of operations. In that regard, proposals for legislation restructuring the regulation of the financial services industry are currently under consideration. Adoption of such proposals could, among other things, increase the overall costs of regulatory compliance. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties. These powers recently have been utilized more frequently due to the serious national, regional and local economic conditions that the Company and other financial institutions are facing. The exercise of regulatory authority may have a negative impact on the Company’s financial condition and results of operations.

AMCORE cannot predict the actual effects on the Company of various governmental, regulatory, monetary and fiscal initiatives, which have been and may be enacted on the financial markets. The terms and costs of these activities, or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity, and a continuation or worsening of current financial market and economic conditions could materially and adversely affect AMCORE’s business, financial condition, results of operations, and the trading price of its common stock. In addition, failure or the inability to comply with these various requirements can lead to diminished reputation and investor confidence, reduced franchise value, loss of business, curtailment of expansion opportunities, fines and penalties, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. For further information, refer to discussion in Key Initiatives, Other Significant Items and Events section of Item 7. Management’s Discussion and Analysis.

Company controls and procedures may fail or be circumvented.

Transaction/operation risk is a function of internal controls, information systems, employee integrity and operating processes. Significant deficiencies or material weaknesses in internal processes, controls, staff or systems could lead to impairment of liquidity, financial loss, disruption of the business, liability to clients, regulatory intervention or damage to the Company’s reputation. For example, the Company is highly dependent on its ability to process, on a daily basis, a large number of transactions. Failure of financial, accounting, data processing or other operating systems and controls to operate properly, becoming disabled, or to keep pace with increasing volumes, could adversely affect the Company’s ability to capture, process and accurately report these transactions.

The Company may fail to meet continued listing requirements with NASDAQ.

The Company’s common stock is listed on the NASDAQ Global Select Market. As a NASDAQ Global Select Market listed company, AMCORE is required to comply with the continued listing requirements of the NASDAQ Market Place Rules to maintain its listing status which includes maintaining a minimum closing bid price of at least a $1.00 per share for common stock. During 2009, the Company’s common stock traded below the minimum closing bid price requirement under the NASDAQ Market Place Rules.

The Company was notified by NASDAQ on December 9, 2009 of its non-compliance with listing standards. After regaining compliance on January 4, 2010, the Company once again was notified of non-compliance on March 8, 2010. The notification requires compliance with the NASDAQ continued listing requirements within 180 days. If the Company is unable to regain compliance, the common stock would be delisted from the NASDAQ Global Select Market. Delisting could reduce the ability of investors to purchase or sell AMCORE’s common stock as quickly and as inexpensively as they have done historically.

Not maintaining a listing on a major stock market or exchange may result in a material decline in the market price of the Company’s common stock due to a decrease in liquidity and reduced interest by institutions and individuals in investing in the securities. Delisting could also make it more difficult to raise capital in the future.

Poor business decisions or improper implementation of those decisions could results in adverse consequences to the Company.

Identifying and defining goals for the continued growth and success of the Company, developing strategies to accomplish the goals, and acquiring, developing and retaining the physical resources and human capital necessary to successfully execute the strategies are critical to the Company’s success.

Presently, the Company has four primary strategic initiatives: credit risk management, cost efficiencies, capital and liquidity, and broadening customer relationships. The Company’s ability to successfully execute these initiatives depends upon a variety of factors, including its ability to attract and retain experienced personnel, the continued availability of desirable business opportunities and locations, the competitive responses from other financial institutions in its new market areas, the stability of the Bank’s commercial real estate loan portfolio, and the ability to manage client relationships across all of its business segments. For an expanded discussion on these initiatives, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Loss of or damage to the Company’s reputation may affect ongoing profitability.

Reputation risk arises from the possibility that negative publicity regarding the Company’s business practices, whether true or not, will cause a decline in its customer base or result in costly litigation. In a service industry, such as the financial services industry, where product choices between companies are not always clearly distinguishable and which in many cases are interchangeable, a company’s reputation for honesty, fair-dealing and good corporate governance may be one of its most important assets. Loss of or damage to that reputation can have severe consequences.

Capital raising activities could dilute the percentage ownership of existing AMCORE shareholders.

The Company is taking all appropriate actions, including pursuing capital raising activities in order to increase capital and otherwise comply with the requirements set forth in the FRB Agreement and Consent Order. There can be no assurance that the Company will be successful in those efforts. Any such capital raising alternatives could dilute the percentage ownership of existing holders of AMCORE’s outstanding common stock and may adversely affect the market price of the Company’s common stock.

The soundness of other financial institutions could adversely affect AMCORE.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose AMCORE to credit risk in the event of default of the counterparty or client. In addition, AMCORE’s credit risk may be exacerbated when the collateral held by it cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan, investment or derivative exposure. There is no assurance that any such losses would not materially and adversely affect AMCORE’s financial condition and results of operations.

Changes in the value of financial instruments could adversely affect the Company’s earnings or capital.

Price/market risk is the risk to earnings or capital arising from adverse changes in the value of financial instruments. While this includes credit and liquidity risk, the Company considers interest-rate risk to be its most significant market risk. When interest rates increase, the fair value of a financial instrument on the asset side of the balance sheet will decrease. Conversely, when rates decline the fair value of the same instrument will increase.

While this relationship applies to all fixed-rate financial instruments, the primary instruments whose carrying values are affected by price/market risk are traded instruments. Since the Company currently has only an available-for-sale portfolio and does not maintain investment securities in a trading account, market fluctuations are recorded through equity and not the statements of operations. On-going adverse fair values could cause some security fair values to deteriorate to the extent that they are considered to be other than temporary. At that time, the Company would be required to write-down security values to their fair value as a charge to earnings.

ITEM 1B.

Unresolved Staff Comments

None.

ITEM 2.

PROPERTIES

On December 31, ~~2008~~2009, AMCORE occupied 8273 locations, of which 4942 were owned and 3331 were leased. The Commercial, ~~Retail~~ and ~~Mortgage~~Consumer ~~Banking~~ segments occupied 74 66 locations, of which 4538 were owned and 2928 were leased. The Investment Management and Trust segment leased one facility. All of these locations 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.

12During the second quarter 2008, the Bank joined the MoneyPass and Sum, surcharge-free ATM networks. As a result, AMCORE cardholders now have access to surcharge-free transactions at more than 20,000 ATMs across the United States, including a large concentration of ATMs conveniently located in the same geographic regions as AMCORE customers. These new relationships expand AMCORE’s channel of ATMs from 350 at the beginning of 2008, some of which were owned and some co-branded, to more than 1,500 at the end of 2009 throughout Illinois and Wisconsin.

During the second quarter 2008, the Bank joined the MoneyPass and Sum, surcharge-free ATM networks. As a result, AMCORE cardholders now have access to surcharge-free transactions at more than 19,000 ATMs across the United States, including a large concentration of ATMs conveniently located in the same geographic regions as AMCORE customers. These new relationships expand AMCORE’s channel of ATMs from 324 at the beginning of 2008, some of which were owned and some co-branded, to more than 1,300 at the end of 2008 throughout Illinois and Wisconsin.

ITEM 3.

LEGAL PROCEEDINGS

Management believes that no litigation is threatened or pending in which the Company faces a reasonable possibility of loss or exposure which will materially affect the Company’s consolidated financial position or consolidated results of operations. Since the Company’s subsidiaries act as depositories of funds, trustee and escrow agents, they occasionally are named as defendants in lawsuits involving claims to the ownership of funds in particular accounts. The Bank is also subject to counterclaims from defendants in connection with collection actions brought by the Bank. This and other litigation is incidental to the Company’s business.

~~During~~As ~~fourth quarter 2007, as~~ a member of the VISA, Inc. organization (VISA), the ~~Company~~ Company had previously accrued a $~~653~~338,000 liability as of December 31, 2008 for its proportionate share of various claims against VISA. ~~This~~Recent ~~amount~~additional ~~consisted~~funding of ~~$217,000 of claims settled by VISA but not yet paid,~~ a ~~$68,000~~litigation ~~estimate~~escrow ofaccount ~~claims~~established ~~considered probable~~ by VISA ~~pursuant~~has toreduced ~~Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies” and $368,000 representing~~ the Company’s proportionate ~~estimate~~share of ~~certain~~its ~~indemnification~~liability ~~obligations pursuant~~ to ~~Financial Interpretation (FIN) No. 45~~$292, ~~“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”~~000.

~~During~~ITEM ~~first quarter 2008, the Company received a partial redemption distribution in connection with the initial public offering (IPO) of VISA for which a $1~~4.0 million net security gain was recorded. The gain included a partial reversal of litigation and guaranty losses described above to the extent they related to the Company’s share of IPO proceeds retained in escrow by VISA to fund the losses. The remaining contingent liability is $338,000.

~~During~~Removed ~~fourth~~and ~~quarter 2008, VISA, Inc~~Reserved. reached a settlement in certain litigation with Discover Financial Services (“Discover”). The amount of the settlement with Discover exceeded the amount retained in escrow by VISA, Inc. from the proceeds of its IPO. VISA, Inc. issued sufficient escrowed stock to cover the additional reserve requirement, so no additional liability for this settlement was required to be accrued by the Company. The Company has determined that its share of the additional reserve requirements to settle the litigation with Discover is not material with respect to its consolidated financial statements as December 31, 2008.

~~ITEM~~17 ~~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 2008.

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 Stock Market under the symbol “AMFI.” There were approximately 9,000 holders of record of AMCORE’s common stock as of March 65, ~~2009~~2010. See Item 12 of this document for information on the Company’s equity compensation plans.

Historically, the Company’s policy had been 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 (the “Board”). This dividend policy was subject to change, however, and the payment of dividends was suspended during fourth quarter 2008. The payment of dividends on the Common Stock is also subject to regulatory capital requirements. For further information on quarterly dividend payments, see the Condensed Quarterly Earnings and Stock Price Summary at the end of Item 8.

The Company’s principal source of funds for dividend payments to its stockholders is dividends received from the Bank. Under applicable banking laws, the declaration of dividends by the Bank in any year, in excess of its net profits, as defined, for that year, combined with its retained net profits of the preceding two years, must be approved by the Office of the Comptroller of the Currency. For further discussion of restrictions on the payment of dividends, see Item 7, Management’s Discussion and Analysis of the Results of Operations and Financial Condition and Note 1716 of the Notes to the Consolidated Financial Statements.

The following table presents information relating to all Company repurchases of common stock during the fourth quarter of ~~2008~~2009:

Issuer Purchases of Equity Securities

Period	(a) Total #of SharesPurchased	(b) Average PricePaid per Share		(c) Total # of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs	(d) Maximum # (orApprox. Dollar Value) ofShares that May Yet BePurchased Under thePlans or Programs
October 1 – 31, 2008	3,953	$	18.44	—	—
October 1 – 31, 2009	3,188	$	.97	—	—
November 1 – 30, 2008	—		—	—	—
November 1 – 30, 2009	—		—	—	—
December 1 – 31, 2008	—		—	—	—
December 1 – 31, 2009	—		—	—	—
Total during quarter	3,~~953~~188	$	18.4497	—	—

The Company does not have a formally announced Repurchase Program in place at this time; however, the Company may periodically repurchase shares in open-market transactions in accordance with Exchange Act Rule 10b-18 through a limited group of brokers. These repurchases are used to replenish the Company’s treasury stock for re-issuances related to stock option exercises and other employee benefit plans. The repurchased shares above are direct repurchases of unvested shares from terminated participants, at their original discounted price, related to the administration of the Amended and Restated AMCORE Stock Option Advantage Plan. ~~During the fourth quarter, the Company suspended its practice of repurchasing any unvested shares owned by a terminated participant.~~ There were no shares tendered in the fourth quarter to effect stock option exercise transactions in the numbers above. On February 13, 2009, the Board passed a resolution that the Company would not increase its debt, pay dividends, or repurchase treasury stock without prior approval from the Board.

1418

ITEM 6.

SELECTED FINANCIAL DATA

Five Year Comparison of Selected Financial Data

	2008			2007			2006			2005			2004
	2009			2008			2007			2006			2005
	(in thousands, except per share data)
FOR THE YEAR:
Interest income	$	~~272~~189,~~756~~725		$	~~344~~272,~~016~~756		$	~~339~~344,~~176~~016		$	~~280~~339,~~609~~176		$	~~232~~280,~~441~~609
Interest expense		~~140~~114,~~871~~335			~~183~~140,~~432~~871			~~174~~183,~~218~~432			~~118~~174,~~975~~218			80118,~~855~~975
Net interest income		~~131~~75,~~885~~390			~~160~~131,~~584~~885			~~164~~160,~~958~~584			~~161~~164,~~634~~958			~~151~~161,~~586~~634
Provision for loan losses		~~202~~190,~~716~~157			29202,~~087~~716			1029,~~120~~087			1510,~~194~~120			15,~~530~~194
Non-interest income		7485,~~602~~421			7074,~~997~~602			7570,~~589~~997			6675,~~413~~589			6566,~~914~~413
Operating expenses		~~172~~168,~~479~~560			~~165~~172,~~339~~479			165,~~365~~339			~~145~~165,365			~~137~~145,~~307~~365
(Loss) Income from continuing operations before income taxes		(~~168~~197,~~708~~906	)		37(168,~~155~~708	)		6537,~~062~~155			6765,~~488~~062			6467,~~663~~488
Income tax (benefit) expense		(70,909	)		8,914			18,035			19,501			18,632
Income tax expense (benefit)		25,877			(70,909	)		8,914			18,035			19,501
(Loss) Income from continuing operations	$	(97223,~~799~~783	)	$	28(97,~~241~~799	)	$	4728,~~027~~241		$	47,~~987~~027		$	4647,~~031~~987
Discontinued operations:
(Loss) Income from discontinued operations		—			—			~~(131~~—	)		~~707~~(131	)		~~(629~~707	)
Income tax (benefit) expense		—			—			~~(379~~—	)		~~3,753~~(379	)		~~(294~~3,753	)
Income (loss) from discontinued operations	$	—		$	—		$	~~248~~—		$	~~(3,046~~248	)	$	(~~335~~3,046	)
Net (Loss) Income	$	(97223,~~799~~783	)	$	28(97,~~241~~799	)	$	4728,~~275~~241		$	4447,~~941~~275		$	4544,~~696~~941
Return on average assets (1)		-14.9170	%		0-1.5491	%		0.8854	%		0.9488	%		0.9794	%
Return on average equity (1)		-29114.6405			7-29.3264			117.7632			1211.1876			12.1518
Net interest margin		21.8472			32.3584			3.3835			3.5138			3.5651
AVERAGE BALANCE SHEET:
Total assets	$	54,~~113~~763,~~525~~302		$	5,~~240~~113,~~498~~525		$	5,~~369~~240,~~268~~498		$	5,~~117~~369,~~654~~268		$	45,~~749~~117,~~072~~654
Gross loans		3,~~860~~339,~~934~~750			3,~~977~~860,~~028~~934			3,~~858~~977,~~163~~028			3,~~480~~858,~~947~~163			3,~~128~~480,~~352~~947
Earning assets		4,~~778~~484,~~752~~009			4,~~870~~778,~~255~~752			54,~~008~~870,~~905~~255			45,~~738~~008,~~688~~905			4,~~380~~738,~~796~~688
Deposits		34,~~878~~046,~~819~~497			43,~~117~~878,~~440~~819			4,~~224~~117,~~826~~440			34,~~978~~224,~~225~~826			3,~~566~~978,~~237~~225
Long-term borrowings		~~449~~270,~~886~~919			~~396~~449,~~571~~886			~~305~~396,~~078~~571			~~166~~305,~~837~~078			~~178~~166,~~584~~837
Stockholders’ equity		~~329~~196,~~920~~222			~~385~~329,~~570~~920			~~399~~385,~~916~~570			~~394~~399,~~117~~916			~~378~~394,~~771~~117
ENDING BALANCE SHEET:
Total assets	$	53,~~059~~777,~~824~~230		$	5,~~192~~059,~~778~~824		$	5,~~292~~192,~~383~~778		$	5,~~344~~292,~~902~~383		$	45,~~940~~344,~~488~~902
Gross loans		32,~~786~~152,~~029~~557			3,~~932~~786,~~684~~029			3,~~946~~932,~~551~~684			3,~~721~~946,~~864~~551			3,~~278~~721,~~800~~864
Earning assets		43,~~664~~549,~~956~~800			4,~~796~~664,~~993~~956			4,~~863~~796,~~678~~993			4,~~935~~863,~~124~~678			4,~~559~~935,~~580~~124
Deposits		3,~~919~~406,~~038~~280			43,~~003~~919,~~256~~038			4,~~346~~003,~~182~~256			4,~~213~~346,~~216~~182			34,~~734~~213,~~691~~216
Long-term borrowings		~~379~~229,~~667~~177			~~368~~379,~~858~~667			~~342~~368,~~012~~858			~~169~~342,~~730~~012			~~165~~169,~~018~~730
Stockholders’ equity		~~261~~36,~~998~~007			~~368~~261,~~567~~998			~~400~~368,~~046~~567			~~398~~400,~~517~~046			~~386~~398,~~578~~517
FINANCIAL CONDITION ANALYSIS:
Allowance for loan losses to year-end loans		36.6074	%		13.3560	%		1.0435	%		1.1004	%		1.2510	%
Allowance to non-accrual loans		44.85			~~129~~44.7085			~~136~~129.1670			~~187~~136.9916			~~135~~187.8199
Net charge-offs to average loans		25.5834			02.4258			0.2642			0.4226			0.4742
Non-accrual loans to gross loans		815.0302			18.0403			01.7604			0.5876			0.9258
Average long-term borrowings to average equity		~~136~~138.3607			~~102~~136.8536			76102.2985			4276.3329			4742.1533
Average equity to average assets		64.4512			76.3645			7.4536			7.7045			7.9870
STOCKHOLDERS’ DATA:
Earnings Per Common Share
Basic: (Loss) Income from continuing operations	$	(49.3278	)	$	1(4.2032	)	$	1.8720		$	1.8887		$	1.8088
Discontinued operations		—			—			~~0.01~~—			(0.1201	)		(0.0212	)
Net (Loss) Income	$	(49.3278	)	$	1(4.2032	)	$	1.8820		$	1.7688		$	1.7876
Diluted: (Loss) Income from continuing operations	$	(49.3278	)	$	1(4.2032	)	$	1.8620		$	1.86		$	1.7886
Discontinued operations		—			—			~~0.01~~—			(0.1101	)		(0.0211	)
Net (Loss) Income	$	(49.3278	)	$	1(4.2032	)	$	1.8720		$	1.7587		$	1.7675
Book value per share	$	111.5556		$	1611.3155		$	16.3631		$	1516.6536		$	15.1765
Dividends per share		~~0.278~~—			0.~~720~~278			0.~~721~~720			0.~~662~~721			0.662
Dividend payout ratio		~~(6.43~~—	)%		59(6.5943	)%		3859.2359	%		3738.5423	%		37.1154	%
Average common shares outstanding		22,~~629~~876			2322,~~546~~629			2523,~~125~~546			25,~~473~~125			25,~~614~~473
Average diluted shares outstanding		22,~~629~~876			2322,~~556~~629			2523,~~221~~556			25,~~746~~221			25,~~910~~746

(1)	Ratios from continuing operations.

(2)	All share data have been restated for effects of stock dividends in both June and September 2008.

15(3) 2005 and 2006 includes amounts from discontinued operations in connection with the 2005 sale of Investors Management Group, Ltd.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the significant factors affecting AMCORE Financial, Inc. and Subsidiaries’ (“AMCORE” or the “Company”) consolidated financial condition as of December 31, ~~2008~~2009 compared to December 31, ~~2007~~2008, and the consolidated results of operations for the three years ended December 31, ~~2008~~2009. 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, which have been prepared assuming that the Company will continue as a going concern.

FACTORS INFLUENCING FORWARD-LOOKING STATEMENTS

This report on Form 10-K contains, and periodic filings with the Securities and Exchange Commission and written or oral statements made by the Company’s officers and directors to the press, potential investors, securities analysts and others will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby with respect to, among other things, the financial condition, results of operations, plans, objectives, future performance and business of AMCORE. Statements that are not historical facts, including statements about beliefs and expectations, are forward-looking statements. These statements are based upon beliefs and assumptions of AMCORE’s management and on information currently available to such management. The use of the words “believe”, “expect”, “anticipate”, “plan”, “estimate”, “should”, “may”, “will”, or similar expressions 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~~ 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 or adverse findings or rulings made by local, state or federal regulators or agencies regarding AMCORE and its operations; (III) failure to obtain new customers and retain existing customers and related deposit relationships; (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 prepayments; (VII) general economic and business conditions which are less favorable than expected; (VIII) equity and fixed income market fluctuations; (IX) unanticipated changes in industry trends; (X) unanticipated changes in credit quality and risk factors; (XI) success in gaining regulatory approvals when required; (XII) changes in Federal Reserve Board monetary policies; (XIII) unexpected outcomes on existing or new litigation in which AMCORE, its subsidiaries, officers, directors or employees are named defendants; (XIV) technological changes; (XV) changes in accounting principles generally accepted in the United States of America; (XVI) changes in assumptions or conditions affecting the application of “critical accounting estimates”; (XVII) inability of third-party vendors to perform critical services for the Company or its customers; (XVIII) disruption of operations caused by the conversion and installation of data processing systems; (XIX) adverse economic or business conditions affecting specific loan portfolio types in which the Company has a concentration, such as construction, land development and other land loans; (XX) zoning restrictions or other limitations at the local level, which could prevent limited branch offices from transitioning to full-service facilities; (XXI) possible changes in the creditworthiness of customers and value of collateral and the possible impairment of collectability ~~collectibility~~ of loans; (XXII) changes in lending terms to the Company and the Bank by the Federal Reserve, Federal Home Loan Bank, or any other regulatory agency or third party; ~~and,~~ (XXIII) the recently enacted Emergency Economic Stabilization Act of 2008, and the various programs the U.S. Treasury and the banking regulators are implementing to address capital and liquidity issues in the banking system, all of which may have significant effects on the Company and the financial services industry, the exact ~~nature and extent of which cannot be~~ ~~determined at this time.~~

1620

~~CRITICAL~~ nature ~~ACCOUNTING~~and ~~ESTIMATES~~extent ~~AND~~of ~~ACCOUNTING~~which ~~CHANGES~~cannot be determined at this time; (XXIV) failure by the Company or Bank to comply with written agreements, consent orders, written directives, or to develop and implement an acceptable capital restoration plan under the Prompt Corrective Action guidelines, and if the Company cannot otherwise comply with such commitments and regulations, the possibility of a forced sale, liquidation or federal conservatorship or receivership of the Bank; (XXV) significant operating losses, the resulting deterioration in the Company’s and Bank’s capital position and the Company’s current default under its senior debt facility could impact the Company’s ability to continue as a going concern; and (XXVI) the effect of receiving a “going concern” statement in the Report of Independent Registered Public Accounting Firm on the Company’s 2009 Consolidated Financial Statements.

Critical Accounting Estimates

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

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

Allowance for loan losses – Loans, the Company’s largest income earning asset category, are periodically evaluated by management in order to establish an adequate allowance for loan losses (Allowance) to absorb estimated losses that are probable as of the respective reporting date. This evaluation includes specific loss estimates on certain individually reviewed loans where it is probable that the Company will be unable to collect all of the amounts due (principal or interest) according to the contractual terms of the loan agreement (impaired loans) and statistical loss estimates for loan groups or pools that are based on historical loss experience. Also included are other loss estimates that reflect the current credit environment and that are not otherwise captured in the historical loss rates. These include the quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and economic and industry conditions, among other things. The Allowance is also subject to periodic examination by regulators, whose review may include their own assessment as to its adequacy to absorb probable losses.

Additions to the Allowance are charged against earnings for the period as a provision for loan losses (Provision). Conversely, this evaluation could result in a decrease in the Allowance and Provision. Actual loan losses are charged against and reduce the Allowance when management believes that the collection of principal will not occur and the loss has been confirmed. Unpaid interest attributable to prior years for loans that are placed on non-accrual status is also charged against and reduces the Allowance. Unpaid interest for the current year for loans that are placed on non-accrual status is charged against and reduces the interest income previously recognized. Subsequent recoveries of amounts previously charged to the Allowance, if any, are credited to and increase the Allowance.

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

While the Company strives to timely reflect all known risk factors in its evaluations, judgment errors may occur. If different assumptions or conditions were to prevail, the amount and timing of interest income and loan losses could be materially different. These factors are most pronounced during economic downturns and may continue into an economic recovery, as specific credit performance may not be immediately affected by the stress of the

downturn or the benefit of the recovery. Since, as described above, so many factors can affect the amount and timing of losses on loans, it is difficult to predict with a high degree of certainty the effect to income if different conditions or assumptions were to prevail. Nonetheless, if any combination of the above judgments or assumptions were to have adversely affected the adequacy of the Allowance by ten percent during 2008, an additional Provision of $13.6 million may have been necessary. See also Table 2 and Note 4 of the Notes to Consolidated Financial Statements.

Income Taxes – The Company is subject to the income tax laws of the United States and the states in which is conducts business. These laws are complex and are subject to different interpretations by the Company and the various taxing authorities that may result in certain uncertainties as to the final tax liability that is ultimately owed or refund that is due. In June 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” that clarified the accounting for uncertain tax positions recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold that the Company must evaluate before it can record the benefit of tax positions taken or expected to be taken in a tax return. When making these evaluations, management must make judgments and estimates about the interpretation and application of these inherently complex and constantly changing tax statutes, related regulations and case law. These judgments and interpretations are subject to challenge by the taxing authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law. As a result, the tax provision that is determined for a given period may subsequently be adjusted by amounts that may be material. The Company has no uncertain tax positions requiring an increase in its tax provision.

The provision for income taxes is based upon income before income taxes, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate. In addition to uncertainties that surround positions taken when preparing its tax return, the Company must also evaluate the probability that it will ultimately realize the full value of its deferred tax asset. The realization of the Company’s deferred tax asset over time is dependent upon the existence of taxable income in carryback periods or the generation of sufficient taxable income in future periods. When evaluating the realizability of its deferred tax asset, the Company takes into account a number of factors including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future, and the carryforward periods permitted by the various taxing jurisdiction. To the extent full realizability is not probable a valuation allowance is required. At December 31, the Company had a valuation allowance of $2.6 million due to the uncertain realization of certain state loss carryforwards. See Note 14 of the Notes to Consolidated Financial Statements.

Accounting Changes

Split-Dollar Life Insurance – In September 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-4 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The issue requires companies to recognize a liability for future benefits on split dollar insurance arrangements if the benefit to the employee extends to postretirement periods. The issue is required to be applied to fiscal years beginning after December 15, 2007, with earlier application permitted. This standard was adopted in first quarter 2008 and did not have a material affect on the Company’s Consolidated Balance Sheets or Statements of Operations.

Fair Value Measurements – In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The standard applies to other accounting

pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. For some entities, the application of the standard may change how fair value is measured. The standard is effective for financial statements issued for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. The FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. This standard was adopted in first quarter 2008 and did not have a material affect on the Company’s Consolidated Balance Sheets or Statements of Operations.

Fair Value Option for Financial Assets and Financial Liabilities – In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The fair value option established by this standard permits all entities to choose to measure eligible items at fair value at specified election dates. Under SFAS No. 159, a business entity is required to report unrealized gains and losses on items for which the fair value option have been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. The standard was effective as of January 1, 2008. The Company did not adopt fair value for any new items.

Loan Commitments Recorded at Fair Value Through Earnings – In November 2007, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (SAB) No. 109, which superseded SAB No. 105, which applied only to derivative loan commitments that are accounted for at fair value through earnings. The new guidance states that, consistent with the guidance in SFAS No. 156, “Accounting for Servicing of Financial Assets”, and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. This standard was adopted in first quarter 2008 and did not have a material affect on the Company’s Consolidated Balance Sheets or Statements of Operations.

Minority Interests – In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements – an amendment of Accounting Research Bulletin (ARB) No. 51.” Among other things, SFAS No. 160 requires minority interests be recorded as a separate component of equity and that net income attributable to minority interests be clearly identified on the Statements of Operations. SFAS No. 160 is effective for fiscal years and interim periods beginning on or after December 15, 2008. Earlier adoption is prohibited. Statement No. 160 is required to be applied prospectively, except for the presentation and disclosure requirements. Adoption of this standard in fiscal year 2009 is not expected to have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Business Combinations – In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, to improve financial reporting on business combinations, including recognition and measurement of assets acquired, liabilities assumed, noncontrolling interests, and goodwill. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply this Statement before that date.

Simplified Method for Share Option Grants – In December 2007, the SEC issued SAB No. 110, which expresses the views of he SEC regarding the use of a “simplified” method, as discussed in SAB No. 107, in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123(R), Share-Based Payment. The SEC concluded that a company could, under certain circumstances, continue to use the simplified method for share option grants after December 31, 2007. Due to the significant differences in terms and types of option grants received by employees, and recent significant structural changes, historical exercise data did not provide a reasonable basis upon which to estimate expected term. The Company, therefore, continued its use of the simplified method for determining an estimate of expected term for its share options granted during 2008.

Derivative Instruments and Hedging Activities Disclosure – In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” to provide enhanced disclosures and thereby improve the transparency of financial reporting. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 with early application encouraged. Adoption of this standard is not expected to have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

KEY INITIATIVES AND OTHER SIGNIFICANT ITEMS AND EVENTS

Key Initiatives

Credit ~~quality~~risk management – ~~The~~Over the past two years, actions that the Company ~~continues~~has taken or is taking to enhance the credit risk administration and measurement processes of its banking subsidiary (the “Bank”). ~~Actions already taken or underway~~ include: implemented aan ~~new~~expanded risk grading system ~~in 2007~~ to provide more detailed information as to the conditions underlying the portfolio; engaged an independent third party ~~during third quarter 2008~~ to review a representative sample of the commercial loan portfolio to verify risk rating accuracy; ~~hired an experienced commercial lending leader in second quarter 2007;~~ shifted ~~the management of~~ virtually all ~~residential~~construction and development loan relationships to an experienced specialty unit; ~~continued~~to ~~increased~~manage ~~focus on commercial~~ and ~~industrial~~reduce ~~relationship~~the ~~lending~~concentration; reorganized the commercial credit approval process; ~~increased~~enhanced the ~~allowance for loan losses and enhanced the~~ processes related to the allowance for loan losses calculation; implemented straight-through-processing system for commercial lending; increased staffing and resources in the Bank’s non-performing assets resolution specialty group, which pursues resolution of non-performing assets; hired a new chief credit officer with strong leadership and portfolio management skills ~~in second quarter 2008~~; added qualified and experienced senior staff to manage the credit administration, loan review and appraisal functions; inreorganized ~~second~~the ~~quarter~~commercial ~~2008;~~line ~~and,~~of ~~redeployed~~business ato ~~senior~~eliminate ~~commercial~~two ~~manager~~layers of management, to improve communication and accelerate decision making; formed a ~~special~~risk ~~assignment~~committee tothat ~~enhance~~reviews the loan portfolio ~~management~~including ~~efforts~~segments ~~and~~that ~~credit~~could ~~monitoring~~develop ~~processes~~into ~~during~~a ~~fourth~~concentration ~~quarter~~to ~~2008.~~ensure ~~Over~~that the ~~next~~Company ~~few~~is ~~months,~~appropriately ~~the~~monitoring ~~Bank~~and managing ~~plans~~its credit portfolio risk; and initiated a plan to substantially lower its exposure to non-strategic, non-relationship based accounts, especially loans concentrated in single-service accounts such as investment real estate loans, while increasing its focus on commercial and industrial relationship lending.

Cost efficiencies – ~~For~~The ~~2008,~~Company ~~the~~continues ~~Company~~its ~~targeted~~efforts ato ~~three~~realign ~~percent~~its ~~per~~cost ~~year~~structure ~~reduction~~to ~~pre-FDIC~~be ~~insurance~~consistent ~~operating expenses~~with ~~for~~its ~~2008~~revenue stream. ~~Excluding~~This ais ~~$6.2~~being ~~million~~accomplished ~~write~~through a four-~~off~~prong ~~for~~approach ~~goodwill~~that focuses on automation, vendor amanagement ~~credit~~and contract re-~~related~~negotiation, ~~reserve~~improved ~~for~~utilization ~~unfunded~~of ~~loan~~existing ~~commitments~~resources ofand $4flattening the organization’s hierarchy.8 ~~million~~Actions ~~and~~taken ~~FDIC~~in ~~insurance~~2009 ~~premiums~~included a five percent reduction in executive salaries, suspension of ~~$3.6~~employee ~~million~~merit increases, bonuses, and the Company’s ~~realized~~basic acontribution ~~four~~to ~~percent~~the 401(k) plan, and a 25% reduction of its work force (the “Restructuring”). ~~This~~The ~~included~~Company ~~more than~~has annot ~~11%~~suspended ~~reduction~~or inreduced ~~full-time~~its ~~equivalent~~employer ~~positions~~matching ~~since~~contributions to the ~~beginning~~401(k) plan. Charges of ~~2008~~$2.7 million (the “Restructuring Charge”) related to the Restructuring were recorded in 2009.

InDuring ~~addition, during~~ 2008, the Company identified five under-utilized high-cost facilities that could be consolidated with other nearby locations (the “Facilities Consolidation”). These were two office buildings, one small older branch in a historical market, one leased Chicago suburban location with minimal ~~retail~~consumer activity that housed mainly commercial lenders, and a leased branch with excess capacity, minimal access to customers, and high maintenance costs. A $1.75 million non-cash impairment charge was recorded in second quarter 2008 in connection with the Facilities Consolidation. One property was sold during 2008 at an amount equal to its book value, aswhile ~~recorded~~the onother ~~the~~properties ~~Consolidated~~continue ~~Balance~~to ~~Sheets~~be listed for sale.

~~Going~~Continuing ~~forward~~its efforts to improve efficiencies, ~~the~~better ~~Company~~utilize ~~will~~existing ~~continue~~space ~~its~~and ~~efforts~~reduce tocosts, ~~right~~the ~~size~~Company closed its ~~cost~~Lake ~~structure~~Zurich tolimited ~~its revenue~~branch ~~stream.~~office ~~For~~(LBO) ~~example~~on June 30, 2009, relocating the ~~Company~~commercial ~~will~~team ~~only~~to ~~hire~~its ~~for~~nearby ~~essential~~Vernon ~~positions~~Hills branch. ~~critical~~During tofourth quarter 2009, the Company consolidated operations. of three additional

~~Capital~~21 and Liquidity – The Company is actively pursuing opportunities to raise additional capital and otherwise enhance its capital position through a variety of means. During fourth quarter 2008, the Company merged its Investment Management and Trust Group, into the main Bank charter. This added more than $8 million of capital to the Bank, a more efficient use of the capital of the organization. See Capital Management section below for an expanded discussion of the regulatory capital standards. This also allows the Company to serve its customers

~~with~~branches ~~greater~~to ~~“One-Bank”~~other ~~operational~~nearby ~~clarity~~facilities. These Infacilities ~~fourth~~included ~~quarter~~the ~~2008,~~Elgin-Big ~~the~~Timber ~~Company~~branch, ~~suspended~~where ~~its~~customers ~~quarterly~~will ~~dividend~~be able to ~~preserve~~utilize ~~capital~~three ~~and~~nearby ~~parent~~newer locations; the Wauwatosa, Wisconsin ~~company~~branch, ~~liquidity.~~where ~~AMCORE~~the ~~also~~commercial ~~elected~~team relocated to ~~participate~~a innearby ~~the~~leased ~~FDIC~~facility; ~~Transaction~~and ~~Account~~the ~~Guarantee~~Northbrook ~~Program~~LBO, ~~providing~~which ~~unlimited~~closed ~~insurance~~when onthe ~~non-interest~~full ~~bearing~~service ~~transaction~~branch ~~accounts~~in ~~through~~Northbrook ~~December~~opened ~~2009~~(see branch expansion below). ~~During~~Northbrook ~~2008,~~is the ~~Bank~~last ~~built~~of ~~its~~the ~~liquidity~~Company’s new branches ~~reserves,~~to ~~ending~~open ~~the~~and ~~year~~construction ~~with~~on ~~more~~this ~~than~~new ~~$75~~branch ~~million~~was ofunderway ~~short-term~~for ~~investments~~more tothan ~~strengthen~~a ~~its~~year. ~~funding~~No ~~stability~~impairment ascharges ~~the~~were ~~economic~~required ~~environment~~for ~~became~~any ~~less~~of ~~stable~~the 2009 Facilities Consolidations.

~~Broadening~~Capital ~~Customer~~and ~~Relationships –~~Liquidity – The Company’s ~~reputation~~and ~~for~~the ~~customer~~Bank ~~and~~are ~~community~~taking ~~service~~all ~~has~~appropriate ~~always~~actions, ~~been~~including pursuing ancapital ~~important~~raising ~~driver~~activities, ofin ~~its~~order ~~business.~~to ~~Reducing~~improve its ~~non-relationship~~capital ~~accounts,~~ratios ~~while reaffirming~~ and ~~building~~otherwise ~~upon~~enhance its ~~core~~capital ~~customer~~position. ~~relationships~~During fourth quarter 2008, isthe ~~expected~~Company tomerged ~~build~~its ~~consistency~~Investment ~~across~~Management ~~the~~and ~~Company~~Trust ~~footprint.~~Group ~~Developing~~into ~~deep~~the ~~and~~main ~~enduring~~Bank ~~customer relationships~~charter ~~across~~and ~~all~~suspended ~~our~~its quarterly ~~lines~~dividend ofto ~~the~~preserve ~~business~~capital isand aparent ~~key~~company ~~objective~~liquidity. ~~The~~In ~~“One-~~2009, the Bank” ~~initiative~~completed ~~for~~the ~~serving~~sale ~~customers~~of ~~across~~four ~~all~~Wisconsin ~~lines~~branches, ofsold ~~business~~$136 ~~continues~~million toin beindirect aloans, ~~focus~~and ~~for~~entered ~~2009.~~into Itan ~~will~~agreement ~~allow~~to ~~the~~sell ~~Company~~fourteen tolocations ~~leverage~~in the ~~combined~~rural Illinois ~~expertise~~markets. ofSee ~~the~~Other ~~organization~~Significant Items and ~~its~~Events ~~people~~– ~~across~~branch ~~the~~and ~~lines~~asset ofsales ~~business~~below for additional information on other actions taken to ~~better~~improve ~~meet~~capital ~~the~~ratios. ~~customers’~~Also ~~financial~~see ~~needs,~~Regulatory ~~while~~Developments ~~enhancing~~below for additional information regarding the Bank’s ~~profitability~~plans to raise its capital levels. See Capital Management section below for an expanded discussion of the ~~Company~~regulatory capital standards.

~~The~~During ~~Company~~2009, ~~also~~the ~~focused~~Bank oncontinued ~~measuring~~to ~~line~~build ofits ~~business~~liquidity ~~performance~~reserves ~~and~~to ~~closely~~strengthen ~~aligning~~its ~~profitability with~~funding ~~incentive~~stability ~~compensation~~as inthe economic environment became less stable. AMCORE ~~order~~has also elected to ~~drive~~continue ~~strong~~to ~~core~~participate ~~customer-based~~in ~~growth. This focus~~the onFDIC ~~profitability~~Transaction Account Guarantee Program, ~~rather~~providing ~~than~~unlimited ~~volume~~insurance ~~only~~on ~~measures,~~non-interest ~~has~~bearing ~~led~~transaction toaccounts ~~improved~~through ~~product~~June 30, ~~pricing~~2010. ~~that~~At isDecember 31, ~~more~~2009, ~~reflective~~the ofBank’s liquidity ~~true~~reserves ~~costs~~were ~~and~~approximately ~~market~~$625 ~~risks~~million. ~~and~~See isRegulatory ~~expected~~Developments tobelow ~~help~~for more information regarding the ~~Company continue~~ toBank’s ~~strengthen its~~liquidity ~~earnings~~risk ~~stream~~management program.

~~During~~Broadening ~~the second~~Customer ~~quarter~~Relationships ~~2008,~~– The ~~the~~Company’s ~~Bank~~reputation ~~joined~~for ~~the~~customer ~~MoneyPass~~ and ~~Sum,~~community ~~surcharge-free~~service ~~ATM~~has ~~networks~~always been an important driver of its business. AsReducing aits ~~result~~non-relationship accounts, ~~AMCORE~~while ~~cardholders~~reaffirming ~~now~~and ~~have~~building ~~access~~upon toits ~~surcharge-free~~core ~~transactions~~customer atrelationships, ~~more~~is ~~than~~expected ~~19,000~~to ~~ATMs~~build consistency across the ~~United~~Company ~~States,~~footprint. ~~including~~Developing adeep ~~large~~and enduring customer ~~concentration~~relationships across all our lines of ~~ATMs~~business ~~conveniently~~is ~~located~~a inkey ~~the~~objective. ~~same~~This ~~geographic~~“One-Bank” ~~regions~~initiative asfor ~~AMCORE~~serving customers across all lines of business will continue as a focus for 2010. ~~These~~The ~~new~~initiative ~~relationships~~is ~~expand~~expected ~~AMCORE’s~~to ~~channel~~better leverage the combined expertise of ~~ATMs~~the ~~from~~Company ~~324~~and atits ~~the~~people ~~beginning~~across all lines of ~~2008~~business to ~~more~~better ~~than~~meet 1the customers’ financial needs,~~300~~ atwhile enhancing the ~~end~~profitability of ~~2008~~the ~~throughout Illinois and Wisconsin~~Company.

The Company also focused on measuring line of business performance and closely aligning profitability with incentive compensation in order to drive strong core customer-based growth. This focus on profitability, rather than volume only measures, has led to improved product pricing that is more reflective of true costs and market risks and is expected to help the Company strengthen its earnings stream as it emerges from this credit cycle.

During 2008, the Bank joined the MoneyPass and Sum, surcharge-free ATM networks. As a result, AMCORE cardholders now have access to surcharge-free transactions at more than 20,000 ATMs across the United States, including a large concentration of ATMs conveniently located in the same geographic regions as AMCORE customers. These new relationships expand AMCORE’s channel of ATMs throughout Illinois and Wisconsin from roughly 350 at the beginning of 2008 to more than 1,500 as of December 31, 2009.

Other Significant Items and Events

~~Key~~Corporate ~~personnel~~restructuring and key personnel changes – OnThe ~~February 25,~~previously ~~2008,~~mentioned reduction in workforce resulted in the ~~Company~~elimination ~~announced that~~of ~~Kenneth~~approximately E.116 ~~Edge~~positions, ~~had~~including ~~elected~~that toof ~~retire~~the asPresident and Chief ~~Executive~~Operating Officer, (and the “Executive ~~Retirement”)~~Vice President, Commercial Banking Group. As a result of the ~~Company~~workforce reductions, ~~effective~~one aslayer and in some cases two layers of ~~February 22,~~management ~~2008~~were eliminated, in an effort to improve communications and ~~remained~~accelerate asdecision ~~Chairman~~making ofin the ~~Board~~Company. ofThe ~~Directors~~Company’s ~~(the~~objective ~~“Board”)~~is ofto ~~the~~build an ~~Company~~organization ~~until~~that ~~May 6~~is streamlined, ~~2008~~disciplined and driven to weather a variety of economic circumstances.

~~Also,~~In onMay ~~February 22~~2009, ~~2008,~~Ted ~~the~~Kopczynski ~~Board elected~~was ~~William~~promoted R.to ~~McManaman~~chief ascredit ~~Chief~~officer ~~Executive~~and ~~Officer,~~senior ~~effective~~vice ~~February 25, 2008~~president. ~~Prior~~As tochief ~~his~~credit ~~appointment~~officer, ashe ~~Chief~~is ~~Executive~~responsible ~~Officer,~~for ~~Mr. McManaman~~developing, ~~age~~administering ~~60,~~and ~~had~~providing ~~served~~general asoversight ~~a Director~~ of ~~the~~all credit ~~Company~~policies ~~since~~and ~~1997.~~procedures; Onapproving ~~May 6,~~and ~~2008,~~recommending ~~the Board~~extensions ~~elected~~of ~~Mr. McManaman~~credit; asand ~~Chairman~~implementing ofeffective ~~the~~credit ~~Board.~~ risk

~~Branch expansion~~22 – During 2008, the Bank opened three new branches, one in Mt. Prospect, Illinois, one in Wheaton, Illinois and one in Vernon Hills, Illinois. The Bank has slowed the opening of new branches to only those already in the construction pipeline or under contract. In 2009, this included branches in Antioch, Illinois and Naperville, Illinois, which opened January 26, 2009 and February 13, 2009, respectively. There are no more branches in the construction pipeline.

Significant transactions – During 2007, the Company entered into a strategic arrangement with a national mortgage services company to provide private-label loan processing and servicing support (the “Mortgage Restructuring”). As part of this arrangement, the Company sold the majority of its Other Mortgage Servicing Rights (OMSR) portfolio (the “OMSR Sale”) in which it recorded a $2.6 million gain (the “OMSR Gain”). The arrangement offers AMCORE a greater breadth of products, more competitive pricing and greater processing efficiencies and is expected to better position the Company for future loan origination growth. As a result of this arrangement, AMCORE expects to better control the risks associated with its mortgage banking business.

~~Additionally,~~management ~~the~~activities. ~~cost~~Kopczynski ~~structure in the mortgage banking business~~ has ~~become~~27 ~~almost~~years ~~entirely~~of ~~variable~~experience in ~~nature,~~all ~~allowing~~phases ~~the~~of ~~Company~~small toand ~~better~~middle ~~absorb fluctuations~~market ~~in mortgage volumes. These include the costs of originating~~ loans ~~that~~and ~~are~~large ~~netted~~structured ~~against~~transactions. ~~mortgage~~Prior ~~banking~~to ~~income~~joining ~~or interest income~~AMCORE, ashe ~~well~~held assenior ~~processing~~credit, sales and ~~servicing~~leadership ~~costs~~positions ofwith ~~loans~~Citibank, ~~retained~~UBS inGlobal ~~the~~Wealth ~~Bank’s~~Management ~~portfolio~~ and ~~that~~Merrill ~~are a~~Lynch ~~component~~Business ofFinancial ~~operating~~Services ~~expenses~~Inc.

InOn ~~2007~~February 22, ~~AMCORE~~2008, ~~redeemed~~the ~~its~~Board ~~$40~~of ~~million, 9.35~~Directors ~~percent~~(the ~~coupon~~“Board”) ~~outstanding~~elected ~~trust~~William ~~preferred~~R. ~~securities~~McManaman ~~(Trust~~as ~~Preferred)~~Chief atExecutive aOfficer ~~cost~~(CEO), ofeffective February 25, ~~$2.3~~2008, ~~million~~upon ~~that~~the ~~included~~retirement ~~both~~of athe ~~call~~former ~~premium~~CEO. ~~and~~Prior ~~unamortized~~to ~~issuance~~his ~~expenses~~appointment ~~(the~~as ~~“Extinguishment~~CEO, ~~Loss”)~~Mr. McManaman, ~~The~~had ~~redemption~~served ~~was~~as ~~funded~~a ~~with~~Director aof ~~new lower~~the ~~cost~~Company ~~Trust~~since ~~Preferred~~1997. ~~issuance~~On ofMay 6, ~~$50~~2008, ~~million~~the atBoard aelected ~~rate~~Mr. McManaman as Chairman of 6the Board.45 ~~percent.~~

OnBranch ~~May 3,~~expansion ~~2007~~– During 2009, the Bank ~~Board~~opened ~~authorized~~three ~~the~~new ~~repurchase~~branches, ~~(the~~one ~~“Repurchase~~in ~~Program”)~~Antioch, ofIllinois, upone toin ~~two~~Naperville, ~~million~~Illinois, ~~shares~~and ofone ~~the~~in ~~Company’s~~Northbrook, ~~stock~~Illinois. ~~The~~These ~~authorization~~three ~~was~~locations ~~for~~were aalready ~~twelve-month~~committed ~~period~~ to beand ~~executed~~in ~~through~~the ~~open~~pipeline ~~market~~prior ~~or privately~~to ~~negotiated~~the ~~purchases.~~recent ~~This~~downturn ~~authorization~~in ~~replaced~~the acredit ~~previous Repurchase Program that expired May 3, 2007~~cycle. ~~During~~This completes ~~2007,~~ the ~~Company~~Branch ~~repurchased~~Expansion ~~2.12 million~~initiative ~~shares~~that atbegan anin ~~average~~2001. ~~price~~Modifications ofin ~~$27.92~~branch ~~per~~hours ~~share.~~were Noimplemented ~~shares~~in ~~have~~April ~~been purchased~~2009 ~~during~~to ~~2008~~more asclosely ~~increased~~reflect ~~risks~~customer inusage ~~the~~patterns ~~economy~~ and inas ~~the~~part ~~financial~~of ~~markets make~~ the ~~retention~~Company’s ofcost ~~capital~~reduction ~~a key consideration~~measures. ~~The Repurchase Program expired on May 3, 2008.~~

Branch and asset sales – In fourth quarter 2009 the Company sold four branches in rural Wisconsin: Argyle, Belleville, Monroe and New Glarus (the “Wisconsin Branch Sales”) in two separate transactions. These transactions included approximately $87 million in loans, $166 million in deposits and sweep accounts, and $42 million in related trust accounts. The brokerage and 401(k) plan businesses were not part of the Wisconsin Branch Sales and will remain with AMCORE.

In fourth quarter 2009, the Company announced an agreement had been reached to sell 12 branches and two stand-alone drive-ups in the following rural Illinois communities: Dixon, Freeport, Mendota, Oregon, Peru, Princeton, Rock Falls and Sterling (the “Illinois Branch Sale”). The transaction includes approximately $483 million in loans, $540 million in deposits and sweep accounts, and up to $400 million in related trust and brokerage accounts. The 401(k) plan business is not part of the Illinois Branch Sale and will remain with AMCORE. In connection with the Illinois Branch Sale, which is expected to close in March 2010, the Company reclassified the $483 million of loans to held-for-sale.

In fourth quarter 2009, the Company sold $136 million in non-strategic, non-relationship indirect automobile loans (the “Indirect Auto Loan Sale”), at a gain of less than $0.1 million.

In third quarter 2008, the Bank sold $77 million of primarily non-performing and under-performing loans to a third party (the “Loan Sale”). The transaction removed further exposure from these loans and added incremental liquidity to the Bank. The Wisconsin Branch Sales, Illinois Branch Sale and the Indirect Auto Loan Sale have been undertaken or planned by the Company in its efforts to improve its capital ratios. See Regulatory Developments below for additional information regarding the Bank’s plans to raise it capital levels.

Other significant transactions – During 2007, the Company entered into a strategic arrangement with a national mortgage services company to provide private-label loan processing and servicing support (the “Mortgage Restructuring”). As part of this arrangement, the Company sold the majority of its Other Mortgage Servicing Rights (OMSR) portfolio (the “OMSR Sale”) in which it recorded a $2.6 million gain (the “OMSR Gain”). The OMSR Gain was recorded in other income in the Consolidated Statement of Operations. The arrangement offers AMCORE a greater breadth of products, more competitive pricing and greater processing efficiencies. Additionally, the cost structure in the mortgage banking business has become almost entirely variable in nature, allowing the Company to better absorb fluctuations in mortgage volumes. These include the costs of originating loans that are netted against mortgage banking income or interest income, as well as processing and servicing costs of loans retained in the Bank’s portfolio and that are a component of operating expenses.

In 2007, AMCORE redeemed its $40 million, 9.35 percent coupon outstanding trust preferred securities (Trust Preferred) at a cost of $2.3 million that included both a call premium and unamortized issuance expenses (the “Extinguishment Loss”). The Extinguishment Loss was recorded in other expense in the Consolidated Statement

of Operations. The redemption was funded with a new lower cost Trust Preferred issuance of $50 million at a rate of 6.45 percent. In first quarter of 2009, the Company elected to defer regularly scheduled quarterly interest payments on the Trust Preferred securities. The deferral of interest does not constitute an event of default, per the terms of the indentures. While the Company defers the payment of interest, it will continue to accrue expense for interest owed at a compounded rate.

On May 3, 2007, the Board authorized the repurchase (the “Repurchase Program”) of up to two million shares of the Company’s stock. The authorization was for a twelve-month period to be executed through open market or privately negotiated purchases. This authorization replaced a previous Repurchase Program that expired May 3, 2007. During 2007, the Company repurchased 2.1 million shares at an average price of $27.92 per share. No shares were purchased during 2008 as increased risks in the economy and in the financial markets made the retention of capital a key consideration. The Repurchase Program expired on May 3, 2008.

In second quarter 2008, a $6.1 million non-cash charge was recorded that completely eliminated all goodwill previously carried on the Company’s balance sheet (the “Goodwill Charge”). The write-off was due to the considerable and protracted discount of the Company’s stock value compared to its book value, which affected all business segments, as well as due to the decline in the operations of the Company.

InNet ~~third~~security gains ~~quarter~~of ~~2008,~~$23.4 million were realized during 2009 due to the ~~Bank sold~~sale of $77870 million in bonds. The sale of ~~primarily~~the ~~non-performing~~securities ~~and~~allowed ~~under-performing~~the ~~loans~~Company to arestructure ~~third~~its ~~party~~balance sheet through selected debt extinguishments (the “~~Loan Sale~~Debt Extinguishment(s)”), enhanced regulatory treatment and improved liquidity. ~~The~~It ~~transaction~~also ~~removed~~allowed ~~further~~the ~~exposure~~Company ~~from~~to ~~these~~capture ~~loans~~gains that might otherwise be jeopardized by the risk of prepayment of the securities. The Company incurred $5.7 million of prepayment fees and ~~added~~costs ~~incremental~~in ~~liquidity~~connection towith the ~~Bank~~Debt Extinguishments. This amount was recorded in other operating expenses in the Consolidated Statements of Operations.

~~Regulatory~~During ~~developments~~second –quarter ~~On May 31~~2009, ~~2005,~~ the ~~Bank~~Federal ~~entered~~Deposit ~~into~~Insurance ~~a Formal~~Corporation ~~Agreement~~(FDIC) ~~with~~assessed ~~the~~all ~~OCC,~~insured ~~the~~depository ~~Bank’s~~institutions ~~primary~~a ~~regulator~~special assessment, toin ~~strengthen~~addition ~~the~~to ~~Bank’s~~premiums ~~consumer~~that ~~compliance~~are ~~program.~~normally ~~On August 10~~assessed, ~~2006,~~to ~~the~~help ~~Bank~~replenish ~~entered into a Consent Order with~~ the ~~OCC~~FDIC’s tobank ~~strengthen~~deposit ~~its~~insurance ~~compliance~~fund. ~~monitoring policies,~~AMCORE’s ~~procedures,~~share ~~training~~of ~~and~~the ~~overall~~special ~~program~~assessment ~~relating to~~ (the ~~Bank~~“FDIC ~~Secrecy~~Special ~~Act/Anti-Money~~Assessment”) ~~Laundering~~was ~~(BSA/AML)~~$2.4 ~~regulations~~million. ~~The~~This ~~commitments~~amount ~~and requirements imposed by these two items were completed and, on April 14, 2008, the Bank~~ was ~~notified~~recorded ~~that~~in ~~the~~insurance ~~OCC~~expense ~~had~~in ~~terminated~~ the ~~Formal~~Consolidated ~~Agreement~~Statements ~~and~~of ~~the Consent Order~~Operations.

Regulatory developments – On May 15, 2008, the Bank entered into a written agreement with the Office of the Comptroller of the Currency (the “~~Agreement~~OCC”) ~~with~~and the “OCC Agreement”). The OCC Agreement ~~describes~~described commitments made by the Bank to address and strengthen banking practices relating to asset quality and the overall administration of the credit function at the Bank. The Bank has implemented enhancements to its credit processes to address the matters identified by the OCC and expects to comply with all the requirements specified in the Agreement. In the meantime, the Agreement results in the Bank’s ineligibility for certain actions and expedited approvals without the prior written consent and approval of the OCC. These actions include, among other things, the appointment of directors and senior executives, making or agreeing to make certain payments to executives or directors, business combinations and branching.

~~Recent~~The ~~market~~Company ~~and~~entered ~~legislative~~into ~~developments~~a –written ~~The~~agreement ~~global~~(the “FRB Agreement”) with the Federal Reserve Bank of Chicago (the “FRB”) dated June 26, 2009, and Uon June 25, 2009, the Bank agreed to the issuance of a consent order (the “Consent Order”) by the OCC.S. ~~economies~~In ~~continue~~general, the FRB Agreement and the Consent Order contained requirements to ~~experience~~develop ~~significantly~~plans ~~reduced~~to ~~business~~raise ~~activity~~capital asand to revise and maintain a ~~result of~~liquidity risk management program. The Consent Order required the Bank to, among other ~~factors~~things, ~~disruptions~~(i) develop inand ~~the~~submit ~~financial~~a ~~system~~capital ~~during~~plan (the “Capital ~~past~~Plan”) ~~year~~to the OCC by July 25, 2009, (ii) achieve and maintain by September 30, 2009, Tier 1 capital at least equal to 8% of adjusted total assets, Tier 1 risk-based capital at least equal to 9% of risk-weighted assets and total risk-based capital at least equal to 12% of risk-weighted assets, and (iii) revise and maintain a ~~half~~liquidity risk management program within 60 days from the date of the Consent Order. ~~Dramatic~~In ~~declines~~addition, the FRB Agreement required the development of a capital plan for the Company, restricted the payment of dividends by the Company, as well as the taking of dividends or any other payment representing a reduction in capital from the ~~housing~~Bank. ~~market~~The FRB Agreement further required that the Company not incur, ~~with~~increase, ~~falling~~or ~~home~~guarantee ~~prices~~any ~~and~~debt, ~~increasing~~repurchase ~~foreclosures~~or ~~and~~redeem ~~unemployment~~any shares of its stock, ~~have~~or ~~resulted~~pay any interest or principal on subordinated debt or trust preferred securities, in ~~significant~~each ~~write-downs~~case without the prior approval of the FRB. In ~~asset~~consultation ~~values~~with byits ~~financial~~professional ~~institutions~~advisors, ~~including~~and ~~government~~in ~~sponsored~~compliance ~~entities~~with the Consent Order, the Bank developed and ~~major~~timely ~~commercial~~submitted the Capital Plan and ~~investment~~liquidity ~~banks~~risk management program to the OCC, and the Company developed and timely submitted the capital plan to the FRB as required under the FRB Agreement.

~~Reflecting~~24 concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. The availability of credit, confidence in the financial sector, and level of volatility in the financial markets have been significantly adversely affected as a result. Volatility and disruption

By letter dated November 4, 2009 (the “Letter”), the OCC notified the Bank of its finding that the Capital Plan was “not acceptable”, stating that the OCC was unable to determine that the Capital Plan was “likely to succeed in restoring the Bank’s capital ~~and~~at ~~credit~~this ~~markets~~time.” ~~has~~The ~~reached~~OCC ~~unprecedented~~further ~~levels~~advised the Bank that it was being treated as “significantly undercapitalized” within the meaning of the prompt corrective action (the “PCA”) provisions of the Federal Deposit Insurance Act and implementing OCC regulations. InAs ~~many~~a ~~cases~~result of this regulatory determination, the ~~markets~~Bank ~~have~~thereupon ~~produced~~became ~~downward~~subject ~~pressure~~to onthe ~~stock~~PCA ~~prices~~activity and ~~credit~~operational restrictions applicable to “significantly undercapitalized” depository institutions, including, among other things, the mandatory requirement that the ~~capacity~~Bank ~~for~~submit ~~certain~~an ~~issuers~~acceptable ~~without~~Capital ~~regard~~Restoration Plan (“CRP”), as required under the PCA guidelines, no later than December 4, 2009. The Letter also indicated that the OCC was requiring the Bank to ~~those~~prepare ~~issuers’~~and ~~underlying~~submit ~~financial~~to ~~strength~~the OCC a plan for the sale or merger of the Bank (a “Disposition Plan”) by December 4, 2009, as specified under the Consent Order.

InOn ~~response~~November 6, to2009, the ~~financial~~FRB ~~crises~~notified ~~affecting~~ the ~~banking~~Company ~~system~~in ~~and~~writing ~~financial~~that ~~markets and going concern threats to investment banks and other financial institutions, subsequent to~~ the ~~end~~Company’s ofcapital ~~third~~plan ~~quarter~~submitted ~~2008, Congress~~under ~~enacted and~~ the ~~President~~terms ~~signed into law the Emergency Economic Stabilization Act~~ of ~~2008 (ESA). Shortly thereafter,~~ the ~~Federal~~FRB ~~banking~~Agreement ~~agencies announced the Troubled Asset Relief Program (TARP) and Capital Purchase Program (CPP).~~was ~~Collectively,~~unacceptable ~~these actions provided a variety of programs that financial institutions could participate~~ in, ~~including~~addressing the ~~potential~~capital ~~sale~~erosion of ~~certain troubled loans to~~ the ~~United~~Company ~~States Government, sale of preferred stock to the United States Treasury~~ and ~~temporary expansion of FDIC insured deposit levels (some voluntary and some automatic). These programs continue to evolve as~~ the ~~administration strives to keep pace with rapidly changing economic conditions~~Bank. ~~AMCORE~~The ~~continues~~FRB toconcluded ~~review these~~that, ~~programs~~based ~~for~~on ~~their potential to add value to its customers and business and~~ the ~~potential~~information ~~impact~~provided ofby the ~~ESA~~Company, oras ~~related~~well ~~programs~~as onthe ~~its~~Company’s ~~future~~current negative financial ~~position~~trends, ~~results~~the ofCompany’s ~~operation,~~capital ~~cash~~plan was ~~flows~~not ~~or liquidity~~viable.

ItFurther, isthe ~~not~~Bank ~~yet~~was ~~clear~~unable ~~what~~to ~~impact~~meet the regulatory ~~ESA,~~capital ~~TARP,~~maintenance ~~including~~requirements of the ~~CPP,~~Consent ~~the~~Order ~~temporary~~by ~~FDIC guarantee~~the ~~expansion~~required ~~and~~September 30, ~~other~~2009 ~~liquidity~~date. ~~and~~As ~~funding~~a ~~initiatives~~result of the ~~Federal~~OCC ~~Reserve~~Agreement, ~~Board~~as ~~(Fed)~~well ~~and~~as ~~other~~the ~~agencies~~FRB Agreement, ~~and~~the ~~any~~Consent ~~additional~~Order ~~programs~~and ~~that~~the ~~may~~Letter, bethe ~~initiated~~Company inis ~~the~~ineligible ~~future,~~for ~~will~~certain actions ~~ultimately~~and ~~have~~expedited onapprovals without the ~~financial~~prior ~~markets~~written consent and approval of the ~~other difficulties~~applicable ~~described~~regulatory ~~above,~~agency. ~~including~~These ~~the~~actions ~~extreme~~include, ~~levels~~among ofother ~~volatility~~things, ~~and~~the ~~limited~~appointment ~~credit~~of ~~availability~~directors ~~currently~~and ~~being~~senior ~~experienced~~executives, making or onagreeing ~~the~~to ~~U.S.~~make ~~banking~~certain payments ~~and~~to ~~financial~~executives ~~industries~~or ~~and~~directors, ~~the~~business ~~broader~~combinations ~~U.S.~~ and ~~global economies~~branching.

In consultation with its professional advisors, the Bank resubmitted a combined CRP and a Disposition Plan by the required December 4, 2009 due date. By return letter dated January 8, 2010 (the “Response Letter”), the OCC notified the Bank that its CRP was not acceptable. According to the OCC, the CRP was not accepted because, among other things, it did not meet the statutory requirements that the CRP be based on “realistic assumptions” and be likely to succeed in restoring the Bank’s capital. In addition, on January 12, 2010, the FRB notified the Company that the Company’s capital plan previously submitted to the FRB continued to be unacceptable in addressing the capital erosion of the Company and the Bank. The Response Letter provided that even if the Bank’s capital ratios improve to the undercapitalized category, the Bank would continue to be subject to operational restrictions applicable to significantly undercapitalized institutions until such time as the Bank has submitted to the OCC an acceptable CRP. The OCC also stated its view that the recently announced asset sales by the Bank have increased the overall risk to the Bank’s capital base.

The Company and the Bank continue to diligently work with their financial and professional advisors in seeking qualified sources of outside capital, and in achieving compliance with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter. The Company and the Bank continue to consult with the OCC, FRB and FDIC on a regular basis concerning the Company’s and Bank’s proposals to obtain outside capital and to develop action plans that will be acceptable to federal regulatory authorities, but there can be no assurance that these actions will be successful, or that even if one or more of the Company’s and Bank’s proposals are accepted by the Company’s and Bank’s Federal regulators, that these proposals will be successfully implemented. While the Company’s management continues to exert maximum effort to attract new capital, significant operating losses in 2008 and 2009, significant levels of criticized assets and low levels of capital raise substantial doubt as to the Company’s ability to continue as a going concern. Doubt as to the Company’s ability to continue as a going concern was previously disclosed in the Company’s December 31, 2009 earnings release furnished with its February 2, 2010 Form 8-K, Current Report. If the Company is unable to achieve compliance with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter with the OCC and the FRB, or an acceptable CRP under the OCC’s Prompt Corrective Action guidelines, and if the Company cannot otherwise comply with such commitments and regulations, the OCC could force a sale, liquidation or federal conservatorship or receivership of the Bank.

Recent market and legislative developments – Despite some signs of improvement, the global and U.S. economies continue to experience significantly reduced business activity and unemployment as a result of, among other factors, disruptions in the financial system during the past two years. Dramatic declines in the housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government sponsored entities and major commercial and investment banks.

Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. The availability of credit, confidence in the financial sector, and level of volatility in the financial markets have been significantly adversely affected as a result. Volatility and disruption in the capital and credit markets has reached unprecedented levels. In many cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength.

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, subsequent to the end of third quarter 2008, Congress enacted and the President signed into law the Emergency Economic Stabilization Act of 2008 (ESA). Shortly thereafter, the Federal banking agencies announced the Troubled Asset Relief Program (TARP) and Capital Purchase Program (CPP). Collectively, these actions provided a variety of programs that financial institutions could participate in, including the potential sale of certain troubled loans to the United States Government, sale of preferred stock to the United States Treasury and temporary expansion of FDIC insured deposit levels (some voluntary and some automatic). To date, AMCORE has not directly benefited from any of the government programs other than the temporary expansion of FDIC insured deposit levels.

It is not entirely clear what impact the ESA, TARP, including the CPP, the temporary FDIC guarantee expansion and other liquidity and funding initiatives of the Federal Reserve Board (Fed) and other agencies have had on the financial markets given the other difficulties described above, including the continued levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies.

On November 6, 2009, the President signed into law the Worker, Homeownership, and Business Act. Subject to certain limitations, the new law permits businesses, such as AMCORE, with losses in either 2008 or 2009 to claim refunds of taxes paid within the prior five years. As a result of the legislation, the Company has filed refund claims of $36.9 million.

Impact of inflation – Apart from operating expenses, the financial services industry is not directly affected by inflation, however, as the Fed monitors economic trends and developments, it may change monetary policy in response to economic changes which would have an influence on interest rates. See discussion of Net Interest Income, changes due to rate, below.

23ACCOUNTING CHANGES AND CRITICAL ACCOUNTING ESTIMATES

Accounting Changes

FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principals – In June 2009, accounting standards were revised to establish the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification was effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing

accounting standard documents were superseded. The Company adopted the Codification for the third quarter of 2009, and accordingly this Report on Form 10-K references the Codification as the sole source of authoritative literature.

Transfer of Financial Assets – On June 9, 2009, accounting standards were amended to clarify when a transferor has surrendered control over transferred financial assets and thus is entitled to account for the transfer as a sale. The amendments require a transferor to evaluate its continuing involvement in the transferred financial asset, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The amendments limit the circumstances in which the transfer of a financial asset, or portion of a financial asset, may be treated as a sale. The amendments also establish specific conditions for reporting a transfer of a portion of a financial asset as a sale (i.e., a participating interest). If the transfer does not meet those conditions, a transferor should not account for the transfer as a sale. This amendment most commonly affects when a loan participation may be treated as a sale by the transferor. The amendments require that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets that are accounted for as a sale. The amendments also expand disclosure requirements. The amendments are effective for annual and interim periods beginning after November 15, 2009 and for transfers occurring on or after the effective date. The Company does not expect that adoption of this standard will have a material impact on its Consolidated Balance Sheets or Statements of Operations.

Subsequent Events – On May 28, 2009, accounting standards were revised to set forth general standards for potential recognition or disclosure of events that occur after the balance sheet date but before financial statements are issued, or are available to be issued. The adoption of these amendments in second quarter 2009 did not have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Fair Value Measurements – In April 2009, accounting standards were amended to provide additional guidance for determining the fair value of a financial asset or financial liability when the volume and level of activity for such asset or liability have decreased significantly and also provides guidance for determining whether a transaction is orderly. The amendments must be applied prospectively and were effective for interim and annual reporting periods ending after June 15, 2009. Early adoption was permitted for periods ending after March 15, 2009. Adoption of the amendments in first quarter 2009 did not have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Other-Than-Temporary Impairment – In April 2009, accounting standards were revised to provide expanded guidance concerning the recognition and measurement of other-than-temporary impairments of debt securities classified as available for sale or held to maturity. In addition, the amendments required enhanced disclosures concerning such impairment for both debt and equity securities. The amendments were effective for interim and annual reporting periods ending after June 15, 2009. Early adoption was permitted for periods ending after March 15, 2009. Adoption of the amendments in first quarter 2009 did not have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Fair Value Disclosure – In April 2009, accounting standards were amended to require that disclosures concerning the fair value of financial instruments be presented in interim as well as in annual financial statements. The amendments were effective for interim reporting periods ending after June 15, 2009. Adoption of these standards in second quarter 2009 did not have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Minority Interests – In December 2007, accounting standards were amended to require non-controlling minority interests be recorded as a separate component of equity and that net income attributable to minority interests be clearly identified on the Statement of Income. The amendments were effective for fiscal years and interim periods beginning on or after December 15, 2008, and were required to be applied prospectively, except for the presentation and disclosure requirements. Adoption of the amendments in first quarter 2009 did not have a material impact on the Consolidated Balance Sheets or Statements of Operations.

Derivative Instruments and Hedging Activities Disclosure – In 2008, accounting standards were amended to provide enhanced disclosures to improve the transparency of financial reporting. The amendments were effective for fiscal years and interim periods beginning after November 15, 2008 with early application encouraged. Adoption of the amendments in the first quarter 2009 did not have a material impact on the Company’s Consolidated Balance Sheets or Statements of Operations.

Critical Accounting Estimates

Allowance for loan losses – Loans, the Company’s largest income earning asset category, are periodically evaluated by management in order to establish an adequate allowance for loan losses (Allowance) to absorb estimated losses that are probable as of the respective reporting date. This evaluation includes specific loss estimates on certain individually reviewed loans where it is probable that the Company will be unable to collect all of the amounts due (principal or interest) according to the contractual terms of the loan agreement (impaired loans) and statistical loss estimates for loan groups or pools that are based on historical loss experience. Also included are other loss estimates that reflect the current credit environment and that are not otherwise captured in the historical loss rates. These include the quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and economic and industry conditions, among other things. The Allowance is also subject to periodic examination by regulators, whose review may include their own assessment as to its adequacy to absorb probable losses.

Additions to the Allowance are charged against earnings for the period as a provision for loan losses (Provision). Conversely, this evaluation could result in a decrease in the Allowance and Provision. Actual loan losses are charged against and reduce the Allowance when management believes that the collection of principal will not occur and the loss has been confirmed. In general, the amount that the carrying value of impaired real estate loans that is solely dependent upon the underlying collateral for repayment exceeds its appraised value is deemed a confirmed loss and is immediately charged off. Unpaid interest attributable to prior years for loans that are placed on non-accrual status is also charged against and reduces the Allowance. Unpaid interest for the current year for loans that are placed on non-accrual status is charged against and reduces the interest income previously recognized. Subsequent recoveries of amounts previously charged to the Allowance, if any, are credited to and increase the Allowance.

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

loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.

While the Company strives to timely reflect all known risk factors in its evaluations, the Allowance is highly subjective and actual experience may differ from management’s estimates. If different assumptions or conditions were to prevail, the amount and timing of interest income and loan losses could be materially different. These factors are most pronounced during economic downturns and may continue into an economic recovery, as specific credit performance may not be immediately affected by the stress of the downturn or the benefit of the recovery. Since, as described above, so many factors can affect the amount and timing of losses on loans, it is difficult to predict with a high degree of certainty the effect to income if different conditions or assumptions were to prevail. Nonetheless, if any combination of the above judgments or assumptions were to have adversely affected the December 31, 2009 carrying value of non-performing loans by ten percent, an additional Provision of $35 million may have been necessary. See also Table 2 and Note 4 of the Notes to Consolidated Financial Statements.

Income Taxes – The Company is subject to the income tax laws of the United States and the states in which is conducts business. These laws are complex and are subject to different interpretations by the Company and the various taxing authorities that may result in certain uncertainties as to the final tax liability that is ultimately owed or refund that is due. Accounting standards prescribe a recognition threshold that the Company must evaluate before it can record the benefit of uncertain tax positions taken or expected to be taken in a tax return. When making these evaluations, management must make judgments and estimates about the interpretation and application of these inherently complex and constantly changing tax statutes, related regulations and case law. These judgments and interpretations are subject to challenge by the taxing authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law. As a result, the tax provision that is determined for a given period may subsequently be adjusted by amounts that may be material. The Company has no uncertain tax positions requiring an increase in its tax provision.

As of September 30, 2009, after weighing all available positive and negative evidence, the Company concluded that it was no longer more likely than not that some or all of its net deferred tax asset would be realized. In arriving at this conclusion, management determined that the negative weight of increasing cumulative losses, the continued high-level of non-performing loans, declining loan collateral values supporting its non-performing loans and forecasted near-term results was greater than the positive weight of its historical profitability prior to the current economic environment and management’s projections that sufficient taxable income would be generated within the carryforward periods allowed by current federal and state tax regulations. As a result a valuation allowance totaling $118 million, primarily comprised of future tax benefits associated with the allowance for loan losses and net operating loss carryforwards was established. At December 31, 2009 the valuation allowance totaled $110 million. The Company also had $7.7 million in net deferred tax assets

associated with net security losses reported in other comprehensive income for which it has also established a valuation allowance. See Note 13 of the Notes to Consolidated Financial Statements.

If the Company generates taxable income in future periods, then the valuation allowance may be partially released to offset the tax on the then current taxable income and fully released when it becomes more likely than not that the remaining deferred tax asset value will be realized in future periods.

OVERVIEW OF OPERATIONS AND SIGNIFICANT CATEGORIES

Overview

AMCORE reported a net loss from continuing operations of $97223.8 million or $49.3278 per diluted share for the year ended December 31, ~~2008~~2009. This compares to a net ~~income~~loss of $2897.28 million or $14.2032 for the same period in ~~2007~~2008 and represents a $126.0 million or $5.5246 decrease year to year. AMCORE had a negative return on average equity and on average assets from continuing operations for ~~2008~~ 2009 of 29114.6405% and 14.9170%, respectively, compared to a ~~positive~~negative 729.3264% and 01.5491%, respectively, in ~~2007~~2008.

Significant Categories

Changes in the most significant categories of ~~2008~~2009 net income from continuing operations, compared to ~~2007~~2008, were:

Net interest income – Declined $2856.75 million primarily due to lower average loan volume and spreads. Net interest margin was 21.8472% in ~~2008~~2009 compared to 32.3584% in ~~2007~~2008.

Provision for loan losses – ~~Increased~~Decreased $~~173~~12.6 million to $~~202~~190.72 million in ~~2008~~ 2009 from $29202.17 million in ~~2007~~2008, reflecting $99178.64 million in net charge-offs and a $~~242~~36.39 million net increase in non-performing loans for 2009. The continued replenishment of non-performing loans, coupled with further declines in the fair value of collateral on existing non-performing loans that are collateral dependent, contributed to the continued high level of Provision for ~~2008~~2009.

Non-interest income – Increased $310.68 million to $7485.64 million in ~~2008~~2009 compared to $7174.06 million in ~~2007~~2008. ~~Service~~Declines ~~charges~~in oninvestment ~~deposits~~management ~~increased~~and oftrust ~~$3.6 million.~~income, Aservice ~~$7.9~~charges ~~million~~on ~~favorable~~deposits ~~change~~and inbrokerage ~~net~~commission ~~security~~income ~~gains, from $5.9 million~~ of ~~losses in 2007 to~~ $23.0 million ~~of gains in 2008~~, ~~were offset by a~~ $65.39 million ~~decline~~and ~~in other income, a~~ $1.2 5 million, ~~decline~~respectively, inwere ~~mortgage~~more ~~banking~~than ~~income~~offset ~~and~~by a $021.5 4 million ~~decrease~~increase in ~~investment~~net ~~management~~security ~~and trust income~~gains. ~~Other income in 2007 included the $2.6 million OMSR Gain.~~

Operating expenses – ~~Increased~~Decreased $73.19 million to $~~172~~168.56 million in ~~2008~~2009 from $~~165~~172.35 million in ~~2007~~2008. ~~The~~Operating ~~$6.1~~expenses ~~million~~for ~~Goodwill~~2009 ~~Charge,~~included a $5.07 million ~~increase~~ in ~~provision~~costs ~~for unfunded commitment losses, a $3.3 million increase~~ in ~~loan~~connection ~~collection~~with ~~costs~~the Debt Extinguishments, awhile ~~$3.0~~2008 ~~million~~operating ~~increase~~expenses inincluded ~~FDIC~~the ~~insurance costs, a~~ $16.91 million ~~increase~~Goodwill inCharge ~~net occupancy expense,~~ and the $1.7 million Facilities Consolidation impairment charge. ~~were~~Personnel ~~partially~~costs ~~offset~~declined ~~by a~~ $619.02 million ~~decline~~ in ~~personnel costs~~2009, $4compared to 2008.4 ~~million~~Insurance inexpense ~~various~~and ~~other~~credit related expenses, ~~the~~increased $216.38 million ~~Extinguishment Loss~~ and $17.36 million, ~~decline~~respectively. The increase in ~~advertising~~insurance ~~and~~expense ~~business~~was ~~development~~primarily ~~costs~~due to higher FDIC insurance premiums, which included the $2.4 million FDIC Special Assessment.

Income taxes – ~~Decreased~~Income ~~$79.8~~taxes ~~million,~~was ~~primarily~~an ~~due~~expense toof a $~~168~~25.79 million ~~loss before income taxes~~ in ~~2008~~2009, compared to a benefit of $3770.29 million in ~~earnings~~2008, ~~before~~an ~~income~~increase ~~taxes~~of in$96.8 ~~2007~~million. The ~~effective~~increase ~~tax rate~~ was ~~42.0%~~primarily indue ~~2008 compared~~ to 24the $118.0% inmillion ~~2007.~~charge ~~Items~~to ~~that~~establish ~~are exempt from taxes, such as municipal bond income and COLI income, while generally resulting in an effective tax rate that is lower than~~ the ~~statutory~~deferred tax ~~rate,~~valuation ~~have~~allowance ~~the opposite effect~~ in athird ~~period~~quarter ~~where there is a loss before income taxes. Conversely~~2009, ~~items~~partially ~~that~~offset ~~are~~by ~~not~~the ~~deductible for tax purposes, such as~~$30.7 ~~goodwill,~~million ~~while generally resulting in an effective~~ tax ~~rate that is higher than the statutory tax rate, have the opposite effect in a period where there is a~~ loss ~~before~~carryback ~~income~~benefit ~~taxes.~~recorded ~~The combined effect of these factors was an effective tax rate that was lower than the statutory tax rate~~ in ~~2007,~~fourth ~~but~~quarter ~~higher than the statutory tax rate in 2008~~2009.

EARNINGS REVIEW OF CONSOLIDATED STATEMENTS OF OPERATIONS

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 Company’s largest source of revenue and represents the difference between income earned on loans and investments (interest-earning assets) and the interest expense incurred on deposits and borrowed funds (interest-bearing liabilities). Fluctuations in interest rates as well as volume and mix changes in interest-earning assets and interest-bearing liabilities can materially affect the level of net interest income. Because the interest that is earned on certain loans and investment securities is not subject to federal income tax, and in order to facilitate comparisons among various taxable and tax-exempt interest-earning assets, the following discussion of net interest income is presented on a “fully taxable equivalent,” or FTE basis. The FTE adjustment was calculated using AMCORE’s statutory federal income tax rate of 35%.

borrowed funds (interest-bearing liabilities). Fluctuations in interest rates as well as volume and mix changes in interest-earning assets and interest-bearing liabilities can materially affect the level of net interest income. Because the interest that is earned on certain loans and investment securities is not subject to federal income tax, and in order to facilitate comparisons among various taxable and tax-exempt interest-earning assets, the following discussion of net interest income is presented on a “fully taxable equivalent,” or FTE basis. The FTE adjustment was calculated using AMCORE’s statutory federal income tax rate of 35%.

Net interest spread is the difference between the average yields earned on interest-earning assets and the average rates incurred on interest-bearing liabilities. Net interest margin represents net interest income divided by average interest-earning assets. Since a portion of the Company’s funding is derived from interest-free sources, primarily demand deposits, other liabilities and stockholders’ equity, the effective interest rate incurred for all funding sources is lower than the interest rate incurred on interest-bearing liabilities alone.

Overview – Net interest income, on an FTE basis, declined $2858.1 million ~~or 17%~~ in ~~2008~~2009 and declined $628.01 million ~~or 4%~~ in ~~2007~~2008. ~~The~~Declines ~~decline~~ in ~~2008~~FTE interest ~~was~~income ~~primarily~~of ~~due~~$84.6 tomillion aand 37$70.6 ~~basis~~million ~~point decline~~ in ~~net~~2009 ~~interest spread~~ and a2008, 3%respectively, ~~decrease~~were inonly ~~average~~partly ~~loan~~offset ~~volumes.~~by ~~The~~declines ~~decline in 2007 was primarily the result~~ of a$26.5 ~~22%~~million ~~decrease in average investment security balances~~ and a$42.6 ~~seven~~million, ~~basis~~respectively, ~~point decline~~ in ~~net~~ interest ~~spread~~expense.

	Years Ended December 31,
	2008			2007			2006
	2009			2008			2007
	(dollars in thousands)
Interest Income Book Basis	$	~~272~~189,~~756~~725		$	~~344~~272,~~016~~756		$	~~339~~344,~~176~~016
FTE Adjustment		31,~~227~~668			23,~~584~~227			42,~~192~~584
Interest Income FTE Basis		~~275~~191,~~983~~393			~~346~~275,~~600~~983			~~343~~346,~~368~~600
Interest Expense		~~140~~114,~~871~~335			~~183~~140,~~432~~871			~~174~~183,~~218~~432
Net Interest Income FTE Basis	$	~~135~~77,~~112~~058		$	~~163~~135,~~168~~112		$	~~169~~163,~~150~~168
Net Interest Spread		21.4840	%		2.8548	%		2.9185	%
Net Interest Margin		21.8472	%		32.3584	%		3.3835	%

Net interest spread and margin (See Table 1) – Net interest spread declined 37108 basis points to 21.4840% in ~~2008~~2009 from 2.8548% in ~~2007~~2008, and decreased ~~six~~37 basis points in ~~2007~~2008 from the ~~2006~~ 2007 level of 2.9185%. The net interest margin was 21.8472% in ~~2008~~2009, a decline of 51112 basis points from 32.3584% in ~~2007~~2008. The ~~2007~~2008 level was a decrease of ~~three~~51 basis points from 3.3835% in ~~2006~~2007.

The declines in net interest spread and net interest margin ~~were~~for ~~driven~~both by2009 ~~increased~~and ~~levels~~2008 ofwere ~~non-accrual~~primarily ~~loans,~~due ~~the~~to ~~reversal~~lower ofloan ~~accrued~~yields ~~interest~~that were ondriven ~~loans~~by ~~placed~~increased onlevels of non-accrual ~~status,~~loans. ~~declines~~These inwere ~~average~~not ~~bank-issued deposit~~matched ~~funding~~by ~~replaced with higher-cost wholesale funding sources, and continued divergence in recent financial markets with higher~~ declines in ~~prime~~funding rates ~~compared~~as tothe ~~LIBOR-based~~Bank ~~rates.~~sought ~~The~~term ~~decline~~funding in ~~loan~~the ~~yields~~form ~~were~~of ~~not~~longer-term ~~matched~~bank-issued bydeposits ~~a corresponding~~and ~~decline~~wholesale in funding ~~rates~~sources, ~~as deposits~~ and ~~wholesale~~held ~~funding~~a ~~sources~~portion ~~did~~of ~~not~~the proceeds ~~reprice~~in asshort-term ~~rapidly~~liquid asinvestments. ~~loans~~In addition, ~~while~~ some transactional deposit products have ~~already~~ reached alevels ~~rate~~at ~~floor,~~which ~~where~~ further reductions in rates paid are ~~not possible~~limited. InThe ~~addition,~~effect ~~continued offers by competitors to pay well above the wholesale cost~~ of ~~funds,~~shrinking ~~and~~ the Bank’s need to attract deposits in the current liquidity stressed environment, continue to place pressure on deposit rates. Other factors contributing to the decline in margin and spread was lower average yields on loans, reflecting declining interest rates, and the substitution of debt for capital in the Repurchase Program. Since the Company has a higher proportion of prime-based loans and a higher proportion of LIBOR-based liabilities, the aforementioned divergence in interest rates resulted in some reduction in net interest spread and net interest margin. While the Repurchase Program initially improved the efficiency of the Company’s ~~capital~~loan ~~structure,~~portfolios ~~it has~~ also contributed to the decline ~~compression~~ in net interest ~~spread and net interest margin~~income.

Changes due to volume (See Table 1, continued) – In ~~2008~~2009, net interest income (FTE) ~~declined~~decreased by $7.5 million due to average volume, bywhich was mainly attributable to a $~~4.8~~295 million ~~when~~decrease ~~compared~~in ~~to 2007.~~average ~~This~~earning ~~decline~~assets. ~~was~~Average ~~comprised~~loan ofbalances adecreased ~~$6.4~~by $521 million, ~~decline~~while inaverage ~~interest~~investment securities and short-term

2531

~~income~~investments ~~that~~increased ~~was partially offset by~~ a combined $~~1.6~~200 million. ~~decrease~~The reduction in ~~interest~~average ~~expense.~~loans ~~The~~included ~~decline~~the ineffect ~~interest~~of ~~income~~an ~~was~~overall ~~attributable~~effort to areduce ~~$116~~the ~~million~~Company’s ~~decrease in~~exposure ~~average~~to ~~loans~~non-strategic, ~~which~~non-relationship based ~~included~~accounts, the Loan Sale., ~~The~~the ~~decrease~~Wisconsin inBranch ~~average~~Sales ~~loans~~and ~~came~~the ~~from~~Indirect aAuto ~~combined~~Loan ~~decrease~~Sale. ofIn ~~$117~~addition, ~~million~~the inCompany ~~commercial~~continues ~~real~~to ~~estate~~hold ~~and~~a ~~commercial~~high ~~loans.~~proportion ~~Average~~of ~~residential~~cash ~~real~~equivalents ~~estate~~and ~~loans~~short-term ~~decreased~~investments ~~$38~~in ~~million,~~its ~~while~~efforts ~~average consumer~~to ~~loan~~maintain ~~balances increased $39 million~~liquidity. ~~Average~~The ~~interest-bearing~~decrease in ~~liabilities~~average ~~declined~~loans ~~$37~~came ~~million.~~from ~~This~~a ~~was~~combined ~~comprised~~decrease of a $~~347~~448 million ~~decrease~~ in ~~average~~commercial ~~interest-bearing~~real ~~bank-issued~~estate ~~deposits~~ and acommercial ~~$310 million increase in average wholesale funding~~loans. Average ~~interest-bearing~~residential ~~liabilities~~real ~~did~~estate ~~not~~loans, ~~decrease~~including ~~as much as average interest~~home-~~earning~~equity ~~assets~~products, ~~due~~decreased to$43 ~~2008~~million, ~~losses~~while ~~and~~average ~~declines~~consumer inloan ~~non-interest~~balances decreased ~~bearing liabilities of~~ $2230 million.

In ~~2007~~2008, net interest income (FTE) declined due to average volume by $4.78 million when compared to ~~2006~~2007. This decline was comprised of a $96.74 million decline in interest income that was partially offset by a $41.96 million decrease in interest expense. The decline in interest income was attributable to a $~~139~~116 million decrease in ~~interest-earning~~ ~~assets. The decrease was primarily driven by a $246 million or 22% reduction in~~ average ~~investment~~loans, ~~securities~~which ~~that~~included ~~was~~the ~~partially~~Loan ~~offset by a $119 million or 3% increase in average loans~~Sale. The ~~growth~~decrease in average loans came from a combined ~~increase~~decrease of $~~116~~117 million in commercial real estate and commercial loans. Average residential real estate loans ~~increased~~decreased $438 million, while average consumer loan balances ~~declined~~increased $139 million. Average interest-bearing liabilities declined $~~123~~37 million. This was comprised of a $43347 million decrease in average interest-bearing bank-issued deposits and a $80310 million ~~decrease~~increase in average wholesale funding. ~~Average interest-bearing liabilities did not decrease as much as average interest-earning assets due to the Repurchase Program, which substituted debt for capital.~~

Changes ~~due~~ due to rate (See Table 1, continued) – In ~~2008~~2009, net interest income (FTE) declined due to average rates by $2350.25 million when compared with ~~2007~~the same period in 2008. This was comprised of a $6468.24 million decrease in interest income that was ~~partially~~only partly offset by a $4117.09 million decrease in interest expense. Both interest-earning asset yields and interest-bearing liability costs were affected by ~~seven~~four separate decreases in the federal funds (Fed Funds) rate totaling a combined ~~400~~ 200 basis points, ~~that~~all of which occurred ~~during~~ since the first quarter of 2008. In addition, non-performing loans increased from $71313 million at December 31, ~~2007~~2008 to $~~313~~350 million as of December 31, ~~2008~~2009. Non-performing loans peaked at $431 million at September 30, 2009. The Bank must continue to fund these non-~~earning~~earnings ~~loans~~assets until they are resolved. The yield on average earning assets decreased 134 basis points to 5.78% during 2008, compared to 7.12% in 2007. During this same period of time, the rate paid on average interest bearing liabilities decreased 97 basis points, to 3.30% from 4.27%.

InThe ~~2007,~~yield ~~net~~on ~~interest~~average ~~income~~earnings ~~(FTE)~~assets ~~declined~~decreased ~~due~~151 tobasis ~~average~~points ~~rates~~to ~~by $1~~4.327% ~~million~~in ~~when~~ 2009 compared ~~with~~to ~~2006~~5.78% ~~This~~in ~~was~~2008. ~~comprised~~During ofthe asame ~~$12.9~~time ~~million~~periods, ~~increase~~the inrate ~~interest~~paid ~~income~~on ~~that~~average ~~was~~interest ~~more~~bearing ~~than~~liabilities ~~offset~~decreased by43 basis apoints, ~~$14.~~to 2.87% ~~million~~from ~~increase in interest expense~~3.30%. ~~Both~~Average ~~interest~~bank-~~earning~~issued ~~asset yields and~~ interest-bearing ~~liability~~transactional ~~costs~~deposits ~~were~~declined ~~affected~~$618 ~~by four~~million 25on ~~basis point increases in the Fed Funds rate that occurred during the first two quarters of 2006~~average, ~~which~~and were ~~followed~~partly replaced by a 50combined ~~basis~~$346 ~~point~~million ~~and~~average ~~two~~increase ~~25 basis point decreases~~ in ~~late~~higher ~~2007.~~cost ~~The~~bank-issued ~~yield~~time ondeposits ~~average earning assets increased 26 basis~~and ~~points~~wholesale tofunding 7sources.~~12%~~ ~~during~~Transactional ~~2007,~~deposit ~~compared~~products toyielded 60.8640% ~~in 2006. During this same period of time, the rate paid~~ on average ~~interest~~in ~~bearing liabilities increased 32 basis points, to 4~~2009.~~27%~~ ~~from 3.95%.~~

~~Interest~~In ~~rate~~2008, ~~risk~~net –interest ~~Like~~income ~~most~~(FTE) ~~financial~~declined ~~institutions,~~due ~~AMCORE has an exposure~~ to ~~changes~~average inrates ~~both~~by ~~short-term and long-term interest rates~~$23.2 ~~Among~~million ~~those~~when ~~factors~~compared ~~that~~with ~~could~~2007. ~~further~~This ~~affect~~was ~~net~~comprised ~~interest~~of ~~margin~~a ~~and~~$64.2 ~~net~~million ~~interest~~decrease ~~spread include: greater and more frequent changes~~ in interest ~~rates,~~income ~~including~~that ~~the~~was ~~impact~~partially ~~of basis~~offset ~~risk~~by ~~between various interest rate indices such as prime and LIBOR (as is the case with~~ a $41.0 ~~significant~~million ~~divergence~~decrease in ~~current~~interest ~~market~~expense. ~~rates),~~Both ~~changes in the shape of the yield curve, mismatch in the duration of~~ interest-earning ~~assets~~asset yields and ~~the~~ interest-bearing ~~liabilities~~liability ~~that~~costs ~~fund~~were ~~them,~~affected ~~the~~by ~~effect~~seven ofseparate ~~prepayments~~decreases orin ~~renegotiated~~the ~~rates,~~Fed ~~increased~~Funds ~~price~~rate ~~competition~~totaling ona ~~both~~combined ~~deposits~~400 ~~and~~basis ~~loans,~~points ~~promotional~~that ~~pricing~~occurred onduring ~~deposits~~2008. In addition, ~~short~~non-~~term~~performing ~~liquidity~~loans ~~needs~~increased ~~that~~from ~~could~~$71 ~~drive~~million upat ~~the cost of attracting new funding~~December 31, ~~changes~~2007 into ~~the~~$313 ~~mix~~million ofas ~~earning assets and the mix~~ of ~~liabilities~~December 31, ~~including~~2008. ~~greater~~As ornoted ~~less~~above, ~~use~~the ofBank ~~wholesale~~must ~~sources,~~continue ~~changes~~to infund ~~the~~these ~~level of~~ non-~~accrual~~earning loans, ~~and~~until inthey anare ~~environment~~resolved. ~~where~~The ~~there~~yield ~~are~~on ~~rapid and substantial~~average ~~declines~~earning inassets ~~interest~~decreased ~~rates,~~134 ~~the~~basis ~~limited~~points ~~ability~~ to ~~reduce~~5.78% ~~certain~~during ~~low-cost~~2008, ~~deposit~~compared ~~product rates (such as NOW accounts)~~ to ~~the~~7.12% ~~same~~in ~~extent that interest-earning assets reprice~~2007. AsDuring ~~the~~this ~~increased~~same ~~level~~period of ~~non-accrual loans will take~~ time ~~to work out~~, ~~and~~ ~~there are no immediate signs of funding pressures waning,~~ the ~~Company~~rate ~~does~~paid ~~not~~on ~~expect~~average ainterest ~~recovery~~bearing inliabilities ~~the~~decreased ~~margin~~97 orbasis ~~spread~~points, ~~statistics~~to ~~for~~3.30% ~~several~~from ~~quarters~~4.27%.

26Interest rate risk – Like most financial institutions, AMCORE has an exposure to changes in both short-term and long-term interest rates. Among those factors that could further affect net interest margin and net interest spread include: greater and more frequent changes in interest rates, including the impact of basis risk between various interest rate indices such as prime and LIBOR (as is the case with a significant divergence in current market rates), changes in the shape of the yield curve, mismatch in the duration of interest-earning assets and the interest-bearing liabilities that fund them, the effect of prepayments or renegotiated rates, increased price competition on both deposits and loans, promotional pricing on deposits, short-term liquidity needs that could drive up the cost of attracting new funding, changes in the mix of earning assets and the mix of liabilities, including greater or less use of wholesale sources, changes in the level of non-accrual loans, and in an environment where there are rapid and substantial declines in interest rates, the limited ability to reduce certain

low-cost deposit product rates (such as NOW accounts) to the same extent that interest-earning assets reprice. As the increased level of non-accrual loans will take time to work out, the Company does not expect a significant recovery in the margin or spread statistics for several quarters.

Provision for Loan Losses

The ~~2008~~2009 Provision ~~(see Critical Accounting Estimates discussion)~~ was $~~202.7~~190 million, ana ~~increase~~decrease of $~~173~~12.6 million from $~~29.1~~203 million in ~~2007.~~ ~~The~~2008, ~~increase~~reflecting ~~was driven by~~ $~~99.6~~178 million in net charge-offs and by a $~~242~~36.39 million net increase in non-performing loans ~~during~~for ~~2008~~2009. The ~~Net~~continued replenishment of non-performing loans, coupled with further declines in the fair value of collateral on existing non-performing loans that are collateral dependent, contributed to the continued high level Provision and charge-offs ~~were $99~~for 2009.6 ~~million~~Net orcharge-offs ~~258~~were 534 basis points of average loans in ~~2008~~2009, compared to ~~$16.9~~258 ~~million or 42~~ basis points of average loans in ~~2007~~2008. Non-performing loans were $~~313.1~~350 million at December 31, ~~2008~~2009 compared to $~~70.8~~313 million at December 31, ~~2007~~2008. Non-performing loans is the sum of non-accrual loans, ~~and~~ loans that are ninety days past due but are still accruing interest and loans to troubled debtors that have been restructured with concessions made to the borrower (“Troubled Debt Restructurings”). Delinquencies, loans that are thirty to ninety days past due, ~~have~~decreased ~~also~~to ~~increased from~~ $8153.26 million at December 31, ~~2007~~2009 tofrom $84.1 million as of December 31, 2008.

The ~~level~~2008 ofProvision ~~net~~was ~~charge-offs~~$203 million, ~~non-performing~~an ~~loans~~increase ~~and~~of ~~delinquent~~$174 ~~loans~~million isfrom ~~largely~~$29.1 ~~due~~million ~~to the rapid deterioration~~ in ~~real~~2007. ~~estate~~The ~~markets~~increase ~~that~~was ~~has~~driven ~~occurred~~by ~~across the country~~$99.6 million ~~In the Midwest, where the Company has its footprint, the result has been declines~~ in ~~real~~net ~~estate~~charge-offs ~~sales activity that negatively affects the liquidity~~ and ~~capital resources~~by ofa ~~borrowers,~~$242 ~~which~~million increase in ~~turn~~non-performing ~~negatively~~loans ~~affects~~during ~~the~~2008. ~~borrower’s~~Net ~~ability~~charge-offs towere ~~make~~$99.6 ~~principal~~million ~~and~~or ~~interest~~258 ~~payments~~basis ~~when~~points ~~due.~~of ~~The~~average ~~decline~~loans in ~~sales~~2008, ~~activity~~compared ~~also leads~~ to ~~eroding property values, which serve as collateral for the repayment of loans~~$16.9 ~~These~~million ~~circumstances~~or ~~are~~42 ~~particularly~~basis ~~evident~~points ~~for developers~~ of ~~residential~~average ~~real~~loans ~~estate properties, where the Company has a large concentration~~ in 2007. Non-performing loans ~~outstanding~~were of $~~618~~313 million. ~~Developers~~at ~~use~~December 31, ~~loan~~2008 ~~proceeds~~compared to ~~fund~~$70.8 ~~the~~million ~~acquisition~~at ~~of land~~December 31, ~~development~~2007. ~~of the raw land~~Delinquencies, ~~and~~loans ~~construction~~that ofare ~~homes.~~thirty ~~The~~to ~~vacant~~ninety ~~land~~days ~~component~~past ofdue, ~~this~~also ~~concentration~~increased ~~was~~from $~~235~~81.2 million. ~~These~~at ~~projects~~December 31, ~~are~~2007 ~~heavily dependent upon the successful sale of units completed early in the project’s life~~ to ~~fund~~$84.1 ~~units~~million ~~scheduled~~as ~~later~~of inDecember 31, ~~the project and then have the sales proceeds from those later units repay the loans~~2008. ~~These market conditions are expected to persist into 2009.~~

The ~~2007~~determination of the amount of the Provision ~~was~~involves ~~$29~~a variety of subjective judgments and assumptions.1 ~~million~~These include the initial and on-going creditworthiness of the borrower, anthe ~~increase~~amount and timing of ~~$19.0~~future ~~million~~cash orflows ~~187%~~of ~~from~~the ~~$10.1~~borrower ~~million~~that inare ~~2006.~~available ~~The~~for ~~increase~~repayment of ~~was~~the ~~primarily~~loan, ~~due~~the tovalue aand ~~69%~~sufficiency ~~increase~~of underlying collateral, changes in ~~net~~ ~~charge~~the value of collateral since the most recent appraisal, the enforceability of third-~~offs~~party guarantees, the frequency and asubjectivity ~~119%~~of ~~increase~~loan inreviews ~~non-performing~~and ~~loans~~risk ingrade ~~2007~~changes, emerging ~~compared~~or tochanging ~~2006~~trends that ~~were~~might ~~driven~~not bybe afully ~~general~~captured ~~weakening~~in ofthe ~~real~~historical ~~estate~~loss ~~conditions~~experience, inand charges against the ~~Company’s~~Allowance ~~markets.~~for ~~Net~~actual ~~charge-offs~~losses ~~were~~that ~~$16~~are greater or less than previously estimated.9 ~~million~~These judgments and assumptions are dependent upon or 42can ~~basis~~be ~~points~~influenced by numerous factors including the breadth and depth of ~~average loans~~experience inof ~~2007~~lending officers, ~~compared~~credit toadministration ~~$10.0~~and ~~million~~the orcorporate 26loan ~~basis~~review ~~points~~staff that periodically review the status of ~~average~~the ~~loans~~loan, changing economic and industry conditions, changes in ~~2006.~~the ~~Non-performing~~financial ~~loans~~condition ~~were~~of ~~$70~~the borrower and changes in the value and availability of the underlying collateral and guarantees.8 ~~million~~While atthe ~~December 31~~Company strives to timely reflect all known risk factors in its evaluations, ~~2007~~the Allowance ~~compared~~is tohighly ~~$32~~subjective and actual experience may differ from management’s estimates.4 ~~million~~For atadditional ~~December 31,~~information ~~2006~~see above discussion of Critical Accounting Estimates and the discussion of Allowance for Loan Losses.

Non-Interest Income

Total non-interest income is comprised primarily of fee-based revenues from bank-related service charges on deposits and Investment Management and Trust. Income from bankcard fee income, Bank and Company owned life insurance (COLI), brokerage commission income, mortgage banking income and security gains (losses) are also included in this category.

Overview – For ~~2008~~ 2009, non-interest income ~~totaled~~increased $7410.68 million, ~~an increase~~to of $385.64 million ~~or five percent~~ from $7174.06 million in ~~2007~~2008. ~~Service~~Declines ~~charges~~in oninvestment ~~deposits~~management ~~increased~~and ~~$3.6~~trust ~~million.~~income, Aservice ~~$7.9~~charges ~~million~~on ~~favorable~~deposits ~~swing~~and inbrokerage ~~net~~commission ~~security~~income ~~gains, from $5.9 million~~ of ~~losses in 2007 to~~ $23.0 million ~~of gains in 2008~~, ~~were offset by a~~ $65.39 million ~~decline~~and ~~in other income, a~~ $1.2 5 million, ~~decline~~respectively, inwere ~~mortgage~~more ~~banking~~than ~~income~~offset ~~and~~by a $021.54 million ~~decrease~~increase in ~~investment~~net ~~management~~security ~~and trust income~~gains. ~~Other income in 2007 included the $2.6 million OMSR Gain (see Significant Transactions, discussed above).~~

For ~~2007~~2008, non-interest income totaled $7174.0 6 million, aan ~~decline~~increase of $43.6 million ~~or six percent~~ from $7571.60 million in ~~2006~~2007. ~~The~~Service ~~decline~~charges ~~was~~on ~~primarily~~deposits ~~attributable~~increased to $53.96 million. ofA ~~net security losses in 2007 and a~~ $27.89 million ~~net~~favorable ~~insurance~~swing ~~claim included~~ in ~~2006~~net security ~~COLI~~gains, ~~that were partly offset~~from ~~by a $4.0 million increase in service charges on deposits in 2007 compared to 2006.~~

~~Investment~~33 ~~management and trust income – Investment Management and Trust (IMT) income includes trust services, investment management, estate administration, financial planning and employee benefit plan~~

~~recordkeeping and administration. IMT income totaled~~ $165.39 million inof ~~2008,~~losses ain ~~decline~~2007 ofto $02.50 million orof ~~three~~gains ~~percent from $16.8 million~~ in ~~2007.~~2008, ~~This followed~~were anoffset ~~increase~~by ofa $0.6.3 million ordecline ~~three percent~~ in ~~2007~~other ~~from~~income, a $161.2 million ~~in 2006. The~~ decline in ~~2008~~mortgage ~~was~~banking ~~due~~income ~~to lower retirement plan service fees~~ and ~~wealth~~a ~~management~~$0.5 ~~fees, both of which were affected by declining administered asset~~million ~~values.~~decrease ~~The~~in ~~increase~~investment ~~for~~management ~~2007~~and ~~was primarily attributable to higher personal~~ trust ~~services and employee benefit~~ income. AtOther ~~December 31,~~income ~~2008~~in ~~and~~ 2007, ~~total~~included ~~assets~~the ~~under administration were~~ $2.06 ~~billion~~million ~~and~~OMSR ~~$2.7~~Gain ~~billion~~(see Significant Transactions, ~~respectively~~discussed above).

~~Service~~Investment ~~charges~~management onand ~~deposits~~trust income – ~~Service~~Investment ~~charges~~Management onand ~~deposits~~Trust (IMT) income includes trust services, investment management, ~~the~~estate ~~Company’s~~administration, ~~largest~~financial ~~source~~planning ofand ~~non-interest~~employee benefit plan recordkeeping and administration. IMT income, totaled $3313.23 million in ~~2008~~2009, a decline of $3.60 million orfrom ~~12% increase over~~ $2916.63 million in ~~2007~~2008. This ~~follows~~followed a ~~2007~~decrease ~~increase~~ of $4.0.5 million orin ~~16%~~ 2008 from $2516.68 million in ~~2006~~2007. ~~Service~~The ~~charges~~declines ~~on commercial~~for ~~deposit~~both ~~accounts~~2009 ~~were~~and ~~the~~2008 ~~primary~~were ~~driver~~primarily asattributable ~~declining~~to ~~interest~~lower ~~rates~~average ~~reduced~~market ~~the~~values ~~deposit~~of ~~credit offset against commercial account activity fees. Service charges on consumer deposits also increased due to enhancements to~~ the ~~Company’s fee~~underlying ~~structure~~managed and ~~waiver~~administered ~~policies~~portfolios. ~~This~~Total ~~pace~~assets ofunder ~~growth~~administration iswere ~~not~~$2.0 ~~expected~~billion toat ~~continue~~both December 31, ~~however,~~2009 ~~the~~and ~~current level of revenue is expected to be sustainable~~2008.

~~Mortgage~~Service ~~Banking~~charges ~~income~~on deposits – ~~Mortgage~~Service ~~banking~~charges on deposits, the Company’s largest source of non-interest income, ~~includes~~totaled ~~fees~~$27.3 ~~generated~~million in 2009, a $5.9 million decline from ~~the~~$33.2 ~~underwriting,~~million ~~originating~~in ~~and~~2008. ~~servicing~~This ofmore ~~mortgage~~than ~~loans~~offset ~~along~~a ~~with gains~~2008 ~~and~~increase ~~fees~~of ~~realized~~$3.6 million from ~~the~~$29.6 ~~sale~~million ofin ~~these~~2007. ~~loans,~~The ~~net~~decline in 2009 was primarily due to service charges on consumer deposit accounts as consumers altered their spending habits in light of ~~origination~~the ~~costs,~~continued ~~OMSR~~recession. ~~amortization~~Further declines are expected in 2010 as the Company’s deposit base declines due to the Wisconsin Branch Sales and ~~impairment~~the Illinois Branch Sale as well as legislative changes expected to be implemented in the middle of 2010.

~~For~~Service ~~2008,~~charges ~~mortgage~~on ~~banking~~commercial ~~income~~deposit accounts was ~~$0.6~~the ~~million,~~primary adriver ~~decline~~for ofthe ~~$1.2~~2008 ~~million~~increase ~~from~~as ~~$1.8~~declining ~~million~~interest inrates ~~2007 and was due to lower overall closed loan volumes and a higher~~reduced ~~proportion~~the ordeposit ~~refinanced~~credit ~~volumes~~offsetting ~~relative~~commercial toaccount ~~new~~activity ~~purchase volumes~~fees. ~~Total~~In ~~closings~~addition, ~~were~~service ~~$211~~charges ~~million~~on inconsumer ~~2008~~deposits ~~compared~~also toincreased ~~$277~~due ~~million~~to inenhancements ~~2007. New purchase mortgage closings were $82 million or 39% of total closings in 2008, compared~~ to ~~$171~~the ~~million or~~Company’s ~~62%~~fee ofstructure ~~total~~and ~~closings~~waiver ~~in 2007~~policies.

~~For~~COLI ~~2007,~~income ~~mortgage~~– ~~banking~~COLI income ~~was~~totaled $14.8 6 million, ain ~~decline~~both of2009 and $22008.1 ~~million~~Improved ~~from~~yields ~~$3.9~~and ~~million~~mark-to-market inadjustments ~~2006.~~offset ~~Total~~a ~~closings~~lower ~~were~~earnings base attributable to a $~~277~~10 million inpartial ~~2007~~redemption ~~compared~~of toCOLI ~~$395~~policies ~~million~~ in ~~2006.~~first ~~New~~quarter ~~purchase~~of ~~mortgage~~2009. ~~closings~~The ~~were~~partial ~~$171~~redemption ~~million~~was orcompleted ~~62%~~due ofto ~~total~~lower ~~closings~~employee inbenefit program ~~2007,~~obligations ~~compared~~and to ~~$266~~provide ~~million~~additional ~~or 67%~~liquidity ofat ~~total~~the ~~closings~~parent. inThe ~~2006~~$4.6 ~~The~~million ~~2007~~of ~~decline~~COLI income in ~~mortgage~~2008 ~~banking~~was ~~income~~a ~~was~~$0.9 ~~primarily~~million ~~due~~decline tofrom ~~lower~~$5.4 ~~servicing~~million ~~fee~~in ~~income~~2007. ~~and~~The ~~reduced~~2008 ~~sales~~decline ~~volume~~was due to ~~slowdown in~~ the ~~housing~~decline ~~markets~~in ~~that~~market ~~affected~~interest ~~new~~rates ~~purchase closings~~ and ~~higher mortgage~~negative ~~interest~~mark-to-market ~~rates~~adjustments ~~that~~on ~~affected~~underlying ~~refinancing volumes~~investments. ~~The~~AMCORE ~~decline~~has inhistorically ~~servicing~~used ~~fee~~COLI ~~income~~as ~~for~~a ~~2007~~tax-advantaged ~~was~~means ~~attributable~~of tofinancing ~~the~~its ~~OMSR~~future ~~Sale,~~obligations ~~after~~with ~~which~~respect ~~the~~to ~~Company~~certain nonon-qualified ~~longer~~retirement ~~generates~~and ~~significant~~deferred ~~fee~~compensation ~~income~~plans in ~~connection~~addition ~~with~~to other ~~the~~employee ~~servicing~~benefit ofprograms, ~~mortgage~~although ~~loans sold~~the totax ~~the~~advantage ~~secondary~~is ~~market.~~greatly ~~The~~diminished ~~cost~~by ofthe ~~servicing~~Company’s ~~those~~current ~~loans,~~tax aposture. ~~component~~See discussion of ~~operating~~deferred ~~expense,~~tax ~~was~~valuation ~~also~~allowance ~~eliminated~~in ~~after~~ the ~~transition.~~Critical ~~The~~Accounting ~~Company~~Estimate ~~recorded~~section ~~the $2~~above.6 ~~million~~As ~~OMSR~~of December 31, ~~Gain~~2009, ~~during~~the ~~2007.~~cash ~~The~~surrender ~~OMSR~~value ~~Gain~~of isCOLI ~~included~~was in$139 ~~other~~million, ~~non-interest income.~~compared ~~See~~to ~~Significant~~$145 ~~Transactions,~~million ~~discussed~~at ~~above~~December 31, ~~for additional information~~2008.

~~COLI~~Bankcard fee income – ~~COLI~~Bankcard fee income totaled $48.62 million in ~~2008~~2009, a $0.94 million ~~or 16%~~ decline from $58.46 million in ~~2007. The~~ 2008 ~~decline was due to the decline in market interest rates~~ and ~~negative~~an ~~mark-to-market adjustments on~~increase ~~underlying~~of ~~investments. This compares with a~~ $20.57 million orover ~~31%~~bankcard ~~decline~~fee income in 2007 ~~from~~of $7.9 million ~~in 2006~~. ~~The~~Decreased ~~2007~~card ~~decline~~utilization, ~~was~~as ~~due~~consumers toaltered ~~$2.8~~their ~~million~~spending habits in ~~net~~light ~~insurance~~of ~~claims~~the ~~received~~continued inrecession, ~~2006.~~led ~~AMCORE~~to ~~uses~~the ~~COLI~~2009 asdecline. aFurther ~~tax-advantaged~~declines ~~means~~are ofexpected ~~financing its~~in ~~future~~2010 ~~obligations~~as ~~with~~the Company’s ~~respect~~deposit tobase ~~certain~~declines ~~non-qualified~~due ~~retirement~~to ~~and~~the ~~deferred~~Wisconsin ~~compensation~~Branch ~~plans~~Sales inand ~~addition~~the toIllinois ~~other~~Branch ~~employee benefit programs~~Sale. AsA oflarger ~~December 31,~~cardholder ~~2008~~base, ~~the~~increased ~~cash~~card ~~surrender~~utilization ~~value~~and ofan ~~COLI~~expanded ~~was~~ATM ~~$145~~network ~~million,~~contributed ~~compared~~ to ~~$140 million~~the atincrease ~~December 31,~~in ~~2007.~~bankcard fee income in 2008.

~~Bankcard~~Other ~~fee~~non-interest income – For 2009, other ~~Bankcard~~non-interest ~~fee~~income, which includes brokerage commission income, ~~totaled~~net ~~$8.6~~security ~~million~~gains in(losses) ~~2008~~and other, atotaled $032.70 million, oran ~~nine~~increase ~~percent~~of ~~increase~~$20.1 ~~over~~million from $711.9 million in ~~2007~~2008. ~~and~~This anwas ~~increase~~due ofto a $121.74 million ~~over~~increase ~~bankcard~~in ~~fee~~net ~~income~~security ingains. The ~~2006~~sale of ~~$6.2~~the ~~million.~~securities Aallowed ~~larger~~the ~~cardholder~~Company ~~base~~to restructure its balance sheet through the Debt Extinguishments, ~~increased~~enhanced ~~card utilization~~regulatory treatment and animproved ~~expanded~~liquidity. ~~ATM~~It ~~network~~also ~~contributed~~allowed the Company to capture gains that might otherwise be jeopardized by the risk of prepayment of the securities. Partially offsetting the increase in ~~bankcard~~net ~~fee~~security ~~income~~gains ~~for~~was ~~both~~a ~~2008~~$1.5 ~~and~~million ~~2007~~decline in brokerage commission income.

28For 2008, other non-interest income totaled $11.9 million, a $0.6 million increase from 2007. A $7.9 million favorable swing in net security gains, from $5.9 million of losses in 2007 to $2.0 million of gains in 2008, were

~~Other non-interest income – For 2008, brokerage commission income, net security (losses) gains and~~ other non-interest income totaled $11.3 million, a $1.8 million or 18% increase from 2007. A $7.9 million favorable swing in net security gains, from $5.9 million of losses in 2007 to $2.0 million of gains in 2008, were offset by a $67.34 million decline in other income. Other income declined due to the 2007 $2.6 million OMSR Gain, ~~lower~~a decline in customer service income, lower mortgage banking income and higher derivative mark-to-market losses. The derivative losses relate to economic hedges of various loan, deposit and COLI products that do not qualify for hedge accounting.

For 2007, these categories of other non-interest income totaled $9.5 million, a $6.2 million or 39% decline from 2006. The decline was primarily due to $5.9 million of net security losses in 2007, compared to net security gains of $0.3 million in 2006. The 2007 loss was mainly due to the sale of approximately $200 million of bonds purchased in 2003 and 2004 in order to reduce longer-term interest rate and liquidity risk. The proceeds of the sales were reinvested in shorter-term securities that enabled the Company to improve the repricing match of its assets and liabilities. The $2.6 million OMSR Gain and an increase in brokerage commission income were offset by lower CRA related fund income and increased derivative mark-to-market losses year-over year.

Operating Expenses

Overview – In ~~2008~~2009, ~~total~~ operating ~~expense~~expenses ~~was~~were $~~172.5~~169 million, ~~an increase~~a of $73.19 million ordecrease ~~four percent increase~~ from $~~165.3~~173 million in ~~2007~~2008. AOperating ~~$6.1~~expenses ~~million~~for ~~Goodwill~~2009 included ~~Charge, a~~ $5.07 million ~~increase~~ in ~~provision~~costs ~~for~~in ~~unfunded~~connection ~~commitment~~with ~~losses,~~the aDebt ~~$3.3 million increase in loan collection costs~~Extinguishments, awhile ~~$3.0~~2008 ~~million increase~~operating inexpenses ~~FDIC~~included ~~insurance~~the ~~costs, a~~ $16.91 million ~~increase~~Goodwill inCharge ~~net occupancy expense,~~ and the $1.7 million Facilities Consolidation impairment charge. ~~(see~~Personnel ~~Cost~~costs ~~Efficiencies,~~declined ~~discussed~~$19.2 million ~~above)~~in ~~were~~2009, ~~partially~~compared ~~offset~~to by2008. aInsurance ~~$6.0~~expense ~~million~~and ~~decline~~credit inrelated ~~personnel costs,~~expenses increased $416.48 million inand ~~various other expenses, a~~ $27.36 million, ~~Extinguishment~~respectively. ~~Loss~~The ~~incurred~~increased in ~~2007~~insurance ~~(see~~expense ~~Significant~~was ~~Transactions,~~primarily ~~discussed~~due ~~above)~~to ~~and~~higher ~~$1.3~~FDIC ~~million~~insurance ~~decline~~premiums, inwhich ~~advertising~~included ~~and~~the ~~business~~$2.4 million ~~development~~FDIC ~~costs~~Special Assessment.

In ~~2007~~2008, total operating expenses ~~expense~~were ~~was~~$173 million, an increase of $7.1 million or four percent increase from $165 million in 2007.3 The $6.1 million Goodwill Charge, ~~which~~an ~~was~~$8.2 ~~essentially~~million ~~flat~~increase ~~with~~in credit related expenses, a $~~165~~3.4 0 million increase in ~~2006~~FDIC insurance costs, a $1.9 ~~Increased~~million increase in net occupancy expense, ~~higher~~and ~~foreclosure~~the ~~related~~$1.7 ~~costs~~million ~~and~~Facilities ~~increased~~Consolidation ~~fraud~~impairment ~~losses~~charge were partially offset by ~~lower~~a ~~compensation~~$6.0 ~~expense,~~million ~~advertising/business~~decline ~~development~~in personnel costs, ~~and professional fees. The~~ $24.34 million ~~Extinguishment Loss~~in ~~incurred~~various inother ~~2007~~expenses, ~~offset~~ a $2.13 million debt extinguishment loss onincurred ~~the~~in ~~extinguishment~~2007 ofand ~~Federal~~$1.3 ~~Home~~million ~~Loan~~decline ~~Bank~~in ~~(FHLB)~~advertising ~~debt~~and ~~that~~business ~~was~~development ~~incurred in 2006~~costs.

The efficiency ratio was 84105% in ~~2008~~2009, compared to 7184% in ~~2007~~2008 and 6971% in ~~2006~~2007. The efficiency ratio is calculated by dividing total operating expenses by revenues. Revenues are the sum of net interest income and non-interest income.

Personnel expense – Personnel expense includes compensation expense and employee benefits and is the largest component of operating expenses, totaling a combined $8869.98 million in ~~2008~~2009, $9488.9 million in ~~2007~~2008 and $9794.9 million in ~~2006~~2007. ~~For~~The ~~2008,~~2009 ~~personnel~~decrease ~~expenses~~of ~~declined~~ $619.0 1 million orwas ~~six~~due ~~percent compared~~ to ~~2007~~the ~~and~~Restructuring, ~~decreased~~which ~~$3.0~~included ~~million~~a orfive ~~three~~ percent reduction in ~~2007~~executive ~~compared~~salaries, tosuspension ~~2006.~~of ~~The~~employee ~~2008~~merit ~~decrease~~increases, ~~was~~bonuses, ~~primarily~~and ~~due~~the toCompany’s ~~lower~~basic ~~salary~~contribution ~~and~~to ~~benefits.~~the ~~This~~401(k) ~~included more~~plan, ~~than~~and ana 1125% reduction inof ~~full-time~~its ~~equivalent~~work ~~positions~~force from ~~since~~ the ~~beginning~~end of 2008. The ~~2007~~Company’s ~~decline~~matching contribution to the 401(k) plan was ~~attributable~~not affected. The reduction in personnel costs were net of the $2.7 million 2009 Restructuring Charge, compared to ~~lower~~$1.9 ~~incentives~~million ~~and~~of ~~stock-based~~severance ~~compensation~~related costs. in 2008.

~~Facilities~~For ~~expense – Facilities expense, which includes net occupancy expense and equipment expense, was a combined $26.5 million in~~ 2008, ~~$24.6~~personnel ~~million~~expenses indecreased ~~2007 and~~ $206.90 million ~~in 2006. This was a $1.8 million or seven percent increase in 2008~~ compared to 2007~~, and an increase of $3~~.7 ~~million or 18% in 2007 compared to 2006.~~ The 2008 ~~increase~~decrease was ~~due to higher rent expense, leasehold amortization and property taxes associated with branches that were not open at all or not open for the full period in 2007. The 2007 increase was~~ primarily due to ~~higher~~lower ~~rental~~salary ~~expense, real estate taxes, utility costs~~ and ~~snow removal expenses~~benefits. ~~The~~This ~~increase~~included inmore ~~rental~~than ~~expense~~an ~~was~~11% ~~associated~~reduction ~~with new branches that were opened~~ in ~~2007~~full-time ~~and~~equivalent ~~that~~positions ~~were~~since ~~open~~the ~~for~~beginning ~~only part~~ of ~~2006~~the year.

~~Professional~~Facilities ~~fees~~expense – ~~Professional~~Facilities ~~fees~~expense, ~~include~~which ~~legal,~~includes ~~consulting,~~net ~~auditing~~occupancy expense and ~~external~~equipment ~~portfolio~~expense, ~~management~~was ~~fees~~a combined ~~and~~$24.7 ~~totaled~~million in 2009, $826.65 million in 2008, and $824.4 6 million in 2007. This was a $1.8 million decrease in 2009 compared to 2008, and an increase of $91.38 million in ~~2006~~2008 compared to 2007. The ~~decline~~decrease in ~~2007~~2009 ~~from~~was ~~2006~~primarily ~~relates~~due to lower property ~~external~~depreciation, ~~assistance~~lower onutility ~~regulatory~~costs ~~compliance~~and ~~matters~~lower ~~(see~~building ~~Regulatory~~and ~~Developments~~equipment ~~discussion~~service ~~above)~~contracts and maintenance partly as a result of branch consolidations. In addition, equipment and software depreciation and desktop PC expenditures declined. The 2008 increase was due to higher rent expense, leasehold amortization and property taxes associated with branches that were not open at all or not open for the full period in 2007.

29Professional fees – Professional fees include legal, consulting, auditing and external portfolio management fees and totaled $8.5 million in 2009, $8.6 million in 2008 and $8.4 million in 2007. For 2009, increased regulatory fees, audit fees and legal expenses were offset by lower external portfolio management and consulting fees.

Loan related costs – Loan related costs include loan processing and collection expense, provision for unfunded commitment losses and foreclosed real estate expense and totaled a combined $20.4 million in 2009, $12.8

~~Loan~~ million ~~related~~in ~~costs~~2008 –and ~~Loan~~$4.6 ~~related~~million ~~costs~~in ~~include~~2007. ~~loan~~The ~~processing~~$7.6 ~~and~~million ~~collection~~increase ~~expense~~in ~~and~~2009 ~~provision for~~was ~~unfunded~~due ~~commitment~~to higher foreclosed real estate costs, which included losses on properties held and ~~totaled~~sold aand ~~combined~~increased property ~~$11~~taxes on higher balances.8 ~~million~~Also incontributing ~~2008,~~to the $37.6 million inincrease ~~2007~~were higher loan processing and ~~$4.0~~collection ~~million~~costs inas ~~2006.~~the ~~While~~non-performing ~~expenses~~loan involumes ~~2006~~increased and ~~2007~~settlement activity accelerated. Partly offsetting these increases were ~~relatively~~lower ~~stable,~~provisions ~~2008~~for ~~expenses~~unfunded commitment losses. Expenses increased $8.2 million. ~~This~~in ~~was~~2008 due to increased collection costs on higher non-performing loan balances and estimated losses on letter of credit commitments on defaulted residential development loans.

~~Goodwill~~Insurance ~~impairment~~expense – Insurance Inexpense, ~~second~~which ~~quarter~~includes ~~2008~~FDIC insurance fund premiums, awas $621.15 million, ~~non-cash~~$4.7 ~~charge~~million ~~was~~and ~~recorded~~$1.6 ~~that~~million, ~~completely~~respectively, ~~eliminated~~for ~~all~~2009, ~~goodwill~~2008 ~~previously~~and ~~carried~~2007. ~~on the~~Second ~~Company’s~~quarter ~~balance~~2009 ~~sheet~~included (the ~~“Goodwill~~$2.4 ~~Charge”)~~million FDIC Special Assessment. The ~~write-off~~Company ~~was~~has ~~due~~also experienced toincreases in FDIC insurance premiums, generally, since the ~~considerable~~first quarter of 2008, as insurance rates have increased and ~~protracted~~coverage ~~discount~~has ofbroadened, and specifically as the ~~Company~~Bank’s ~~stock~~risk ~~value~~profile ~~compared~~has toincreased. ~~its~~Barring ~~book~~additional ~~value,~~special assessments ~~which~~and ~~affected~~general ~~all~~FDIC ~~business~~rate ~~segments~~increases, asthe ~~well~~Company asexpects ~~due to~~insurance ~~the~~costs to decline in 2010, primarily due to a lower deposit base associated with the ~~operations~~Wisconsin ofBranch Sales and the ~~Company~~Illinois Branch Sale. Partially offsetting lower FDIC insurance costs in 2010 are expected increases in directors/officers and errors/omissions insurance premium increases.

~~Other~~Goodwill ~~operating expenses~~impairment – ~~Other~~In ~~operating~~second ~~expenses~~quarter ~~includes data processing expense~~2008, ~~communication expense, advertising and business development expenses, insurance expense and other costs, and were~~ a ~~combined~~ $~~30.~~6 ~~million in 2008, $33~~.81 million ~~in 2007~~non-cash ~~and~~charge ~~$33.2~~was ~~million~~recorded inthat ~~2006.~~completely ~~For~~eliminated ~~2008,~~all ~~reductions~~goodwill previously incarried ~~bankcard~~on ~~fees,~~the ~~fraud~~Company’s ~~losses~~balance ~~and~~sheet ~~various~~(the ~~discretionary~~“Goodwill ~~expenses such as travel, training and consumable stationary and supplies declined $4~~Charge”).4 ~~million,~~The ~~communication~~write-off ~~and~~was ~~advertising/business development~~due ~~costs~~to ~~declined~~the ~~$1.5~~considerable ~~million~~ and ~~data~~protracted ~~processing~~discount ~~costs declined $0.4 million. Many~~ of ~~these reductions were related to~~ the ~~Cost~~Company’s ~~Efficiencies~~stock ~~key~~value ~~initiative.~~compared ~~These were partially offset by a $3.1 million increase in insurance expense due~~ to ~~higher~~its ~~FDIC~~book ~~insurance~~value, ~~rates.~~which ~~The~~affected ~~FDIC recently proposed a special assessment for~~ all ~~financial institutions whose deposits are federally-insured~~business segments, ~~that~~as ifwell ~~finalized~~as ~~would~~due beto ~~imposed~~the indecline ~~2009 and could be material~~ in ~~amount. For 2007, a $1.1 million increase in fraud losses, a $1.0 million increase in foreclosure related costs, and a $0.7 million charge for~~ the ~~Company’s~~operating ~~proportionate~~results ~~membership interest share~~ of ~~various~~the ~~litigation claims against VISA, Inc~~Company. ~~were offset by a $3.2 million reduction in advertising/business development costs.~~

Other operating expenses – Other operating expenses includes data processing expense, communication expense, and other costs, and were a combined $23.6 million in 2009, $24.8 million in 2008 and $31.2 million in 2007. For 2009, reductions in bankcard fees, fraud losses, various discretionary expenses such as travel, training and consumable stationary/supplies, communication and advertising/business development costs declined a net $5.2 million. These decreases were offset by the $5.7 million Extinguishment Loss in 2009, net of the $1.7 million 2008 Facilities Consolidation impairment charge. For 2008, other operating expenses declined a net $6.4 million. Included were reductions in bankcard fees, fraud losses, various discretionary expenses such as travel, training and consumable stationary/supplies, communication and advertising/business development costs and data processing costs. Partly offsetting the declines was the $1.7 million 2008 Facilities Consolidation impairment charge. Many of the reductions, for both 2009 and 2008, were related to the cost efficiencies Key Initiative.

Income Taxes

Income tax ~~benefit~~was ~~totaled~~an expense of $7025.9 million in ~~2008~~2009, compared to ~~income~~a ~~tax expense~~benefit of $870.9 million ~~and $18.0 million~~ in ~~2007 and 2006~~2008, ~~respectively. Declines in 2008~~ and ~~2007~~an ~~were~~expense ~~mainly~~of ~~due~~$8.9 tomillion ~~losses~~in ~~and lower income before taxes, respectively~~2007. The ~~2007~~$25.9 ~~income tax~~ million expense ~~was~~in ~~net~~2009, ofdespite a $~~588,000~~197.9 ~~tax~~million ~~benefit associated with an increase in effective state income~~ pre-tax ~~rates~~loss, ~~that~~was ~~were~~primarily ~~enacted~~due ~~during~~to the ~~year,~~$118.0 ~~and~~million ~~which~~charge ~~increased~~to ~~the~~establish ~~value of~~ the ~~Company’s recorded~~ deferred ~~income~~ tax ~~asset.~~valuation Aallowance ~~deferred~~in ~~tax~~third ~~asset~~quarter ~~primarily~~2009. ~~represents~~This ~~expenses~~was ~~reflected~~partially onoffset by the ~~Company’s~~ ~~Consolidated~~$30.7 ~~Statement~~million ~~of Operations whose~~ tax ~~deduction~~loss ~~has~~carryback ~~been~~benefit recorded ~~delayed~~in orfourth ~~deferred~~quarter to2009. aThe ~~later~~$70.9 ~~year’s~~million income tax ~~return,~~benefit ~~due to differences~~ in ~~the~~2008 ~~timing~~was ofmainly ~~their~~due ~~recognition~~to ~~under generally accepted accounting principles versus income~~ pre-tax ~~regulations~~losses. ~~Since~~The ~~these~~$8.9 ~~deductions~~million ~~will~~2007 ~~be claimed in a future period, after the increase in the~~ income tax ~~rates~~expense ~~becomes~~was ~~effective,~~due ~~they~~to ~~will~~pre-tax ~~result~~income innet aof ~~larger~~items ~~reduction~~that inare ~~taxes~~exempt ~~paid~~from ~~than was previously recorded~~taxes.

The effective tax rate was 42a negative 13.01% in ~~2008~~2009, ~~compared~~and topositive 42.0% and 24.0% in ~~2007~~2008 and 272007, respectively.7% The establishment of the deferred tax valuation allowance and its resulting charge to income tax expense led to the negative effective tax rate in ~~2006~~2009. Items that are exempt from taxes, such as municipal bond income and COLI income, while generally resulting in an effective tax rate that is lower than the statutory tax rate, have the opposite effect in a period where there is a loss before income taxes. Conversely, items that are not deductible for tax purposes, such as goodwill, while generally resulting in an effective tax rate that is higher than the statutory tax rate, have the opposite effect in a period where there is a loss before income taxes. The combined effect of these factors was an effective tax rate that was lower than the statutory tax rate in 2007, but higher than the statutory tax rate in 2008. See Note 1413 of the Notes to Consolidated Financial Statements for a reconciliation of the effective tax rates.

~~Discontinued~~36 ~~Operations~~

In 2005, the Company sold its asset management subsidiary, Investors Management Group, Ltd. (IMG), to West Bancorporation, Inc. (West Banc). For 2006, net income from this discontinued operation was $248,000 and resulted from the finalization of tax payments from the sale of IMG in the previous year.

BUSINESS SEGMENT REVIEW

AMCORE’s internal reporting and planning process focuses on ~~four~~three primary lines of business (Segment(s)): Commercial Banking, ~~Retail~~ Consumer Banking, and Investment Management and Trust~~, and Mortgage Banking~~. Note 1615 of the Notes to Consolidated Financial Statements presents a condensed income statement and total assets for each Segment. The Company previously reported mortgage banking as a separate segment, however, due to the Restructuring, the mortgage business is now part of the consumer banking group.

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 allocation of shared support function expenses and corporate overhead. The Commercial, ~~Retail~~ and Consumer ~~Mortgage Banking~~ Segments also include funds transfer adjustments to appropriately reflect the cost of funds on loans made, ~~and~~ funding credits on deposits generated and the cost of maintaining adequate liquidity. 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 standards for management accounting that are equivalent to accounting principles generally accepted in the United States of America, the information presented is not necessarily comparable with similar information from other financial institutions. In addition, methodologies used to measure, assign and allocate certain items may change from time-to-time to reflect, among other things, accounting estimate refinements, changes in risk profiles, changes in customers or product lines, and changes in management structure. ~~For~~During ~~example~~2009, ~~during~~operating ~~2007,~~expense ~~the~~allocations ~~Company~~were ~~refined~~revised ~~its~~to ~~method~~fully ~~for~~absorb ~~measuring~~corporate ~~fund~~overhead ~~transfer~~and ~~adjustments~~other ~~to include~~previously ~~non-earning~~unallocated ~~assets~~costs, ~~liabilities~~and revenues, to each of the segments and ~~equity,~~treasury inoperations. In addition, to funds transfer ~~adjustments~~prices ~~for~~were ~~loans~~revised ~~made~~to ~~and~~allocate ~~deposits~~the ~~generated~~cost of maintaining excess liquidity to the segments. ~~The~~Prior ~~effect~~to 2009, both of ~~this~~these ~~change~~items ~~for~~were ~~2007~~reflected ~~was~~in the “Other” column, as described below. Due to ~~increase~~the ~~net~~practical ~~interest~~difficulties ~~income~~associated ofwith restating prior periods, prior periods have not been restated except as noted above combining the ~~Commercial~~Mortgage Banking ~~and~~Segment ~~Retail~~with the Consumer Banking ~~Segments~~Segment. bySegment ~~$5.1~~results ~~million~~for 2009 have been presented to reflect both the new method with the above changes and ~~$1.9~~the ~~million,~~old ~~respectively~~method with none of the above changes.

Total Segment results differ from consolidated results primarily due to ~~inter-segment eliminations, certain corporate administration costs, items not otherwise allocated in the management accounting process and~~ treasury and investment activities such as the offset to the funds transfer adjustments made to the Segments, interest income on the securities investment portfolio, gains and losses on the sale of securities, COLI, CRA related fund income and derivative gains and losses. The impact of these items is aggregated to reconcile the amounts presented for the Segments to the consolidated results and is included in the “Other” column of Note 1615 of the Notes to Consolidated Financial Statements. AsThe ~~a result of the Federated and West Banc transactions, the results of IMG for the current and prior periods are reported as discontinued operations. Goodwill write-off totaling~~ $~~6.1~~118 million isdeferred ~~included~~tax invaluation ~~the~~allowance ~~other~~recorded ~~non-interest~~during ~~expense line of~~ the ~~segment financials, and is further~~ ~~discussed~~third inquarter ~~Note~~2009 6has ofbeen ~~the~~allocated ~~Notes~~ to ~~Consolidated Financial Statements~~Other.

Commercial Banking

The Commercial Banking Segment (Commercial) provides commercial banking services to middle market and small business customers through the Bank’s branch locations. The services provided by Commercial include lending, business checking and deposits, treasury management and other traditional as well as electronic services.

Overview – – Commercial net loss for ~~2008~~2009 was $~~85.8~~135 million, compared to a net ~~income~~loss of $2485.08 million in 2008 and net income of $3424.70 million in 2007 ~~and 2006, respectively~~. Commercial total assets were $32.03 billion at December 31, ~~2008~~2009 and represented 6061% of total ~~consolidated~~ consolidated assets. This compares to $3.10 billion and 60% at December 31, ~~2007~~2008.

Comparison of ~~2008~~2009 to ~~2007~~2008 – Commercial net loss for ~~2008~~2009 was $~~85.8~~135 million, a decline of $~~109~~49.80 million from ~~2007~~2008 net ~~income~~loss of $2485.08 million. The decline was due to a $~~155~~67.65 million ~~increase~~decrease in ~~Provision~~net ~~and~~interest aincome and an $2211.9 6 million ~~decrease~~increase in ~~net-interest~~Provision ~~income~~ that were partially offset by a $6832.79 million ~~decrease~~increase in income ~~taxes~~tax benefit.

3137

The decrease in net interest income was driven by increased levels of non-accrual loans, lower average loan and deposit volumes and the reversal of accrued interest on loans that were placed on non-accrual status during the year and the allocated cost of maintaining excess liquidity. The reduction in average loans included the effect of an overall effort to reduce the Company’s exposure to non-strategic, non-relationship based accounts, the Loan Sale, and the Wisconsin Branch Sales. The continued replenishment of non-performing loans, coupled with further declines in the fair value of collateral on existing non-performing loans that are collateral dependent, contributed to the increased Provision for 2009. A reduction in non-interest expense that was driven by lower direct personnel expenses, the Wisconsin Branch Sales and various cost efficiency initiatives were more than offset by increased allocated support/overhead costs and increased loan related costs. Income tax benefit increased due to a higher net loss before tax.

Comparison of 2008 to 2007 – Commercial net loss for 2008 was $85.8 million, a decline of $109.8 million from 2007 net income of $24.0 million. The decline was due to a $156 million increase in Provision and a $22.9 million decrease in net-interest income that were partially offset by a $68.7 million decrease in income taxes.

The decrease in net interest income was driven by increased levels of non-accrual loans, decreased loan and deposit volumes and the reversal of accrued interest on loans placed on non-accrual status. The increase in Provision was primarily due to deterioration of credit quality and increased volumes of non-performing loans, particularly in the residential construction and development loans, which were affected by declining real estate sales activity, softening collateral values and large concentrations. Income taxes were lower due to a change from income before tax to a loss before tax.

~~Comparison of 2007 to 2006 – Commercial net income for 2007 was $24.0~~Consumer ~~million,~~Banking a decline of $10.7 million or 31% from 2006 net income of $34.7 million. The decline was due to a $20.6 million increase in Provision and a $4.6 million increase in non-interest expense that were partially offset by an $8.1 million increase in net interest income and a $6.8 million decrease in income taxes.

InThe Consumer Banking Segment (Consumer) provides ~~addition~~banking services to individual customers through the $5Bank’s branch locations.1 ~~million~~The ~~effect~~services ofprovided ~~the~~by ~~change~~Consumer ininclude ~~funds~~direct ~~transfer~~and ~~pricing~~indirect ~~noted~~lending, ~~above~~checking, ~~the~~savings, ~~increase~~money inmarket ~~net~~and ~~interest~~certificate ~~income~~of ~~was~~deposit ~~due~~(CD) toaccounts, ~~higher~~safe ~~average~~deposit ~~loan~~rental, ATMs, ~~volumes~~and ~~net~~other oftraditional ~~lower~~and ~~spreads.~~electronic ~~The~~services ~~increase~~and ina ~~Provision~~variety ~~was~~of ~~primarily~~mortgage ~~due~~lending products to ~~increased~~meet ~~net charge-offs,~~its ~~delinquencies~~customers’ ~~and non-performing loans~~needs. ~~The~~It ~~increase~~sells inmost ~~non-interest~~of ~~expense~~the ~~was~~mortgage ~~primarily~~loans ~~due~~it originates to ~~higher~~a ~~facilities~~third-party ~~expense~~mortgage ~~and~~services ~~allocated~~company, ~~corporate~~which ~~support~~provides private-label ~~costs.~~loan ~~Income~~processing ~~taxes~~and ~~were~~servicing ~~lower~~support ~~due~~on toboth asold ~~decline~~and inretained ~~income before tax~~loans.

~~Retail~~Overview ~~Banking~~– Consumer net income for 2009 was $10.1 million, compared to $1.4 million in 2008 and $19.8 million in 2007. Consumer total assets were $674 million at December 31, 2009 and represented 18% of total consolidated assets. This compares to $1.0 billion and 20% at December 31, 2008.

~~The~~Comparison ~~Retail~~of ~~Banking~~2009 ~~Segment~~to ~~(Retail)~~2008 ~~provides~~– ~~banking~~Consumer ~~services~~net toincome ~~individual~~for ~~customers through~~2009 ~~the~~was ~~Bank’s~~$10.1 ~~branch~~million, ~~locations~~an increase of $8.7 million from 2008. The ~~services~~increase ~~provided~~was primarily bydue ~~Retail~~to ~~include~~a ~~direct~~$24.2 ~~and~~million ~~indirect~~decrease ~~lending,~~in ~~checking,~~Provision. ~~savings,~~These ~~money~~were ~~market~~partly ~~and~~offset ~~certificate~~by ofa ~~deposit~~$10.0 ~~(CD)~~million ~~accounts,~~decrease ~~safe~~in ~~deposit~~net ~~rental,~~interest ~~ATMs~~income, ~~and~~a ~~other~~$4.2 ~~traditional~~million decrease in non-interest income and ~~electronic services~~a $3.3 million increase in income taxes.

~~Overview~~The –decrease ~~Retail~~in ~~net~~Provision ~~income~~was ~~for~~driven ~~2008~~by ~~was~~a $~~1.9~~ 249 million, ~~compared~~reduction in loan balances net of higher loss rates. Lower average loan volumes also contributed to ~~$18~~the reduction in net interest income as did the allocated cost of maintaining excess liquidity.3 ~~million~~Lower loan volumes were due in part to the Wisconsin Branch Sales and the ~~$11~~Indirect Auto Loan Sale.5 ~~million~~The decline in ~~2007~~non-interest ~~and~~income ~~2006,~~was ~~respectively~~primarily due to lower deposit service fee income accounts as consumers altered their spending habits in light of the continued recession. ~~Retail~~A ~~total~~reduction ~~assets~~in ~~were~~non-interest ~~$824~~expense ~~million~~that was atdriven ~~December 31~~by lower direct personnel expenses, ~~2008~~various cost efficiency initiatives and ~~represented~~the ~~16%~~Wisconsin ofBranch ~~total~~Sales ~~consolidated~~were ~~assets~~partly offset by increased allocated support/overhead costs. ~~This~~Income ~~compares~~taxes increased due to ~~$692~~a ~~million~~change ~~and~~from ~~13%~~a atnet loss before tax to ~~December 31,~~net ~~2007~~income before tax.

Comparison of 2008 to 2007 – ~~Retail~~ Consumer net income for 2008 was $1.94 million, a decrease of $1618.4 million from 2007. The decrease was primarily due to aan $1718.20 million increase in Provision and aan $108.36 million increase in operating expenses. These were partly offset by a ~~$3.6 million increase in~~ ~~non-interest income and an~~ $89.25 million decrease in income taxes.

~~The~~38 increase in Provision was mainly due to higher net charge-offs, including $2.5 million in charge-offs on two large home equity credits that were managed by Retail. The increase in operating expenses was largely due to a $3.6 million goodwill write-off, higher rental expense associated with new branches that were not yet open or not open for the entire period in 2007, the effects of the Facilities Consolidation, and higher allocated expenses. The increase in non-interest income was mainly due to higher service charges on deposits, brokerage commission referral income and bankcard fee income. Income taxes decreased due to lower income before taxes.

Comparison of 2007 to 2006 – Retail net income for 2007 was $18.3 million, an increase of $6.8 million or 62% from 2006. The increase was due to a $5.2 million increase in net interest income, a $6.2 million increase in non-interest income and a $1.8 million decrease in Provision. These were partly offset by a $1.9 million increase in non-interest expense and a $4.4 million increase in income taxes.

In addition to the $1.9 million affect of the change in funds transfer pricing noted above, the increase in net interest income was primarily due to increased funding credits on deposit balances. These were partially offset by higher interest expense due to rising short-term interest rates. The increase in non-interest income was due to higher service charges on deposits, bankcard fees and customer service fees. The decrease in Provision was due to one large credit loss that occurred in 2006. The increase in non-interest expense was due to higher facilities expense. Income taxes increased due to higher income before taxes.

The increase in Provision was mainly due to higher net charge-offs, including $2.5 million in charge-offs on two large home equity credits that were managed by Consumer. The increase in operating expenses was largely due to a $3.6 million goodwill write-off, higher rental expense associated with new branches that were not yet open or not open for the entire period in 2007, the effects of the Facilities Consolidation, and higher allocated expenses. Income taxes were lower due to a change from income before tax to a loss before tax. Higher service charges on deposits, brokerage commission referral income and bankcard fee income in 2008 more than offset the OMSR Gain reported in 2007 that did not recur in 2008 and lower servicing fee income in 2008 due to the OMSR Sale.

Investment Management and Trust

The Investment Management and Trust Segment (IMT) provides wealth management services, which includes trust services, investment management, estate administration, financial planning, employee benefit plan recordkeeping and administration and brokerage services.

Overview – IMT net income for ~~2008~~2009 was $21.20 million, compared to $2.62 million in 2008 and $12.46 million in 2007 ~~and 2006, respectively~~. IMT total assets were ~~$11~~ $2 million at December 31, ~~2008~~2009 and represented less than 1% of total consolidated assets. At December 31, ~~2007~~2008, IMT total assets were $1311 million, also less than 1% of total consolidated assets.

Comparison of 2009 to 2008 – IMT net income for 2009 was $1.0 million, a decrease of $1.2 million from 2008. A decline in non-interest income was nearly offset by a decrease in non-interest expense and a $0.8 million decrease in income taxes.

The decline in non-interest income was due to lower average market values of the underlying managed and administered portfolios. The reduction in non-interest expense was driven by lower direct personnel expenses and support costs associated with the various cost efficiency initiatives, net of increased allocated support/overhead costs. Income taxes were lower due to lower earnings before income taxes.

Comparison of 2008 to 2007 – IMT net income for 2008 was $2.2 million, a decrease of $0.4 million from 2007. A decline in non-interest income was more than offset by decreases in non-interest expense and income taxes.

The decline in non-interest income was due to lower retirement plan service fees and wealth management fees, both of which were affected by declining administered asset values.

Comparison of 2007 to 2006 – IMT net income for 2007 was $2.6 million, an increase of $1.1 million or 81% from 2006. An increase of $1.5 million in non-interest income and a decline of $0.3 million in non-interest expense were partially offset by a $0.7 million increase in income taxes.

The increase in non-interest income was attributable to higher personal trust services income, employee benefit income and brokerage commission income. Income taxes increased due to higher income before taxes.

Mortgage Banking

The Mortgage Banking Segment (Mortgage) provides a variety of mortgage lending products to meet its customers’ needs. It sells most of the loans it originates to a third-party mortgage services company, which provides private-label loan processing and servicing support on both sold and retained loans.

Overview – Mortgage net loss for 2008 was $0.5 million, compared to $1.5 million net income in 2007 and $0.5 million net loss in 2006. Mortgage total assets were $201 million at December 31, 2008 and represented 4% of total consolidated assets. This compares to $264 million and 5% at December 31, 2007.

Comparison of 2008 to 2007 – Mortgage net loss for 2008 was $0.5 million, a decrease of $2.0 million from 2007. The decrease was primarily due to a $3.8 million decline in non-interest income, net of a $2.2 million decrease in operating expenses and a $1.3 million decrease in income tax expense.

The decrease in non-interest income was primarily due to the $2.6 million OMSR Gain recorded in 2007, lower servicing fee income attributable to the OMSR Sale and lower closing volumes, year-over-year. The decrease in operating expenses was attributable to lower personnel costs and allocated expenses, the benefit of an improved cost structure associated with the Mortgage Restructuring. Income taxes decreased due to lower income before taxes.

Comparison of 2007 to 2006 – Mortgage net income for 2007 was $1.5 million, an increase of $2.0 million from 2006. The increase was primarily due to a $3.2 million decline in non-interest expense, net of a $1.3 million increase in income tax expense.

The decline in non-interest expense was primarily due to lower personnel and allocated corporate support costs as the cost of servicing mortgage loans has been substantially eliminated after the transition to the third party processor and servicer. The decrease in personnel costs was net of severance costs associated with job eliminations in connection with the transition. Income taxes increased due to higher income before taxes. The $2.6 million OMSR Gain was largely offset by lower mortgage banking income and net interest income.

BALANCE SHEET REVIEW

Total assets were $53.18 billion at December 31, ~~2008~~2009, a decrease of $~~133~~1.3 ~~million~~billion or ~~three~~25% ~~percent~~ from December 31, ~~2007~~2008. ~~Total~~A ~~liabilities decreased~~$1.6 billion decline in loans and a $26376 million ~~over~~decrease ~~the~~in ~~same~~securities ~~period~~available ~~and~~for ~~stockholders’~~sale, ~~equity~~were ~~decreased~~partially offset by a $~~107~~488 million. ~~The~~increase ~~following~~in ~~discusses~~loans ~~changes~~held infor ~~the~~sale ~~major~~and ~~components~~a of$408 ~~the~~million ~~Consolidated~~increase ~~Balance~~in ~~Sheet~~interest ~~since~~earning ~~December 31,~~deposits ~~2007~~in banks and Fed Funds sold.

Total liabilities decreased $1.1 billion over the same period and stockholders’ equity decreased $226 million. Bank-issued deposits, wholesale deposits and borrowings decreased $239 million, $274 million and $538 million, respectively. These reductions were a reflection of the decreased funding needs associated with the decrease in assets. The decrease in stockholders’ equity was attributable to the net loss for 2009.

The following discusses changes in the major components of the Consolidated Balance Sheet since December 31, 2008.

Cash and Cash Equivalents

Cash and cash equivalents ~~increased~~decreased $681 million from December 31, ~~2007 to December 31,~~ 2008, ~~as the cash provided by operating activities of $56 million exceeded the cash used in investing activities of $9 million plus the cash used in financing activities of $41 million. This compares~~ to ~~a decrease of $14 million from~~ December 31, ~~2006 to December 31~~2009, ~~2007,~~ as the cash used in financing activities of $~~126~~884 million exceeded the cash provided by operating activities of $6224 million~~, plus the cash provided by investing activities of $50 million.~~

~~The~~39 $56 million of cash provided by operating activities during 2008 compares with $62 million provided in 2007, representing a $6 million decrease in cash provided between the two years. The $9 million of cash used in investing activities during 2008 compares with $50 million cash provided in 2007, for a decrease of $59 million in cash provided between the two years. The decrease was primarily due to a decline in cash proceeds from security sales and maturities of $41 million combined with an increase in cash used to purchase securities and other short-term investments of $22 million. The $41 million of cash used in financing activities during 2008 compares with $125 million cash used in 2007, or a decrease of $84 million in cash used between the two years. This was primarily due to a $59 million decline in treasury share purchases, as the Stock Repurchase authorization expired during 2008, and a $41 million decline in long-term borrowing payments. A $424 million decline in bank-issued deposits was essentially offset by increases in wholesale funding sources.

Securities Available for Sale

Total securities available for sale as of December 31, 2008 were $858 million, an increase of $15 million or two percent from the prior year-end. At December 31, 2008, the total securities available for sale portfolio comprised 18% of total earning assets, including COLI, compared to 17% for 2007. Among the factors affecting the decision to purchase or sell securities are the current assessment of economic and financial conditions, including the interest rate environment, regulatory capital levels, the liquidity needs of the Company, and its pledging obligations.

As of December 31, 2008, mortgage-backed (MBS), collateralized mortgage obligations (CMO), and other asset-backed (ABS) securities totaled $606 million and represented 71% of total available for sale securities. The distribution included $107 million of MBS and $439 million of CMOs issued by U.S. Government sponsored enterprises (GSEs) and U.S. Government Agencies, and $44 million of CMOs and $16 million of ABS that were privately issued, nearly all of which are rated Aaa.

The $858 million of total securities available for sale includes gross unrealized gains of $13 million and gross unrealized losses of $26 million. Unrealized gains and unrealized losses is the difference between a security’s fair value and carrying value. The fair value of a security is generally influenced by two factors, market risk and credit risk. Market risk is the exposure of the security to changes in interest rate. There is an inverse relationship to changes in the fair value of the security with changes in interest rates, meaning that when rates increase the value of the security will decrease. Conversely, when rates decline the value of the security will increase. Credit risk arises from the extension of credit to a counter-party, for example a purchase of corporate debt in security form, and the possibility that the counter-party may not meet its contractual obligations. The Company’s policy is to invest in securities with low credit risk, such as U.S. Treasuries, U.S. government agencies (such as the Government National Mortgage Association or “GNMA”), GSEs (such as FHLMC and the Federal National

~~Mortgage~~plus ~~Association~~the orcash ~~FNMA),~~provided ~~state~~by ~~and~~investing ~~political~~activities ~~obligations,~~of ~~and~~$779 ~~highly-rated~~million. ~~private~~This ~~issue~~compares ~~mortgage~~to an increase in cash and ~~asset-backed~~cash ~~securities.~~equivalents ~~Unlike~~of ~~agency~~$6 ~~debt~~million from December 31, ~~GSE debt~~2007 isto ~~not~~December 31, ~~secured~~2008, as the cash provided by operating activities of $56 million exceeded the ~~full~~cash ~~faith~~used ~~and~~in ~~credit~~investing activities of $9 million plus the ~~United~~cash ~~States~~used in financing activities of $41 million.

The ~~combined~~ ~~effect~~$24 million of ~~the~~cash ~~Company’s~~provided ~~gross~~by ~~unrealized~~operating ~~gains~~activities ~~and~~during ~~gross~~2009 ~~unrealized~~compares ~~losses,~~with ~~net~~$56 ofmillion ~~tax~~provided in 2008, isrepresenting ~~included~~a $32 asmillion ~~other~~decrease ~~comprehensive~~in ~~income~~cash ~~(OCI)~~provided inbetween ~~stockholders’~~the ~~equity~~two years, asprimarily ~~none~~due ofto ~~the~~a ~~securities~~decrease ~~with~~in ~~gross~~pre-provision, ~~unrealized~~pre-tax ~~losses~~earnings. ~~are~~The ~~considered other~~$779 ~~than~~million ~~temporarily~~of ~~impaired.~~cash Ofprovided ~~the~~by investing activities during 2009 compares with $269 million ofcash ~~gross~~used ~~unrealized~~in ~~losses~~2008, for an increase of $23788 million ~~relate~~in cash provided between the two years. The increase was primarily due to ~~securities~~combined ~~that~~increases ~~have~~in ~~had~~proceeds aof ~~fair~~$1.1 ~~value~~billion ~~less~~from ~~than~~the ~~book~~sales ~~value~~and maturities of securities available for ~~over~~sale, ~~twelve~~net ~~months.~~of ~~Included~~increased purchases of $720 million, a decrease in ~~the~~loans $23746 million ofand ~~unrealized~~an ~~losses~~increase isin loan sale proceeds of $479 million ~~related~~. toThese ~~three~~were ~~“Aaa”~~partially ~~rated~~offset ~~private~~by ~~issue~~an ~~mortgage~~increase ~~related~~in ~~collateral~~interest ~~mortgage~~earning ~~obligations~~deposits ~~and~~in banks of $19409 million. ~~related~~The to$409 ~~seven~~million ~~investment~~year-over-year ~~grade,~~increase ~~private~~in ~~issue~~interest earning ~~asset~~deposits ~~backed~~in ~~obligations~~banks was primarily on deposit with the FRB. ~~These~~The ~~bonds~~$884 ~~have~~million ~~sufficient~~of ~~credit~~cash ~~enhancement~~used ~~and~~in ~~the Company~~financing ~~expects~~activities ~~full~~during ~~recovery~~2009 ofcompares ~~principal.~~with As$41 ofmillion ~~December 31,~~cash used in 2008, ~~the~~or ~~Company~~an ~~has~~increase ~~the~~of ~~ability~~$843 tomillion ~~hold,~~in ~~and~~cash ~~has~~used nobetween ~~intent~~the two years. This was primarily due to ~~dispose~~a ~~of,~~$758 ~~the~~million ~~related~~decline ~~securities~~wholesale ~~until~~deposits ~~maturity~~and ora ~~upon~~$350 ~~fair~~million ~~value~~decline ~~exceeding~~in ~~cost~~long-term borrowing payments.

~~For~~Interest ~~comparative~~Earning ~~purposes,~~Deposits ~~at December 31, 2007, gross unrealized gains of $2 million and gross unrealized losses of $7 million were included~~ in ~~the~~Banks ~~securities available for sale portfolio. For further analysis of the securities available for sale portfolio, see Table 4~~ and ~~Note~~Fed 3Funds ofSold ~~the Notes to Consolidated Financial Statements.~~

Interest Earning Deposits in Banks and Fed Funds Sold increased to $409 million at December 31, 2009 from $2 million at December 31, 2008. The increase primarily relates to deposits at the FRB as the Company seeks to maintain sufficient liquidity during the current economic cycle.

Loans Held for Sale

AtLoans ~~December 31,~~held ~~2008,~~for ~~mortgage origination fundings awaiting~~ sale ~~were~~balances increased $7488 million~~, compared~~ to $4495 million at December 31, ~~2007.~~2009 ~~All~~compared ~~loans~~to ~~held~~$7 ~~for~~million ~~sale are recorded~~ at ~~the~~December 31, ~~lower of cost or market value~~2008. ~~Residential~~Loans totaling ~~mortgage~~$483 ~~loans~~million ~~are~~related ~~originated~~to by the ~~Company’s~~Illinois ~~Mortgage~~Branch ~~Banking~~Sale ~~Segment.~~were ~~Prior~~reclassified to ~~the~~held ~~Mortgage Restructuring~~for insale ~~2007,~~during the ~~majority~~fourth ofquarter. ~~non-conforming~~At ~~adjustable~~December 31, ~~rate~~2009, ~~fixed-rate~~mortgage ~~and~~origination ~~balloon~~fundings ~~residential~~awaiting ~~mortgages~~sale were ~~retained~~$5 ~~by the Bank~~million, ~~while~~compared ~~conforming~~to ~~adjustable~~$7 ~~rate~~million at December 31, ~~fixed-rate~~2008. ~~and~~An ~~balloon~~additional ~~residential~~$8 ~~mortgage~~million of non-performing loans were ~~sold~~held infor ~~the secondary~~sale ~~market~~at inDecember 31, ~~order~~2009. toAll ~~minimize~~loans ~~interest~~held ~~rate~~for ~~risk,~~sale asare ~~well~~recorded asat ~~to generate gains on~~ the ~~sale~~lower of ~~these~~cost ~~loans~~or ~~and~~market ~~servicing income~~value. ~~Since~~The ~~the Mortgage Restructuring, a~~ majority of all mortgage loans are sold for a fee net of origination costs. ~~See~~ ~~Significant Transactions, discussed above.~~

Securities Available for Sale

Total securities available for sale as of December 31, 2009 were $482 million, a decrease of $376 million or 44% from the prior year-end. At December 31, 2009, the total securities available for sale portfolio comprised 13% of total earning assets, including COLI, compared to 18% for 2008. Among the factors affecting the decision to purchase or sell securities are the current assessment of economic and financial conditions, including the interest rate environment, regulatory capital levels, the liquidity needs of the Company, and its pledging obligations.

As of December 31, 2009, mortgage-backed (MBS), collateralized mortgage obligations (CMO), and other asset-backed (ABS) securities totaled $429 million and represented 89% of total available for sale securities. The distribution included $169 million of MBS and $218 million of CMOs issued by U.S. Government sponsored enterprises (GSEs) and U.S. Government Agencies, and $21 million each of CMOs and ABS that were privately issued.

The $482 million of total securities available for sale includes gross unrealized gains of $2 million and gross unrealized losses of $13 million. Unrealized gains and unrealized losses is the difference between a security’s fair value and carrying value. The fair value of a security is generally influenced by two factors, market risk and credit risk. Market risk is the exposure of the security to changes in interest rate. There is an inverse relationship to changes in the fair value of the security with changes in interest rates, meaning that when rates increase the

value of the security will decrease. Conversely, when rates decline the value of the security will increase. Credit risk arises from the extension of credit to a counter-party, for example a purchase of corporate debt in security form, and the possibility that the counter-party may not meet its contractual obligations. The Company’s policy is to invest in securities with low credit risk, such as U.S. Treasuries, U.S. government agencies (such as the Government National Mortgage Association or “GNMA”), GSEs (such as the Federal Home Loan Mortgage Corporation or FHLMC and the Federal National Mortgage Association or FNMA), state and political obligations, and highly-rated private issue mortgage and asset-backed securities. Unlike agency debt, GSE debt is not secured by the full faith and credit of the United States.

The combined effect of the Company’s gross unrealized gains and gross unrealized losses is included as other comprehensive income (OCI) in stockholders’ equity, as none of the securities with gross unrealized losses are considered other than temporarily impaired. Of the $13 million of gross unrealized losses, $10 million relate to securities that have had a fair value less than book value for over twelve months. Included in the $10 million is $1 million related to six private issue mortgage related collateral mortgage obligations and $9 million related to seven private issue asset backed obligations. The Company believes these bonds have sufficient credit enhancement and expects recovery of the entire cost basis of the securities. As of December 31, 2009, the Company does not intend to sell the securities and does not believe it will be required to sell the securities before their anticipated recovery.

For comparative purposes, at December 31, 2008, gross unrealized gains of $13 million and gross unrealized losses of $26 million were included in the securities available for sale portfolio. For further analysis of the securities available for sale portfolio, see Table 4 and Note 3 of the Notes to Consolidated Financial Statements.

Trading Securities

Debt and equity securities held for resale are classified as trading securities and reported at fair value. Realized gains or losses are reported in non-interest income. There were no trading securities at December 31, 2009.

Loans

Loans represent the largest component of AMCORE’s earning asset base. At year-end ~~2008~~2009, total loans were $32.82 billion, a decrease of $~~147~~1.6 ~~million~~billion from ~~2007~~2008, and represented 7959% of total earning assets including COLI. Of the $1.6 billion decline, $706 million is attributable to loans sold or reclassified to loans held for sale in connection with the Wisconsin Branch Sales, the Indirect Auto Loan Sale and the Illinois Branch Sale. The remaining decrease largely reflects the Company’s efforts to substantially reduce its exposure to non-strategic, non-relationship based accounts, especially loans concentrated in single-service accounts such as investment real estate loans, and increased charge-offs. See Table 2 and Note 4 of the Notes to Consolidated Financial Statements.

Total commercial real estate loans, including real estate construction loans, decreased $~~162 million~~837 ~~or seven percent. Residential real estate loans decreased $31~~ million or ~~seven percent~~38%. Commercial, financial and agricultural loans ~~increased~~decreased $4426 million or ~~one percent~~55%. Installment and consumer loans ~~increased~~decreased $42249 million or 1266%. ~~The decrease~~Residential inreal estate loans, ~~included~~including ~~the~~home ~~Loan~~equity ~~Sale~~products, decreased $121 million or 27%.

Goodwill

The Company’s goodwill balance of $6.1 million was written off during 2008.

Deposits

Total deposits at December 31, ~~2008~~2009 were $3.94 billion, a decrease of $84513 million or ~~two~~13% ~~percent~~ when compared to ~~2007~~2008. ~~The~~As noted above, the decrease was ~~due~~ todriven aby ~~$568~~reduced ~~million~~funding ~~decrease~~needs inand ~~bank-issued~~was ~~deposits~~comprised ~~net~~ of a $~~484~~239 million ~~increase~~decrease in ~~wholesale deposits. The decline in~~ bank-issued deposits ~~included a $43 million decline in non-interest bearing deposits~~ and a $~~643~~274 million ~~decline~~decrease in ~~non-time interest~~wholesale ~~bearing~~ deposits. ~~These declines were partly offset by a $118 million increase in time deposits.~~ The ~~declines~~decline in ~~non~~bank-~~time deposits were largely attributable to institutional and other high balance deposits that exceeded historical FDIC~~issued ~~insurance limits that elected to diversify their~~

3541

~~coverage by moving~~ deposits ~~to other financial institutions. In some instances, the deposit balances were collateralized and the decline freed up the collateral for other uses. Some large corporate deposits are now~~ included ~~in short-term borrowings, as the customers have elected to participate in a repo-sweep product. Balances in this product increased~~ $69166 million ~~since~~related ~~December 31, 2007. The increase in time deposits is attributable~~ to ~~deposit attraction strategies employed by~~ the ~~Bank~~Wisconsin inBranch ~~recent months as well as growth in a product offered by the Bank that enables customers to increase their FDIC-insured balances~~Sales. Bank-issued deposits represented 7276% of total deposits at December 31, ~~2008~~2009 compared to 8572% at December 31, ~~2007~~2008. Table 5 shows the maturity distribution of time deposits $100,000 and over.

Borrowings

Borrowings totaled $~~815~~278 million at year-end ~~2008~~2009 and were comprised of $~~436~~48 million of short-term and $~~380~~229 million of long-term borrowings. Comparable amounts at the end of ~~2007~~2008 were $~~397~~436 million and $~~369~~380 million, respectively, for a combined ~~increase~~decrease in borrowings of $50538 million or ~~six percent~~66%. The net ~~increase~~decrease in borrowings was driven by reduced funding needs and included $~~135~~248 million in Federal Home Loan Bank (FHLB) advances, $234 million in repurchase agreements (of which $69 94 million were the customer-sourced repo-sweep product, which is a secured form of borrowing), and $50 million in ~~Federal~~FRB ~~Reserve Bank~~ Term Auction Facility (“TAF”) ~~borrowings and $10 million in draws against senior debt~~. The ~~increase was partially offset by a $109 million~~ decline in ~~Fed Funds purchased, a $26 million decrease in~~ FHLB advances and $9repurchase ~~million~~agreements inreflect ~~U.S. Treasury tax and loan note (“TT & L”) accounts. Subsequent to~~ the ~~end~~impact of ~~2008,~~ the ~~maturity of its senior debt was~~Debt ~~extended to April 15, 2010~~Extinguishment. See Notes 76 and 87 of the Notes to Consolidated Financial Statements.

The Company has $50 million of Trust Preferred securities, ~~that~~$16 ~~qualify~~million of which qualifies as Tier 1 Capital and $34 million of which qualifies as Tier 2 Capital for regulatory capital purposes for the Company. In first quarter of 2009, the Company elected to defer regularly scheduled quarterly interest payments on the Trust Preferred securities. The deferral of interest does not constitute an event of default, per the terms of the indentures. While the Company defers the payment of interest, it ~~will~~continues ~~continue~~ to accrue expense for interest owed at a compounded rate. The Bank has two fixed/floating rate junior subordinated debentures totaling a combined $50 million ~~that~~of ~~qualify~~which $50 million and $31 million qualifies as Tier 2 Capital for regulatory capital purposes for ~~both~~ the Bank and the Company, respectively. See also Note 1817 of the Notes to the Consolidated Financial Statements.

As of December 31, 2009, the Company had $12.5 million outstanding from a $20 million senior debt facility agreement originally scheduled to mature April 2010. The FRB Agreement and the Consent Order caused the Company to be in technical default of this facility, although the Company had been current with all its payments due under the facility. In July 2009, AMCORE received a waiver of the technical default, paid the facility down by $7.5 million, and the maturity of the remaining $12.5 million was extended to April 2011. At September 30, 2009, as a result of dropping below adequately capitalized at the consolidated level, the Company once again was in technical default under the facility. On December 18, 2009, the Company entered into an amendment with the lender, which modified the covenant relating to capitalization at the parent and bank level so that the Company returned to full compliance with the terms of its credit agreement.

In connection with the amendment the Company paid all accrued interest through the date of the amendment, and agreed to make monthly interest payments thereafter. The Company established a $1.1 million cash interest reserve account with the lender, equal to the anticipated interest payments due from the date of the amendment through the maturity of the facility in April 2011. A new technical default occurred as a result of the Bank’s leverage ratio remaining at significantly undercapitalized as of December 31, 2009. All payments remain current under the facility. Both parties continue to work cooperatively and the Company has not been notified of any acceleration of maturity. Nevertheless, as this remains a potential remedy of the creditor that has not been waived, and notwithstanding the April 2011 due date, the Company has classified the facility as short-term.

For further information see Note 6 of the Notes to the Consolidated Financial Statements.

On January 28, 2009, Fitch downgraded the Company’s and the Bank’s long-term Issuer Default ratings to CCC and B-, respectively. Short-term issuer default ratings for both the Company and the Bank were downgraded to C. In addition, Fitch revised the Rating Outlook to “Rating Watch Off.”

Stockholders’ Equity

See discussion below under Liquidity and Capital Management.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Off-Balance Sheet Arrangements

During the ordinary course of its business, the Company engages in financial transactions that are not recorded on its Consolidated Balance Sheets, are recorded in amounts that are different than their full principal or notional amount, or are recorded on an equity or cost basis rather than being consolidated. Such transactions serve a variety of purposes including management of the Company’s interest rate risk, liquidity and credit concentration risks, optimization of capital utilization, assistance in meeting the financial needs of its customers and satisfaction of CRA obligations in the markets that the Company serves.

Auto loan sales – Historically, the Company has periodically transferred indirect automobile loans in securitization transactions in exchange for cash and certain retained residual interests. The transfers were structured as sales pursuant to ~~SFAS~~accounting Nostandards. ~~140~~ ~~“Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.”~~

36During 2007, the outstanding balances of the underlying loans fell to a level where the cost of servicing the loans became burdensome in relation to the benefits of servicing. As a result, the Company exercised its Clean-up Call option and repurchased the loans. The carrying value of the retained residual interests was written off.

Mortgage loan sales – The Company sells the majority of the mortgage loans that it originates, including the rights to service the loans sold, to a national mortgage services company in a private-label loan processing and servicing support arrangement. Historically, the Company sold most of the mortgage loans that it originated to the secondary market, but retained the right to service the loans that were sold. As a result, the Company would record an OMSR asset and a gain on the sale of the loans that were transferred. During 2007, the Company sold the majority of its OMSR portfolio, recording the $2.6 million OMSR Gain. At December 31, 2009, the unpaid principal balance of mortgage loans serviced for others was $14 million, compared to $16 million at December 31, 2008. These loans are not recorded on the Company’s Consolidated Balance Sheets. For both December 31, 2009 and December 31, 2008, the Company had recorded $0.1 million, of originated mortgage servicing rights. There were no impairment valuation allowances for either period.

Derivatives – The Company periodically uses 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, and on occasion caps, collars and floors (collectively the “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 to/from the Counter-party. It is used only as a reference point to calculate the exchange of interest payment streams and is not recorded on the Consolidated Balance Sheets. AMCORE does not have any derivatives that are held or issued for trading purposes but it does have some derivatives that do not qualify for hedge accounting. AMCORE monitors credit risk exposure to the Counter-parties. All Counter-parties, or their parent company, have investment grade credit ratings and are expected to meet any outstanding interest payment obligations.

As of December 31, 2009, there were no interest rate swaps, caps, collars or floors outstanding. The total notional amount of Interest Rate Derivatives outstanding was $43 million as of December 31, 2008 with a net negative carrying and fair value of $1.0 million. The total notional amount of forward contracts outstanding for mortgage loans to be sold was $16 million and $61 million as of December 31, 2009 and December 31, 2008, respectively. As of December 31, 2009, the forward contracts had a net positive carrying and fair value of $0.3 million compared to a net negative carrying and fair value of $0.6 million at December 31, 2008. For further discussion of derivatives, see Notes 8 and 9 of the Notes to Consolidated Financial Statements.

Loan commitments and letters of credit – The Company, as a provider of financial services, routinely enters into commitments to extend credit to its Bank customers, including a variety of letters of credit. Letters of credit are a

~~During~~ conditional ~~2007,~~but ~~the~~generally ~~outstanding~~irrevocable ~~balances~~form of guarantee on the ~~underlying~~part ~~loans~~of ~~fell~~the Bank to make payments to a ~~level~~third ~~where~~party obligee, upon the ~~cost~~default of ~~servicing~~payment or performance by the ~~loans became~~Bank ~~burdensome~~customer inor ~~relation~~upon consummation toof the ~~benefits~~underlying oftransaction ~~servicing~~as intended. AsWhile athese ~~result,~~represent ~~the~~a ~~Company~~potential ~~exercised~~outlay ~~its~~by ~~Clean-up~~the ~~Call~~Company, ~~option~~a ~~and~~significant ~~repurchased~~amount of the ~~loans.~~commitments ~~The~~and ~~carrying~~letters ~~value~~ of ~~the~~credit ~~retained~~may ~~residual~~expire ~~interests~~without ~~was~~being ~~written~~drawn ~~off~~upon. AsCommitments and letters of ~~December 31,~~credit ~~2007,~~are ~~the~~subject ~~balance~~to of the ~~repurchased~~same ~~loans~~credit ~~included~~policies, onunderwriting ~~the~~standards ~~Company’s~~and ~~Consolidated~~approval ~~Balance~~process ~~Sheet~~as ~~was~~loans ~~$22~~made ~~million~~by the Company.

~~Mortgage~~At ~~loan~~both ~~sales – Historically~~December 31, ~~the~~2009 ~~Company~~and ~~sold~~December 31, ~~most of the mortgage loans that it originated to the secondary market~~2008, ~~retaining~~liabilities ~~the~~of ~~right~~less ~~to service~~than ~~the loans that were sold~~$0.1 ~~As a result~~million, representing the ~~loans~~value ~~were~~of ~~removed from~~ the ~~Company’s~~guarantee ~~Consolidated~~obligations ~~Balance~~associated ~~Sheets,~~with ancertain ~~OMSR~~of ~~asset was recorded and gains on~~ the ~~sale~~letters of ~~the loans were recognized~~credit, ~~pursuant to SFAS No 140. During 2007, the~~had ~~Company~~been ~~sold the majority of its OMSR portfolio~~recorded. ~~The~~These ~~Company~~amounts ~~now~~are ~~sells~~expected ~~nearly~~to ~~all~~be ofamortized ~~the~~into ~~mortgage~~income ~~loans~~over ~~that it originates, including~~ the ~~rights~~lives toof ~~service~~ the ~~loans sold, to a national mortgage services company in a private-label loan processing and servicing support arrangement~~commitments. ~~See~~The ~~above~~contractual ~~discussion~~amount of ~~Significant~~all ~~Transactions.~~letters ~~At December 31, 2008 and December 31, 2007, the unpaid principal balance~~ of ~~mortgage~~credit ~~loans serviced for others~~ was $1622 million and $1774 million~~, respectively.~~ ~~These~~at ~~loans are not recorded on the Company’s Consolidated Balance Sheets. As of~~ December 31, ~~2008~~2009 and ~~December 31~~2008, ~~2007,~~respectively. ~~the~~See ~~Company~~Notes ~~had~~9 and ~~recorded~~12 ~~$0.1 million~~ of ~~OMSRs.~~the ~~There~~Notes ~~were~~to noConsolidated ~~impairment~~Financial ~~valuation allowances for either period~~Statements.

~~Derivatives –~~ The ~~Company periodically uses~~net ~~derivative~~carrying ~~contracts~~value toof ~~help~~mortgage ~~manage~~loan ~~its~~commitments ~~exposure~~was toa ~~changes~~$0.2 inmillion ~~interest~~liability ~~rates~~ and ina ~~conjunction with its mortgage banking operations~~$0.4 ~~The~~million ~~derivatives~~asset ~~used~~at ~~most often are interest rate swaps~~December 31, ~~and~~2009 ~~on occasion caps, collars~~ and ~~floors (collectively the “Interest Rate Derivatives”), mortgage loan commitments and forward contracts. As of~~ December 31, 2008 ~~and 2007~~, ~~there were no caps, collars or floors outstanding~~respectively. ~~Interest~~These ~~Rate~~amounts ~~Derivatives~~represent ~~are contracts with a third-party (~~the ~~“Counter-party”)~~ tofair ~~exchange~~value ~~interest~~of ~~payment~~those ~~streams~~commitments ~~based upon an assumed principal amount (the “Notional Principal Amount”). The Notional Principal Amount is not advanced~~ marked-to~~/from the Counter~~-~~party~~market. ~~It is used only as a~~The ~~reference~~total ~~point~~notional toamount ~~calculate the exchange~~ of ~~interest~~mortgage ~~payment~~loan ~~streams~~commitments ~~and~~was is$11 ~~not~~million ~~recorded~~at onDecember 31, ~~the~~2009 ~~Consolidated~~and ~~Balance~~$55 ~~Sheets.~~million ~~AMCORE~~at ~~does~~December 31, ~~not have any derivatives that are held or issued for trading purposes but it does have some derivatives that do not qualify for hedge accounting~~2008. ~~AMCORE~~See ~~monitors~~Note ~~credit~~8 ~~risk~~of ~~exposure to~~ the ~~Counter-parties.~~Notes ~~All Counter-parties, or their parent company, have investment grade credit ratings and are expected~~ to ~~meet~~Consolidated ~~any~~Financial ~~outstanding interest payment obligations~~Statements.

~~The~~At ~~total notional amount of Interest Rate Derivatives outstanding was $43 million and $141 million as of~~ December 31, ~~2008~~2009 and December 31, ~~2007, respectively. As of December 31,~~ 2008, ~~Interest~~the ~~Rate~~Company ~~Derivatives~~ had aextended $356 ~~net~~million ~~negative~~and ~~carrying~~$596 ~~and~~million, ~~fair~~respectively, ~~value~~in ofloan ~~$1.0~~commitments ~~million,~~other ~~compared~~than tothe amortgage ~~net~~loan ~~negative~~commitments ~~carrying~~ and ~~fair~~letters ~~value~~ of ~~$1.7~~credit ~~million~~described atabove. ~~December 31,~~This ~~2007.~~amount ~~The~~represented ~~total~~the notional amount of ~~forward~~the ~~contracts~~commitment. ~~outstanding~~A ~~for~~contingent ~~mortgage~~liability ~~loans~~of ~~to be sold was~~ $611.8 million and $235.8 million ashas ofbeen ~~December 31,~~recorded ~~2008~~for ~~and December 31, 2007, respectively. As of December 31, 2008,~~ the ~~forward~~Company’s ~~contracts~~estimate ~~had a net negative carrying and fair value~~ of ~~$0.6~~probable ~~million~~losses ~~compared~~on tounfunded acommitments ~~net~~including ~~negative~~letters ~~carrying and fair value~~ of ~~$0.1~~credit ~~million~~outstanding at December 31, ~~2007.~~2009 ~~For~~and ~~further~~December 31, ~~discussion of derivatives~~2008, ~~see Notes 9 and 10 of the Notes to Consolidated Financial Statements~~respectively.

~~Loan commitments~~Equity ~~and~~investments ~~letters of credit~~ – The Company, ashas asome ~~provider~~non-marketable equity ofinvestments ~~financial~~that ~~services,~~have ~~routinely~~not ~~enters~~been ~~into~~consolidated ~~commitments~~in toits ~~extend~~financial ~~credit~~statements tobut ~~its~~rather ~~Bank~~are ~~customers,~~recorded ~~including~~in aaccordance ~~variety~~with ofeither ~~letters~~the ofcost ~~credit.~~or ~~Letters~~equity method of ~~credit~~accounting ~~are~~depending ~~a conditional~~on ~~but~~the ~~generally~~percentage ~~irrevocable~~of ~~form~~ownership. ofAt ~~guarantee~~both onDecember 31, ~~the~~2009 ~~part~~and December 31, of2008, ~~the~~these ~~Bank~~investments toincluded ~~make~~$4 ~~payments~~million toin aCRA ~~third~~related ~~party~~investments. ~~obligee,~~Not ~~upon~~included in the ~~default~~carrying ofamount ~~payment~~were orcommitments ~~performance~~to byfund ~~the~~an ~~Bank~~additional ~~customer~~$1.3 ormillion, ~~upon~~at ~~consummation~~some offuture ~~the~~date. ~~underlying~~The ~~transaction~~Company ~~as intended.~~also ~~While~~has ~~these~~recorded ~~represent~~investments aof ~~potential~~$5 million, ~~outlay~~$20 bymillion, ~~the~~and ~~Company~~less than $0.1 million, arespectively, ~~significant~~in ~~amount~~stock of the ~~commitments~~FRB, the FHLB and ~~letters~~preferred stock of ~~credit~~Federal ~~may~~Agricultural ~~expire~~Mortgage ~~without~~Corporation ~~being~~at ~~drawn~~December 31, ~~upon.~~2009 ~~Commitments~~ and ~~letters~~December 31, of2008. ~~credit~~These investments are ~~subject~~recorded toat amortized ~~the~~historical ~~same~~cost ~~credit~~or ~~policies~~fair value, ~~underwriting~~ ~~standards~~as ~~and~~applicable, ~~approval~~with ~~process~~income asrecorded ~~loans~~when ~~made~~dividends byare ~~the Company~~declared.

~~At both~~Other investments, comprised of various affordable housing tax credit projects (AHTCP) and other CRA related investments, totaled approximately $0.5 million and $0.6 million at December 31, ~~2008~~2009 and December 31, ~~2007~~2008, ~~liabilities~~respectively. inLosses are limited to the ~~amount~~remaining ofinvestment ~~$0.1~~and ~~million,~~there ~~representing~~are no additional funding commitments on the ~~value~~AHTCPs ofby the ~~guarantee~~Company. ~~obligations~~Those ~~associated~~investments without guaranteed yields were reported on the equity method, while those with ~~certain~~guaranteed ofyields were reported using the ~~letters~~effective yield method. The maximum exposure to loss for all non-marketable equity investments is the sum of ~~credit~~the carrying amounts plus additional commitments, ~~had~~if ~~been~~any, ~~recorded~~and inthe ~~accordance~~potential for the recapture of tax credits on AHTCP should it fail to qualify for the entire period required by tax regulations.

37Other investments – The Company also holds $2 million in a common security investment in AMCORE Capital Trust II (the “Capital Trust”), to which the Company has $52 million in long-term debt outstanding. The Capital Trust, in addition to the $2 million in common securities issued to the Company, has $50 million in Trust Preferred securities outstanding. The $50 million in Trust Preferred securities were issued to non-affiliated investors during 2007 and are redeemable beginning in 2012. In its Consolidated Balance Sheets, the Company reflects its $2 million common security investment on the equity method and reports the entire $52 million as outstanding long-term debt. For regulatory purposes, $16 million of the Trust Preferred securities qualify as Tier 1 capital for the Company and $34 million qualify as Tier 2 capital for the Company.

~~with~~Fiduciary ~~FIN~~and ~~No. 45.~~agency ~~These~~– ~~amounts~~The ~~are~~Company’s ~~expected~~subsidiaries toalso behold ~~amortized~~assets ~~into~~in ~~income~~a ~~over~~fiduciary ~~the~~or agency ~~lives~~capacity ofthat ~~the~~are ~~commitments.~~not ~~The~~included ~~contractual~~in ~~amount~~the ofConsolidated ~~all~~Financial ~~letters~~Statements ~~of credit,~~because ~~including~~they ~~those~~are ~~exempted~~not ~~from~~assets of the ~~scope~~Company. ofTotal ~~FIN~~assets ~~No. 45,~~administered ~~was~~by ~~$74~~the ~~million~~Company ~~and~~were $~~192~~2.0 ~~million~~billion at both December 31, ~~2008~~2009 and ~~the end of 2007~~December 31, ~~respectively~~2008. ~~See Notes 10 and 13 of the Notes to Consolidated Financial Statements.~~

The net carrying value of mortgage loan commitments recorded as an asset totaled $0.4 million and less than $0.1 million at December 31, 2008 and December 31, 2007, respectively. These amounts represent the fair value of those commitments marked-to-market in accordance with SFAS No. 138, “Accounting for Derivative Instruments and Hedging Activities” and in accordance with SAB No. 105. The total notional amount of mortgage loan commitments was $55 million at December 31, 2008 and $18 million at December 31, 2007. See Note 9 of the Notes to Consolidated Financial Statements.

At December 31, 2008 and December 31, 2007, the Company had extended $596 million and $867 million, respectively, in loan commitments other than the mortgage loan commitments and letters of credit described above. This amount represented the notional amount of the commitment. A contingent liability of $5.8 million and $1.0 million has been recorded for the Company’s estimate of probable losses on unfunded commitments including letters of credit outstanding at December 31, 2008 and December 31, 2007, respectively.

Equity investments – The Company has some non-marketable equity investments that have not been consolidated in its financial statements but rather are recorded in accordance with either the cost or equity method of accounting depending on the percentage of ownership. At December 31, 2008 and December 31, 2007, these investments included $5 million and $4 million, respectively, in CRA related investments. Not included in the carrying amount were commitments to fund an additional $1.5 million, at some future date. The Company also has recorded investments of $5 million, $20 million, and less than $0.1 million, respectively, in stock of the Federal Reserve Bank, the FHLB and preferred stock of Federal Agricultural Mortgage Corporation at December 31, 2008. At December 31, 2007, these amounts were $4 million, $20 million, and less than $0.1 million, respectively. These investments are recorded at amortized historical cost or fair value, as applicable, with income recorded when dividends are declared.

Other investments, comprised of various affordable housing tax credit projects (AHTCP) and other CRA related investments, totaled approximately $0.6 million and $0.7 million at December 31, 2008 and December 31, 2007, respectively. Losses are limited to the remaining investment and there are no additional funding commitments on the AHTCPs by the Company. Those investments without guaranteed yields were reported on the equity method, while those with guaranteed yields were reported using the effective yield method. The maximum exposure to loss for all non-marketable equity investments is the sum of the carrying amounts plus additional commitments, if any, and the potential for the recapture of tax credits on AHTCP should it fail to qualify for the entire period required by tax regulations.

Other investments – The Company also holds $2 million in a common security investment in AMCORE Capital Trust II (the “Capital Trust”), to which the Company has $52 million in long-term debt outstanding. The Capital Trust, in addition to the $2 million in common securities issued to the Company, has $50 million in Trust Preferred securities outstanding. The $50 million in Trust Preferred securities were issued to non-affiliated investors during 2007 and are redeemable beginning in 2012. In its Consolidated Balance Sheets, the Company reflects its $2 million common security investment on the equity method and reports the entire $52 million as outstanding long-term debt. For regulatory purposes, however, the $50 million in Trust Preferred securities qualifies as Tier 1 capital for the Company.

Fiduciary and agency – The Company’s subsidiaries also hold assets in a fiduciary or agency capacity that are not included in the Consolidated Financial Statements because they are not assets of the Company. Total assets administered by the Company were $2.0 billion at December 31, 2008 and $2.7 billion at December 31, 2007.

Contractual Obligations

In the ordinary course of its business, the Company enters into certain contractual arrangements. These obligations include issuance of debt to fund operations, property leases and derivative transactions. With the predominant portion of its business being banking, the Company routinely enters into and exits various funding relationships including the issuance and extinguishment of long-term debt. See the discussion of Borrowings above, and Notes 76 and 87 of the Notes to Consolidated Financial Statements. During ~~2008~~2009, the Company ~~did~~entered ~~not enter~~ into ~~any~~one new lease ~~agreements, but gave notice of its intent to exit two of its limited branch offices and~~ ~~one of its full service branch offices, recording a lease termination obligation of $1~~agreement.2 ~~million.~~ Other than these transactions, there were no material changes in the Company’s contractual obligations since the end of ~~2007~~2008. Amounts as of December 31, ~~2008~~2009 are listed in the following table:

	Payments due by period
Contractual Obligations	Total		Lessthan 1Year		1-3Years		3-5Years		Morethan 5Years
	(in thousands)		~~(in thousands)~~
Time Deposits	$	2,~~229~~138,~~139~~872	$	1,~~201~~081,~~473~~449	$	~~852~~973,~~265~~053	$	~~174~~83,~~944~~913	$	457
Long-Term Debt (1)		~~457~~276,~~432~~976		2012,~~667~~488		~~156~~47,~~934~~536		~~219~~160,~~937~~526		5956,~~894~~426
Capital Lease Obligations (2)		2,~~479~~255		225		~~456~~457		~~409~~366		1,~~389~~207
Operating Leases		9967,~~976~~065		4,~~212~~354		87,~~104~~844		67,~~908~~050		8047,~~752~~817
Service Contracts		1,~~160~~076		~~456~~415		~~621~~661		83—		—
Interest Rate Swaps (3)		3,898		1,984		1,785		129		—
Planned Pension Obligation Funding		5,871		382		743		736		4,010
Planned Pension Obligation Funding		6,248		382		750		736		4,380
Total	$	2,492,115	$	1,099,313	$	1,030,294	$	252,591	$	109,917
Total	$	2,800,332	$	1,229,399	$	1,020,915	$	403,146	$	146,872

(1) Includes related interest. Interest calculations on debt with call features were calculated through the first call date. Any debt with floating rates was calculated using the rate in effect at December 31, ~~2008~~2009. See Note 87 of Notes to the Consolidated Financial Statements.

(2)	Includes related interest. See Note 5 of Notes to the Consolidated Financial Statements.

(3) Swap contract payments relate only to the “pay” side of the transaction. Any contracts with floating rates were calculated using the rate in effect at December 31, 2008.

ASSET QUALITY REVIEW AND CREDIT RISK MANAGEMENT

AMCORE’s credit risk is centered in its loan portfolio, which totaled $32.8 2 billion, or 7959% of earning assets, including COLI on December 31, ~~2008~~2009. 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 carrier credit risk with respect to its $~~145~~139 million investment in COLI. AMCORE has managed this risk by utilizing “separate accounts” in which its credit exposure is to a specific investment portfolio rather than the carrier. The underlying investment portfolios (which are managed by parties other than AMCORE) consist of investment grade securities and the investment guidelines typically have a requirement to sell if the securities are downgraded. Separate accounts constitute the majority of AMCORE’s COLI portfolio. In terms of COLI accounts where AMCORE is directly exposed to carrier risk, this risk has been managed by diversifying its holdings among multiple carriers and by periodic internal credit reviews. All carriers have investment grade ratings from the major rating agencies.

Allowance for Loan Losses – The Allowance is a significant estimate that is regularly reviewed by management to determine whether or not the amount is considered adequate to absorb inherent losses that are probable as of the reporting date. If not, an additional Provision is made to increase the Allowance. Conversely, this review could result in a decrease in the Allowance.

3945

~~could result in a decrease in the Allowance.~~ This evaluation includes specific loss estimates on certain individually reviewed impaired loans and ~~statistical~~ statistical loss estimates for loan groups or pools that are based on historical loss experience. The loan pools for which historical loss rates are tracked and applied are: commercial and industrial loans; construction and development loans; commercial real estate loans; home equity lines of credit; home equity loans; first lien mortgages; indirect consumer loans; and direct consumer loans. Within these pool categories, the Company determines a range of loss rates by specific risk grades and credit score bands. Loss rates are updated quarterly, and due to the current point of the credit cycle, the Company has been applying loss rates at the higher end of the range. Also included are other loss estimates, which reflect the current credit environment, economic factors and concentration characteristics that are not otherwise captured in or have changed from the historical loss rates.

The determination by management of the appropriate level of the Allowance amounted to $~~136~~ 145 million at December 31, ~~2008~~2009, compared to $53136 million at December 31, ~~2007~~2008, an increase of $839 million or ~~157~~6%. Specific loss estimates on individually reviewed impaired loans and loss estimates on loan pools increased $147 million and $69 2 million, respectively, at December 31, ~~2008~~2009 compared to December 31, ~~2007~~2008. The increase inwas ~~the~~due ~~Allowance~~to ~~was~~higher ~~taken~~specific inloss ~~light~~estimates ofon ~~sustained~~individually ~~increases~~reviewed inimpaired ~~non-performing~~ loans, ~~increased~~higher ~~delinquencies,~~estimated ~~higher~~pool ~~net~~loss ~~charge-offs~~rates and ~~the~~continued ~~rapid~~ deterioration inof real estate values and reduced sales activity in the Midwest that ~~negatively~~ affects the liquidity and capital resources of borrowers and the borrower’s ability to make principal and interest ~~payment~~payments when due. ~~The~~All ~~decline~~of inthese ~~sales~~factors ~~activity~~are ~~also leads~~a toreflection ~~eroding~~of ~~property~~the ~~values,~~increases ~~which~~in ~~serve~~non-performing loans asand ~~collateral~~net ~~for the repayment of loans~~charge-offs.

At December 31, ~~2008~~2009, the Allowance as a percent of total loans and of non-performing loans was 36.6074% and 4441%, respectively. These compare to the same ratios at December 31, ~~2007 of 1.35% and 75%. Net charge-offs were $100 million in~~ 2008, ~~an increase~~ of ~~$83 million from $17 million in 2007~~3. ~~This was 2.58~~60% and ~~0.42~~44% ~~of average loans, respectively~~. ~~Increases included commercial real estate net charge-offs of $68 million, commercial and industrial net charge-offs of $10 million, and $5 million in consumer/installment net charge-offs.~~

~~Non~~Net Charge-~~performing~~offs ~~Assets~~ – ~~Non-performing~~Net ~~assets consist of non~~charge-~~accrual~~offs ~~loans,~~were ~~loans ninety days past due and still accruing interest, foreclosed real estate and other repossessed assets. Non-performing assets totaled~~ $~~330~~178 million as ofin ~~December 31~~2009, ~~2008,~~ an increase of $~~255~~78 million from $75100 million atin ~~December 31, 2007~~2008. This ~~The~~was ~~increase~~5.34% ~~since~~and ~~December 31,~~2.58% ~~2007 consisted~~ of aaverage ~~$242 million increase in non-performing~~ loans, ~~driven~~respectively. byIncreases aincluded ~~rapid~~commercial ~~weakening of~~ real estate ~~conditions~~ innet ~~the~~charge-offs ~~Company’s~~of ~~markets.~~$58 ~~These~~million, ~~market~~commercial ~~conditions~~and ~~are~~industrial ~~expected~~net tocharge-offs ~~persist~~of ~~into 2009. Foreclosed assets increased by~~ $1316 million, asand ~~newly~~$6 ~~foreclosed~~million ~~loans~~in ~~exceeded~~consumer/installment ~~liquidations~~net ~~of existing foreclosed assets~~charge-offs. ~~Total non-performing~~Net ~~assets~~charge-offs ~~represented 6.53% and 1.45%~~ of ~~total~~residential ~~assets~~real atestate ~~December 31,~~loans ~~2008~~declined ~~and~~$1 ~~December 31, 2007, respectively~~million.

For loans that are collateral dependent, such as most commercial real estate loans, losses are deemed confirmed for the portion of a loan that exceeds the fair value of the collateral that can be identified as uncollectible. In general, this is the amount that the carrying value exceeds its appraised value. As a result, charge-offs of collateral dependent loans typically occur earlier than a charge-off of a loan that is not collateral dependent. Loans become collateral dependent as other sources of repayment become inadequate over time and the importance of the collateral’s value, as the sole source of repayment, increases. This has increasingly been the case as the effects of the economic downturn continues and other liquidity and capital resources of the borrowers and guarantors beyond the underlying collateral are depleted, and is the primary reason for the increase in net charge-offs in 2009 compared to 2008. In the event the deemed confirmed losses prove too conservative, some portion of these charge-offs will result in recoveries in future quarters. Generally, it is AMCORE’s policy to not rely upon appraisals that are older than one year prior to the date that impairment is being measured, although it not always possible to obtain updated appraisals as frequently as they may be desired. This has especially been the case over the past two years as volatility in property values have caused the appraisal industry’s resources to be over burdened. The most recent appraised values may be adjusted if, in management’s judgment, experience and other market data indicate that the property’s value, use, condition, exit market or other variable affecting its value may have changed since the appraisal was performed. In those instances, new appraisals are typically ordered and an additional loss allocation may be provided, if there is an estimated decline in value, pending confirmation of the amount of the loss from an updated appraisal.

While the Company strives to reflect all known risk factors in its evaluation, the ultimate loss could differ materially from the current estimate. See Critical Accounting Estimates for a discussion of the judgments and assumptions that are most critical in determining the adequacy of the Allowance.

InNon-performing ~~addition~~Assets to– ~~the~~Non-performing assets ~~amount~~consist of non-~~accruing~~accrual ~~and~~loans, ~~delinquent~~ loans ~~over~~ ninety days past due, management is aware that other possible credit problems of borrowers may exist. These include loans that are migrating from grades with lower risk of loss probabilities into grades with higher risk of loss probabilities, as performance and ~~potential~~still ~~repayment~~accruing issues surface. The Company monitors these loans and adjusts its historical loss rates in its Allowance evaluation accordingly. The most severe of these are credits that are classified as substandard assets due to either less than satisfactory performance historyinterest, ~~lack~~Troubled ofDebt ~~borrower’s sound worth or paying capacity~~Restructurings, orforeclosed ~~inadequate~~real ~~collateral.~~estate ~~As of December 31, 2008~~ and ~~December 31,~~other ~~2007,~~repossessed ~~there were $11 million and $6 million, respectively, in this risk category that were 60 to 89 days delinquent and $20 million and $13 million, respectively, that were 30 to 59 days past due~~assets. AtTroubled ~~December 31, 2008, 90% of these loans were current or less than thirty days past due.~~

Debt Restructurings are intended to result in loan terms that are more manageable for the borrower and result in a

higher recovery value for the Company than proceeding with foreclosure or other collection activities. They can, under certain circumstances, also permit the loan to return to performing status at some point in the future. As the Company works out of and reduces its inventory of non-accrual loans, the level of restructured loans and foreclosed assets may increase for a period of time.

Non-performing assets totaled $381 million as of December 31, 2009, an increase of $51 million from $330 million at December 31, 2008. The increase since December 31, 2008 consisted of a $37 million increase in non-performing loans and a $14 million increase in foreclosed assets. Loans past due ninety or more days and still accruing interest declined by $5 million. The Company experienced growth in non-performing assets through third quarter 2009, peaking at $454 million. During fourth quarter 2009, non-performing assets declined by $73 million as resolution, collection and charge-offs exceeded deterioration for the first time since first quarter 2006. Total non-performing assets represented 10.08% and 6.53% of total assets at December 31, 2009 and December 31, 2008, respectively.

Delinquencies, loans that are thirty to eighty-nine days past due were $54 million at December 31, 2009, a decrease of $30 million or 36% since December 31, 2008. Fourth quarter 2009 was the third consecutive quarterly decrease in delinquencies, which are at their lowest level since fourth quarter 2006. To the extent that delinquencies are a potential pipeline into non-performing loans this, along with the fourth quarter decline in non-performing assets, could be an indication that recent credit cycle may be easing or at least in a pause.

In addition to the amount of non-accruing and delinquent loans over ninety days past due, management is aware that other possible credit problems of borrowers may exist. These include loans that are migrating from grades with lower risk of loss probabilities into grades with higher risk of loss probabilities, as performance and potential repayment issues surface. The Company monitors these loans and adjusts its historical loss rates in its Allowance evaluation accordingly. The most severe of these are credits that are classified as substandard assets due to either less than satisfactory performance history, lack of borrower’s sound worth or paying capacity, or inadequate collateral. As of December 31, 2009 and December 31, 2008, there were $5 million and $11 million, respectively, in this risk category that were 60 to 89 days delinquent and $17 million and $20 million, respectively, that were 30 to 59 days past due. At December 31, 2009, 93% of these loans were current or less than thirty days past due.

Concentration of Credit Risks – As previously discussed, AMCORE strives to maintain a diverse loan 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 $~~772~~346 million at December 31, ~~2008~~2009, and comprised 2016% of gross loans, of which 613.5765%% were non-performing. Net charge-offs of commercial loans in ~~2008~~2009 and ~~2007~~ 2008 were 14.9193% and 01.6491%, respectively, of the average balance of the category.

40Commercial real estate and construction loans were $1.4 billion at December 31, 2009, comprising 63% of gross loans, of which 21.31% were classified as non-performing. Net charge-offs of construction and commercial real estate loans during 2008 and 2007 were 6.73% and 3.30%, respectively, of the average balance of the category.

The above commercial loan categories included $382 million in construction, land development loans and other land loans and $495 million of loans to lessors of non-residential building, respectively. There were no other loan concentrations within these categories that exceeded 10% of total loans.

Residential real estate loans totaled $126 million at December 31, 2009, and represented 6% of gross loans, of which 7.79% were non-performing. Net charge-offs of residential real estate during 2009 and 2008 were 0.67% and 0.15%, respectively, of the average balance in this category. The Bank does not engage in sub-prime lending.

Home equity lines and loans were $191 million at December 31, 2009, and comprised 9% of gross loans, of which 0.74% were non-performing. Net charge-offs of home equity lines and loans during 2009 and 2008 were 0.67% and 1.51%, respectively, of the average balance in this category.

~~Commercial~~Installment ~~real estate~~ and ~~construction~~consumer loans were $~~2.2~~129 ~~billion~~million at December 31, ~~2008~~2009, ~~comprising~~and 58comprised 6% of gross loans, of which 111.5309% were ~~classified as~~ non-performing. Net charge-offs of ~~construction~~consumer ~~and commercial real estate~~ loans during ~~2008~~2009 and ~~2007~~2008 were 3.3060% and 01.2961%, respectively, of the average balance of the category. Consumer loans are comprised primarily of in-market indirect auto loans and direct installment loans. Indirect auto loans totaled $97 million at December 31, 2009. Both direct loans and indirect auto loans are approved and funded through a centralized department utilizing the same credit scoring system to provide a standard methodology for the extension of consumer credit.

~~The~~Contained within the concentrations described above, ~~commercial~~the ~~loan~~Company ~~categories~~has ~~included~~$893 million of interest-only loans, of which $~~618~~468 million are included in the construction and commercial real estate loan category, ~~land~~$252 ~~development loans~~million are included in the commercial, financial, and ~~other~~agricultural ~~land~~loan ~~loans~~category, and $~~616~~166 million are in home equity loans and lines of credit. The Company does not have any negative amortization loans, and does not have material concentrations in relation to ~~lessors~~its total portfolio of ~~non~~high loan-~~residential~~to-value ~~building~~loans, ~~each~~option ofadjustable-rate ~~which~~mortgage ~~were~~loans ~~16%~~or ofloans ~~total~~that ~~loans~~initially have below market rates that significantly increase after the initial period. ~~There~~The ~~were~~Company nodoes ~~other~~not ~~loan~~ordinarily ~~concentrations~~permit ~~within~~monthly ~~these~~payments ~~categories~~that are less than the interest that ~~exceeded~~is ~~10%~~accrued ofon ~~total~~the ~~loans~~loan other than in a Troubled Debt Restructuring or work-out situation.

Residential real estate loans, which include home equity and permanent residential financing, totaled $438 million at December 31, 2008, and represented 12% of gross loans, of which 1.75% were non-performing. Net charge-offs of residential real estate during 2008 and 2007 were 0.88% and 0.11%, respectively, of the average balance in this category. The increases in net charge offs reflect credit conditions in general and the chargedown of two larger credits. The Bank does not engage in sub-prime lending.

Installment and consumer loans were $377 million at December 31, 2008, and comprised 10% of gross loans, of which 0.31% were non-performing. Net charge-offs of consumer loans during 2008 and 2007 were 1.61% and 1.36%, respectively, of the average balance of the category. Consumer loans are comprised primarily of in-market indirect auto loans and direct installment loans. Indirect auto loans totaled $315 million at December 31, 2008. Both direct loans and indirect auto loans are approved and funded through a centralized department utilizing the same credit scoring system to provide a standard methodology for the extension of consumer credit.

Contained within the concentrations described above, the Company has $1.4 billion of interest-only loans, of which $781 million are included in the construction and commercial real estate loan category, $443 million are included in the commercial, financial, and agricultural loan category, and $173 million are in home equity loans and lines of credit. The Company does not have any negative amortization loans, and does not have material concentrations in relation to its total portfolio of high loan-to-value loans, option adjustable-rate mortgage loans or loans that initially have below market rates that significantly increase after the initial period.

LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity Management

Overview – Liquidity management is the process by which the Company, through its Asset and Liability Committee (ALCO) and capital markets 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.

Liquidity is derived primarily from bank-issued deposit growth and retention; principal and interest payments on loans; principal and interest payments, sale, maturity and prepayment of investment securities; net cash provided from operations; and access to other funding sources. Other funding sources ~~include~~have typically included brokered ~~CDs~~CD’s, Fed Funds purchased lines, ~~Federal~~FRB ~~Reserve Bank~~ discount window advances, Treasury, tax and loan (TT&L) note accounts, Term Auction Facility (TAF) borrowings, FHLB advances, repurchase agreements, the sale or securitization of loans, subordinated debentures, balances maintained at correspondent banks and access to other capital market instruments. ~~Bank-issued~~In ~~deposits,~~the current ~~which~~environment ~~exclude~~and ~~wholesale~~due ~~deposits, are considered by management~~ to be the ~~primary,~~ ~~most~~recent ~~stable~~performance ~~and most cost-effective source~~ of ~~funding~~the ~~and~~Company, ~~liquidity.~~the ~~The~~Company ~~Bank also~~ has ~~capacity,~~been ~~over~~subject ~~time,~~ to ~~place~~increased ~~additional~~collateral ~~brokered~~requirements ~~CD’s~~and asother alimitations ~~source of mid-~~ to ~~long-term~~secured ~~funds~~funding. ~~The~~Bank-issued ~~ESA~~deposits, ~~and~~which ~~related~~exclude ~~government~~wholesale ~~programs~~deposits, ~~may~~are ~~also be a~~considered ~~source~~by ofmanagement ~~potential liquidity. AMCORE continues~~ to ~~review~~be ~~these~~the ~~programs~~primary, ~~for~~most ~~their~~stable ~~potential to add value to its customers~~ and ~~business~~most ~~and~~cost-effective ~~has~~source ~~not determined their potential impact on its future financial position, results~~ of ~~operation,~~funding ~~cash~~and ~~flows or~~ liquidity.

As of the end of 2009, both the Company and the Bank were below adequacy minimums for regulatory capital purposes. The Bank was “undercapitalized” for its Total Capital and Tier 1 Capital Ratios and “significantly undercapitalized” for its leverage ratio under applicable regulatory guidelines. The leverage capital ratio reflects, in part, the effect of maintaining high liquidity. As a result, the Bank is no longer eligible to participate in the brokered CD market and is also subject to limitations with respect to interest rates it can offer on deposits, generally limited to rates equal to no more than 75 basis points above prevailing market rates. These limitations, as well as recent increased collateral requirements and advance limitations with respect to other funding sources, may have a material impact on the Bank’s deposit levels and liquidity. While Company’s management continues to exert maximum effort to retain existing funding sources and to attract new funding sources, significant operating losses in 2008 and 2009, significant levels of criticized assets and low levels of capital raise substantial doubt as to Company’s ability to continue as a going concern. Doubt as to the Company’s ability to continue as a going concern was previously disclosed in the Company’s December 31, 2009 earnings release furnished with its February 2, 2010 Form 8-K, Current Report. If the Company is unable to achieve compliance with the requirements of the Consent Order, the FRB Agreement, the Letter and the Response Letter with the OCC and the FRB, or an acceptable CRP under the OCC’s Prompt Corrective Action guidelines, and if the Company cannot otherwise comply with such commitments and regulations, the OCC could force a sale, liquidation or federal conservatorship or receivership of the Bank.

Uses of liquidity include funding credit obligations to borrowers, funding of mortgage originations pending sale, withdrawals by depositors, repayment of debt when due or called, maintaining adequate collateral for public deposits, paying dividends to shareholders, payment of operating expenses, funding capital expenditures and maintaining deposit reserve requirements.

41Since December 31, 2008, wholesale funding, which includes borrowings and brokered deposits, decreased $812 million, while bank-issued deposits declined $239 million. These, coupled with a $224 million net loss for the year, reflect a $1.3 billion decrease in total assets. The decrease in borrowings also reflects the impact of the Debt Extinguishments. Wholesale funding represented 29% of total assets at December 31, 2009, compared to 37% as of the end of 2008. As of December 31, 2009, the Company’s cash and cash equivalents was approximately $625 million.

Investment securities portfolio – Historically, scheduled maturities of the Company’s investment securities portfolio and the prepayment of mortgage and asset backed securities represent a significant source of liquidity. Approximately $12 million, or three percent, of the securities portfolio will contractually mature in 2010. See Table 4. This does not include mortgage and asset backed securities since their payment streams may differ from contractual maturities because borrowers may have the right to prepay obligations, typically without penalty. For example, scheduled maturities for 2009, excluding mortgage and asset backed securities, were $82 million, whereas actual proceeds from the portfolio, which included scheduled payments and prepayments of mortgage and asset backed securities, were $626 million. This compares to proceeds of $304 million and $196 million in 2008 and 2007, respectively.

At December 31, 2009, securities available for sale were $482 million or 13% of total assets compared to $858 million or 17% at December 31, 2008.

Loans – Continued funding of loans is the most significant liquidity need, representing 57% of total assets as of December 31, 2009. Since December 31, 2008, loans decreased $1.6 billion. Loans held for sale, which represents mortgage origination funding awaiting sale, the Illinois Branch Sale and certain non-performing loans held for sale increased $488 million. The scheduled repayments and maturities of loans represent a substantial source of liquidity. Table 3 shows, for selected loan categories, that $411 million in maturities are scheduled for 2010.

Bank-issued deposits – Bank-issued deposits are the most cost-effective and reliable source of liquidity for the Company. During 2009, bank-issued deposits declined $239 million, reflecting in part the Wisconsin Branch Sales. Scheduled maturities of time deposits of $100,000 or more, as reflected in Table 5, are $615 million in 2010, of which $254 million are bank-issued. As a result of the FRB Agreement, the Consent Order, the Letter, and the Response Letter, the Bank is subject to restrictions on the interest rates that it may offer to its depositors. Under the applicable restrictions, the Bank cannot pay interest rates higher than 75 basis points above the prevailing market rates for each deposit type. To the extent local competitors offer higher rates, the Bank may be negatively affected in replacing run-off deposits and attracting new deposits.

Wholesale deposits – Wholesale deposits, which includes brokered CD’s, have historically been readily available source of liquidity for the Company. As noted above, the Bank is no longer eligible to participate in the brokered CD market. At December 31, 2009, wholesale deposit balances were $808 million. Due to the referenced limitations, as these deposits mature, the Bank will be required to replace the funding from other available sources of liquidity. During 2010, $361 million in wholesale deposits are scheduled to mature.

Parent company – In addition to the overall liquidity needs of the Company, the parent company requires adequate liquidity to pay its expenses, repay debt when due and pay stockholder dividends. Historically, liquidity has been provided to the parent company through the Bank in the form of dividends. The Bank is currently limited by regulation, and by the FRB Agreement, the Consent Order, the Letter, and the Response Letter in the amount of dividends that it can pay, without prior regulatory approval. For the foreseeable future, Bank retained earnings are not expected to be paid as dividends absent prior regulatory approval, which is unlikely.

~~During~~Other ~~2008,~~sources ~~wholesale~~of ~~funding~~liquidity – As of December 31, ~~which~~2009, ~~includes~~other sources of potentially available liquidity included secured borrowings from the FRB and ~~brokered~~the ~~deposits~~FHLB. Due to recent performance of the Company, ~~increased~~unsecured ~~$533~~borrowings ~~million.~~from Ofgovernment ~~this increase~~agencies and other sources, ~~$69~~such ~~million~~as ~~were~~Fed ~~the~~Funds, has been limited. The Bank’s ~~customer-sourced~~indirect ~~repo-sweep product~~auto portfolio, which at December 31, 2009 was $97 million, is a ~~secured~~potential ~~form~~source of ~~borrowing.~~liquidity ~~Wholesale~~through ~~funding~~future ~~represented~~loan ~~37%~~sales ofor ~~total~~securitizations. ~~assets~~During atfourth ~~December 31,~~quarter ~~2008~~2009, ~~compared~~$136 tomillion ~~26%~~of asloans ofwere sold in the ~~end~~Indirect ofAuto ~~2007~~Loan Sale. ~~The~~An extension of ~~Company’s~~the ~~liquidity~~Temporary ~~was~~Account ~~considered~~Guaranty ~~adequate~~Program (currently scheduled to ~~meet~~expire ~~its~~on ~~foreseeable~~June 30, ~~needs~~2010) could also serve as a continued source of ~~December 31~~liquidity. These potential sources are not committed lines, ~~2008~~therefore the availability and terms (including advance rates on collateral) can vary. The recent trends have been for lower advance or lending rates on assets.

~~Investment~~Other ~~securities~~uses ~~portfolio – Scheduled maturities~~ of ~~the~~liquidity ~~Company’s~~– ~~investment~~At ~~securities~~December 31, ~~portfolio~~2009, ~~and~~other ~~the~~potential ~~prepayment~~uses of ~~mortgage and asset backed securities represent a significant source of~~ liquidity. ~~Approximately~~totaled $82389 million, orand ~~nine~~included ~~percent,~~$356 ofmillion ~~the~~in commitments ~~securities~~to ~~portfolio~~extend ~~will~~credit, ~~contractually~~$11 ~~mature~~million in ~~2009.~~residential ~~See~~mortgage ~~Table~~commitments 4.primarily ~~This~~held ~~does~~for ~~not~~sale, ~~include mortgage~~ and ~~asset~~$22 ~~backed~~million ~~securities~~in ~~since~~letters ~~their~~of ~~payment streams may differ from contractual maturities because borrowers may have the right to prepay obligations, typically without penalty~~credit. ~~For~~At ~~example~~December 31, ~~scheduled maturities for~~ 2008, ~~excluding~~these ~~mortgage~~amounts ~~and~~totaled ~~asset backed securities, were~~ $26489 million,. ~~whereas~~The ~~actual proceeds from the portfolio~~June 30, ~~which~~2010 ~~included~~ scheduled ~~payments and prepayments~~ expiration of ~~mortgage~~the ~~and~~Temporary ~~asset~~Account ~~backed~~Guaranty ~~securities,~~Program ~~were~~could ~~$304~~also ~~million.~~result ~~This~~in ~~compares~~a touse ~~proceeds~~ of ~~$196 million and $209 million in 2007 and 2006, respectively~~liquidity.

AtThe ~~December~~Company entered into a stock redemption agreement (Redemption Agreement) on October 3116, ~~2008~~1989, ~~securities~~as ~~available~~amended ~~for~~September 30, ~~sale~~1993, ~~were~~pursuant ~~$858~~to ~~million~~Section 303 orof ~~17%~~the ofInternal ~~total~~Revenue Code to pay ~~assets~~death ~~compared~~taxes and other related expenses of certain stockholders. Such redemptions may be subject to ~~$843~~bank ~~million~~regulatory agency approvals or ~~16%~~limited atby ~~December 31,~~debt ~~2007~~covenant restrictions.

~~Loans~~The –Company’s ~~Funding~~remaining of$12.5 ~~loans~~million credit facility is ~~the~~due ~~most~~April 15, ~~significant~~2011. ~~liquidity~~However, ~~need~~as noted above, ~~representing~~a ~~75%~~technical default has occurred as a result of ~~total~~the ~~assets~~Bank’s leverage ratio remaining at significantly undercapitalized as of December 31, ~~2008~~2009. ~~Since~~All ~~December 31,~~payments ~~2007,~~remain ~~loans~~current ~~decreased~~under ~~$147~~the ~~million.~~facility, ~~Loans~~both ~~held~~parties ~~for~~continue ~~sale~~to work cooperatively, ~~which~~and the Company ~~represents~~has ~~mortgage~~not ~~origination~~been ~~funding~~notified ~~awaiting~~of ~~sale,~~any ~~declined~~acceleration $3of ~~million~~maturity. ~~The~~Nevertheless, ~~scheduled~~as ~~repayments~~this ~~and~~remains ~~maturities~~a potential remedy of ~~loans~~the ~~represent~~creditor athat ~~substantial~~has ~~source~~not ofbeen ~~liquidity.~~waived, ~~Table~~and 3notwithstanding ~~shows,~~the ~~for~~April ~~selected~~2011 ~~loan~~due ~~categories~~date, ~~that~~the ~~$745~~Company ~~million~~has inclassified ~~maturities are~~the ~~scheduled~~facility ~~for~~as ~~2009~~short-term.

Bank-issued deposits – Bank-issued deposits are the most cost-effective and reliable source of liquidity for the Company. During 2008, bank-issued deposits declined $568 million. Scheduled maturities of time deposits of $100,000 or more, as reflected in Table 5, are $697 million in 2009, of which $197 million are bank-issued.

Branch expansion – The Bank is slowing the opening of new branches to only those already in the construction pipeline or under contract. Except for loan growth, branch expansion is not expected to require a significant amount of liquidity.

Parent company – In addition to the overall liquidity needs of the Company, 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 company through the Bank in the form of dividends. The Bank is limited by regulation in the amount of dividends that it can pay, without prior regulatory approval. In recent years, the Company took steps to transfer excess liquidity to the parent company from the Bank, with dividend payments of $60 million and $55 million, in 2007 and 2006, respectively. For 2009, current Bank earnings are not expected to be paid as dividends without prior regulatory approval. See Note 17 of the Notes to Consolidated Financial Statements.

Other sources of liquidity – As of December 31, 2008, other sources of potentially available liquidity included borrowings from the Federal Reserve Bank. The Company also has capacity, over time, to place sufficient amounts of brokered CDs as a source of mid- to long-term liquidity. Unfunded Fed Funds lines also provide a source of overnight liquidity. The Bank’s indirect auto portfolio, which at December 31, 2008 was $315 million, is a potential source of liquidity through future loans sales or securitizations. The sale of preferred stock to the United States Treasury and temporary expansion of FDIC insured deposit levels pursuant to the CPP is also a potential source of liquidity that is being evaluated. These potential sources are not committed lines, in that the availability and terms (including advance rates on collateral) can vary. The recent trends have been for lower advance or lending rates on assets.

Other uses of liquidity – At December 31, 2008, other potential uses of liquidity totaled $731 million and included $596 million in commitments to extend credit, $61 million in residential mortgage commitments primarily held for sale, and $74 million in letters of credit. At December 31, 2007, these amounts totaled $1.1 billion.

The Company entered into a stock redemption agreement (Redemption Agreement) on October 16, 1989, as amended June 30, 1993, pursuant to Section 303 of the Internal Revenue Code to pay death taxes and other related expenses of certain stockholders. Such redemptions may be subject to bank regulatory agency approvals or limited by debt covenant restrictions.

The Company’s $20 million credit facility is due April 15, 2010.

Capital Management

Total stockholders’ equity at December 31, ~~2008~~2009 was $~~262~~36 million, a decrease of $~~107~~226 million from December 31, ~~2007~~2008. The decrease in stockholders’ equity was due to a $~~104~~224 million decrease in retained earnings, ~~and~~which aincluded the $5118 million ~~decrease~~valuation inallowance ~~accumulated~~for ~~other~~deferred ~~comprehensive~~ income, ~~net~~taxes. ofNo ~~other~~dividends ~~increases in~~were ~~capital~~paid ofduring $22009, ~~million.~~compared ~~The~~to $~~104~~6 million ~~decrease~~ in ~~retained earnings was due to the $98 million~~ 2008 ~~net loss and cash dividends paid of $6 million~~. In addition to the cash dividends, the Company paid stock dividends in June and September 2008 equivalent to $0.135 per share each. ~~Beginning equity account balances were restated for the effects of the stock dividends and all share amounts were restated for all periods presented.~~ The book value per share decreased $49.7699 per share to $111.~~55 at~~56 at December 31, ~~2008~~2009, down from $1611.3155 at December 31, ~~2007~~2008.

~~AMCORE~~ The Company has ~~outstanding~~occasionally ~~$52~~repurchased ~~million~~shares ofin ~~capital~~open ~~securities~~market ~~through~~and ~~the~~private ~~Capital~~transactions ~~Trust.~~in Ofaccordance ~~the~~with ~~$52~~Exchange ~~million,~~Act ~~$50~~Rule ~~million~~10b-18. ~~qualifies~~These asrepurchases ~~Tier~~are 1used ~~capital~~in ~~for~~part to replenish the Company’s ~~regulatory~~treasury ~~capital~~stock ~~purposes,~~for ~~which~~reissuances isrelated to ~~the~~stock ~~$52~~options ~~million~~and ~~reduced~~other byemployee ~~the~~benefit $2plans. ~~million~~Included ofin ~~common equity~~the ~~securities~~repurchased ~~owned~~shares byare ~~the~~direct ~~Company.~~repurchases ~~During~~from ~~2006,~~participants ~~the~~related ~~Company~~to ~~issued~~the ~~fixed/floating~~administration ~~rate~~of ~~junior~~the ~~subordinated~~Amended ~~debentures~~and inRestated ~~the~~AMCORE ~~amount~~Stock ofOption ~~$50~~Advantage ~~million~~Plan. ~~The~~In ~~debt~~2009, ~~qualifies~~the asCompany repurchased ~~Tier~~3,188 2shares ~~Capital~~at ~~for~~an ~~Bank~~average ~~and~~price ~~Company~~of ~~regulatory capital purposes~~$0.97. ~~The~~In ~~Bank has~~2008, the ~~capacity~~Company torepurchased ~~issue~~15,315 ~~under~~shares ~~regulatory~~in ~~guidelines,~~open-market ~~additional~~and ~~subordinated~~private ~~debt~~transactions ~~that~~at ~~would~~an ~~qualify~~average asprice ~~Tier~~of 2$22.74 ~~Capital~~per share.

43AMCORE has outstanding $52 million of capital securities through the Capital Trust, $2 million of which are common equity securities owned by the Company. Of the $50 million preferred securities, $16 million qualifies as Tier 1 capital and $34 million qualifies as Tier 2 Capital for regulatory capital purposes. The Company also has $50 million of fixed/floating rate junior subordinated debentures outstanding. The entire $50 million qualifies as Tier 2 Capital for the Bank while $31 million qualifies for the Company for regulatory capital purposes.

As the following table indicates, as of December 31, 2009, both the Company is below adequate regulatory minimums. The Bank is significantly undercapitalized. See Note 17, of the Notes to Consolidated Financial

As Statements for the ~~following table indicates, AMCORE~~Bank’s ~~total risk-based~~ capital, ~~Tier~~ratios. 1For ~~capital and leverage ratio all exceeded~~ the ~~regulatory minimums of capital adequacy~~Bank, asthere ~~of December 31, 2008. There~~ are five levels of capital defined by the regulations: “well-capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”. AsAt ofthe ~~December 31,~~current ~~2008~~capital levels, the Bank is considered “~~well-capitalized”~~significantly ~~under this regulatory framework, the highest designation~~undercapitalized”. ~~AMCORE,~~Like ~~like~~ many financial institutions, the ~~have~~Bank has historically maintained capital at or above the well-capitalized minimum. Also, like many financial institutions ~~this~~during ~~year~~the past two years, ~~AMCORE~~the Bank has experienced steady declines in its capital levels as credit losses have risen. ~~As noted previously, the~~ The Company expects the credit crisis that is affecting the economy in general to persist into ~~2009~~2010, and will likely bring with it additional credit losses. IfAs ~~these~~a ~~expectations~~result ~~are~~of ~~realized,~~being ~~AMCORE may temporarily or otherwise fall~~ below ~~the~~adequately ~~well-~~capitalized ~~level during first quarter 2009. Falling below well-capitalized may potentially affect~~, among other things, ~~changes~~there will be increases in the Company’s borrowing costs and ~~terms from regulatory authorities and other third parties,~~ the Bank’s ~~FDIC~~is ~~deposit~~unable ~~insurance premiums, and AMCORE’s ability~~ to access the brokered CD markets. Even so, the Company expects to have sufficient liquidity to operate with these limitations. AMCORE has simulated its capital levels under various stress scenarios and does not expect its capital level to fall below adequately capitalized, as defined by the regulations. As noted ~~previously~~above under ~~Key~~Regulatory ~~Initiatives~~Developments, ~~AMCORE~~the ~~is actively pursuing opportunities to raise additional capital and otherwise enhance its capital position through a variety of means. The~~ Company is ~~also~~subject ~~discussing~~to ~~with~~the ~~its~~FRB ~~regulators~~Agreement, the ~~regulatory~~Consent ~~standards notwithstanding~~Order, ~~what an appropriate level of capital should be given~~ the ~~current~~Letter ~~credit environment~~ and the ~~Bank’s~~Response ~~level~~Letter requiring ofit ~~non-performing~~to ~~loans.~~increase ~~Such~~capital ~~minimum~~to ~~levels may be at~~ a level greater than the level required to be considered “well-capitalized” under applicable regulations.

(Dollars in thousands)	December 31, 2008						December 31, 2007
	December 31, 2009							December 31, 2008
	Amount			Ratio			Amount			Ratio
Consolidated	Amount				Ratio			Amount			Ratio
Total Capital (to Risk Weighted Assets)	$	408,205		10.04	%		$	519,487		11.68	%
	(Dollars in thousands)
Total Capital Adequacy Minimum		325,333		8.00	%			355,697		8.00	%
Total Capital (to Risk Weighted Assets)	$	124,038			4.53	%		$	408,205		10.04	%
Amount in Excess of Capital Adequacy Minimum	$	82,872		2.04	%		$	163,790		3.68	%
Total Adequately Capitalized Minimum		218,986			8.00	%			325,333		8.00	%
Tier 1 Capital (to Risk Weighted Assets)	$	306,245		7.53	%		$	415,371		9.34	%
Amount (Below) Above Regulatory Minimum	$	(94,948	)		(3.47	)%		$	82,872		2.04	%
Tier 1 Capital Adequacy Minimum		162,666		4.00	%			177,849		4.00	%
Tier 1 Capital (to Risk Weighted Assets)	$	62,019			2.27	%		$	306,245		7.53	%
Amount in Excess of Capital Adequacy Minimum	$	143,579		3.53	%		$	237,522		5.34	%
Tier 1 Adequately Capitalized Minimum		109,493			4.00	%			162,666		4.00	%
Tier 1 Capital (to Average Assets)	$	306,245		6.06	%		$	415,371		8.00	%
Amount (Below) Above Regulatory Minimum	$	(47,474	)		(1.73	)%		$	143,579		3.53	%
Tier 1 Capital Adequacy Minimum		202,006		4.00	%			207,725		4.00	%
Tier 1 Capital (to Average Assets)	$	62,019			1.50	%		$	306,245		6.06	%
Amount in Excess of Capital Adequacy Minimum	$	104,239		2.06	%		$	207,646		4.00	%
Tier 1 Adequately Capitalized Minimum		165,336			4.00	%			202,006		4.00	%
Risk Weighted Assets	$	4,066,661					$	4,446,219
Amount (Below) Above Regulatory Minimum	$	(103,317	)		(2.50	)%		$	104,239		2.06	%
Average Assets	$	5,050,150					$	5,193,119
Risk Weighted Assets	$	2,737,330						$	4,066,661
Average Assets	$	4,133,408						$	5,050,150

4451

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As part of its normal operations, AMCORE is subject to interest-rate risk on the assets it invests in (primarily loans and securities) and the 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.

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 as of December 31, ~~2008~~2009 AMCORE ~~did~~does not hold a trading portfolio, it ~~was~~is not exposed to significant market risk from trading activities. During ~~2007~~2009, 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.

Like most financial institutions, AMCORE’s net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, 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 (such as LIBOR and prime) and balance sheet growth or contraction. AMCORE’s asset and liability committee (ALCO) seeks to manage interest rate risk under a variety of rate environments by structuring the Company’s balance sheet and off-balance sheet positions. The risk is monitored and managed within ~~approved~~ policy limits or approved exceptions.

The Company utilizes simulation analysis to quantify the impact on income before income taxes under various rate scenarios. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by the Company are incorporated into the simulation model. Earnings at risk is calculated by comparing the income before income taxes of a stable interest rate environment to the income before income taxes of a different interest rate environment in order to determine the percentage change.

The following table summarizes the affect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 100 basis points and no change in the slope of the yield curve:

Change In Interest Rates	As ofDecember 31,~~2008~~2009		As ofDecember 31,~~2007~~2008
+100	+48.68	%	+14.86	%
-100	-8+0.34	%	-58.53	%

The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. The above results do not take into account any management action to mitigate potential risk.

4552

TABLE 1

ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET

	Years Ended December 31,
	2008							2007							2006
	2009							2008							2007
	AverageBalance			Interest		AverageRate		AverageBalance			Interest		AverageRate		AverageBalance			Interest		AverageRate
	(dollars in thousands)
Assets:
Investment securities (1) (2)	$	~~875~~745,~~336~~457		$	4124,~~225~~512	43.7129	%	$	~~874~~875,~~459~~336		$	3941,~~391~~225	4.5071	%	$	1874,~~120,828~~459		$	5039,~~926~~391	4.5450	%
Short-term investments		36366,~~554~~172			~~752~~898	20.0625	%		836,~~551~~554			~~494~~752	52.7706	%		78,~~071~~551			~~380~~494	5.3877	%
Loans held for sale		532,~~928~~630			~~388~~1,692	65.5518	%		105,~~217~~928			~~606~~388	56.9455	%		2210,~~843~~217			~~1,220~~606	5.3494	%
Loans:
Commercial		~~774~~631,~~948~~434			4528,~~206~~837	54.8357	%		~~798~~774,~~290~~948			6445,~~949~~206	85.1483	%		~~817~~798,~~882~~290			64,~~747~~949	78.9214	%
Commercial real estate		21,~~278~~973,~~095~~774			~~133~~90,~~619~~371	54.8758	%		2,~~371~~278,~~388~~095			~~182~~133,~~143~~619	75.6887	%		2,~~236~~371,~~353~~388			~~170~~182,~~389~~143	7.6268	%
Residential real estate		~~455~~167,~~119~~801			268,~~915~~964	5.9134	%		~~493~~208,~~466~~998			3412,~~728~~218	75.0485	%		~~489~~254,~~110~~871			3315,~~420~~521	6.8309	%
Consumer		352,772			27,878	7.90	%		313,884			24,289	7.74	%		314,818			22,286	7.08	%
Home equity lines and loans		244,062			11,074	4.54	%		246,121			14,697	5.97	%		238,595			19,207	8.05	%
Total loans (1) (3)	$	3,860,934		$	233,618	6.05	%	$	3,977,028		$	306,109	7.70	%	$	3,858,163		$	290,842	7.54	%
Consumer		322,679			25,045	7.76	%		352,772			27,878	7.90	%		313,884			24,289	7.74	%
Total interest-earning assets	$	4,778,752		$	275,983	5.78	%	$	4,870,255		$	346,600	7.12	%	$	5,008,905		$	343,368	6.86	%
Total loans (1) (3)	$	3,339,750		$	164,291	4.92	%	$	3,860,934		$	233,618	6.05	%	$	3,977,028		$	306,109	7.70	%
Allowance for loan losses		(102,853	)						(44,917	)						(41,912	)
Total interest-earning assets	$	4,484,009		$	191,393	4.27	%	$	4,778,752		$	275,983	5.78	%	$	4,870,255		$	346,600	7.12	%
Non-interest-earning assets		437,626							415,160							402,275
Allowance for loan losses		(162,056	)						(102,853	)						(44,917	)
Total assets	$	5,113,525						$	5,240,498						$	5,369,268
Non-interest-earning assets		441,349							437,626							415,160
Total assets	$	4,763,302						$	5,113,525						$	5,240,498
Liabilities and Stockholders’ Equity:
Interest bearing deposits & savings deposits	$	1953,~~571,500~~458		$	263,~~607~~840	10.6940	%	$	1,~~813~~571,~~939~~500		$	5926,~~984~~607	31.3169	%	$	1,~~771~~813,~~301~~939		$	5159,~~721~~984	23.9231	%
Time deposits		1,~~035~~471,~~212~~880			4048,~~807~~851	3.9432	%		1,~~139~~035,~~694~~212			5340,~~053~~807	43.6694	%		1,~~225~~139,~~364~~694			5053,~~542~~053	4.1266	%
Total bank issued interest-bearing deposits	$	2,~~606~~425,~~712~~338		$	6752,~~414~~691	2.5917	%	$	2,~~953~~606,~~633~~712		$	~~113~~67,~~037~~414	32.8359	%	$	2,~~996~~953,~~665~~633		$	~~102~~113,~~263~~037	3.4183	%
Wholesale deposits		~~796~~1,~~528~~090,482			3744,~~327~~066	4.6904	%		~~665~~796,~~935~~528			3437,~~150~~327	54.1369	%		~~740~~665,~~897~~935			3534,~~746~~150	45.8213	%
Short-term borrowings		~~402~~196,~~187~~524			133,~~608~~748	31.3891	%		~~276~~402,~~439~~187			13,~~728~~608	43.9738	%		~~372~~276,~~743~~439			1713,~~687~~728	4.7597	%
Long-term borrowings		~~449~~270,~~886~~919			2213,~~522~~830	45.9203	%		~~396~~449,~~571~~886			22,~~517~~522	54.6892	%		~~305~~396,~~078~~571			1822,~~522~~517	65.0768	%
Total interest-bearing liabilities	$	43,~~255~~983,~~313~~263		$	~~140~~114,~~871~~335	32.3087	%	$	4,~~292~~255,~~578~~313		$	~~183~~140,~~432~~871	43.2730	%	$	4,~~415~~292,~~383~~578		$	~~174~~183,~~218~~432	34.9527	%
Non-interest bearing deposits		~~475~~530,~~579~~677							~~497~~475,~~872~~579							~~487~~497,~~264~~872
Other liabilities		5253,~~713~~140							6452,~~478~~713							6664,~~705~~478
Realized Stockholders’ Equity		~~334~~201,~~189~~239							~~394~~334,~~228~~189							~~416~~394,~~246~~228
Other Comprehensive Loss		(45,~~269~~017	)						(84,~~658~~269	)						(168,~~330~~658	)
Total Liabilities & Stockholders’ Equity	$	54,~~113~~763,~~525~~302						$	5,~~240~~113,~~498~~525						$	5,~~369~~240,~~268~~498
Net Interest Income (FTE)				$	~~135~~77,~~112~~058						$	~~163~~135,~~168~~112						$	~~169~~163,~~150~~168
Net Interest Spread (FTE)						21.4840	%						2.8548	%						2.9185	%
Interest Rate Margin (FTE)						21.8472	%						32.3584	%						3.3835	%

(1) The interest on tax-exempt securities and tax-exempt loans is calculated on a tax equivalent basis (FTE) assuming a federal tax rate of 35%. FTE adjustments totaled $31.27 million in ~~2008~~ 2009, $23.62 million in ~~2007~~2008, and $4.2.6 million in ~~2006~~2007.

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

(3) The balances of nonaccrual loans are included in average loans outstanding. Interest on loans includes yield related loan fees of $32.15 million, $3.21 million, and $3.12 million for ~~2008~~2009, ~~2007~~2008, and ~~2006~~2007 respectively.

4653

TABLE 1

ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET—(Continued)

	Years Ended December 31,
	2008/2007									2007/2006
	2009/2008									2008/2007
	Increase/(Decrease)Due to Change in						Total NetIncrease(Decrease)			Increase/(Decrease)Due to Change in						Total NetIncrease(Decrease)
	Average			Average						AverageVolume			AverageRate
	AverageVolume			AverageRate						AverageVolume			AverageRate
	Volume			Rate
	(in thousands)
Interest Income:
Investment securities	$	40(5,509	)	$	1(11,~~794~~204	)	$	1(16,~~834~~713	)	$	~~(11,102~~40	)	$	~~(433~~1,794	)	$	~~(11~~1,~~535~~834	)
Short-term investments		~~747~~1,340			(~~489~~1,194	)		~~258~~146			84747			30(489	)		~~114~~258
Loans held for sale		~~(276~~1,401	)		58(97	)		~~(218~~1,304	)		(~~738~~276	)		~~124~~58			(~~614~~218	)
Loans:
Commercial		(17,~~918~~534	)		(178,~~825~~835	)		(1916,~~743~~369	)		(1,~~571~~918	)		1(17,~~773~~825	)		~~202~~(19,743	)
Commercial real estate		(616,~~834~~368	)		(4126,~~690~~880	)		(4843,~~524~~248	)		10(6,~~362~~834	)		1(41,~~392~~690	)		11(48,~~754~~524	)
Residential real estate		(2,~~558~~265	)		(~~5,255~~989	)		(73,~~813~~254	)		~~300~~(2,702	)		~~1,008~~(601	)		1(3,~~308~~303	)
Consumer		3,035			554			3,589			(66	)		2,069			2,003
Home equity lines and loans		(122	)		(3,501	)		(3,623	)		589			(5,099	)		(4,510	)
Total loans		(8,705	)		(63,786	)		(72,491	)		9,072			6,195			15,267
Consumer		(2,343	)		(490	)		(2,833	)		3,035			554			3,589
Total Interest-Earning Assets	$	(6,401	)	$	(64,216	)	$	(70,617	)	$	(9,657	)	$	12,889		$	3,232
Total loans		(29,064	)		(40,263	)		(69,327	)		(8,705	)		(63,786	)		(72,491	)
Total Interest-Earning Assets	$	(16,172	)	$	(68,418	)	$	(84,590	)	$	(6,401	)	$	(64,216	)	$	(70,617	)
Interest Expense:
Interest bearing deposits	$	(7,~~176~~749	)	$	(2615,~~201~~018	)	$	(3322,~~377~~767	)	$	1(7,~~270~~176	)	$	6(26,~~993~~201	)	$	8(33,~~263~~377	)
Time deposits		(415,~~585~~235	)		(7,~~661~~191	)		~~(12~~8,~~246~~044	)		(34,~~694~~585	)		6(7,~~205~~661	)		2(12,~~511~~246	)
Total bank issued interest-bearing deposits		(124,~~132~~464	)		(3310,~~491~~259	)		(4514,~~623~~723	)		(112,~~487~~132	)		12(33,~~261~~491	)		10(45,~~774~~623	)
Wholesale deposits		612,~~296~~394			(35,~~119~~655	)		36,~~177~~739			(36,~~758~~296	)		2(3,~~162~~119	)		(13,~~596~~177	)
Short-term borrowings		(5,~~074~~320	)		(54,~~194~~540	)		(~~120~~9,860	)		(45,~~749~~074	)		~~790~~(5,194	)		(~~3,959~~120	)
Long-term borrowings		2(9,~~875~~182	)		~~(2,870~~490	)		5(8,692	)		52,~~259~~875			(12,~~264~~870	)		~~3,995~~5
Total Interest-Bearing Liabilities	$	(18,~~574~~654	)	$	(4017,~~987~~882	)	$	(4226,~~561~~536	)	$	(41,~~946~~574	)	$	14(40,~~160~~987	)	$	9(42,~~214~~561	)
Net Interest Income (FTE)	$	(47,~~827~~518	)	$	(2350,~~229~~536	)	$	(2858,~~056~~054	)	$	(4,~~711~~827	)	$	(123,~~271~~229	)	$	(528,~~982~~056	)

The above analysis 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 have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. 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 or interest-bearing liabilities as a total.

4754

TABLE 2

ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE

	2008			2007			2006			2005			2004
	2009			2008			2007			2006			2005
	(dollars in thousands)
LOAN PORTFOLIO AT YEAR END:
Commercial, financial and agricultural	$	~~771~~345,~~679~~645		$	~~767~~771,~~312~~679		$	~~798~~767,~~168~~312		$	~~818~~798,~~657~~168		$	~~764~~818,~~339~~657
Real estate-commercial		1,~~931~~222,~~962~~018			1,~~901~~931,~~453~~962			1,~~926~~901,~~813~~453			1,~~821~~926,~~868~~813			1,~~533~~821,~~917~~868
Real estate-construction		~~267~~139,~~061~~532			~~459~~267,~~727~~061			~~420~~459,~~379~~727			~~310~~420,~~006~~379			~~250~~310,~~855~~006
Real estate-residential		~~437~~125,~~877~~880			~~468~~182,~~420~~932			~~493~~224,~~500~~572			~~459~~257,~~823~~565			~~412~~240,~~753~~818
Installment and consumer		377,450			335,772			307,691			311,497			316,838
Home equity lines and loans		190,579			254,945			243,848			235,935			219,005
Direct lease financing		—			—			—			13			98
Installment and consumer		128,903			377,450			335,772			307,691			311,497
Gross loans	$	3,786,029		$	3,932,684		$	3,946,551		$	3,721,864		$	3,278,800
Direct lease financing		—			—			—			—			13
Allowance for loan losses		(136,412	)		(53,140	)		(40,913	)		(40,756	)		(40,945	)
Gross loans	$	2,152,557		$	3,786,029		$	3,932,684		$	3,946,551		$	3,721,864
Net Loans	$	3,649,617		$	3,879,544		$	3,905,638		$	3,681,108		$	3,237,855
Allowance for loan losses		(145,022	)		(136,412	)		(53,140	)		(40,913	)		(40,756	)
Net Loans	$	2,007,535		$	3,649,617		$	3,879,544		$	3,905,638		$	3,681,108
SUMMARY OF LOSS EXPERIENCE:
Allowance for loan losses, beginning of year	$	53136,~~140~~412		$	4053,~~913~~140		$	40,~~756~~913		$	40,~~945~~756		$	4240,~~115~~945
Amounts charged-off:
Commercial, financial and agricultural		1632,~~938~~674			616,~~967~~938			46,~~792~~967			114,~~064~~792			811,~~263~~064
Real estate-commercial		76135,~~423~~721			776,~~195~~423			27,~~965~~195			~~240~~2,965			~~2,902~~240
Real estate-residential		41,~~082~~161			~~674~~314			~~664~~278			~~1,012~~376			~~614~~742
Installment and consumer		7,978			6,318			6,096			5,354			6,527
Home equity lines and loans		1,786			3,768			396			288			270
Direct lease financing		—			—			7			91			12
Installment and consumer		13,584			7,978			6,318			6,096			5,354
Total Charge-offs	$	105,421		$	21,154		$	14,524		$	17,761		$	18,318
Direct lease financing		—			—			—			7			91
Total Charge-offs	$	184,926		$	105,421		$	21,154		$	14,524		$	17,761
Recoveries on amounts previously charged off:
Commercial, financial and agricultural		21,~~114~~539			12,~~825~~114			1,~~300~~825			~~969~~1,300			~~1,435~~969
Real estate-commercial		12,~~304~~790			~~267~~1,304			~~356~~267			~~231~~356			~~176~~231
Real estate-residential		6343			~~149~~1			~~436~~91			~~192~~412			~~176~~94
Installment and consumer		2,299			2,053			2,469			1,700			1,907
Home equity lines and loans		144			62			58			24			98
Direct lease financing		—			—			—			—			2
Installment and consumer		1,976			2,299			2,053			2,469			1,700
Total Recoveries	$	5,780		$	4,294		$	4,561		$	3,092		$	3,696
Direct lease financing		—			—			—			—			—
Net Charge-offs	$	99,641		$	16,860		$	9,963		$	14,669		$	14,622
Total Recoveries	$	6,492		$	5,780		$	4,294		$	4,561		$	3,092
Provision charged to expense		202,716			29,087			10,120			15,194			15,530
Net Charge-offs	$	178,434		$	99,641		$	16,860		$	9,963		$	14,669
Reductions due to sale of loans and other (1)		19,803			—			—			714			2,078
Provision charged to expense		190,157			202,716			29,087			10,120			15,194
Allowance for Loan Losses, end of year	$	136,412		$	53,140		$	40,913		$	40,756		$	40,945
Reductions due to sale of loans and other (1)		3,113			19,803			—			—			714
Allowance for Loan Losses, end of year	$	145,022		$	136,412		$	53,140		$	40,913		$	40,756
RISK ELEMENTS:
Non-accrual loans	$	~~304~~323,~~176~~365		$	40304,~~972~~176		$	3040,~~048~~972		$	2130,~~680~~048		$	3021,~~148~~680
Past due 90 days or more not included above	$	83,~~889~~992		$	298,~~826~~889		$	229,~~315~~826		$	82,~~533~~315		$	18,~~848~~533
Troubled debt restructuring	$	—22,636		$	11—		$	1211		$	1312		$	1413
RATIOS:
Allowance for loan losses to year-end loans		36.6074	%		13.3560	%		1.0435	%		1.1004	%		1.2510	%
Allowance to non-accrual loans		44.85	%		~~129~~44.7085	%		~~136~~129.1670	%		~~187~~136.9916	%		~~135~~187.8199	%
Net charge-offs to average loans		25.5834	%		02.4258	%		0.2642	%		0.4226	%		0.4742	%
Recoveries to charge-offs		53.4851	%		205.3048	%		3120.4030	%		1731.4140	%		2017.1841	%
Non-accrual loans to loans		8.03	%		1.04	%		0.76	%		0.58	%		0.92	%
Non-accrual loans to gross loans		15.02	%		8.03	%		1.04	%		0.76	%		0.58	%

(1) During 2009, the Bank sold $136 million of indirect loans to a third party and $89 million of loans in connection with the sale of four Wisconsin branches. Also in 2009, $489 million in loans were reclassed to loans held for sale on the Consolidated Financial Statements. During 2008, the Bank sold $77 million of primarily non-performing and under-performing loans to a third party. See Note 4 of the Notes to Consolidated Financial Statements for further information. 2005 includes estimated loss on unfunded commitments. See Note 1312 of the Notes to Consolidated Financial Statements for further information.

4855

TABLE 2

ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE—(Continued)

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

	2008				2007				2006				2005				2004
	2009				2008				2007				2006				2005
	Amount		Percent ofLoans inCategory		Amount		Percent ofLoans inCategory		Amount		Percent ofLoans inCategory		Amount		Percent ofLoans inCategory		Amount		Percent ofLoans inCategory
	(dollars in thousands)		~~(dollars in thousands)~~
Commercial, financial and agricultural	$	2329,~~700~~421	2018.19	%	$	3723,~~550~~700	20.1	%	$	2037,~~730~~550	2120.21	%	$	20,~~602~~730	2221.2	%	$	1820,~~264~~602	2322.52	%
Commercial RE		95109,~~455~~343	59.01	%		895,~~702~~455	59.60	%		8,~~106~~702	5859.06	%		8,~~760~~106	5658.0	%		118,~~969~~760	4856.50	%
Residential RE		~~3,622~~808	115.80	%		~~683~~954	125.4	%		~~973~~327	126.74	%		~~959~~508	126.78	%		~~1,217~~502	126.75	%
Installment and consumer		13,635	9.1	%		6,205	7.9	%		6,410	8.1	%		6,436	9.1	%		5,796	15.3	%
Home equity lines and loans		2,296	7.3	%		2,668	6.4	%		356	6.0	%		465	5.9	%		457	6.2	%
Unallocated		—	*			—	*			4,694	*			3,999	*			3,699	*
Installment and consumer		3,154	9.7	%		13,635	9.1	%		6,205	7.9	%		6,410	8.1	%		6,436	9.1	%
Total	$	136,412	100.0	%	$	53,140	100.0	%	$	40,913	100.0	%	$	40,756	100.0	%	$	40,945	100.0	%
Unallocated		—	*			—	*			—	*			4,694	*			3,999	*
Total	$	145,022	100.0	%	$	136,412	100.0	%	$	53,140	100.0	%	$	40,913	100.0	%	$	40,756	100.0	%

*	Not applicable

TABLE 3

MATURITY AND INTEREST SENSITIVITY OF LOANS

December 31, 2008

December 31, 2009

Time Remaining to Maturity

Loans Due AfterOne Year

DueWithinOneYear

One ToFiveYears

AfterFiveYears

Total

FixedInterestRate

FloatingInterestRate

(in thousands)

Commercial, financial and agricultural

~~503~~284,~~959~~469

~~222~~174,~~864~~183

4434,~~856~~363

~~771~~493,~~679~~015

~~204~~143,~~411~~951

6364,~~309~~595

Real estate-construction

~~241~~126,~~106~~594

2513,~~955~~900

—

~~267~~140,~~061~~494

1711,~~001~~739

82,~~954~~161

Total

~~745~~411,~~065~~063

~~248~~188,~~819~~083

4434,~~856~~363

1633,~~038,740~~509

~~221~~155,~~412~~690

7266,~~263~~756

49This table includes loans related to the pending sale of 14 locations to Midland States Bank, Effingham, Illinois that have been reclassified to held for sale.

TABLE 4

MATURITY OF SECURITIES

	December 31, 2008
	December 31, 2009
	U.S. Treasury				GovernmentSponsoredEnterprises (1)				States andPoliticalSubdivisions (2)				CorporateObligationsand Other (3)				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(dollars in thousands)
Securities Available for Sale (4):
One year or less	$	7510,~~750~~490	-0.0514	%	$	~~1,004~~—	~~1.79~~—	%	$	31,~~947~~375	65.7140	%	$	~~1,467~~401	10.6513	%	$	8212,~~168~~266	0.3373	%
After one through five years		—	—			—	—			812,~~892~~778	56.6179	%		—	—			812,~~892~~778	56.6179	%
After five through ten years		—	—			—	—			305,~~981~~765	56.8419	%		—	—			305,~~981~~765	56.8419	%
After ten years		—	—			—	—			217,~~759~~203	6.2111	%		25,~~341~~412	1.0917	%		4732,~~100~~615	32.4526	%
Mortgage-backed and asset-backed securities (5)		—	—			~~556~~386,~~020~~990	43.7778	%		—	—			6042,~~057~~029	43.9248	%		~~616~~429,~~077~~019	43.7875	%
Total Securities Available for Sale	$	7510,~~750~~490	-0.0514	%	$	~~557~~386,~~024~~990	43.7678	%	$	~~138~~17,~~579~~121	56.7919	%	$	8667,~~865~~842	32.7460	%	$	~~858~~482,~~218~~443	43.4062	%

(1)	Includes U.S. Government agencies.

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

(3) Includes fair value of $25 million in equity investments which are included in the ~~“corporate obligations and other” and the~~ due “after ten years” classifications.

(4)	Amounts are reported at fair value. Yields were calculated based on amortized cost.

(5)

Includes $9 million of general obligations of FHLB and FNMA that are structured to have payment characteristics of a collateralized mortgage obligation security. 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

	As of December 31, 2008
	As of December 31, 2009
	Time Remaining to Maturity
	Due WithinThree Months		Three toSix Months		Six toTwelve Months		AfterTwelve Months		Total
	(in thousands)
Certificates of deposit	$	~~175~~161,~~594~~533	$	~~149~~187,~~162~~563	$	~~372~~266,~~857~~070	$	~~724~~627,~~694~~794	$	1,~~422~~242,~~307~~960
Other time deposits		—		—		—		838		838
Total	$	~~175~~161,~~594~~533	$	~~149~~187,~~162~~563	$	~~372~~266,~~857~~070	$	~~725~~628,~~532~~632	$	1,~~423~~243,~~145~~798

5057

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AMCORE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,			~~December 31,~~
				2008			2007
	2009			2008
				( in thousands, except share data)
	(in thousands, except share data)
ASSETS
Cash and cash equivalents	$	56,851		$	138,017		$	~~132,156~~
Interest earning deposits in banks and fed funds sold		409,459			1,665			~~12,882~~
Loans held for sale		495,198			6,749			~~3,636~~
Securities available for sale, at fair value		482,443			858,218			~~842,796~~
Gross loans		2,152,557			3,786,029			~~3,932,684~~
Allowance for loan losses		(145,022	)		(136,412	)		~~(53,140~~	)
Net loans	$	2,007,535		$	3,649,617		$	~~3,879,544~~
Company owned life insurance		139,191			144,599			~~140,022~~
Premises and equipment, net		73,050			91,955			~~94,121~~
Goodwill					—			6,148
Foreclosed real estate, net		30,629			16,899
Foreclosed real estate, net					16,899			4,108
Deferred tax assets		—			69,490
Other assets					152,105			77,365
Income tax receivable		37,294			—
Total Assets				$	5,059,824		$	5,192,778
Accrued interest receivable		10,239			17,365
LIABILITIES
Other assets		35,341			65,250
Deposits:
Total Assets	$	3,777,230		$	5,059,824
Non-interest bearing deposits				$	465,382		$	508,389
LIABILITIES
Interest bearing deposits					1,224,166			1,867,633
Deposits:
Time deposits					1,147,856			1,029,418
Non-interest bearing deposits	$	499,964		$	465,382
Total bank issued deposits				$	2,837,404		$	3,405,440
Interest bearing deposits		766,921			1,224,166
Wholesale deposits					1,081,634			597,816
Time deposits		1,331,740			1,147,856
Total deposits				$	3,919,038		$	4,003,256
Total bank issued deposits	$	2,598,625		$	2,837,404
Short-term borrowings					435,783			397,088
Wholesale deposits		807,655			1,081,634
Long-term borrowings					379,667			368,858
Total deposits	$	3,406,280		$	3,919,038
Other liabilities					63,338			55,009
Short-term borrowings		48,464			435,783
Total Liabilities				$	4,797,826		$	4,824,211
Long-term borrowings		229,177			379,667
STOCKHOLDERS’ EQUITY
Accrued interest payable		20,778			24,250
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued				$	—		$	—
Accounts payable and accrued expenses		21,982			21,994
Common stock, $0.22 par value; authorized 45,000,000 shares;
Other liabilities		14,542			17,094
	December 31,2008		December 31,2007
Total Liabilities	$	3,741,223		$	4,797,826
Issued	30,078,990		30,001,115
STOCKHOLDERS’ EQUITY
Outstanding	22,682,317		22,599,741		6,684			6,666
Preferred stock, $1 par value; authorized 10,000,000 shares; none issued	$	—		$	—
Treasury stock	7,396,673		7,401,374		(172,293	)		(172,390	)
Common stock, $0.22 par value; authorized 45,000,000 shares;
Additional paid-in capital					69,838			67,832
Retained earnings					365,684			469,775
Accumulated other comprehensive loss					(7,915	)		(3,316	)
Total Stockholders’ Equity				$	261,998		$	368,567
Total Liabilities and Stockholders’ Equity				$	5,059,824		$	5,192,778



	December 31, 2009	December 31, 2008
Issued	30,205,313	30,078,990
Outstanding	23,103,072	22,682,317		6,712			6,684
Treasury stock	7,102,241	7,396,673		(164,929	)		(172,293	)
Additional paid-in capital				62,804			69,838
Retained earnings				141,901			365,684
Accumulated other comprehensive loss				(10,481	)		(7,915	)

Total Stockholders’ Equity			$	36,007		$	261,998

Total Liabilities and Stockholders’ Equity			$	3,777,230		$	5,059,824

See accompanying notes to consolidated financial statements.

5158

AMCORE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31,
	2008			2007			2006
	2009			2008			2007
	(in thousands, except per share data)
	(in thousands, except share data)
INTEREST INCOME
Interest and fees on loans	$	~~233~~163,~~056~~740		$	~~305~~233,~~580~~056		$	~~290~~305,~~149~~580
Interest on securities:
Taxable		3321,~~610~~320			33,~~520~~610			4033,~~929~~520
Tax-exempt		42,~~950~~075			34,~~816~~950			63,~~498~~816
Total Income on Securities	$	3823,~~560~~395		$	3738,~~336~~560		$	4737,~~427~~336
Interest on federal funds sold and other short-term investments		~~561~~29			~~295~~561			~~241~~295
Interest and fees on loans held for sale		~~388~~1,692			~~606~~388			~~1,220~~606
Interest on deposits in banks		~~191~~869			~~199~~191			~~139~~199
Total Interest Income	$	~~272~~189,~~756~~725		$	~~344~~272,~~016~~756		$	~~339~~344,~~176~~016
INTEREST EXPENSE
Interest on deposits	$	~~104~~96,~~741~~757		$	~~147~~104,~~187~~741		$	~~138~~147,~~009~~187
Interest on short-term borrowings		133,~~608~~748			13,~~728~~608			1713,~~687~~728
Interest on long-term borrowings		2213,~~522~~830			22,~~517~~522			1822,~~522~~517
Total Interest Expense	$	~~140~~114,~~871~~335		$	~~183~~140,~~432~~871		$	~~174~~183,~~218~~432
Net Interest Income		~~131~~75,~~885~~390			~~160~~131,~~584~~885			~~164~~160,~~958~~584
Provision for loan losses		~~202~~190,~~716~~157			29202,~~087~~716			1029,~~120~~087
Net Interest (Loss) Income After Provision for Loan Losses	$	(70114,~~831~~767	)	$	~~131~~(70,~~497~~831	)	$	~~154~~131,~~838~~497
NON-INTEREST INCOME
Investment management and trust income	$	1613,~~269~~310		$	16,~~765~~269		$	16,~~200~~765
Service charges on deposits		3327,~~241~~312			2933,~~618~~241			2529,~~622~~618
Mortgage banking income		641			1,793			3,917
Company owned life insurance income		4,582			4,566			5,429
Company owned life insurance income		4,566			5,429			7,891
Brokerage commission income		2,730			4,273			4,174
Brokerage commission income		4,273			4,174			3,146
Bankcard fee income		8,170			8,594			7,862
Bankcard fee income		8,594			7,862			6,225
Net security gains (losses)		23,389			2,018			(5,920	)
Net security gains (losses)		2,018			(5,920	)		267
Other		5,928			5,641			13,069
Other		5,000			11,276			12,321
Total Non-Interest Income	$	85,421		$	74,602		$	70,997
Total Non-Interest Income	$	74,602		$	70,997		$	75,589
OPERATING EXPENSES
Compensation expense	$	7256,~~081~~264		$	7572,~~822~~081		$	7875,~~651~~822
Employee benefits		1613,~~831~~497			1916,~~102~~831			19,~~239~~102
Net occupancy expense		1615,~~514~~538			1416,~~652~~514			1114,~~443~~652
Equipment expense		9,~~943~~184			9,~~963~~943			9,~~448~~963
Data processing expense		2,~~962~~770			32,~~369~~962			23,~~998~~369
Professional fees		8,~~624~~506			8,~~397~~624			98,~~317~~397
Communication expense		5,054			5,258			5,088
Insurance expense		21,532			4,687			1,603
Advertising and business development		2,838			4,166			7,409
Communication expense		4,317			5,054			5,258
Goodwill impairment		6,148			—			—
Loan processing and collection expense		10,247			6,977			3,718
Loan processing and collection expense		6,977			3,718			3,654
Provision for unfunded commitment losses		—			4,804			(161	)
Insurance expense		4,687			1,603			1,671
Foreclosed real estate expense		10,146			1,031			1,088
Provision for unfunded commitment losses		4,804			(161	)		387
Goodwill impairment		—			6,148			—
Other		1516,~~016~~559			1916,~~450~~823			1622,~~060~~528
Total Operating Expenses	$	~~172~~168,~~479~~560		$	~~165~~172,~~339~~479		$	165,~~365~~339
(Loss) Income from continuing operations before income taxes	$	(168,708	)	$	37,155		$	65,062
(Loss) Income before income taxes	$	(197,906	)	$	(168,708	)	$	37,155
Income tax (benefit) expense		(70,909	)		8,914			18,035
Income tax expense (benefit)		25,877			(70,909	)		8,914
(Loss) Income from continuing operations	$	(97,799	)	$	28,241		$	47,027
Net (Loss) Income	$	(223,783	)	$	(97,799	)	$	28,241
Discontinued operations:
(LOSS) INCOME PER COMMON SHARE
Loss from discontinued operations	$	—		$	—			(131	)
Basic	$	(9.78	)	$	(4.32	)	$	1.20
Income tax benefit		—			—			(379	)
Diluted		(9.78	)		(4.32	)		1.20
Income from discontinued operations	$	—		$	—		$	248
DIVIDENDS PER COMMON SHARE	$	—		$	0.278		$	0.720
Net (Loss) Income	$	(97,799	)	$	28,241		$	47,275
EARNINGS PER COMMON SHARE
Basic: (Loss) Income from continuing operations	$	(4.32	)	$	1.20		$	1.87
Income from discontinued operations		—			—			0.01
Net (Loss) Income	$	(4.32	)	$	1.20		$	1.88
Diluted: (Loss) Income from continuing operations	$	(4.32	)	$	1.20		$	1.86
Income from discontinued operations		—			—			0.01
Net (Loss) Income	$	(4.32	)	$	1.20		$	1.87
DIVIDENDS PER COMMON SHARE	$	0.278		$	0.720		$	0.721
AVERAGE COMMON SHARES OUTSTANDING
Basic		22,~~629~~876			2322,~~546~~629			2523,~~125~~546
Diluted		22,~~629~~876			2322,~~556~~629			2523,~~221~~556

See accompanying notes to consolidated financial statements.

5259

AMCORE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	CommonStock		TreasuryStock			AdditionalPaid-inCapital			RetainedEarnings			~~DeferredCompensation~~AccumulatedOtherComprehensiveIncome (Loss)			~~AccumulatedOtherComprehensiveIncome (Loss)~~TotalStockholders’Equity			~~TotalStockholders’Equity~~
	(in thousands, except share data)
Balance at December 31, 2005, as previously reported	$	6,652	$	(104,240	)	$	74,110		$	435,113		$	(294	)	$	(12,824	)	$	398,517
Balance at December 31, 2006	$	6,660	$	(120,859	)	$	66,851		$	458,363		$	(10,969	)	$	400,046
Adjustment for stock dividend (Note 1)		—		15,554			(9,601	)		(5,953	)		—			—			—
Comprehensive Income (Loss):
Balance at December 31, 2005, restated	$	6,652	$	(88,686	)	$	64,509		$	429,160		$	(294	)	$	(12,824	)	$	398,517
Net Income		—		—			—			28,241			—			28,241
Comprehensive Income (Loss):
Net unrealized holding gains on securities available for sale arising during the period		—		—			—			—			6,363			6,363
Net Income		—		—			—			47,275			—			—			47,275
Less reclassification adjustment for net security losses included in net income		—		—			—			—			5,920			5,920
Net unrealized holding gains on securities available for sale arising during the period		—		—			—			—			—			3,403			3,403
Pension transition obligation amortization		—		—			—			—			42			42
Less reclassification adjustment for net security gains included in net income		—		—			—			—			—			(267	)		(267	)
Income tax effect related to items of other comprehensive income		—		—			—			—			(4,672	)		(4,672	)
Income tax effect related to items of other comprehensive income		—		—			—			—			—			(1,205	)		(1,205	)
Comprehensive Income		—		—			—			28,241			7,653			35,894
Comprehensive Income		—		—			—			47,275			—			1,931			49,206
Cash dividends on common stock-$0.720 per share		—		—			—			(16,829	)		—			(16,829	)
Cash dividends on common stock-$0.721 per share		—		—			—			(18,072	)		—			—			(18,072	)
Purchase of 2,135,617 shares for the treasury		—		(59,609	)		—			—			—			(59,609	)
Purchase of 1,316,124 shares for the treasury		—		(40,244	)		—			—			—			—			(40,244	)
Deferred compensation and other		—		—			245			—			—			245
Deferred compensation and other		—		—			144			—			—			—			144
Stock-based compensation		—		—			1,685			—			—			1,685
Pension obligation adjustment		—		—			—			—			—			(76	)		(76	)
Reissuance of 254,717 treasury shares for incentive plans		—		8,078			(1,608	)		—			—			6,470
Stock-based compensation		—		—			2,967			—			—			—			2,967
Issuance of 28,883 common shares for Employee Stock Plan		6		—			659			—			—			665
Reclassification upon adoption of SFAS No. 123R		—		—			342			—			294			—			636
Balance at December 31, 2007	$	6,666	$	(172,390	)	$	67,832		$	469,775		$	(3,316	)	$	368,567
Reissuance of 264,451 treasury shares for incentive plans		—		8,071			(1,939	)		—			—			—			6,132
Comprehensive Income (Loss):
Issuance of 33,290 common shares for Employee Stock Plan		8		—			828			—			—			—			836
Net Loss		—		—			—			(97,799	)		—			(97,799	)
Balance at December 31, 2006, restated	$	6,660	$	(120,859	)	$	66,851		$	458,363		$	—		$	(10,969	)	$	400,046
Net unrealized holding losses on securities available for sale arising during the period		—		—			—			—			(5,639	)		(5,639	)
Comprehensive Income (Loss):
Less reclassification adjustment for net security gains included in net loss		—		—			—			—			(2,018	)		(2,018	)
Net Loss		—		—			—			28,241			—			—			28,241
Pension transition obligation amortization		—		—			—			—			42			42
Net unrealized holding gains on securities available for sale arising during the period		—		—			—			—			—			6,363			6,363
Income tax effect related to items of other comprehensive income (loss)		—		—			—			—			3,016			3,016
Less reclassification adjustment for net security losses included in net income		—		—			—			—			—			5,920			5,920
Comprehensive Income (Loss)		—		—			—			(97,799	)		(4,599	)		(102,398	)
Pension transition obligation amortization		—		—			—			—			—			42			42
Cash dividends on common stock-$0.278 per share		—		—			—			(6,292	)		—			(6,292	)
Income tax effect related to items of other comprehensive income		—		—			—			—			—			(4,672	)		(4,672	)
Purchase of 15,315 shares for the treasury		—		(348	)		—			—			—			(348	)
Comprehensive Income		—		—			—			28,241			—			7,653			35,894
Deferred compensation and other		—		—			53			—			—			53
Cash dividends on common stock-$0.720 per share		—		—			—			(16,829	)		—			—			(16,829	)
Stock-based compensation		—		—			2,122			—			—			2,122
Purchase of 2,135,617 shares for the treasury		—		(59,609	)		—			—			—			—			(59,609	)
Reissuance of 20,015 treasury shares for incentive plans		—		445			(585	)		—			—			(140	)
Deferred compensation and other		—		—			245			—			—			—			245
Issuance of 77,875 common shares for Employee Stock Plan		18		—			416			—			—			434
Stock-based compensation		—		—			1,685			—			—			—			1,685
Balance at December 31, 2008	$	6,684	$	(172,293	)	$	69,838		$	365,684		$	(7,915	)	$	261,998
Reissuance of 254,717 treasury shares for incentive plans		—		8,078			(1,608	)		—			—			—			6,470
Comprehensive Income (Loss):
Issuance of 28,883 common shares for Employee Stock Plan		6		—			659			—			—			—			665
Net Loss		—		—			—			(223,783	)		—			(223,783	)
Balance at December 31, 2007, restated	$	6,666	$	(172,390	)	$	67,832		$	469,775		$	—		$	(3,316	)	$	368,567
Net unrealized holding gains on securities available for sale arising during the period		—		—			—			—			25,866			25,866
Comprehensive Income (Loss):
Less reclassification adjustment for net security gains included in net loss		—		—			—			—			(23,389	)		(23,389	)
Net Loss		—		—			—			(97,799	)		—			—			(97,799	)
Pension transition obligation amortization		—		—			—			—			38			38
Net unrealized holding losses on securities available for sale arising during the period		—		—			—			—			—			(5,639	)		(5,639	)
Income tax effect related to items of other comprehensive income (loss)		—		—			—			—			(5,081	)		(5,081	)
Less reclassification adjustment for net security gains included in net income		—		—			—			—			—			(2,018	)		(2,018	)
Comprehensive Income (Loss)		—		—			—			(223,783	)		(2,566	)		(226,349	)
Pension transition obligation amortization		—		—			—			—			—			42			42
Purchase of 3,188 shares for the treasury		—		(3	)		—			—			—			(3	)
Income tax effect related to items of other comprehensive income		—		—			—			—			—			3,016			3,016
Deferred compensation and other		—		—			(62	)		—			—			(62	)
Comprehensive Income		—		—			—			(97,799	)		—			(4,599	)		(102,398	)
Stock-based compensation		—		—			824			—			—			824
Cash dividends on common stock-$0.278 per share		—		—			—			(6,292	)		—			—			(6,292	)
Reissuance of 216,138 treasury shares for incentive plans, net of cancellations		—		5,536			(6,151	)		—			—			(615	)
Purchase of 15,315 shares for the treasury		—		(348	)		—			—			—			—			(348	)
Issuance of 126,323 common shares; 81,482 treasury shares for Employee Stock Plan		28		1,831			(1,645	)		—			—			214
Deferred compensation and other		—		—			53			—			—			—			53
Balance at December 31, 2009	$	6,712	$	(164,929	)	$	62,804		$	141,901		$	(10,481	)	$	36,007
Stock-based compensation		—		—			2,122			—			—			—			2,122
Reissuance of 20,015 treasury shares for incentive plans, net of cancellations		—		445			(585	)		—			—			—			(140	)
Issuance of 77,875 common shares for Employee Stock Plan		18		—			416			—			—			—			434
Balance at December 31, 2008	$	6,684	$	(172,293	)	$	69,838		$	365,684		$	—		$	(7,915	)	$	261,998

See accompanying notes to consolidated financial statements.

5360

AMCORE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	Years ended December 31,
	2008			2007			2006
	2009			2008			2007
	(in thousands)
Cash Flows From Operating Activities
Net (loss) income	$	(97223,~~799~~783	)	$	28(97,~~241~~799	)	$	4728,~~275~~241
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Adjustments to reconcile net (loss) income from operations to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		87,~~775~~699			8,~~105~~775			78,~~371~~105
Goodwill impairment		~~6,148~~—			—6,148			—
Amortization and accretion of securities, net		(375	)		588			1,523
Amortization and (accretion) of securities, net		1,916			(375	)		588
Stock-based compensation expense		~~2,223~~833			12,~~889~~223			21,~~977~~889
Tax benefit on exercise of stock options		—			~~764~~—			~~845~~764
Excess tax benefits from stock-based compensation		—			~~(733~~—	)		(~~792~~733	)
Provision for loan losses		~~202~~190,~~716~~157			29202,~~087~~716			1029,~~120~~087
Company owned life insurance income, net of claims		(4,~~567~~582	)		(54,~~439~~567	)		(5,~~072~~439	)
Net securities (gains) losses		(2,018	)		5,920			(267	)
Net gain on sale of branches		(1,790	)		—			—
Net gain on sale of loans		—			(243	)		(576	)
Net securities (gains) losses		(23,389	)		(2,018	)		5,920
Net gain on sale of Other Mortgage Servicing Rights (OMSRs)		—			(2,556	)		—
Net loss (gain) on sale of loans		22			—			(243	)
Net gain on sale of mortgage loans held for sale		(581	)		(1,002	)		(1,582	)
Valuation write downs on foreclosed real estate		4,272			(85	)		778
Originations of mortgage loans held for sale		(197,657	)		(238,924	)		(309,270	)
Net gain on sale of Other Mortgage Servicing Rights (OMSRs)		—			—			(2,556	)
Proceeds from sales of mortgage loans held for sale		195,125			250,108			321,172
Net gain on sale of mortgage loans held for sale		(764	)		(581	)		(1,002	)
Deferred income tax benefit		(44,274	)		(9,848	)		(625	)
Originations of mortgage loans held for sale		(284,051	)		(197,657	)		(238,924	)
(Increase) decrease in other assets		(20,504	)		7,615			(3,712	)
Proceeds from sales of mortgage loans held for sale		287,047			195,125			250,108
Increase (decrease) in other liabilities		8,880			(11,735	)		(4,605	)
Deferred income tax (benefit) expense		64,438			(44,274	)		(9,848	)
Net cash provided by operating activities	$	56,092		$	61,837		$	64,782
Decrease (increase) in other assets		12,163			(20,419	)		6,837
(Decrease) increase in other liabilities		(5,856	)		8,880			(11,735	)
Net cash provided by operating activities	$	24,332		$	56,092		$	61,837
Cash Flows From Investing Activities
Proceeds from maturities of securities available for sale	$	~~304~~625,~~447~~565		$	~~196~~304,~~074~~447		$	~~208~~196,~~649~~074
Proceeds from sales of securities available for sale		50870,~~829~~385			~~200~~50,~~159~~829			~~157~~200,~~284~~159
Purchase of securities available for sale		(~~376~~1,~~277~~096,224	)		(~~333~~376,~~421~~277	)		(80333,~~501~~421	)
Net decrease (increase) in federal funds sold and other short-term investments		~~10,500~~—			(10,500	)		5(10,~~200~~500	)
Net decrease (increase) in interest earning deposits in banks		717			1,094			(2,963	)
Net (increase) decrease in interest earning deposits in banks		(407,794	)		717			1,094
Net increase in loans		(55,064	)		(12,770	)		(253,022	)
Net decrease (increase) in loans		690,492			(55,064	)		(12,770	)
Proceeds from the sale of loans		57136,~~558~~172			—57,558			~~11,963~~—
Net proceeds from sale of OMSRs		—			~~17,529~~—			—17,529
Proceeds from company owned life insurance		—			—			2,961
Proceeds from surrender of company owned life insurance		10,000			—			—
Premises and equipment expenditures, net		(8,034	)		(10,654	)		(14,088	)
Net payments to settle branch sales		(75,844	)		—			—
Proceeds from the sale of foreclosed real estate		6,294			2,199			1,595
Premises and equipment expenditures, net		843			(8,034	)		(10,654	)
Net cash (used in) provided by investing activities	$	(9,030	)	$	49,710		$	37,078
Proceeds from the sale of foreclosed real estate		25,447			6,294			2,199
Net cash provided by (used in) investing activities	$	779,042		$	(9,030	)	$	49,710
Cash Flows From Financing Activities
Net (decrease) increase in non-interest-bearing demand deposits	$	(43,007	)	$	(34,681	)	$	18,195
Net increase (decrease) in non-interest-bearing demand deposits	$	91,187		$	(43,007	)	$	(34,681	)
Net (decrease) increase in interest-bearing demand deposits		(~~643~~387,~~467~~905	)		66(643,~~298~~467	)		~~(71~~66,~~939~~298	)
Net increase (decrease) in time deposits		~~118~~224,~~438~~367			~~(175~~118,~~490~~438	)		16(175,~~571~~490	)
Net increase (decrease) in wholesale deposits		483,818			(199,053	)		170,139
Net (decrease) increase in wholesale deposits		(273,979	)		483,818			(199,053	)
Net (decrease) increase in short-term borrowings		(~~150~~487,~~624~~798	)		~~116~~(150,~~316~~624	)		~~(360~~116,~~115~~316	)
Proceeds from long-term borrowings		~~200,000~~—			~~211~~200,~~738~~000			~~294~~211,~~400~~738
Payment of long-term borrowings		(1350,008	)		(~~41,245~~13	)		(~~116~~41,~~000~~245	)
Dividends paid		~~(6,292~~—	)		(166,~~829~~292	)		(1816,~~072~~829	)
Issuance of common shares for employee stock plan		434			665			836
Issuance of shares for employee stock plan		214			434			665
(Cancellation) reissuance of treasury shares for incentive plans		(~~140~~615	)		~~5,706~~(140	)		5,~~287~~706
Excess tax benefits from stock-based compensation		—			~~733~~—			~~792~~733
Purchase of shares for treasury		(~~348~~3	)		(~~59,609~~348	)		(4059,~~244~~609	)
Net cash used in financing activities	$	(41884,~~201~~540	)	$	(~~125~~41,~~451~~201	)	$	(~~100~~125,~~150~~451	)
Net change in cash and cash equivalents	$	5(81,~~861~~166	)	$	~~(13~~5,~~904~~861	)	$	1(13,~~710~~904	)
Cash and cash equivalents:
Beginning of year		~~132~~138,~~156~~017			~~146~~132,~~060~~156			~~144~~146,~~350~~060
End of year	$	138,017		$	132,156		$	146,060
End of year (1)	$	56,851		$	138,017		$	132,156
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors	$	~~101~~100,~~669~~585		$	~~152~~101,~~308~~669		$	~~131~~152,~~817~~308
Interest paid on borrowings	$	3417,~~686~~221			3534,~~193~~686			35,~~621~~193
Income tax payments		294			18,715			20,266
Income tax (refunds, net of payments), payments net of refunds		(29,483	)		294			18,715
Non-Cash Investing and Financing
Foreclosed real estate—acquired in settlement of loans		1845,~~997~~510			518,~~903~~997			25,~~201~~903
Transfer current portion of long-term borrowings to short-term borrowings		~~189~~100,~~319~~482			~~144~~189,~~025~~319			7144,~~528~~025
Capitalized interest		~~116~~48			~~139~~116			~~257~~139

(1)	For the year ended December 31, 2009, cash and cash equivalent balances included $1.1 million in restricted cash. See Note 1 of the Notes to Consolidated Financial Statements for further information.

See accompanying notes to consolidated financial statements.

5461

AMCORE FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~ 2007

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of AMCORE Financial, Inc. (the “Company”) and its subsidiaries conform to accounting principles generally accepted in the United States of America in all material respects. 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 these estimates.

Going Concern

The Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Significant operating losses in 2008 and 2009, significant levels of criticized assets and low levels of capital raise substantial doubt about the Company’s ability to continue as a going concern. See Note 12. Doubt as to the Company’s ability to continue as a going concern was previously disclosed in the Company’s December 31, 2009 earnings release furnished with its February 2, 2010 Form 8-K, Current Report. Other than a valuation allowance for deferred tax assets, the Consolidated Financial Statements do not include any adjustment that might result from the outcome of this uncertainty. See Note 13.

Description of the Business

The Company is a registered bank holding company headquartered in Rockford, Illinois, and conducts its principal business activities at locations within northern Illinois and southern Wisconsin. 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 conducted through its banking subsidiary (the “Bank”). The Bank also offers products and services through its mortgage-banking and investment management and trust segments, and its brokerage subsidiary. Although the Company strives to maintain a diversified loan portfolio, adverse changes in the local economies or in the commercial real estate markets could have a direct impact on the credit risk in the portfolio.

Significant Accounting Policies

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

Basis of Presentation. ~~The~~– ~~operating~~Loans ~~results for Investors Management Group, Ltd. (IMG) have been reclassified~~ and ~~shown~~fixed asassets ~~discontinued~~related ~~operations~~to on the ~~Statements~~pending ofbranch ~~Operations~~sale ~~and~~have inbeen ~~the~~reclassified ~~Notes~~ to ~~the Consolidated~~loans ~~Financial~~held ~~Statements~~ for ~~all~~sale ~~periods~~and ~~presented.~~other assets, ~~This~~respectively, ~~includes~~at ~~the~~lower ~~effect~~ of ~~the~~cost ~~sale~~or ~~of IMG~~market. See Note 2 for additional information.

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 interest-earning deposits in banks are not included in cash and cash equivalents. In connection with the December 2009 amendment to the senior debt, see Note 6 for further discussion, a cash reserve account in the amount of $1.1 million was established. The amount of the reserve account equals the anticipated interest payments due through maturity on said debt and is restricted as to access.

Loans Held for Sale. – Loans originated and intended for sale are recorded at the lower of cost or fair value. ~~Historically,~~Mortgage ~~the Bank routinely engaged in forward sales contracts on mortgage~~ loans originated and held for sale 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 were marked-to-market pursuant to Statement of Financial Accounting Standards (SFAS) No. 133. In 2007, the Bank completed an arrangement with a third party mortgage loan processor and servicer to which the majority of mortgage loans are ~~now being~~ sold for a fixed fee net of origination costs. Gains and losses on the sale of mortgage loans are included in ~~mortgage~~other ~~banking~~non-interest income.

~~Securities~~62 and Other Investments. Debt securities can be classified into three categories: held to maturity, trading, and available for sale. There were no held to maturity or trading securities outstanding during 2008 and 2007. Securities available for sale are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated Other Comprehensive Income (OCI) until realized. The interest method is used for the amortization and accretion of premiums and discounts. The objective of the interest method is to measure periodic interest income at a constant effective yield. The cost of securities sold is determined on a specific identification method.

Securities and Other Investments – Debt securities can be classified into three categories: held to maturity, trading, and available for sale. There were no held to maturity or trading securities outstanding during 2009 and 2008. Securities available for sale are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated Other Comprehensive Income (Loss) (OCI) until realized. The interest method is used for the amortization and accretion of premiums and discounts. The objective of the interest method is to measure periodic interest income at a constant effective yield. The cost of securities sold is determined on a specific identification method.

Non-marketable equity securities, which include community reinvestment act (CRA) related fund investments, are reported under the cost or equity method depending on percentage of ownership. Also included in non-marketable equity securities are investments in stock of the Federal Reserve Bank and the Federal Home Loan Bank. 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. CRA related fund and affordable housing tax credit investments are reported as other assets on the Consolidated Balance Sheets.

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 for additional information.

Loans and Allowance for Loan Losses. – Loans that management has the ability and intent to hold for the foreseeable future are recorded at the amount advanced to the borrower plus certain costs incurred by the Company 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 and the contractual rate of interest. 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 a constant effective yield.

Management periodically evaluates the loan portfolio in order to establish an adequate allowance for loan losses (the “Allowance”) to absorb estimated losses that are probable as of the respective reporting date. This evaluation includes specific loss estimates on certain individually reviewed loans where it is probable that the Company will be unable to collect all of the amounts due (principal or interest) according to the contractual terms of the loan agreement (impaired loans) and statistical loss estimates for loan groups or pools that are based on historical loss experience. Also included are loss estimates that reflect the current credit environment and that are not otherwise captured in the historical loss rates. These include the quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay and current economic and industry conditions, among other things.

Additions to the Allowance are charged against earnings for the period as a provision for loan losses (the “Provision”). Actual loan losses are charged against the Allowance when management believes that the collection of principal will not occur and the loss has been confirmed. In general, the amount that the carrying value of impaired real estate loans that is solely dependent upon the underlying collateral for repayment exceeds its appraised value is deemed a confirmed loss and is immediately charged off. The accrual of interest income is generally discontinued (the “Non-Accrual Status”) when management believes that collection of principal and/or interest is doubtful. Generally, loans that are not well secured and in the process of collection are placed in Non-Accrual Status when payment becomes past due for more than 90 days except for residential real estate loans which are placed on Non-Accrual Status at 120 days past due. 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 the Allowance. 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 collectability of remaining principal and interest is no longer doubtful. See Note 4 for additional information.

~~Concentration~~63 of Credit Risk. The Company has a significant concentration in commercial real estate loans to builders and developers. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the real estate market.

Bank and Company Owned Life Insurance (COLI). The Company has purchased life insurance coverage for certain officers. Premiums paid for the policies, net of any charges that would not be recoverable upon surrender of the policies, are recorded as assets on the Consolidated Balance Sheets. Increases or decreases in cash

~~surrender~~Concentration ~~value~~of ~~(other~~Credit ~~than~~Risk ~~proceeds~~– ~~from~~The ~~death~~Company ~~benefits)~~has ~~are~~a ~~recorded~~significant asconcentration ~~other~~in ~~income.~~commercial real ~~Proceeds~~estate ~~from~~loans ~~the~~to ~~death~~builders ofand andevelopers. ~~insured~~Therefore, ~~first reduce~~ the ~~cash~~Company’s ~~surrender value~~exposure ~~attributable~~ to ~~the~~credit ~~individual~~risk ~~policy~~is ~~with~~significantly ~~any~~affected ~~additional~~by ~~proceeds~~changes ~~recorded as other income~~ in the ~~period~~real ofestate ~~death~~market.

~~Premises~~Bank and ~~Equipment.~~Company ~~Premises~~Owned ~~and~~Life ~~equipment~~Insurance ~~including~~(COLI) ~~leasehold~~– ~~improvements~~The ~~are~~Company ~~stated~~has atpurchased ~~cost~~life ~~less~~insurance ~~accumulated~~coverage ~~depreciation~~for ~~and amortization. Land is~~certain ~~carried at cost~~officers. ~~Capitalized~~Premiums ~~leases~~paid ~~are~~for ~~recorded at~~ the ~~present~~policies, ~~value~~net of ~~minimum~~any ~~lease~~charges ~~payments~~that ~~over~~would ~~the~~not ~~life~~be ofrecoverable ~~the~~upon ~~lease~~surrender ~~(limited~~of to the ~~fair~~policies, ~~value~~are ofrecorded ~~the~~as ~~property~~assets aton the ~~inception~~Consolidated ofBalance ~~the lease) less accumulated amortization~~Sheets. ~~Buildings~~Increases ~~and~~or ~~related components~~decreases ~~are~~in ~~depreciated~~cash ~~using~~surrender ~~the~~value ~~straight-line~~(other ~~method~~than ~~with useful lives ranging~~ proceeds from 15death tobenefits) ~~30 years. Furniture, fixtures, equipment and software~~ are ~~depreciated~~recorded ~~using~~as ~~the~~other ~~straight-line~~income. ~~method~~Proceeds ~~with useful lives ranging~~ from ~~3 to 10 years. Leasehold improvements and capitalized leases are amortized straight-line over~~ the ~~lesser~~death of ~~their~~an ~~respective~~insured ~~lease~~first ~~terms~~reduce orthe ~~useful~~cash ~~lives.~~surrender ~~Rent~~value ~~expense~~attributable ~~for~~to ~~operating~~the ~~leases~~individual ~~that~~policy ~~include~~with ~~scheduled~~any ~~rent~~additional ~~increases~~proceeds orrecorded ~~rent~~as ~~holidays~~other ~~are~~income ~~recognized straight-line~~in ~~over~~ the ~~lease term, including the rent holiday~~ period. ~~Rent~~of ~~expense for operating leases that do not include scheduled rent increases or rent holidays are recognized in accordance with their contractual terms~~death. ~~See Note 5 for~~ ~~additional information.~~

~~Intangible~~Premises ~~Assets.~~and ~~Certain~~Equipment ~~intangible~~– Premises and ~~assets,~~equipment ~~such~~including asleasehold ~~goodwill,~~improvements ~~have~~are ~~arisen~~stated ~~from~~at ~~the~~cost ~~purchase~~less ofaccumulated ~~subsidiaries~~depreciation and amortization. ~~Goodwill~~Land ~~represents~~is carried at cost. Capitalized leases are recorded at the ~~excess~~present value of ~~the~~minimum ~~purchase~~lease ~~price~~payments over the life of the lease (limited to the fair value of the ~~identifiable~~property ~~net~~at ~~assets~~the ~~acquired~~inception of the lease) less accumulated amortization. ~~Goodwill~~Buildings isand ~~not~~related ~~amortized,~~components ~~but~~are ~~must~~depreciated beusing ~~tested~~the atstraight-line ~~least annually~~method ~~for~~with ~~impairment~~useful lives ranging from 15 to 30 years. ~~See~~Furniture, ~~discussion~~fixtures, equipment ~~under~~and ~~Impairment~~software ofare ~~Long~~depreciated using the straight-~~Lived~~line ~~Assets~~method ~~later~~with inuseful ~~this~~lives ~~note~~ranging from 3 to 10 years. ~~During~~Leasehold ~~2008,~~improvements and capitalized leases are amortized straight-line over the ~~Company~~lesser ~~wrote~~of their respective lease terms or useful lives. Rent expense for operating leases that include scheduled rent increases or rent holidays are recognized straight-~~off~~line ~~all~~over ~~goodwill~~the ~~previously~~lease ~~carried~~term, onincluding the ~~Company’s~~rent ~~balance~~holiday ~~sheet~~period. Rent expense for operating leases that do not include scheduled rent increases or rent holidays are recognized in accordance with their contractual terms. See Note 65 for additional information.

~~Foreclosed~~Intangible ~~Real~~Assets ~~Estate.~~– ~~Foreclosed~~Certain ~~real~~intangible ~~estate~~assets, ~~comprises~~such ~~real properties~~as ~~acquired~~goodwill, inhave ~~partial~~arisen orfrom ~~full~~the ~~satisfaction~~purchase of ~~loans~~subsidiaries. ~~These~~Goodwill ~~properties~~represents ~~are~~the excess ~~carried~~of asthe ~~other~~purchase ~~assets~~price atover the ~~lower of cost or~~ fair value ~~less~~of ~~estimated~~the ~~costs~~identifiable tonet ~~sell~~assets ~~the properties~~acquired. ~~When~~Goodwill ~~the property~~ is ~~acquired~~not ~~through foreclosure~~amortized, ~~any~~but ~~excess of~~must ~~the~~be ~~related~~tested ~~loan~~at ~~balance~~least ~~over~~annually ~~the~~for ~~fair~~impairment. ~~value~~See ~~less~~discussion ~~expected~~under ~~selling~~Impairment ~~expenses,~~of isLong-Lived ~~charged~~Assets ~~against~~later ~~the Allowance. Subsequent declines~~ in ~~value~~this ornote. ~~losses~~During 2008, ~~and~~the ~~gains~~Company ~~upon~~wrote-off ~~sale,~~all ifgoodwill ~~any,~~previously ~~are~~carried ~~recognized~~on in the ~~Consolidated~~Company’s ~~Statements~~balance ~~of Operations~~sheet.

~~Mortgage~~Foreclosed ~~Servicing~~Real ~~Rights.~~Estate ~~The~~– ~~Company~~Foreclosed ~~sells most of the one-to-four family residential~~ real estate ~~loans~~comprises ~~that~~real itproperties ~~originates.~~acquired ~~Historically,~~in ~~these~~partial ~~were~~or ~~primarily~~full ~~sold~~satisfaction toof ~~the~~loans. ~~Federal~~These ~~Home~~properties ~~Loan~~are ~~Mortgage~~carried ~~Corporation~~as ~~(FHLMC),~~other aassets ~~U.S.~~at ~~government-sponsored~~the ~~enterprise~~lower ~~(GSE).~~of cost ~~Gains~~or ~~recorded~~fair onvalue ~~the~~less ~~sale~~estimated ofcosts ~~the~~to ~~loans included~~sell the ~~right~~properties. toWhen ~~service~~ the ~~loans~~property onis ~~behalf~~acquired ofthrough ~~FHLMC~~foreclosure, aany ~~right~~excess ~~that~~of ~~was retained by~~ the ~~Company,~~related ~~and~~loan ~~that~~balance ~~resulted~~over inthe anfair ~~originated~~value ~~mortgage~~less ~~servicing~~expected ~~rights~~selling ~~(OMSR)~~expenses, ~~asset.~~is ~~The~~charged ~~resulting OMSR asset was amortized as a charge~~ against ~~mortgage~~the Allowance. ~~banking~~Subsequent ~~income~~declines in ~~proportion~~value toor ~~the~~losses ~~principal~~and ~~amortization~~gains ofupon ~~the~~sale, ~~underlying~~if ~~serviced~~any, ~~loans~~are ~~and~~recognized asin the ~~actual~~Consolidated ~~servicing~~Statements ~~fee~~of ~~was collected~~Operations.

Mortgage Servicing Rights – The Company sells most of the one-to-four family residential real estate loans that it originates. Historically, these were primarily sold to the Federal Home Loan Mortgage Corporation (FHLMC), a U.S. government-sponsored enterprise (GSE). Gains recorded on the sale of the loans included the right to service the loans on behalf of FHLMC, a right that was retained by the Company, and that resulted in an originated mortgage servicing rights (OMSR) asset. The resulting OMSR asset was amortized as a charge against mortgage banking income in proportion to the principal amortization of the underlying serviced loans and as the actual servicing fee was collected.

During 2007, the Company sold the majority of its OMSR portfolio. The Company now sells most of the mortgage loans that it originates to a third-party mortgage loan processor and servicer and does not retain the OMSR.

Loan Securitization and Sales of Receivables. – The Company has periodically sold certain indirect automobile loans in securitization transactions in exchange for cash and certain retained residual interests.

During 2007, the outstanding balances of the underlying loans fell to a level where the cost of servicing the loans became burdensome in relation to the benefits of servicing. As a result, the Company exercised its option to repurchase the loans from the securitization trust ~~(the “Clean-up Call”)~~. The repurchased loans were recorded at fair value, and the ~~related retained residual interests were written off. As of December 31, 2008, the balance of repurchased loans included on the Company’s Consolidated Balance Sheet was $7 million.~~

~~Impairment~~64 of Long-Lived Assets. Long-lived assets including goodwill 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. Goodwill for each reporting unit of the Company is also tested for impairment annually. See Note 6 for additional information.

~~Trust~~ related ~~and~~retained ~~Managed~~residual ~~Assets.~~interests ~~Assets~~were ~~that~~written ~~are~~off. ~~held~~As byof ~~subsidiaries~~December 31, in2009, ~~a fiduciary or agency capacity are not included in~~ the ~~consolidated~~balance ~~financial statements as they are not assets~~ of ~~the~~repurchased ~~Company.~~loans ~~The~~included ~~total~~on ~~assets either administered or managed by~~ the Company’s atConsolidated ~~December 31,~~Balance ~~2008~~Sheet ~~and~~was ~~2007 were~~ $~~2.0~~1 ~~billion and $2~~million.~~7 billion, respectively.~~

~~Derivative~~Impairment ~~Financial~~of ~~Instruments~~Long-Lived ~~and~~Assets ~~Hedging~~– ~~Activities. The Company~~Long-lived ~~periodically~~assets ~~uses~~are ~~certain~~reviewed ~~financial~~for ~~instruments,~~impairment ~~called~~whenever ~~derivatives,~~events ~~to help manage (the “Hedge”) its risk~~ or ~~exposure to~~ changes in ~~interest~~circumstances ~~rates~~indicate ~~and~~that inthe ~~conjunction~~carrying ~~with~~amount ~~its mortgage banking operations. The types~~ of ~~derivatives~~an ~~currently used~~asset ~~are~~may ~~interest~~not ~~rate~~be ~~swaps (the “Interest Rate Derivatives”), mortgage loan commitments and forward contracts~~recoverable. ~~Interest~~An ~~Rate~~impairment ~~Derivatives~~loss ~~are~~would ~~contracts~~be ~~with~~recognized by a ~~third~~reduction ~~party~~to (the ~~“Counter-party”)~~carrying ~~to exchange interest payment streams based upon an assumed principal~~ amount ~~(the~~of ~~“Notional Principal Amount”). The Notional Principal Amount is not advanced to/from~~ the ~~Counter-party.~~asset, Itthus establishing ~~is used only as~~ a ~~reference~~new ~~point~~cost tobasis, ~~calculate~~with ~~the~~an ~~exchange~~offsetting ofcharge ~~interest~~to ~~payment streams~~expense.

Trust and Managed Assets – Assets that are held by subsidiaries in a fiduciary or agency capacity are not included in the consolidated financial statements as they are not assets of the Company. The total assets either administered or managed by the Company at both December 31, 2009 and 2008 were $2.0 billion.

Derivative Financial Instruments and Hedging Activities – The Company periodically uses certain financial instruments, called derivatives, to help manage (the “Hedge”) its risk or exposure to changes in interest rates and in conjunction with its mortgage banking operations. The types of derivatives used most often are interest rate swaps (the “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 to/from the Counter-party. It is used only as a reference point to calculate the exchange of interest payment streams.

The Company has used Interest Rate Derivatives to convert fixed-rate assets and liabilities (the “Hedged Items”) to floating-rate assets or liabilities. This is typically done when a fixed-rate liability has been incurred to fund a variable-rate loan or investment or when a commercial customer requires a long-term fixed-rate loan. The Interest Rate Derivative has the effect of matching the interest rate risk on the funding with the interest rate risk on the loans or investment or of eliminating the long-term interest rate risk, respectively. These types of Hedges are considered fair value Hedges. Interest rate swaps have also been used by the Company to convert assets and liabilities with variable-rate cash flows (the “Hedged Items”) to assets and liabilities with fixed-rate cash flows. 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.

All derivatives are recognized at fair value in the Consolidated Balance Sheets. Changes in fair value for derivatives that ~~are~~do not ~~Hedges~~qualify for hedge accounting as defined by accounting principles generally accepted in the United States of America are recognized in the Consolidated Statements of Operations as they arise. If the derivative qualifies for hedge accounting, depending on the nature of the Hedge, changes in the fair value of the derivative are either offset in the Statements of Operations or recorded as a component of other comprehensive income (OCI) in the Consolidated Statements of Stockholders’ Equity. If the derivative is designated as a fair value Hedge, the changes in the fair value of the derivative net of the changes in fair value of the Hedged item attributable to the Hedged risk are recognized in the Statements of Operations. 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 (the “Time Value”) are excluded from the assessment of Hedge effectiveness and therefore flow through the Statements of Operations for each period. The <

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