Item 1. BUSINESS
Fort Wayne National Corporation (Registrant), organized under the laws of the State of Indiana, is the owner of all issued and outstanding stock of seven commercial banks. The Registrant's principal banking subsidiary is Fort Wayne National Bank ("FWNB"), located in Fort Wayne, Indiana. The Registrant also owns all of the issued and outstanding stock of Old-First National Bank in Bluffton, located in Bluffton, Indiana; First National Bank of Huntington, located in Huntington, Indiana; and First National Bank of Warsaw, located in Warsaw, Indiana. All four banks are national banking associations. In addition, the Registrant owns all of the issued and outstanding stock of The Auburn State Bank, located in Auburn, Indiana; Churubusco State Bank, located in Churubusco, Indiana; and Valley American Bank and Trust Company, located in Mishawaka, Indiana. The Registrant also owns all of the issued and outstanding stock of Fort Wayne National Life Insurance Company, domiciled in Phoenix, Arizona.
The Registrant is a bank holding company as defined under the BHC Act and is not engaged in any material business activity other than as incident to its ownership of its subsidiary banks. As of December 31, 1996, the Registrant had a total of $3,221,297,000 in assets and a total of $2,421,891,000 in deposits.
The Registrant's subsidiary banks engage in a wide range of commercial and personal banking activities, including accepting demand and time deposits; making secured and unsecured loans to corporations, individuals and others; issuing letters of credit; and financial counseling for institutions and individuals. The banks' lending services include making commercial, industrial, real estate, installment, and credit card loans. Interest and fees on commercial loans constitute the largest contribution to the banks' operating revenues. In addition, the banks provide a wide range of trust and trust related services, including serving as executor of estates and as trustee under testamentary and inter vivos trusts and various pension and other employee benefit plans. Corporate trust services include serving as registrar and transfer agent for corporate securities and as corporate trustee under corporate trust indentures.
Credit risk is inherent in the banks' lending activities. The allowance for possible loan losses represents management's estimate of potential credit losses associated with the loan portfolio, including all off-balance-sheet lending commitments. To mitigate its exposure to credit risk, the Company utilizes a loan grading system that helps identify, monitor and address asset quality problems, should they arise, in an accurate and timely manner. Credits of a significant nature are reviewed on an individual basis and specific allocations of the allowance for possible loan losses may be made if so warranted.
Each of the Registrant's subsidiary banks is subject, at a minimum, to annual reviews or examinations, as applicable, by the Federal Reserve Bank System,
the Office of the Comptroller of the Currency, the Indiana Department of Financial Institution, and the Federal Deposit Insurance Corporation. In addition, the Registrant is subject to annual reviews by the Federal Reserve Bank System.
The banks actively compete on the local and regional levels with other commercial banks and financial institutions for all types of deposits, loans, and trust accounts and in providing financial and other services traditionally offered by banks. They also compete for the banking business of local and regional offices of national companies. With respect to certain banking services, the banks compete with insurance companies, savings and loan associations, credit unions, brokerage firms, and other financial institutions.
At December 31, 1996, the Registrant had approximately 1,191 full-time and 276 part-time employees. Management considers employee relations to be good. None of the Registrant's employees is covered by a collective bargaining agreement.
The earnings of commercial banks are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Bank (FRB) regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open-market operations in U.S. Government securities, the discount rate on bank borrowings, and setting the reserves that banks must maintain against certain bank deposits. These policies have a significant effect on the overall growth and distribution of bank loans, investments and deposits. They influence interest rates charged on loans, earned on investments and paid for time and savings deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to exert similar influence in the future. The general effect, if any, of such policies upon the future business and earnings of the Company cannot be reasonably predicted.
STATISTICAL DISCLOSURES
AVERAGE BALANCES AND INTEREST RATES
An analysis of net interest income on a fully taxable equivalent basis is summarized for each of the periods included in the following table.
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
The following table attributes changes in the Company's net interest income (on a fully taxable equivalent basis) to changes in either average daily balances or average rates. Changes which are attributable in part to volume and in part to rate are allocated in direct proportion to the change in the absolute dollar amounts of each.
INVESTMENT SECURITIES
The carrying values of the Company's investment securities are summarized for the periods indicated in the following table.
MATURITY DISTRIBUTION AND YIELDS OF INVESTMENT SECURITIES
The following table sets forth the maturities of the Company's investment securities as of December 31, 1996 and the weighted average yields of such securities on the basis of amortized cost and effective yields weighted for the scheduled maturity of each security.
Tax-equivalent adjustments (using a 35% rate) have been made in calculating yields on obligations of states and political subdivisions. Equity securities totaling $14,181,000 are included in the after ten years category.
DISTRIBUTION OF LOANS
The composition of the Company's loan portfolio is summarized for the periods indicated in the following table.
MATURITIES OF LOANS AND SENSITIVITIES TO CHANGES IN INTEREST RATES
The following table shows the maturity of the Company's loan portfolio (excluding mortgages on 1-4 family residences and installment loans) outstanding as of December 31, 1996 Also shown are the amounts due after one year classified according to their sensitivity to changes in interest rates.
NONPERFORMING ASSETS
The Company's nonaccrual loans, accruing loans past due 90 days or more, restructured loans and other real estate owned are summarized for the periods indicated in the following table.(1)
(1) In addition to loans classified as nonperforming at December 31, 1996, there were loans aggregating $14,900,000 where management is closely monitoring the borrowers' ability to comply with payment terms. (2) Gross interest income of $698,000 would have been recorded in 1996 for nonaccrual and restructured loans at December 31, 1996 assuming these loans had been accruing interest throughout the year in accordance with their original terms. The amount of interest actually included in 1996 income was $52,000.
SUMMARY OF LOAN LOSS EXPERIENCE
Activity in the Company's allowance for possible loan losses is summarized for the periods indicated in the following table.
Factors affecting management's judgment in determining additions to the allowance charged to operating expense are outlined under the subcaption "Allowance for Possible Loan Losses" in Note 1 to the Company's consolidated financial statements.
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
An allocation of the Company's allowance for possible loan losses is summarized for the periods indicated in the following table. In addition to an allocation for specific problem loans, each category includes an unallocated portion of the allowance for possible loan losses based on loans outstanding, credit risks and historical charge-offs. Notwithstanding the following allocations, the entire allowance for possible loan losses is available to absorb charge-offs in any category of loans.
DEPOSITS
The average daily amount of the Company's deposits and the rates paid on such deposits is summarized for the periods indicated in the following table.
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
The following table shows the maturities of the Company's outstanding domestic CDs and other time deposits in denominations of $100,000 or more at December 31, 1996.
SHORT-TERM BORROWINGS
The following table shows the distribution of the Company's short-term borrowings and the weighted average interest rates thereof for the periods indicated. Also provided are the maximum amount of borrowings and the average amount of borrowings, as well as weighted average interest rates for the periods indicated. (Federal funds purchased and securities sold under agreements to repurchase are borrowings of the Company which generally mature within 1 to 30 days. Notes payable, U.S. Treasury and other borrowings range in maturity from 1 to 7 days.)
Item 2.
Item 2. PROPERTIES
The Registrant's principal offices and FWNB's banking headquarters are located at 110 West Berry Street, Fort Wayne, Indiana, in a 26-story building. Approximately 29% of the building is occupied by FWNB under the terms of a lease agreement, which has lease terms through March 2008. See Note 7 to the consolidated financial statements relating to premises and equipment, and lease agreements of the Registrant.
FWNB has 19 fully utilized branch offices in Allen County, Indiana, in addition to its main office. FWNB owns 11 of its branch offices. Five other branch offices are part of land lease arrangements under which the buildings are owned by FWNB. Three branch offices sites are wholly leased. Valley American Bank and Trust Company (Valley) owns its main office facility located in Mishawaka, Indiana. In addition Valley has 19 branch offices, of which 8 are owned by Valley, 3 are part of land lease arrangements under which the buildings are owned by Valley, and 8 branch offices which are wholly leased. Each of the Registrant's other banking subsidiaries owns its respective main office in its home community. The Auburn State Bank has one branch office, Old-First National Bank in Bluffton has three branch offices, First National Bank of Huntington has four branch offices, and First National Bank of Warsaw has nine branch offices.
Management of the Registrant believes that the properties used by its banking subsidiaries are suitable and adequate for current as well as future needs.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Registrant and its subsidiaries are defendants in various legal proceedings. With respect to each of these suits, it is either the opinion of legal counsel that it is without merit or the opinion of management of the Registrant that even if the plaintiff prevails therein the disposition thereof will not have a material affect on the financial condition of the Registrant.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders from September 30, 1996 to December 31, 1996.
Part II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
A market exists for Fort Wayne National Corporation common stock in the national over-the-counter market. The following table sets forth to the Company's best knowledge the high and low sales prices per share from January 1, 1995 through December 31, 1996.
The Company's common stock is traded in the national market system of the National Association of Securities Dealers (NASDAQ) under the symbol FWNC. As of December 31, 1996 and 1995 there were 3,664 and 3,448 shareholders of record, respectively.
On February 19, 1997, the closing price for the Company's common stock, as reported by NASDAQ, was $41.50.
Market Makers: ABN-AMRO Chicago Corporation Merrill Lynch Everen Securities, Inc. F. J. Morrissey & Co. Inc. Herzog, Heine, Geduld, Inc. NatCity Investments, Inc. Keefe, Bruyette & Woods, Inc. Paine Webber, Inc. McDonald & Company
Item 6.
Item 6. SELECTED FINANCIAL DATA
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis are intended to cover significant factors and conditions affecting the Company's overall performance for the past three years. It should be read in conjunction with the audited consolidated financial statements of the Company contained elsewhere herein.
On June 1, 1996 the Company acquired, through merger of Valley Financial Services, Inc. (VFS) with and into the Company, all of the issued and outstanding stock of VFS's only banking subsidiary, Valley American Bank and Trust Company (Valley). This acquisition has been accounted for as a purchase for accounting purposes, and accordingly, the results of operations of Valley have been included in the consolidated results of operations of the Company from the date of acquisition. As of December 31, 1996, Valley had total assets of $923.6 million which accounts for 29% of the Company's consolidated total assets at that date. Valley's net income of $5.1 million for the period from June 1, 1996 to December 31, 1996 accounts for 16% of the Company's consolidated net income for the full year ended December 31, 1996. The acquisition of Valley has, therefore, had a material impact on the financial position and results of operations of the Company as of and for the year ended December 31, 1996 as compared to prior years.
FINANCIAL HIGHLIGHTS
COMPARATIVE EARNINGS ANALYSIS
RESULTS OF OPERATIONS EARNINGS. Net income in 1996 totaled $32.5 million, an increase of 22% over the $26.7 million earned in 1995 and 24% over the $26.2 million earned in 1994. Earnings per common share for 1996 were $2.68 compared to $2.33 in 1995 and $2.28 in 1994. Fourth quarter earnings were $9.5 million or $.77 per share, an increase of 7% over third quarter 1996 and 36% over fourth quarter 1995. Since the acquisition of Valley was accounted for as a purchase, a significant amount of amortization relating to goodwill and other intangibles is included in reported earnings. Cash earnings (earnings before amortization of goodwill and other intangibles) amounted to $34.3 million or $2.83 per common share in 1996.
The major components of the Company's operating results are summarized in the Comparative Earnings Analysis table. Net interest income increased 26% in 1996 over 1995 after having increased less than 1% in 1995 over 1994. Without Valley's net interest income of $18.7 million, net interest income in 1996 would have increased by $1.8 million or 2% over 1995. Net overhead, which is the amount by which noninterest expense exceeds noninterest income, increased
21% in 1996 from 1995 and 3% in 1995 over 1994. Excluding Valley, net overhead for 1996 would have been below 1995 by $1.2 million or 3%. The provision for possible loan losses charged to earnings increased 62% in 1996 from 1995 after reflecting a 7% decrease in 1995 from 1994. Without Valley's provision of $323,000 in 1996, the provision for loan losses would have increased by 48%. Applicable income taxes increased by $4.8 million or 45% following an 8% decrease in 1995 over 1994.
NET INTEREST INCOME. Net interest income, which is the difference between interest and fees earned on assets and the interest paid on deposits and other funding sources, is the primary source of earnings for the Company. This component represented approximately 80% of the Company's net revenues in 1996. A detailed analysis highlighting the changes in net interest income is provided in the Analysis of Changes in Interest Differential table. Interest earned on tax-exempt loans and investments is adjusted for comparative purposes to a taxable equivalent basis using the federal tax rate of 35%, resulting in a fully taxable equivalent (FTE) net interest income.
Net interest income on a fully taxable equivalent basis totaled $106.5 million in 1996 compared to $85.7 million in 1995 and $85.1 million in 1994. The significant increase in net interest income in 1996 includes an increase of $17.0 million due to volume increases in 1996 following a $3.1 million increase due to volume in 1995. The 1996 volume increase was fueled by the earning assets and interest-bearing liabilities added to the Company's balance sheet in 1996 through the acquisition of Valley. Rate movements also increased net interest income by $3.7 million in 1996 after negatively impacting net interest income by $2.4 million in 1995.
Average earning assets increased by $531.3 million or 27% for 1996 with increases of $335.2 million in loans, net of unearned income, and $188.2 million in investment securities. The 1996 average earning assets include $309.7 million of loans, net of unearned income, and $112.8 million of investment securities of Valley. Interest-bearing liabilities increased $468.6 million or 28% for 1996 with Valley adding $369.0 million in interest-bearing liabilities. Absent Valley, interest-bearing liabilities increased by $99.6 million: the net of increases of $172.9 million in time deposits, and $10.9 million in subordinated and other long-term notes; offset by decreases of $2.3 million in short-term borrowings, $33.5 million in interest-bearing demand deposits and $48.4 million in savings deposits.
The increase in time deposits in 1996 continues the trend which began in 1995. During 1995, the Company introduced its AnydayEveryday account which is priced to yield a return above the average money market rate. This product continues to be very successful in terms of generating time deposits for the Company.
The Company's net interest margin measured on a fully taxable equivalent basis decreased to 4.22% in 1996 from 4.30% in 1995 and 4.44% in 1994. Although the Company continues to experience significant pressure on net interest margin, the net interest margin for the fourth quarter of 1996 was 4.33% compared to 4.19% in the third quarter of 1996 and 4.21% in the fourth quarter of 1995.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan losses is maintained at a level believed adequate by management to absorb estimated probable loan losses. To facilitate the periodic evaluation of the adequacy of the allowance for possible loan losses, the Company utilizes a loan grading system that helps identify, monitor and address asset quality problems, should they arise, in an accurate and timely manner. Credits of a significant nature are reviewed on an individual basis and a specific allocation of the allowance for possible loan losses may be made if so warranted.
The Company's charge to earnings as a provision for possible loan losses was approximately $4.0 million in 1996, $2.4 million in 1995 and $2.6 million in 1994. Net loan charge-offs amounted to $5.5 million in 1996, $4.2 million in 1995 and $2.7 million in 1994. Net charge-offs as a percent of average loans outstanding were .35%, .33% and .23% for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company's allowance for possible loan losses totaled $30.3 million or 1.62% of total loans outstanding as compared to 1.57% in 1995 and 1.79% in 1994. The ratio of the allowance for possible loan losses to nonperforming loans of 251% for 1996 compares to 101% at the end of 1995 and 104% at December 31, 1994.
Nonperforming loans (including nonaccrual loans, accruing loans past due 90 days or more, and restructured loans) amounted to $12.1 million at year-end 1996 compared to $19.9 million at year-end 1995 and $21.0 million at year-end 1994. Nonperforming loans represented just .64% of total loans outstanding at December 31,1996 compared to 1.56% one year ago and 1.72% at the end of 1994. Nonperforming assets (nonperforming loans plus other real estate owned) represented .43% of total assets, the lowest level in the past five years and significantly better than the Company's peer ratio of .59%.
Other than those loans included in the Nonperforming Assets table and related notes thereto, there are no other loans which management is closely monitoring, or which have been classified by bank regulators, which are being monitored or classified because of trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources.
NONINTEREST INCOME AND EXPENSE ANALYSIS
NONINTEREST INCOME AND EXPENSE. A ratio often used to evaluate the noninterest income and expense performance of banking organizations is the efficiency ratio. This ratio is calculated by dividing total noninterest expense by the total of net interest income (on a fully taxable equivalent basis) and noninterest income less securities transactions. The lower the ratio, the more efficient the organization is at generating income in relation to the expenses incurred to obtain that income. The Company has historically outperformed its peers with efficiency ratios of 55.7%, 56.1% and 55.1%, respectively in 1996, 1995 and 1994 compared to peer ratios of 61.0%, 61.8% and 63.4%, respectively for the same periods. Excluding the amortization of goodwill and other intangibles, the Company's efficiency ratio would be 54.3%, 55.9% and 54.9%, respectively in 1996, 1995 and 1994.
During 1996, fiduciary fees increased $2.7 million or 28% from 1995 following the 9% increase in 1995 from 1994. Valley contributed less than $1 million to the 1996 increase. The market value of assets under supervision by the Company's trust and investment group continues to increase, amounting to $3.8 billion at December 31, 1996, up from $3.4 billion at December 31, 1995 and $2.8 billion at December 31, 1994.
Service charges on deposits grew $1.8 million or 38% in 1996 after increasing 3% in 1995 over 1994. While Valley added $1.2 million to this category in 1996, the Company continues to realize an improvement in its collection of various deposit fees.
Other service charges increased $317,000 or 11% in 1996. However, other service charges at Valley amounted to $687,000. Therefore, this category decreased by $370,000 or 13% net of Valley. This category also decreased by $1.1 million in 1995 from 1994. The variance from 1995 to 1996 is attributed primarily to a decrease in insurance premium income of $82,000, a decrease in merchant discount fees of $59,000 and a decrease in income generated from referrals on annuity prospects of $214,000. The 1995 decrease was also attributed to a decrease in income generated from referrals on annuity prospects of $340,000.
Other income reflected a $610,000 or 28% increase in 1996 from 1995 with $292,000 contributed by Valley and $318,000 contributed by an increase in electronic banking income. In addition, the Company recognized $189,000 in capitalized originated mortgage servicing rights as a result of adopting Statement 122, "Accounting for Mortgage Servicing Rights - An Amendment to Statement 65." Other income reflected a $526,000 or 32% increase in 1995 from 1994 as the Company generated net gains on sales of loans of $101,000 in 1995 and net losses on sales of loans of $379,000 in 1994. Sales of loans netted a gain of $5,000 in 1996.
Securities transactions amounted to a net gain of $392,000 in 1996 compared to $87,000 in 1995 and $5,000 in 1994. Substantially all of the net securities gain in 1996 was due to the sale of certain common stock held by the Company.
Total noninterest expense increased 24% in 1996 over 1995, yet just 3% without Valley's $12.5 million of noninterest expense. Total noninterest expense increased 3% in 1995 over 1994.
Salaries and wages reflected a $7.0 million or 28% increase in 1996 over 1995 ($1.8 million or 7% excluding Valley) and a $1.4 million or 6% increase in 1995 over 1994. The number of full time equivalent employees increased to 1,317 at December 31, 1996 from 977 at year-end 1995 and 964 at year-end 1994. Valley had 349 full time equivalent employees at December 31, 1996. The increase in salaries and wages in 1996 is the result of the employees added with the Valley acquisition, general merit increases and an increase in incentive and other bonus compensation of $791,000 (exclusive of Valley). The 1995 increase over 1994 resulted from general merit increases and the additional staff needed to support new products and services and increased loan and deposit volumes.
Employee benefits increased by $1.5 million or 25% in 1996 from 1995, consistent with the 28% increase in salaries and wages. Employee benefits reflected only a minor increase in 1995 from 1994 as the result of favorable claim experience which allowed the Company's health insurance premium rates to remain the same in 1995 as in 1994.
Net occupancy expense increased $1.3 million or 26% in 1996 over 1995 ($245,000 or 5% excluding Valley), reflecting increases in building depreciation, utilities, insurance and rent. Net occupancy expense increased just $80,000 or 2% in 1995 over 1994.
Equipment expense increased by $1.0 million or 24% in 1996 from 1995 ($287,000 or 7% excluding Valley) and $331,000 or 9% in 1995 over 1994. Both the 1996 and 1995 increases are due to higher depreciation on equipment as the Company continues to roll-out its corporate-wide loan documentation / teller station / platform technology.
The most significant decrease to noninterest expense for 1996 and 1995 occurred in the FDIC insurance expense. This category decreased by $2.1 million or 106% in 1996 and $1.7 million or 47% in 1995. The FDIC insurance fund met its federally mandated level of 1.25% of insured deposits during the second quarter of 1995. Therefore, the Company's FDIC insurance expense was reduced from the prior rate of $.23 per $100 of insured deposits to $.04 per $100 of insured deposits. Beginning in January of 1996, well capitalized financial institutions were not assessed a premium. Beginning in January of 1997, the FDIC insurance rate has been increased to $.013 per $100 of insured deposits and, therefore the Company expects to incur approximately $326,000 in FDIC insurance premiums in 1997.
Amortization of goodwill and other intangibles increased by $1.5 million in 1996 over 1995, reflecting the amortization of goodwill and other intangibles recorded in connection with the acquisition of Valley in 1996. The acquisition of Valley created $52.8 million of goodwill and other intangibles for which the ongoing annual amortization will be $2.6 million. Amortization of goodwill and other intangibles relating to previous acquisitions of the Company accounted for under the purchase method of accounting was virtually identical in 1996, 1995 and 1994.
Other expense increased by $3.8 million or 23% in 1996 from 1995 ($691,000 or 4% excluding Valley). Professional fees including legal, accounting, and management consulting, covering such services as acquisition planning, strategic planning, loan work-out activities, and asset / liability management activities increased $1.2 million. However, in 1996 certain other expenses decreased as 1995 was impacted by conversion expenses relating to the Company's trust software and operating expenses on loan collateral.
INCOME TAXES. The Company's effective tax rate was 32% in 1996, 29% in 1995 and 31% in 1994. The Company's effective tax rate for financial reporting purposes differs from the statutory marginal federal and state tax rates. This is attributable principally to the tax-exempt income that is earned on various earning assets and the disallowance of a tax deduction on certain recorded expenses. See Note 9 to the Company's consolidated financial statements for a further discussion of income taxes.
ANALYSIS OF FINANCIAL CONDITION
The Company's total assets at December 31, 1996 increased by $925.2 million or 40% from the prior year and totaled over $3.2 billion. Loans outstanding totaled over $1.8 billion and total deposits exceeded $2.4 billion. These amounts include the assets, loans and deposits of Valley of $923.6 million, $539.6 million and $622.0 million, respectively.
LOANS. All categories of lending increased during 1996 both including and excluding loans outstanding at Valley on December 31, 1996. Excluding Valley, loans increased by $60.7 million or 5%. Commercial lending increased by $207.0 million or 46% of which $197.4 million was outstanding at Valley. Installment loans totaled $257.4 million at December 31, 1996 ($200.3 million without Valley) compared to $192.3 million at December 31, 1995. Despite increases in each of the previously mentioned lending categories, real estate lending, including real estate mortgage and real estate construction loans, continues to be the major component of the Company's loan portfolio. Real estate loans represent 51% of the Company's total loan portfolio at year-end 1996. This category of loans increased by $325.5 million or 52% from year-end 1995 with such loans at Valley amounting to $284.7 million. As the Company's underwriting policy for 1-4 family residential loans follows that of industry standards and meets the criteria for sale in the secondary market, the Company's real estate loan portfolio is of high quality. The majority of the Company's real estate lending is concentrated in the Company's market area of north central and northeastern Indiana.
INVESTMENTS. Total investment securities increased $210.0 million or 27% from December 31, 1995 with Valley adding $195.7 million. In 1995, investment securities increased $63.2 million or 9% over 1994. On average during 1996, investment securities increased $188.2 million or 26%. Excluding Valley's average investment securities of $112.8 million, average investment securities increased by $75.4 million or 10%. This follows a decrease of $12.8 million or 2% in 1995 from 1994. The increase in average securities in 1996 is attributable to average funding sources increasing at a faster rate than average loan growth while in 1995 the opposite was true. Average short-term investments, including federal funds sold and time deposits with other banks, increased $8.0 million or 30% in 1996 after increasing $15.2 million or 37% in 1995 from 1994. However, $20.0 million of the 1996 increase was from short-term investments outstanding at Valley.
During 1996 and 1995, the Company purchased approximately $49.5 million and $25.7 million of securities designated as trading, respectively, and sold
trading securities with a carrying value of $69.3 million and $5.2 million, respectively. Realized gains (losses) on sales of trading securities amounted to $(749,000) in 1996 and $255,000 in 1995. There were no investment securities held for trading purposes at December 31, 1996. The carrying value of securities held for trading purposes at December 31, 1995 was $21.3 million including a recognized unrealized gain of $715,000.
The Company's investment portfolio continues to be of high quality as evidenced by U.S. Government and other federal agencies representing approximately two thirds of the total outstanding in each of the past three years. The Company's holdings of states and other political subdivisions decreased slightly to 22% of the total portfolio compared to 26% in 1995 and 25% in 1994. Other investments, including U.S. agency mortgage backed securities, corporate debt securities and other securities represented 13% or less of the total portfolio at the end of 1996, 1995 and 1994.
DEPOSITS. The primary source of funds for the Company comes from demand and time deposits generated at the affiliate banks. Total deposits as of December 31, 1996 increased by $654.4 million or 37% with $622.0 million of this increase attributable to outstanding deposits at Valley on December 31, 1996. In 1995, total deposits increased by $135.2 million or 8% over the levels achieved at the end of 1994. As depicted in the Deposits table, total average deposits increased by $433.6 million or 26% of which Valley contributed $330.8 million. However, as was realized in 1995 and 1994, the Company continues to experience a shift in the mix of the different deposit categories. While noninterest-bearing demand deposits as a percent of total average deposits remained relatively stable at 15% in 1996, 14% in 1995 and 14% in 1994, interest-bearing demand deposits as a percentage of total average deposits decreased to 10% in 1996 from 12% in 1995 and 13% in 1994. Average savings deposits also decreased to 15% in 1996 from 19% in 1995 and 21% in 1994. Offsetting these decreases were increases in average time deposits to total average deposits to 61% in 1996 from 55% in 1995 and 52% in 1994. The time deposits category includes the Company's popular AnydayEveryday account which averaged $327.5 million in 1996, $149.3 million in 1995 and $122.8 million in 1994.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT. Federal funds purchased and securities sold under agreements to repurchase consist primarily of repurchase arrangements commercial customers of the Company's affiliate banks' utilize for cash management services. In 1996, average federal funds purchased and securities sold under agreements to repurchase increased $79.5 million or 32% with $77.8 million of the increase coming from average federal funds purchased and securities sold under agreements to repurchase of Valley. In 1995, this funding category increased by $24.6 million or 11% on average from the prior year.
The other category of short-term funding available to the Company is notes payable to the U.S. Treasury. As indicated in the Short-Term Borrowings table, this category can fluctuate significantly during the year. This is a result of the timing of tax deposits made by customers and the call for these funds made by the government. This category, however, has been a relatively small source of funds for the Company.
Long-term debt increased to $58.3 million at December 31, 1996. During 1996, the Company borrowed $15.0 million from another financial institution on a term basis to help facilitate the payment of the cash portion of the merger consideration paid to former shareholders of VFS. The Company also assumed $34.8 million of Federal Home Loan Bank and other long-term debt of Valley and $6.8 million of junior subordinated notes of VFS. Pay downs on pre-existing, incurred and acquired debt totaled $4.9 million and $760,000 in 1996 and 1995, respectively, as a result of scheduled principal payments. For a further discussion of the Company's long-term debt obligations, maturities, and related dividend and other restrictions, refer to Notes 10 and 13 in the Company's accompanying consolidated financial statements.
CAPITAL RESOURCES. Capital adequacy is one of the main measurements used by bank regulators to determine the strength of a financial institution. A strong capital position will enable the Company to access capital markets under more favorable terms. In addition, a strong capital base encourages depositor and investor confidence in the institution.
On April 25, 1994, the Company's shareholders approved an increase from 10,000,000 to 20,000,000 in the total authorized shares of common stock, enabling the Company to effect the three-for-two stock split that was declared by the Board of Directors on January 18, 1994. This split was paid on May 20, 1994 to shareholders of record on April 27, 1994.
In addition, during 1994 the Board of Directors approved the repurchase of up to 600,000 shares of the Company's common stock. During 1996 and 1995, the Company repurchased 444,223 and 105,000 shares of its common stock at a total cost of $14.2 million and $2.8 million, respectively.
In connection with the acquisition of VFS, on June 1, 1996 the Company issued 739,976 shares of Series 1 - 6% convertible Class B Nonvoting preferred stock with a value of $37 million and 646,187 shares of common stock with a value of $20 million.
Dividends declared in 1996 totaled $13.3 million, including dividends on preferred stock of $1.3 million and dividends on common stock of $12.0 million. This compares to dividends declared on common stock of $10.8 million in 1995 and $10.0 million in 1994. On January 21, 1997, the Company's Board of Directors increased the annual common dividend to $1.16, up from the $1.02 declared in 1996 and the $.94 declared in 1995. The dividend payout ratio for 1996 was 36.3% compared to 40.3% for 1995 and 38.0% for 1994.
ASSET LIABILITY MANAGEMENT
As the Company's loans and deposits are designed to meet customer preferences, maturity mismatches will occur within the balance sheet. It is the goal of the Company's Asset/Liability Management committee to manage these maturity mismatches in a way to provide a maximum level of net interest income within established policy guidelines of liquidity and interest rate risk exposure.
INTEREST RATE SENSITIVITY. The degree by which net interest income may vary due to changes in interest rates is measured through interest rate sensitivity management. A static gap report, measured at a single point in time, measures the difference between assets and liabilities that reprice in a future given time period. The Company's gap ratio (the percentage of assets repricing against liabilities) at December 31, 1996 was 83%. The Company has historically operated with a liability sensitive position meaning more liabilities reprice on a cumulative basis than assets. This indicates net interest income should increase in declining rate scenarios and decrease in rising rate scenarios. However, as rate movements are rarely parallel, a gap report can only be considered a rough measurement of the direction a rate movement could have on net interest income. The effect of a shift in the yield curve and/or a change in the spread between certain rate indexes is better measured through the use of simulation modeling.
The Company runs the simulation model numerous times throughout the year comparing baseline results (earnings under a flat scenario) to earnings under dynamic rate scenarios. The exposure to these changes are well within the Company's guidelines. Should exposures be determined outside of tolerance levels, the Company has tools it can use to minimize the risk to earnings. Among these tools are specific investment decisions, pricing structures of deposit funds, and exchange traded financial futures and options. For a complete discussion of the Company's use of derivative contracts, refer to Note 17 in the Company's consolidated financial statements.
RATE SENSITIVITY ANALYSIS
The following table presents an analysis of the rate sensitivity of the Company's earning assets and interest-bearing liabilities as of December 31, 1996.
LIQUIDITY. Guidelines are established through the Asset/Liability Management committee to ensure a stable source of funding to meet both the expected and unexpected cash demands of loan and deposit customers. The Company maintains a stable base of core deposits provided by long-standing customer relationships. The Company complements this source of liquidity with short-term borrowings through correspondent bank relationships in addition to other corporate customers. Many corporate customers utilize the Company's cash management program sweeping excess deposit funds into repurchase agreements. Therefore, the Company considers the majority of its repurchase agreements as another source of stable funds.
The greatest source of liquidity for the Company is its marketable securities. While the Company classifies all of its investments as available-for-sale, the investment portfolio is highly liquid as approximately 71% of the portfolio consists of marketable U.S. Treasury or federal agency securities. In addition, the Company's investment strategy calls for laddering the maturities of investments purchased. Therefore, there is another $37 million of other investments scheduled to mature during 1997 that can also be used to meet liquidity demands if necessary.
INFLATION AND CHANGING PRICES
Reported earnings are affected by inflation, indirectly through changing interest rates and directly by increased operating expenses. However, general price level inflation has not had a material effect on the information presented herein.
INDUSTRY OUTLOOK AND REGULATORY CHANGES
The Company continues to be optimistic about the future of the banking industry. Recent legislative developments which the Company sees as encouraging include the "Depository Institutions Affiliations and Thrift Conversion Act." This proposed legislation would eliminate the thrift charter and permit affiliations between commercial banks, insurance companies, and securities firms under a holding company structure. In addition, the "Deposit Insurance Funds Act," which became law on September 30, 1996 directs the Secretary of the Treasury to make recommendations to Congress for the establishment of a common charter for banks and savings associations. It is expected that the proposal from the Treasury Department to Congress would include recommendations that commercial banks be allowed to engage in the full range of insurance and securities activities. Both of these legislative initiatives are aimed at modernizing the financial services industry and eliminating some of the competitive disadvantages which banks must currently overcome in the financial services marketplace. The Deposit Insurance Funds Act required certain depository institutions to pay a one-time special assessment to the FDIC in order to bring the Savings Association Insurance Fund (SAIF) to its required reserve ratio. It also authorized the Financing Corporation (FICO) to impose periodic assessments on both SAIF institutions and institutions that are members of the Bank Insurance Fund (BIF), including the Company, in order to spread the cost of interest payments on the outstanding FICO bonds over a larger number of institutions. As a result, the Company's FDIC insurance premiums were increased from zero to $.013 per $100
of insured deposits. This will result in approximately $326,000 of additional expense to the Company in 1997. While this is not good news for the Company, the Deposit Insurance Funds Act does call for the merger of the SAIF and BIF into the new combined Deposit Insurance Fund on January 1, 1999. The strength of this combined fund along with the movement towards allowing for a common financial institutions charter are seen by the Company as positive events in the long-term health of the financial services industry.
Turning from the national level to the local level, the Company continues to be very excited about the overall business climate in its market area of north central and northeastern Indiana. This market area is characterized by increasing economic activity, low unemployment and good prospects for growth. The Company continually looks for creative ways to attract and retain customers. The highly successful AnydayEveryday time deposit account is an example of this creativity. The Company also continually challenges its operations and its delivery systems to provide higher quality services to its customers. In the past two years the Company has made significant investments in technology, such as the new loan documentation / teller station / platform systems in order to give our employees the best tools to use in servicing our customers.
The Company has been fortunate to be a very well capitalized company. This position has allowed for the necessary investments in technology. It also provides the Company with the ability to expand through strategic acquisitions, such as the acquisition of Valley. And finally, a strong capital position has and will continue to give the Company the flexibility to buy back some of its outstanding stock and increase dividends, both actions which should enhance shareholder value.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Responsibilities for Financial Statements
The accompanying consolidated financial statements of Fort Wayne National Corporation and subsidiaries were prepared by the management which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on judgments of management.
The system of internal controls of Fort Wayne National Corporation and its subsidiaries is designed to safeguard the assets, and to assure that the books and records reflect the transactions of the companies and that its policies and procedures are followed. This system is augmented by a strong program of internal audit and the careful selection and training of qualified personnel.
Ernst & Young LLP, independent auditors, are engaged to audit the consolidated financial statements of Fort Wayne National Corporation and its subsidiaries and issue reports thereon. Their audit is conducted in accordance with generally accepted auditing standards which include an understanding of the Company's accounting and financial controls. They conduct such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements.
The Board of Directors, through the Audit Committee of the Board, is responsible for assuring that management fulfills its responsibilities in the preparation of the financial statements and for engaging independent auditors, with whom the Committee reviews the scope of the audits conducted and the accounting principles applied in financial reporting. The Audit Committee meets separately and jointly with the independent auditors, representatives of management, and the internal auditors to review the activities of each and to ensure that each is properly discharging its responsibilities. To ensure complete independence, Ernst & Young LLP, periodically meets with the Audit Committee, without management representatives present, to discuss internal accounting control, auditing, and financial reporting matters.
Fort Wayne National Corporation
Report of Ernst & Young LLP, Independent Auditors
Board of Directors Fort Wayne National Corporation
We have audited the accompanying consolidated balance sheet of Fort Wayne National Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fort Wayne National Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for impaired loans effective January 1, 1995 and its method of accounting for certain investments in debt and equity securities effective January 1, 1994.
/S/ Ernst & Young LLP
January 24, 1997
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For The Years Ended December 31, 1994, 1995, and 1996 (Dollars in thousands, except per share data)
Fort Wayne National Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Significant Accounting Policies
The accounting principles followed by the Company and the methods of applying those principles conform with generally accepted accounting principles and with general practice within the banking industry. The principles which materially affect the determination of financial position, results of operations, or cash flows are summarized below.
Organization
Fort Wayne National Corporation (the Company) and its subsidiaries engage in a wide range of commercial and personal banking and trust activities primarily in northeast and north central Indiana.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, The Auburn State Bank (Auburn), Churubusco State Bank (Churubusco), First National Bank of Huntington (Huntington), First National Bank of Warsaw (Warsaw), Fort Wayne National Bank (FWNB), Fort Wayne National Life Insurance Company, Inc. (FWNLIC), Old-First National Bank in Bluffton (Old-First), and Valley American Bank and Trust Company (Valley). All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Cash Flow Information
For purposes of the statement of cash flows, the Company considers cash and due from banks as cash and cash equivalents.
Investment Securities
Effective January 1, 1994 the Company adopted Financial Accounting Standards Board (FASB) Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities." Application of Statement 115 resulted in an increase of $16,175,000 to shareholders' equity on January 1, 1994. Under Statement 115, debt securities that the Company has both the positive intent and ability to hold to maturity are carried at amortized cost. Debt securities that the Company does not have the positive intent and ability to hold to maturity and all marketable equity securities are classified as available-for-sale or trading and are carried at fair value, as determined by the closing sales prices in an active market. Unrealized holding gains and losses on securities classified as available-for-sale are carried as a separate component of shareholders' equity. Unrealized holding gains and losses on securities classified as trading are reported in earnings.
Gains or losses on the disposition of available-for-sale securities, representing the difference between the selling price and the amortized cost of the specific security, are recorded as realized and are disclosed separately in the statement of income.
Loans
Interest on commercial, installment, and real estate mortgage loans is accrued on a daily basis based on the principal outstanding. Discounts on installment and commercial loans are amortized and included in interest income using the interest method.
Generally, a loan (including a loan considered impaired under Statement 114,"Accounting by Creditors for Impairment of a Loan") is classified as nonaccrual and the accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and interest accrued in the prior year is charged to the allowance for possible loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal and accrued interest, and the loan is in the process of collection.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through a provision for possible loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for possible loan losses, and subsequent recoveries, if any, are credited to the allowance.
Beginning in 1995, the Company adopted Statement 114. Under the new standard, the allowance for possible loan losses related to loans that are identified for evaluation in accordance with Statement 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for possible loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The effect of adopting this Statement was not material.
The allowance for possible loan losses is maintained at a level believed adequate by management to absorb estimated probable loan losses. Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates including amount and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.
Premises and Equipment
Premises and equipment are stated at cost less allowances for depreciation and amortization. Provisions for depreciation are computed primarily by the straight-line method based upon the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the terms of the underlying leases.
Intangible Assets
Goodwill and other intangibles of $53,094,000 and $2,061,000 at December 31, 1996 and 1995, respectively, net of accumulated amortization of $3,305,000 and $1,533,000, respectively, are amortized using the straight-line method over periods ranging from 15 to 25 years. The carrying value of goodwill and other intangibles is reviewed regularly for indicators of impairment of value.
Loan Origination Fees and Costs
Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as a net adjustment to the related loan's yield. The Company is generally amortizing these amounts over the contractual life of such loans. Commitment fees based on a percentage of a customer's unused line of credit and fees related to standby letters of credit are recognized over the commitment period.
Interest Rate Futures and Options
The Company uses exchange traded interest rate futures and option contracts as part of its overall interest rate risk management strategy. Gains and losses on futures contracts used to hedge identified positions are deferred and amortized over the remaining lives of the hedged assets or liabilities as an adjustment to interest income or expense. Gains and losses (both realized and unrealized) on futures and option contracts used to hedge trading activities are included in interest and dividends on investment securities. Futures and option contracts used to hedge trading activities are carried at market value and included in other assets. Any deferred realized or unrealized gains or
losses of the interest rate futures or options are immediately recognized in the statement of income if the specified criteria of a hedged position is not met, the designated item matures or is liquidated, or if the anticipated transaction is no longer likely to occur.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and, accordingly, recognizes no compensation for the stock option grants.
Reclassifications
Certain amounts in the consolidated financial statements for the years ended December 31, 1995 and 1994 have been reclassified to conform to the 1996 presentation.
2. Acquisition of Valley Financial Services, Inc.
On June 1, 1996 the Company acquired, through merger of Valley Financial Services, Inc. (VFS), with and into the Company, all of the issued and outstanding stock of VFS's only banking subsidiary, Valley American Bank and Trust Company. The merger was completed in accordance with an Agreement and Plan of Merger between VFS and the Company, dated November 6, 1995. Merger consideration consisted of $53 million in cash, $20 million in common stock and $37 million in preferred stock. Goodwill and other intangibles of $52.8 million recorded in connection with this acquisition are being amortized over periods up to 25 years. VFS had assets of $823,574,000 at June 1, 1996. This acquisition has been accounted for as a purchase for accounting purposes, and accordingly, the results of operations of VFS have been included in the consolidated results of operations of the Company from the date of acquisition.
The following pro forma data reflects the consolidated results of operations of the Company as though VFS had been combined as of the beginning of each period presented:
3. Restrictions on Cash and Due From Bank Accounts
The Company's subsidiary banks are required to maintain average reserve balances at the Federal Reserve Bank. The amount of those required reserve balances as of December 31, 1996 was approximately $13,800,000.
4. Investment Securities
A summary of available-for-sale investment securities is as follows:
The amortized cost and fair value of available-for-sale investment securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Investment securities with a carrying value of approximately $566,304,000 and $420,758,000 at December 31, 1996 and 1995, respectively, were pledged as collateral for public and trust deposits, securities sold under agreements to repurchase, and for other purposes as required by law or contract.
The fair value of U. S. Treasury obligations held for trading purposes at December 31, 1995 was $21,259,000. No securities were held for trading purposes at December 31, 1996. The change in net unrealized holding gains (losses) on trading securities for the years ended December 31, 1996 and 1995 were $(715,000) and $715,000, respectively. Realized gains (losses)on trading activities were $(749,000), $255,000 and $3,000 in 1996, 1995 and 1994, respectively.
5. Loans
Loans by classification as of December 31 are as follows:
At December 31, 1996 and 1995, the recorded investment in loans that are considered to be impaired under Statement 114 was $18,559,000 and $19,749,000, respectively, for which the related allowance for possible loan losses was $5,047,000 and $5,450,000, respectively. The average investment in impaired loans during the years ended December 31, 1996 and 1995 were approximately $23,840,000 and $21,160,000, respectively. Interest income recognized by the Company on those impaired loans was $1,051,000 in 1996 and $1,141,000 in 1995, which included $220,000 and zero, respectively, of interest recognized using the cash basis method of income recognition.
Certain directors and executive officers of the Company and its significant subsidiaries, their families, and certain entities in which they have an ownership interest were customers of the Company's subsidiary banks. Loans with these parties were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amounts of these loans were $30,388,000 and $9,795,000 at December 31, 1996 and 1995, respectively. During 1996, $21,960,000 of new loans were made, $16,225,000 of loans were acquired with Valley, and repayments and loan reductions totaled $17,592,000.
6. Allowance for Possible Loan Losses
Changes in the allowance for possible loan losses for the years ended December 31 are as follows:
7. Premises and Equipment and Lease Agreements
Premises and equipment at December 31 consist of the following:
Total rental expense (principally buildings and equipment), net of sublease income of $984,000 in 1996, $813,000 in 1995 and $621,000 in 1994 amounted to $2,175,000, $1,467,000, and $1,817,000 in 1996, 1995 and 1994, respectively.
Future minimum rental commitments under noncancelable operating leases as of December 31, 1996, net of future sublease rentals of approximately 26% of the total in each period, are as follows (In thousands):
The Company's lease agreements on its main office facility have lease terms through March 2008 with options to extend the lease term through 2069 and to purchase the property beginning in 1997 at its then fair market value. The lease agreements also provide for rent escalations based upon the Company's share of any increases in the operating expenses of the building.
Details of net occupancy expense for the years ended December 31 are as follows:
8. Deposits
Time certificates of deposit of $100,000 or more amounted to $268,223,000 at December 31, 1996 and $196,889,000 at December 31, 1995.
9. Income Taxes
Deferred tax assets and liabilities at December 31 are comprised of the following:
The components of income tax expense (credit) for the years ended December 31 are as follows:
Included in income tax expense are applicable income taxes of $159,000, $35,000 and $2,000 relating to investment securities gains for 1996, 1995 and 1994, respectively.
A reconciliation of income taxes computed at the statutory federal income tax rate (35%) to income tax expense is as follows:
10. Debt Arrangements
The Company has a revolving line of credit with another bank totaling $15,000,000, of which no amounts were outstanding at December 31, 1996.
Subordinated and other long-term notes at December 31 consist of the following:
Principal maturities of subordinated and long-term notes are as follows (In thousands):
The holders of the Series A Notes have the right to declare the entire principal amount outstanding to be due and payable in the event that: l) a person or group of affiliated persons acquires beneficial ownership of 40% or more of the voting securities of the Company; or 2) the Company is in noncompliance with any of its covenants. The Series A Notes are unsecured.
The Term Note, which is unsecured, requires quarterly interest and annual principal payments. Although the Term Note accrues interest at a variable rate, the Company has entered into an interest rate swap arrangement with the holder of this note which effectively fixes the interest rate at 6.705%.
The Series A Note and the Term Note agreements contain a number of covenants requiring the Company to meet stipulated capital adequacy, indebtedness, earnings to fixed charges and return on capital ratios, and contain restrictions with respect to nonperforming assets levels, funded debt, leases, mergers, disposition of assets, and payment of dividends. Based upon the restrictions in the agreements, the Company could have declared additional common dividends of $1,399,000 to its shareholders in 1996. At December 31,
1996, the Company was in compliance with all debt covenants and restrictions.
The Federal Home Loan Bank borrowings each require monthly interest payments. The 5.79% fixed rate note also requires annual principal payments. The two variable rate notes are adjustable quarterly to LIBOR plus two basis points. All of the Federal Home Loan Bank borrowings are covered by a blanket collateral arrangement executed with the Federal Home Loan Bank of Indianapolis. The carrying value of total eligible assets (primarily 1-4 family mortgage loans) available as collateral to secure current and future advances as of December 31, 1996 is approximately $114,890,000.
The Junior Subordinated Notes (at rates ranging from 5% to 9% at December 31, 1996) are unsecured, with maturities ranging from 1997 to 2000 and are subordinated to all other indebtedness.
11. Preferred Stock
The Class B Nonvoting Preferred Stock Series 1 (Series 1 Stock), which was issued in connection with the acquisition of VFS, is 6% cumulative convertible nonvoting preferred stock with a stated value of $50 per share. The holders of the Series 1 Stock are entitled to receive cumulative preferred dividends from the date of issuance (June 1, 1996) payable quarterly at the annual rate of 6%. The Series 1 Stock may be redeemed by the Company at its option at any time or from time to time on or after April 1, 2002 at $50 per share, plus accrued and unpaid dividends. Such redemption may be subject to prior approval by the Federal Reserve Bank. Holders of the Series 1 Stock have the right, at their option, to convert each share of Series 1 Stock into 1.34624 shares of the Company's common stock. The sale of shares of the Series 1 Stock (or any shares of common stock received upon conversion of Series 1 Stock) is prohibited for a two year period ending May 31, 1998.
12. Per Share Data
Net income per common share data is based on weighted average number of shares of common stock outstanding of 11,653,452; 11,449,277; and 11,480,372 in 1996, 1995, and 1994, respectively. Assumed conversion of preferred stock and exercise of stock options would have no material effect on net income per common share.
13. Regulatory Matters
Payments of dividends and extensions of credit by the Company's subsidiary banks to the Company are subject to certain restrictions under banking laws. The Company's subsidiary banks could have declared additional dividends of approximately $35,552,000 to the Company in 1996 without obtaining regulatory approval.
The Federal Reserve Act limits the extensions of credit from a subsidiary bank to any affiliate to 10% and to all affiliates to 20% of a subsidiary bank's capital and surplus (net assets) as defined.
The Company and its subsidiary banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary banks must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings of assets and certain off-balance-sheet items and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its subsidiary banks to maintain minimum ratios of 4% for Tier I risk-based capital, 8% for total risk-based capital and 4% for Tier I leverage. To be considered well capitalized under the regulatory framework for prompt corrective action the ratios are 6%, 10% and 5%, respectively. Management believes, as of December 31, 1996, that the Company meets all capital adequacy requirements to which it is subject. In addition, each subsidiary bank had regulatory capital ratios in excess of the levels established for well capitalized institutions.
The following is a summary of the capital ratios of the Company and its lead subsidiary bank, Fort Wayne National Bank, as well as a comparison of the period-end capital balances with related amounts established by the regulators:
As of December 31, 1996 the Company was not aware of any known trends, events or uncertainties that would have or that are reasonably likely to have material effect on the Company's liquidity, capital resources or operations, nor was the Company aware of any current recommendations by regulatory authorities which, if they were implemented, would have such an effect.
14. Stock Incentive Plans
The Company maintains two stock incentive plans under which incentive and nonqualified stock options may be or have been granted to employees. Under these plans, options may be granted for periods of up to ten years and are generally exercisable one year after the date of grant. The option price is equal to 100% of the fair value of the shares at the date of grant. In addition, stock appreciation rights may be granted in tandem with options. All options vest annually on the anniversary date of the grant at the rate of 25% of the number of options granted. The Company's 1994 Stock Incentive Plan authorizes the grant of options to key employees for up to 450,000 shares of the Company's common stock.
The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under Statement 123, "Accounting for Stock-Based Compensations" requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
A summary of the Company's stock option activity, and related information, for the years ended December 31 is as follows:
Exercise prices for options outstanding at December 31, 1996 range from $25.88 to $32.13. The weighted-average remaining contractual life of those options is 3.19 years. During 1996, 1995 and 1994, employees surrendered 48,839, 17,460 and 8,023 shares, respectively, for payment to the Company for stock options exercised.
The fair value of options granted in 1996 and 1995 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:
Because the pro forma effect of applying the fair value method to the Company's stock options is not material, such pro forma information is not presented.
The Company also maintains a Nonemployee Director Stock Incentive Plan (Director Plan) which calls for a formula-based grant of stock to active nonemployee members of the Company's Board of Directors. During 1996, 1995 and 1994, there were 1,920, 2,010 and 3,400 shares of the Company's Common Stock issued under the Director Plan, respectively.
15. Employee Benefit Plans
The Company has a non-contributory trusteed defined benefit plan covering substantially all of its full-time employees who are at least 21 years of age and have completed one year of continuous service. It is the Company's policy to fund, at a minimum, pension contributions as required by the Employee Retirement Income Security Act. Benefits are based on years of service and the employee's highest average of monthly earnings during any five consecutive years of credited service.
The following table sets forth the funded status and amount recognized for the Company's defined benefit pension plan in the consolidated balance sheet at December 31 (In thousands):
At December 31, 1996 and 1995, plan assets include 80,000 shares of the Company's common stock with a fair value of $3,040,000 and $2,520,000, respectively, investments in the FWNB Temporary Certificate of Deposit Fund of $143,000 and $851,000, respectively, and investments in common trust funds administered by FWNB with a fair value of $26,652,000 and $22,887,000, respectively. During 1996 and 1995, interest and dividends earned on these investments amounted to $115,000 and $128,000, respectively.
Net pension cost of the Company's defined benefit pension plan included the following components:
Assumptions used in determining the projected benefit obligations and net periodic pension expense were:
The Company also sponsors an unfunded Benefits Restoration Plan, which is a nonqualified plan that provides certain employees, as designated by the Company's Board of Directors, defined pension benefits in excess of limits imposed by federal tax law.
The following table sets forth the amount recognized for the Company's unfunded Benefits Restoration Plan in the consolidated balance sheet at December 31 (In thousands):
Net cost of the Company's unfunded Benefits Restoration Plan included the following components:
Assumptions used in determining the projected benefit obligations and net periodic expense were:
The Company has an employees' saving and profit sharing plan for all full-time employees who have completed one year of continuous service. The Company's contribution to this plan has certain restrictions based on the amount of capital accounts and earnings (as defined by the Plan) and on the aggregate basic annual compensation of participating employees. The amount expensed for this plan amounted to $2,361,000, $1,906,000 and $1,825,000 in 1996, 1995, and 1994, respectively.
16. Concentration of Credit Risk and Loan Commitments
In the normal course of business, the Company's subsidiary banks originate loans to customers and enter into various commitments and contingent liabilities to extend credit which are not reflected in the consolidated financial statements. These customers are located primarily in northeast and north central Indiana. This area has a broad economic base and the loan portfolio is diversified with no industry or service sector comprising greater than 10% of total loans outstanding. Collateral (e.g., securities, receivables, inventory, equipment, and real estate) is obtained based on management's credit assessment of the customer.
Loan commitments are made to accommodate the financial needs of the customers of the Company's subsidiary banks. Standby letters of credit commit the Company's subsidiary banks to make payments on behalf of customers when certain specified future events occur and are primarily issued to support commercial paper, and medium and long-term notes and debentures, including industrial revenue obligations. Commercial letters of credit are issued to facilitate customer trade transactions. These various arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the normal credit policies of the Company's subsidiary banks.
Loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding amounted to $614,656,000 and $56,028,000, respectively, at December 31, 1996. Commitments under commercial letters of credit were $4,039,000 and $2,393,000 at December 31, 1996 and 1995, respectively.
17. Interest Rate Futures and Options
The Company uses exchange traded financial futures and option contracts as a part of its overall interest rate risk management. Financial futures represent a standardized commitment to receive or pay interest calculated based on the notional amount of the underlying contract. Call options give the Company the right, but not the obligation, to buy a specified instrument at a specified price. Put options give the Company the right to sell a specified instrument at the strike or exercise price specified by the contract.
Hedges are undertaken to adjust for differences in the maturities of specific assets and liabilities. Maturity differences create exposure to changes in interest rates in net interest income. The Company has employed two different strategies using futures and option contracts to manage this exposure.
Eurodollar futures contracts are used by the Company to hedge interest rate exposure on specific short-term liabilities. Each contract represents an obligation to pay changes in the interest expense on a notional $1,000,000 three month Eurodollar time deposit. The Company's futures exposure increases in the event that interest rates decrease, and at present is limited to approximately $13,750 per contract. This maximum exposure represents the change in interest expense on a three month $1,000,000 time deposit which would result if interest rates dropped from current levels of 5.5% to zero. At year end the Company had 704 Eurodollar contracts outstanding with a maximum possible exposure of $9.7 million.
Deferred losses totaling $408,000 at December 31, 1996 resulting from Eurodollar futures contracts, are included in interest-bearing liabilities and will be amortized as an increase to interest expense on the Company's short-term obligations over various periods up to two years.
A reconciliation of the gross contract amounts of Eurodollar futures contracts and the effect on net interest income recorded for the years ended December 31 are as follows:
During 1996 and 1995, the Company also utilized U.S. Treasury note and bond futures and option contracts to hedge against price changes of specific U.S. Treasury securities held in the Company's trading accounts. These futures contracts and options have a face value of $100,000. The futures represent a contractual obligation to buy a U.S. Treasury Security, while options represent the right but not the obligation to buy (calls) or sell (puts) a U.S. Treasury futures contract.
A reconciliation of the gross contract amounts of U. S. Treasury note and bond futures and option contracts for the years ended December 31 is as follows:
Net gains (losses) from trading these financial futures and option contracts totaled $1,165,000 and $(807,000) for the years ended December 31, 1996 and 1995, respectively. The U.S. Securities hedged by these financial futures and options had recognized gains (losses) of $(1,464,000) and $971,000 in 1996 and 1995, respectively. The average fair value of exchange traded futures and options used to hedge the Company's trading activities was an unrealized loss of $450,000 and $115,000 for the years ended December 31, 1996 and 1995, respectively. The aggregate fair value of these futures and option contracts at December 31, 1995 was an unrealized loss $310,000.
The Company has discontinued the use of this hedging program. At December 31, 1996 all previously outstanding U.S. Treasury note and bond futures and option contracts have been settled and all U.S. Treasury securities hedged by this program have either been sold or transferred to the Company's available-for-sale portfolio.
18. Impact of Recently Adopted Accounting Standards
In June 1996, the FASB issued Statement 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The standard provides that, following a transfer of financial assets, an entity is to recognize the financial and servicing assets it controls and the liabilities it has incurred, derecognize financial assets when control has been surrendered, and derecognize liabilities when extinguished. The statement is effective for transactions occurring after December 31, 1996. The FASB also subsequently issued Statement 127 that delayed the effective date of certain provisions of Statement 125 until January 1, 1998.
Transactions subject to the later effective date include securities lending, repurchase agreements, dollar rolls, and similar secured financing arrangements. Application of the new rules is not expected to have a material impact on the Company's financial statements.
19. Fair Values of Financial Instruments
Statement 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the balance sheet for cash and short-term investments approximate those assets' fair values.
Investment securities (including mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Trading account assets: Fair values for the Company's trading account assets are based on quoted market prices.
Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value.
Deposit Liabilities: The fair values disclosed for demand deposits, including interest-bearing and noninterest-bearing accounts, savings deposits, and certain types of money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values.
Long-term borrowings: The fair values of the Company's long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.
Off-balance-sheet instruments: Fair values of the Company's off-balance-sheet instruments (futures, guarantees, and loan commitments), excluding instruments in the trading portfolio which are carried at fair value, are based on quoted market prices (futures) or fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing (guarantees, loan commitments).
The carrying amount and estimated fair values of the Company's financial instruments at December 31 are as follows:
20. Fort Wayne National Corporation (Parent Company Only) Financial Information
Statement of Income
Statement of Cash Flows
QUARTERLY FINANCIAL DATA (UNAUDITED)
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with the Registrant's independent auditors which resulted in the filing of a Form 8-K, and there has been no change in independent auditors of the Registrant during the 24-month period prior to December 31, 1996.
Part III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item, with respect to directors, is incorporated herein by reference from the March 19, 1997 Proxy Statement under the caption "Election of Directors."
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
(All positions are for one year expiring at time of annual meeting)
Other Executive Officers of Affiliate Banks
(All positions are for one year expiring at time of annual meeting)
There is no family relationship between any of the persons named above.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Information required under this item, with respect to executive compensation, is incorporated herein by reference from the March 19, 1997 Proxy Statement under the caption "Executive Compensation."
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference from the March 19, 1997 Proxy Statement under the caption "Principal Holders of Common Stock" and under the caption "Election of Directors."
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item, with respect to certain relationships and related transactions, is incorporated herein by reference from the March 19, 1997 Proxy Statement under the caption "Indebtedness of Management."
Part IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements and report of independent auditors of Fort Wayne National Corporation and subsidiaries are included in Part II, Item 8:
Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheet as of December 31, 1996 and 1995 Consolidated Statement of Income for the years ended December 31, 1996, 1995, and 1994 Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995, and 1994 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements
(2) Financial statement schedules required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
(3) Listing of Exhibits
Exhibit 11 -- Statement Re Computation of Earnings Per Share Exhibit 21 -- Subsidiaries of the Registrant Exhibit 23 -- Consent of Ernst and Young LLP Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
No Form 8-K was filed during the fourth quarter of 1996.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of this report. See the Exhibit Index on page 78.
(d) Financial Statement Schedules
None
FORT WAYNE NATIONAL CORPORATION
FORM 10-K
EXHIBIT INDEX
FORT WAYNE NATIONAL CORPORATION
FORM 10-K
EXHIBITS INCORPORATED BY REFERENCE
2 Agreement and Plan of Merger between Valley Financial Services, Inc. and Fort Wayne National Corporation. Incorporated by reference to Exhibit 2 contained in the Company's 1995 Form 10-K, File No. 0-10869.
3a Amended and Restated Articles of Incorporation of Fort Wayne National Corporation. Incorporated by reference to Exhibit 3a contained in the Company's June 30, 1996 Form 10-Q, File No. 0-10869.
3b Amended and Restated By-Laws. Incorporated by reference to Exhibit 3b contained in the Company's 1991 Form 10-K, File No. 0-10869.
10a Fort Wayne National Bank - Capital Note Purchase Agreement. Incorporated by reference to Exhibit 10.1 contained in Amendment No. 2 to the Company's Registrant Statement on Form S-14, File No. 2-75725.
10b Fort Wayne National Corporation Annual Management Incentive Compensation Plan. Incorporated by reference to Exhibit 10b to the Company's 1987 Form 10-K, File 0-10869.
10c Fort Wayne National Bank - Supplemental Lease No. 1. Incorporated by reference to Exhibit 10c contained in the Company's 1983 Form 10-K, File 0-10869.
10d Purchase Agreement Covering Fort Wayne National Corporation 12.95% Unsubordinated Note due 2005 and 12.25% Subordinated Note due 1995. Incorporated by reference to Exhibit 4 contained in the Company's June 30, 1985, Form 10-Q, File No. 0-10869.
10e Fort Wayne National Corporation 1985 Stock Incentive Plan (1993 Edition). Incorporated by reference to Amendment No. 1 to the Company's Registration on Form S-8, Registration No. 33-33123.
10f Fort Wayne National Corporation Benefit Restoration Plan. Incorporated by reference to Exhibit 10f contained in the Company's 1992 Form 10-K, File 0-10869.
10g Fort Wayne National Corporation 1994 Stock Incentive Plan. Incorporated by reference to Exhibit A contained in the Company's Proxy Statement dated March 22, 1994.
10h Fort Wayne National Corporation 1994 Nonemployee Directors Stock Incentive Plan. Incorporated by reference to Exhibit B contained in the Company's Proxy Statement dated March 22, 1994.
FORT WAYNE NATIONAL CORPORATION
FORM 10-K
EXHIBITS INCORPORATED BY REFERENCE - Continued
10i Fort Wayne National Corporation - Term Loan Agreement. Incorporated by reference to Exhibit 10i contained in the Company's June 30, 1996 Form 10-Q, File No. 0-10869.
10j Fort Wayne National Corporation - ISDA Master Agreement dated as of May 24, 1996. Incorporated by reference to Exhibit 10j contained in the Company's June 30, 1996 Form 10-Q, File No. 0-10869.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be a signed on its behalf by the undersigned, thereunto duly authorized.
FORT WAYNE NATIONAL CORPORATION (Registrant)
By /S/ M. James Johnston March 18, 1997 M. James Johnston, Chairman of the Board (Date) and Chief Executive Officer
Principal Executive Officers
/S/ M. James Johnston March 18, 1997 M. James Johnston, Chairman of the Board (Date) and Chief Executive Officer
/S/ Stephen R. Gillig March 18, 1997 Stephen R, Gillig, President (Date) and Chief Administrative Officer
Principal Financial and Accounting Officer
/S/ Karen M. Kasper March 18, 1997 Karen M. Kasper, Senior Vice President, (Date) Chief Financial Officer and Treasurer
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, Fort Wayne National Corporation, and in the capacities indicated thereunto duly authorized on the dates indicated.
By /S/ Walter S. Ainsworth March 18, 1997 Walter S. Ainsworth, Director (Date)
By /S/ Willis E. Alt, Jr. March 18, 1997 Willis E. Alt, Jr., Director (Date)
By /S/ Robert A. Anker March 18, 1997 Robert A. Anker, Director (Date)
By /S/ Stanley C. Craft March 18, 1997 Stanley C. Craft, Director (Date)
By /S/ Richard B. Doner March 18, 1997 Richard B. Doner, Director (Date)
By /S/ Jon F. Fuller March 18, 1997 Jon F. Fuller, Director (Date)
By March 18, 1997 Thomas C. Griffith, Director (Date)
By /S/ Michael C. Haggarty March 18, 1997 Michael C. Haggarty, Director (Date)
By /S/ M. James Johnston March 18, 1997 M. James Johnston, Director (Date)
By /S/ Joanne B. Lantz March 18, 1997 Joanne B. Lantz, Director (Date)
By March 18, 1997 Jackson R. Lehman, Director (Date)
By /S/ Michael J. McClelland March 18, 1997 Michael J. McClelland, Director (Date)
By /S/ Patrick G. Michaels March 18, 1997 Patrick G. Michaels, Director (Date)
By /S/ Patricia R. Miller March 18, 1997 Patricia R. Miller, Director (Date)
By /S/ Dennis J. Schwartz March 18, 1997 Dennis J. Schwartz, Director (Date)
By /S/ Paul E. Shaffer March 18, 1997 Paul E. Shaffer, Director (Date)
By /S/ Thomas M. Shoaff March 18, 1997 Thomas M. Shoaff, Director (Date)
By /S/ Jeff H. Towles, M.D. March 18, 1997 Jeff H. Towles, M.D., Director (Date)
By /S/ Julie I. Walda March 18, 1997 Julie I. Walda, Director (Date)
By /S/ Don A. Wolf March 18, 1997 Don A. Wolf, Director (Date)
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
NOTE -- Average shares outstanding were used for the earnings per share calculation included in the Company's financial statements since the dilutive effect of the assumed conversion of preferred stock and stock options granted were less than 3%.
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are wholly owned subsidiaries of the Registrant:
The Auburn State Bank, Auburn, Indiana, chartered by the State of Indiana.
Churubusco State Bank, Churubusco, Indiana, chartered by the State of Indiana.
First National Bank of Huntington, Huntington, Indiana, a national banking association formed under the laws of the United States.
First National Bank of Warsaw, Warsaw, Indiana, a national banking association formed under the laws of the United States.
Fort Wayne National Bank, Fort Wayne, Indiana, a national banking association formed under the laws of the United State.
Fort Wayne National Life Insurance Company, Phoenix, Arizona, chartered by the State of Arizona.
Old-First National Bank in Bluffton, Bluffton, Indiana, a national banking association formed under the laws of the United States.
Valley American Bank and Trust Company, Mishawaka, Indiana, chartered by the State of Indiana.
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-33123) pertaining to the Fort Wayne National Corporation 1994 Stock Incentive Plan of Fort Wayne National Corporation and in the related Prospectus of our report dated January 24, 1997, with respect to the consolidated financial statements of Fort Wayne National Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1996.
/S/ Ernst & Young LLP
Fort Wayne, Indiana March 17, 1997