Don Wilson, the president and chief operating officer for Amcore Financial Inc., has a broad plan to improve profitability at his Rockford, Ill., company.

The $5.2 billion-asset Amcore is aiming for loan growth in the low single digits this year. It is rewarding employees according to the profits they generate from customer sales, instead of just volume. And it is looking to shave expenses by 3% in each of the next two years.

Mr. Wilson said the goal is to get its efficiency ratio under 55% eventually. The fourth-quarter ratio was 71.2%, well above the average for banking companies of its size.

"But it won't get there in one fell swoop," he said. "It's going to take continuous effort."

Analysts said Mr. Wilson, 48, who became the president and COO in August, is widely viewed as being groomed for the chief executive job.

Kenneth E. Edge, who was credited with transforming Amcore into a regional player in northern Illinois, retired as the CEO last week.

Though Amcore named William McManaman, a business executive who has been on its board since 1997, as the new CEO, analysts said the appointment likely is intended to give Mr. Wilson more time to grow into the role.

Mr. McManaman, 60, had been the chief financial officer at Ubiquity Brands in Chicago before signing a two-year contract for the CEO job at Amcore.

"This is a two-year time trial for Don Wilson," said Ben Crabtree, a bank analyst with Stifel, Nicolaus & Co. Inc.

"He has taken a whole lot of steps in the right direction and made a lot of changes," such as the revamped employee incentive plan, Mr. Crabtree said. But Amcore likely wants to see if Mr. Wilson's strategy works before putting him at the helm.

Mr. Wilson would not discuss any speculation about the CEO job.

Mr. Edge, who has been with Amcore for 38 years and had been the CEO since July 2002, will remain its chairman.

Amcore said it intends to take a first-quarter charge of 3 cents a share to pay Mr. Edge, 62, as a consultant this year.

During his tenure as the CEO, Amcore's assets increased about 16%. The company also added 30 branches in new markets, primarily Chicago suburbs. It now has a total of 79.

But analysts said if Mr. Edge's legacy is Amcore's growth, then the next goal needs to be improved profitability.

In January, Amcore reported that its fourth-quarter earnings fell 40% from a year earlier, to $7.5 million. It attributed the drop to a higher loan-loss provision necessitated by a softer real estate market.

The provision for the quarter more than doubled from a year earlier, to $6.4 million. Net chargeoffs jumped 78%, to $4.8 million.

Analysts applauded Mr. Wilson's plan to trim expenses and shrink the bloated efficiency ratio.

Mr. Crabtree said the goal for reducing costs is a reasonable one.

That percentage is "a safe amount" to cut without affecting service, he said. "They need to make sure they don't destroy the growth potential."

Peyton Green, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said that Amcore is unlikely to achieve the savings by just lowering its head count.

"It is about making the infrastructure as efficient as it could be," Mr. Green said. "They need to find the most efficient way to handle the everyday processes."

The cost-cutting efforts at Amcore include having executives share assistants, investing in technology, and renegotiating vendor contracts for better rates, he said.

Mr. Wilson said that his company's rapid growth contributed to its high efficiency ratio. Its branch count has grown about 60% over the past six years or so, and a typical start-up branch takes five to seven years to break even, he said.

In the fourth quarter Amcore's operating expenses declined 3.5% from a year earlier, to $40.7 million. The company cited lower employee incentives and benefits. (Its expenses included a $653,000 charge for litigation claims against Visa Inc.)

Mr. Wilson said his company has yet to decide exactly what cuts will be made to achieve its expense-trimming goal.

But he stressed that cuts are only part of the effort to improve profitability, and that growth is another part — "strong growth, not shallow growth."

Providing employee incentives for "quality over quantity" in sales should help, Mr. Wilson said.

"The plan is to sell a little bit more, spend a little bit less," he said.

Analysts said Mr. Wilson appears to be on the right track.

"They are doing things that make sense," Mr. Crabtree said. "They are much less oriented toward pure volume. I think their whole approach is 'Get better before we get bigger.' "

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