SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-10869
FORT WAYNE NATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Indiana 35-1502812
(State of Incorporation) (I.R.S Employer Identification No.)
110 West Berry Street, Fort Wayne, Indiana 46801
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (219) 426-0555
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common shares, without Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained here, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of February 12, 1996, 11,446,704 shares of Common Stock, without Par Value
were outstanding. The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 12, 1996 was approximately
$358,633,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual shareholders' meeting to be
held April 16, 1996, are incorporated by reference into Part III.
The exhibit index appears on page 81.
This report, including the cover page, contains a total of 138 pages.
- 1 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
ITEM 1. BUSINESS............................................... 3
Item 2. PROPERTIES............................................. 16
Item 3. LEGAL PROCEEDINGS...................................... 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................... 17
Item 6. SELECTED FINANCIAL DATA................................ 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.................. 20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ 38
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 75
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..... 76
Item 11. EXECUTIVE COMPENSATION................................. 79
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 79
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 79
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K............................................ 80
EXHIBIT INDEX...................................................... 81
SIGNATURES......................................................... 83
</TABLE>
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<PAGE>
Part I
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 six
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 Warsaw, located
in Warsaw, Indiana; and First National Bank of Huntington, located in
Huntington, 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; and Churubusco State Bank,
located in Churubusco, 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, 1995, the Registrant
had a total of $2,296,107,000 in assets and a total of $1,767,530,000 in
deposits. Fort Wayne National Corporation is the third largest bank holding
company headquartered in the State of Indiana.
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.
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
- 3 -
<PAGE>
associations, credit unions, and other financial institutions.
At December 31, 1995, the Registrant had approximately 866 full-time and 217
part-time employees. Management considers employee relations to be good.
None of the Registrant's employees is covered by a collective bargaining
agreement.
During 1994 Congress passed the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994. Effective September 29, 1995, bank holding companies
were able to acquire banks in any state, without regard to state law. Under
the interstate branching provisions of the act, banks can merge with banks in
another state beginning on June 1, 1997. The Registrant cannot predict with
certainty what effect, if any, this legislation will have on its operations.
However, since July 1, 1992 Indiana law has allowed (subject to the existence
of reciprocal legislation, regulatory approval requirements, and other
restrictions) bank ownership by multibank holding companies on a nationwide
basis. This change in Indiana law has not had a significant impact on the
competitive position of the Registrant to date and therefore, the Registrant
does not anticipate any significant impact on its competitive position as a
result of the Riegle-Neal legislation.
- 4 -
<PAGE>
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.
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- --------------------------- ---------------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Interest (%) Balance Interest (%) Balance Interest (%)
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing
deposit $ 205 $ 8 3.90% $ 550 $ 24 4.36% $ 1,524 $ 72 4.72%
Federal funds sold and
securities purchased
under agreement
to resell 26,097 1,322 5.07 10,543 431 4.09 39,572 1,127 2.85
Investment
securities(1)
Taxable 541,572 34,919 6.44 549,895 34,179 6.21 590,142 39,706 6.73
Nontaxable 176,262 16,122 9.48 180,749 16,003 9.19 163,106 15,629 9.58
Loans, net of
unearned income 1,255,991 114,338 9.10 1,179,828 97,180 8.24 1,097,483 90,455 8.24
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total Interest-earning
Assets 2,000,127 $166,709 8.36 1,921,565 $147,817 7.72 1,891,827 $146,989 7.77
Noninterest-earning
assets:
Cash and due from
banks 119,372 125,751 121,422
Other assets 53,210 45,559 52,387
---------- ---------- ----------
Total Assets $2,172,709 $2,092,875 $2,065,636
========== ========== ==========
Liabilities And
Shareholders' Equity
Interest-bearing
liabilities
Deposits:
Demand $ 203,751 $ 5,186 2.55% $ 209,788 $ 5,370 2.56% $ 193,573 $ 4,946 2.56%
Savings 312,888 10,409 3.33 342,583 10,584 3.09 315,357 9,581 3.04
Time deposits 910,175 49,819 5.47 842,887 36,211 4.30 892,406 39,871 4.47
Federal funds
purchased and
securities sold
under agreements
to repurchase 244,714 13,346 5.45 220,106 8,922 4.05 217,510 6,303 2.90
Notes payable -
U.S. Treasury and
other borrowings 23,586 1,348 5.72 18,797 709 3.77 22,038 610 2.77
Subordinated and
other long-term
notes 6,714 868 12.93 7,474 963 12.88 8,378 1,071 12.78
---------- ------- ------ ---------- ------- ------ ---------- -------- ------
Total Interest-bearing
Liabilities 1,701,828 $80,976 4.76 1,641,635 $62,759 3.82 1,649,262 $62,382 3.78
Noninterest-bearing
liabilities:
Demand deposits 230,842 226,394 211,450
Other liabilities 22,956 22,308 22,040
Shareholders' equity 217,083 202,538 182,884
---------- ---------- ----------
Total Liabilities And
Shareholders' Equity $2,172,709 $2,092,875 $2,065,636
========== ========== ==========
</TABLE>
- 5 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income/earning
assets $166,709 8.36% $147,817 7.72% $146,989 7.77%
Interest expense/
earning assets 80,976 4.06 62,759 3.28 62,382 3.30
-------- ------- -------- ------- -------- -------
Net Interest Income /
Earning Assets 85,733 4.30% 85,058 4.44% 84,607 4.47%
Tax equivalent
adjustment(3) 6,377 6,243 6,142
-------- -------- --------
Net Interest Income $ 79,356 $ 78,815 $ 78,465
======== ======== ========
</TABLE>
[FN]
(1) For the purpose of these computations, unrealized gains/(losses) are
excluded from the average rate calculations.
(2) For the purpose of these computations, nonaccrual loans are included in
the daily average loan amounts outstanding.
(3) The tax equivalent adjustment is calculated using a statutory rate of 35%.
- 6 -
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1995 over 1994 1994 over 1993
----------------------- -----------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Interest-bearing deposits
with banks $ (17)$ 1 $ (16)$ (49) $ 1 $ (48)
Federal funds sold and
securities purchased under
agreements to resell 766 125 891 (600) (96) (696)
Investment securities:
Taxable (507) 1,247 740 (2,820) (2,707) (5,527)
Nontaxable (415) 534 119 1,199 (825) 374
Loans, net of unearned
income(1) 6,540 10,618 17,158 6,748 (23) 6,725
------- ------- ------- ------- ------- -------
Total Interest Income $ 6,367 $12,525 $18,892 $ 4,478 $(3,650)$ 828
Interest expense:
Demand deposits $ (147)$ (37)$ (184)$ 415 $ 9 $ 424
Savings deposits (874) 699 (175) 837 166 1,003
Time deposits 3,077 10,531 13,608 (2,242) (1,418) (3,660)
Federal funds purchased
and securities sold
under agreements to
repurchase 1,083 3,341 4,424 76 2,543 2,619
Notes payable -
U.S. Treasury
and other borrowings 211 428 639 (80) 179 99
Subordinated and other
long-term notes (98) 3 (95) (115) 7 (108)
------- ------- ------- ------- ------- -------
Total Interest Expense $ 3,252 $14,965 $18,217 $(1,109)$ 1,486 $ 377
------- ------- ------- ------- ------- -------
Increase In
Interest Differential $ 3,115 $(2,440)$ 675 $ 5,587 $(5,136)$ 451
======= ======= ======= ======= ======= =======
</TABLE>
[FN]
(1) Nonaccrual loans were included in the average outstanding balances.
- 7 -
<PAGE>
INVESTMENT SECURITIES
The carrying values of the Company's investment securities are summarized for
the periods indicated in the following table.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1995 1994 1993
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agencies $505,307 66% $466,038 67% $522,505 68%
States and political
subdivisions 198,179 26 177,420 25 176,224 23
Other 61,074 8 57,853 8 71,647 9
-------- ------- -------- ------- -------- -------
Total $764,460 100% $701,311 100% $770,376 100%
======== ======= ======== ======= ======== =======
</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, 1995 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.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield Total
-------- ------ -------- ------ ------- ------ ------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
and federal
agencies $121,648 5.59% $344,281 6.40% $ 25,336 6.55% $14,042 6.16% $505,307
States and
political
subdivisions 12,880 10.60 55,663 10.66 75,717 9.14 53,919 9.26 198,179
Other 8,274 10.01 37,982 7.50 3,665 7.48 11,153 7.78 61,074
-------- ----- -------- ----- -------- ----- ------- ----- --------
Total $142,802 6.30 $437,926 7.04 $104,718 8.46 $79,114 8.50 $764,560
======== ===== ========= ====== ======== ===== ======= ===== ========
</TABLE>
[FN]
Tax-equivalent adjustments (using a 35% rate) have been made in calculating
yields on obligations of states and political subdivisions. Equity securities
are included in the after ten years category.
- 8 -
<PAGE>
DISTRIBUTION OF LOANS
The composition of the Company's loan portfolio is summarized for the periods
indicated in the following table.
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 453,208 $ 408,706 $ 391,836 $ 379,173 $ 347,373
Real estate -
construction 31,312 23,686 36,022 31,494 36,610
Real estate -
mortgage 590,599 575,648 530,451 514,730 474,830
Installment 192,307 204,707 183,709 164,473 165,625
Financing leases 9,141 7,229 455 950 2,190
---------- ---------- ---------- ---------- ----------
Total $1,276,567 $1,219,976 $1,142,473 $1,090,820 $1,026,628
========== ========== ========== ========== ==========
</TABLE>
REAL ESTATE LOAN ANALYSIS
The following table shows the distribution of the Company's real estate
mortgage loan portfolio as of December 31, 1995.
<TABLE>
<CAPTION>
Percent of Percent of
Real Estate Total
Amount Loans Loans
-------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
1-4 family residential $341,742 55% 27%
Office buildings 61,549 10 5
Farm land 40,598 7 3
Restaurants and recreation facilities 35,749 6 3
Manufacturing 26,863 4 2
Retail and shopping centers 25,206 4 2
Home equity lines 24,524 4 2
Health care 21,704 3 2
Multifamily dwellings 6,480 1 1
Warehouses 6,237 1 --
Hotels and motels 1,961 -- --
Other 29,298 5 2
-------- ----------- ----------
Total $621,911 100% 49%
======== =========== ==========
</TABLE>
- 9 -
<PAGE>
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, 1995. Also shown are the amounts due
after one year classified according to their sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
--------- ---------------- ---------------- --------
Fixed Variable Fixed Variable
------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $384,427 $29,623 $ -- $ 39,153 $ 5 $453,208
Real estate -
construction 24,076 5,290 -- 1,946 -- 31,312
Real estate -
mortgage 99,822 37,433 26,244 74,517 1,001 239,017
Financing leases 10 9,072 -- 59 -- 9,141
-------- ------- ------- -------- ------ --------
Total $508,335 $81,418 $26,244 $115,675 $1,006 $732,678
======== ======= ======= ======== ====== ========
</TABLE>
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<PAGE>
NONPERFORMING LOANS
The Company's nonaccrual loans, accruing loans past due 90 days or more and
restructured loans are summarized for the periods indicated in the following
table.(1)(3)
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $18,450 $11,282 $13,691 $15,285 $ 4,543
Accruing loans past due
90 days or more 1,467 944 1,640 1,215 2,970
Restructured loans -- 8,750 979 245 310
------- ------- ------- ------- -------
Total $19,917 $20,976 $16,310 $16,745 $ 7,823
======= ======= ======= ======= =======
</TABLE>
[FN]
(1) In addition to loans classified as nonperforming at December 31, 1995,
there were loans aggregating $3,173,000 where management is closely
monitoring the borrowers' ability to comply with payment terms.
(2) Gross interest income of $1,761,000 would have been recorded in 1995 for
nonaccrual and restructured loans at December 31, 1995 assuming these
loans had been accruing interest throughout the year in accordance with
their original terms. The amount of interest actually included in 1995
income was $870,000.
(3) Excludes other real estate owned which amounted to $2,189,000, $4,227,000,
$754,000, $631,000 and $319,000 at December 31, of each of the years 1991
through 1995, respectively.
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<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans
outstanding, net of
unearned income $1,255,991 $1,179,828 $1,097,483 $1,049,271 $1,015,200
========== ========== ========== ========== ==========
Amount of loans
outstanding at the end
of the period, net of
unearned income $1,273,394 $1,217,218 $1,140,813 $1,089,382 $1,025,309
========== ========== ========== ========== ==========
Balance of allowance
for possible loan
losses at beginning
of period $ 21,795 $ 21,876 $ 16,682 $ 15,376 $ 13,487
Loans charged-off:
Commercial 178 2,520 794 3,025 979
Real estate-
construction 3,000 61 -- -- --
Real estate-
mortgage 24 244 329 681 268
Installment 1,754 1,163 1,336 1,967 2,432
---------- ---------- ---------- ---------- ----------
Total Loans Charged-Off 4,956 3,988 2,459 5,673 3,679
Recoveries of loans
previously
charged-off:
Commercial 82 572 781 165 202
Real estate-mortgage 147 74 145 71 120
Installment 534 638 667 676 835
---------- ---------- ---------- ---------- ----------
Total Recoveries 763 1,284 1,593 912 1,157
---------- ---------- ---------- ---------- ----------
Net loans charged-off 4,193 2,704 866 4,761 2,522
Additions to allowance
charged to expense 2,445 2,623 6,060 6,067 4,411
---------- ---------- ---------- ---------- ----------
Balance At End Of Period$ 20,047 $ 21,795 $ 21,876 $ 16,682 $ 15,376
========== ========== ========== ========== ==========
Ratio of net charge-offs
during the period to
average loans
outstanding .33% .23% .08% .45% .25%
========== ========== ========== ========== ==========
</TABLE>
- 12 -
<PAGE>
[FN]
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.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
Balance at end
of period Per- Per- Per- Per- Per-
applicable to Amount cent(1) Amount cent(1) Amount cent(1) Amount cent(1) Amount cent(1)
- ---------------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $10,149 36% $12,719 34% $13,386 34% $ 7,381 35% $ 8,083 34%
Real estate -
construction 679 3 1,353 2 1,485 3 145 3 110 4
Real estate -
mortgage 5,731 46 3,920 47 4,167 47 5,625 47 3,421 46
Installment 3,488 15 3,803 17 2,838 16 3,531 15 3,762 16
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $24,047 100% $21,795 100% $21,876 100% $16,682 100% $15,376 100%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
[FN]
(1) Represents the percentage of loans outstanding in each category to total
loans outstanding.
- 13 -
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
---------- ------ ---------- ------ ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 230,842 $ 226,394 $ 211,450
Interest-bearing
demand deposits 203,751 2.55% 209,788 2.56% 193,573 2.56%
Savings deposits 312,888 3.33% 342,583 3.09% 315,357 3.04%
Time deposits 910,175 5.47% 842,887 4.30% 892,406 4.47%
---------- ---------- ----------
Total $1,657,656 $1,621,652 $1,612,786
========== ========== ==========
</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, 1995.
<TABLE>
<CAPTION>
Time Other
Certificates Time
of Deposits Deposits Total
------------ -------- --------
(In thousands)
<S> <C> <C> <C>
Time remaining to maturity:
Within three months $117,461 $7,225 $124,686
Over three through six 25,257 -- 25,257
Over six through twelve 22,025 -- 22,025
Over twelve months 32,146 -- 32,146
-------- ------ --------
Total $196,889 $7,225 $204,114
======== ====== ========
</TABLE>
- 14 -
<PAGE>
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.)
<TABLE>
<CAPTION>
Federal Funds Purchased Notes Payable -
and Securities Sold Under U.S. Treasury and
Agreements to Repurchase Other Borrowings
--------------------------- ----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31 $241,263 $255,010 $220,723 $26,381 $21,884 $41,066
Weighted average
interest rate at
year end 4.69% 6.29% 2.97% 5.51% 5.14% 2.73%
Maximum amount
outstanding at any
month's end $292,275 $255,010 $234,985 $48,219 $38,102 $41,066
Average amount
outstanding during
the year $244,714 $220,106 $217,510 $23,586 $18,797 $22,038
Weighted average
interest rate during
the year 5.45% 4.05% 2.90% 5.72% 3.77% 2.77%
</TABLE>
- 15 -
<PAGE>
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 20 fully utilized branch offices in Allen County, Indiana, in
addition to its main office. FWNB owns 11 of its branch offices. Six other
branch offices are part of land lease arrangements under which the buildings
are owned by FWNB. Three branch offices sites 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
Warsaw has eight branch offices, and First National Bank of Huntington has
four 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. 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders from September 30, 1995
to December 31, 1995.
- 16 -
<PAGE>
Part II
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, 1994 through December 31, 1995.
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High $ 27.00 $ 29.25 $ 33.50 $ 33.00
======== ======== ======== ========
Low 25.25 25.50 27.25 30.50
======== ======== ======== ========
<CAPTION>
1994
- -----
<S> <C> <C> <C> <C>
High $ 26.33 $ 28.75 $ 31.25 $ 31.50
======== ======== ======== ========
Low 24.17 23.83 27.25 24.25
======== ======== ======== ========
</TABLE>
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, 1995 and 1994 there were 3,448 and 3,397 shareholders of
record, respectively.
On February 12, 1996, the closing price for the Company's common stock, as
reported by NASDAQ, was $32.125.
Market Makers: The Chicago Corporation F. J. Morrissey & Co. Inc.
Everen Securities, Inc. NatCity Investments, Inc.
Herzog, Heine, Geduld, Inc. Paine Webber, Inc.
Keefe, Bruyette & Woods, Inc. Sherwood Securities Corp.
McDonald & Company Troster Singer Corp.
Merrill Lynch
- 17 -
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest and fees
on loans $ 113,604 $ 96,538 $ 89,783 $ 92,724 $ 104,158
Interest and
dividends on
investments 45,398 44,581 49,865 57,619 58,736
Other interest
income 1,330 455 1,199 1,004 2,290
--------- --------- --------- --------- ---------
Total Interest
Income 160,332 141,574 140,847 151,347 165,184
Interest expense 80,976 62,759 62,382 76,990 99,749
--------- --------- --------- --------- ---------
Net Interest Income 79,356 78,815 78,465 74,357 65,435
Provision for
possible loan
losses 2,445 2,623 6,060 6,067 4,411
--------- --------- --------- --------- ---------
Net Interest Income
After Provision
For Possible Loan
Losses 76,911 76,192 72,405 68,290 61,024
Noninterest income:
Fiduciary fees 9,749 8,950 8,060 7,475 6,739
Other 9,763 10,156 10,400 8,405 7,534
Net securities gains 87 5 402 100 131
--------- --------- --------- --------- ---------
Total Noninterest
Income 19,599 19,111 18,862 15,980 14,404
Noninterest expense:
Salaries and
benefits 31,237 29,798 28,878 26,733 24,955
Other 27,840 27,639 27,747 25,803 22,770
--------- --------- --------- --------- ---------
Total Noninterest
Expense 59,077 7,437 56,625 52,536 47,725
--------- --------- --------- --------- ---------
Income Before
Income Taxes 37,433 37,866 34,642 31,734 27,703
Applicable income
taxes 10,726 11,654 10,509 9,291 7,616
--------- --------- --------- --------- ---------
Net Income $ 26,707 $ 26,212 $ 24,133 $ 22,443 $ 20,087
========= ========= ========= ========= =========
<PAGE> - 18 -
<S> <C> <C> <C> <C> <C>
Cash dividends
declared $ 10,758 $ 9,952 $ 9,302 $ 8,656 $ 8,001
Per common share:
Net income 2.33 2.28 2.11 1.97 1.78
Cash dividends
declared .94 .87 .81 .76 .71
FINANCIAL CONDITION
Total assets $2,296,107 $2,135,961 $2,094,425 $2,034,049 $1,972,433
Average daily assets 2,172,709 2,092,875 2,065,636 2,025,845 1,928,837
Average daily
deposits 1,657,656 1,621,652 1,612,786 1,594,816 1,532,481
Average daily loans 1,255,991 1,179,828 1,097,483 1,049,271 1,015,200
Average
shareholders'
equity 217,083 202,538 182,884 167,343 153,686
Subordinated and
other long-term
debt 6,400 7,160 7,920 9,305 10,553
OTHER DATA
Average shares
outstanding 11,449,277 11,480,372 11,432,624 11,381,498 11,315,070
Number of employees
at year end (1) 1,083 1,052 1,027 1,027 1,014
Tax equivalent yield
on earning assets 8.36% 7.72% 7.77% 8.44% 9.59%
Cost of supporting
liabilities 4.06% 3.28% 3.30% 4.14% 5.61%
Net interest margin
on earning assets 4.30% 4.44% 4.47% 4.30% 3.98%
Return on average
assets 1.23% 1.25% 1.17% 1.11% 1.04%
Return on average
equity 12.30% 12.94% 13.20% 13.41% 13.07%
Dividend payout ratio 40.28% 37.97% 38.54% 38.57% 39.83%
Average equity to
average asset ratio 9.99% 9.68% 8.85% 8.26% 7.97%
Market value to book
value per share at
year end 154.03% 150.20% 148.58% 191.56% 168.86%
Price earnings ratio 13.5 11.4 11.8 14.9 13.5
</TABLE>
[FN]
(1) Includes part-time employees.
- 19 -
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
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 is designed to provide shareholders and analysts with a
more comprehensive review of the operating results and financial condition
than could be obtained from an examination of the financial statements alone.
The financial data that accompany this discussion include the operating
results of the parent company, Fort Wayne National Corporation, and its
wholly-owned subsidiaries: Fort Wayne National Bank, The Auburn State Bank,
Churubusco State Bank, Old-First National Bank in Bluffton, First National
Bank of Huntington, First National Bank of Warsaw, and Fort Wayne National
Life Insurance Company.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- -------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C>
FOR THE YEAR
Total interest income $ 160,332 $ 141,574 13.2%
Total interest expense 80,976 62,759 29.0
Net interest income 79,356 78,815 0.7
Provision for possible loan
losses 2,445 2,623 (6.8)
Applicable income taxes 10,726 11,654 (8.0)
Net income 26,707 26,212 1.9
PER SHARE
Net income $ 2.33 $ 2.28 2.2%
Dividends declared 0.94 0.87 8.0
Book value at year end 20.45 17.31 18.1
AVERAGES
Assets $2,172,709 $2,092,875 3.8%
Deposits 1,657,656 1,621,652 2.2
Loans (before allowance for
possible loan losses) 1,255,991 1,179,828 6.5
Investments 717,834 730,644 (1.8)
SELECTED FINANCIAL RATIOS
Return on average assets 1.23% 1.25%
Return on average equity 12.30% 12.94%
Net interest margin 4.30% 4.44%
Tier I and Tier II capital ratio 16.27% 17.28%
</TABLE>
- 20 -
<PAGE>
COMPARATIVE EARNINGS ANALYSIS
<TABLE>
<CAPTION>
Increase/(Decrease)
----------------------------
1995/1994 1994/1993
------------- --------------
1995 1994 1993 Amount % Amount %
------- ------- ------- ------ ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income
(fully taxable
equivalent basis) $85,733 $85,058 $84,607 $ 675 0.8% $ 451 0.5%
Taxable equivalent
adjustment 6,377 6,243 6,142 134 2.1 101 1.6
------- ------- ------- ------ ------ ------- ------
Net Interest Income 79,356 78,815 78,465 541 0.7 350 0.4
Provision for
possible loan losses 2,445 2,623 6,060 (178) (6.8) (3,437)(56.7)
Noninterest income 19,599 19,111 18,862 488 2.6 249 1.3
Noninterest expense 59,077 57,437 56,625 1,640 2.9 812 1.4
------- ------- ------- ------ ------ ------- ------
Income Before Income Taxes 37,433 37,866 34,642 (433) (1.1) 3,224 9.3
Applicable income taxes 10,726 11,654 10,509 (928) (8.0) 1,145 10.9
------- ------- ------- ------ ------ ------- ------
Net Income $26,707 $26,212 $24,133 $ 495 1.9 $ 2,079 8.6
======= ======= ======= ======= ===== ======= ======
</TABLE>
RESULTS OF OPERATIONS
EARNINGS. Net income in 1995 totaled $26.7 million, an increase of 1.9% over
the $26.2 million earned in 1994 and 10.7% over the $24.1 million earned in
1993. Earnings per share for 1995 were $2.33 compared to $2.28 in 1994 and
$2.11 in 1993. Fourth quarter earnings were $7.0 million or $.61 per share,
an increase of 2.2% over third quarter 1995 and .4% over fourth quarter 1994.
The major components of the Company's operating results are summarized in the
Comparative Earnings Analysis table. Net interest income increased .7% in
1995 over 1994 and .4% in 1994 over 1993. These modest increases are
indicative of the continued pressure on the Company's net interest margin.
Net overhead, which is the amount by which noninterest expense exceeds
noninterest income, increased 3.0% in 1995 from 1994 and 1.5% in 1994 over
1993. The provision for possible loan losses charged to earnings decreased
6.8% in 1995 from 1994 after reflecting a 56.7% decrease in 1994 from 1993.
Applicable income taxes decreased by $928,000 or 8.0% following a 10.9%
increase in 1994 over 1993.
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 over 80% of the Company's net revenues in 1995. A
- 21 -
<PAGE>
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 $85.7 million
in 1995 compared to $85.1 million in 1994 and $84.6 million in 1993. Interest
rate changes had a significant impact on net interest income, as total
interest income increased by $12.5 million for 1995 due to rate movements
while total interest expense increased almost $15 million. The resulting
decrease in net interest income of $2.4 million was offset by the $3.1
million increase in net interest income due to volume increases. This
continues the trend which occurred in 1994 where the $5.6 million increase in
net interest income due to volume increases offset the $5.1 million decrease
due to rate movements.
Average earning assets increased by $78.6 million or 4.1% for 1995 as average
loans, net of unearned income, increased by $76.2 million or 6.5%. Average
total interest-bearing liabilities increased $60.2 million or 3.7% for 1995.
More important than the increase in average total interest-bearing liabilities
was the shift in interest-bearing deposits that occurred during 1993, 1994 and
1995. As interest rates began to soften in 1993, depositors were unwilling to
invest in longer-term investment products. As a result, the Company's
depositors shifted funds out of time deposits and into savings and other
deposit products with shorter maturities. Average time deposits decreased by
$49.5 million from 1993 to 1994 while average savings deposits increased by
$27.2 million and average interest-bearing demand deposits increased by $16.2
million. In 1995, this trend reversed. Average time deposits increased by
$67.3 million from 1994 to 1995 while average savings deposits decreased by
$29.7 million.
The Company introduced a deposit product called the AnydayEveryday deposit in
1995. The AnydayEveryday account, which is included in the time deposits
category, is priced to yield a return which is above the average money market
rate. This new product has been very successful in generating deposits for
the Company and contributed to the increase in time deposits in 1995. Average
interest-bearing demand deposits decreased by $6.0 million during this period.
The Company's net interest margin measured on a fully taxable equivalent basis
decreased to 4.30% in 1995 from 4.44% in 1994 and 4.47% in 1993. With the
current shape of the yield curve being somewhat inverted, the Company is
continuing to experience significant pressure on net interest income. The net
interest margin for the fourth quarter of 1995 was 4.20% compared to 4.24% in
the third quarter of 1995 and 4.49% in the fourth quarter of 1994.
The Company continues to operate in an extremely competitive marketplace. Two
major regional bank holding companies entered the Company's market in 1993 by
acquiring two previously independent financial institutions. Their desire to
grow in the area resulted in each offering higher deposit rates in this market
than in many of their other markets. In addition, competition for quality
loans continues to be intense, resulting in smaller margins in the overall
- 22 -
<PAGE>
loan portfolio.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES. 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. While the balance is only an estimate, management does perform a
systematic analysis in determining the adequacy of the allowance for possible
loan losses and, consequently, the annual provision charged to earnings.
Beginning in 1995, the Company adopted Statement 114,"Accounting by Creditors
for Impairment of a Loan." Under the new standard, the 1995 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 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. 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
including: changes in policies and procedures, including underwriting
standards and collection, charge-off, and recovery practices; changes in the
experience, ability, and depth of the lending management; the identification
of any concentrations of credit, and changes in the level of such
concentrations; and the effect of external factors such as competition and
legal and regulatory requirements. This evaluation is inherently subjective
as it requires material estimates including the amount and timing of future
cash flows expected to be received on impaired loans that may be susceptible
to significant change.
In addition, each of the Company's affiliate banks is subject, at a minimum,
to annual reviews, as applicable, by the Federal Reserve Bank System, the
Office of the Comptroller of the Currency, the Indiana Department of Financial
Institutions, and the Federal Deposit Insurance Corporation (FDIC). During
these reviews, the regulators identify loans for classification as loss,
doubtful, substandard, or special mention. Other than those loans included in
the Nonperforming Loan table, and related footnote thereto, no other loans
which management is closely monitoring, or which have been classified by bank
regulators, resulted from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources.
- 23 -
<PAGE>
As of December 31, 1995, the Company's nonperforming loans (including
nonaccrual loans, accruing loans past due 90 days or more, and restructured
loans) amounted to $19.9 million compared to $21.0 million at year-end 1994
and $16.3 million at year-end 1993. Nonperforming loans represented 1.56% of
total loans outstanding at December 31, 1995 compared to 1.72% one year ago
and 1.43% at the end of 1993. During the fourth quarter of 1994, an $8
million loan was restructured and included in the restructured classification
as of December 31, 1994. This loan demonstrated sufficient performance under
the new terms to be classified as performing at the end of the second quarter
of 1995. During the fourth quarter, however, the borrower voluntarily decided
to liquidate its operations. At that time the Company placed a total of $8.5
million of loans to this borrower on nonaccrual status.
Other real estate owned, which consists primarily of real estate acquired in
foreclosure, is another category of nonperforming assets many financial
institutions have recorded on their balance sheet. Other real estate owned
totaled only $319,000 at year-end 1995, the lowest level in the past five
years. Although accruing loans past due 90 days or more are considered
nonperforming, a more appropriate grouping of nonperforming would include
nonaccrual loans and other real estate owned along with restructured loans.
This grouping represents .82% of total assets, comparable to the Company's
peers.
At December 31, 1995, the Company's allowance for possible loan losses of over
$20 million exceeded its level of nonperforming loans. The ratio of the
allowance for possible loan losses to nonperforming loans of 101% for 1995
compares to 104% at the end of 1994 and 134% at December 31, 1993.
As a percentage of total loans outstanding, the allowance for possible loan
losses was 1.57%. This is a decrease from 1.79% in 1994 and 1.92% in 1993.
This ratio compares to the peers' ratio of 1.66%.
Net charge-offs amounted to $4.2 million or .33% of average loans outstanding.
This ratio is consistent with the Company's peer ratio of .23%.
Historically, the Company has outperformed its peers in this category. Over
the past five years, the Company's net charge-offs have averaged .27% of
average loans outstanding compared to approximately .53% for its peers.
The Company's net charge-offs in 1995 were $4.2 million as compared to $2.7
million in 1994 and $866,000 in 1993. However, a significant portion of the
charge-offs taken in 1995 and 1994 represented amounts that had been
specifically allocated to the related credits during the Company's evaluation
of the adequacy of the allowance for possible loan losses in prior years. Of
the total charge-offs in 1995, $3 million related to the charge-off of a loan
that had been in the nonaccrual category at the end of 1994. In connection
with this charge-off, the Company agreed to fund certain operating expenses
related to the loan collateral on behalf of the borrower. The payment of
these expenses was required to be recognized as part of the Company's
operating expenses. However, since such anticipated expenses had previously
been provided for through the allowance for possible loan losses, the Company
reduced the provision and related allowance for possible loan losses in the
second quarter of 1995 by the amount of the expenses ($450,000) that were
- 24 -
<PAGE>
recognized as part of other operating expense. During the third and fourth
quarters of 1995, an additional $126,000 was charged to other operating
expense.
NONINTEREST INCOME AND EXPENSE ANALYSIS
<TABLE>
<CAPTION>
Increase/(Decrease)
-----------------------------
1995/1994 1994/1993
--------------- -------------
1995 1994 1993 Amount % Amount %
------- ------- ------- ------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Fiduciary fees $ 9,749 $ 8,950 $ 8,060 $ 799 8.9%$ 890 11.0%
Service charges on
deposit accounts 4,705 4,561 3,674 144 3.2 887 24.1
Other service
charges 2,880 3,943 3,483 (1,063) (27.0) 460 13.2
Net securities
gains 87 5 402 82 1,640.0 (397)(98.8)
Other income 2,178 1,652 3,243 526 31.8 (1,591)(49.1)
------- ------- ------- ------- ------- ------- -----
Total Noninterest
Income $19,599 $19,111 $18,862 $ 488 2.6 $ 249 1.3
Noninterest expense:
Salaries and wages $25,231 $23,829 $23,576 $ 1,402 5.9%$ 253 1.1%
Employee benefits 6,006 5,969 5,302 37 0.6 667 12.6
Net occupancy
expense 5,032 4,952 4,281 80 1.6 671 15.7
Equipment expense 4,213 3,882 3,818 331 8.5 64 1.7
FDIC assessment 1,939 3,649 3,617 (1,710) (46.9) 32 0.9
Other expense 16,656 15,156 16,031 1,500 9.9 (875) (5.5)
------- ------- ------- ------- ------- ------- -----
Total Noninterest
Expense $59,077 $57,437 $56,625 $ 1,640 2.9 $ 812 1.4
======= ======= ======= ======= ======= ======= =====
</TABLE>
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. 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 56.1%, 55.1% and 54.9%, respectively in 1995, 1994 and
1993 compared to peer ratios of 62.5%, 64.9% and 68.1%, respectively for the
same periods.
During 1995, fiduciary fees increased 8.9% from 1994 following the 11.0%
increase in 1994 from 1993. The Company's trust division is the largest in
<PAGE> - 25 -
northern Indiana and is continually increasing its customer base.
Service charges on deposits grew 3.2% in 1995, consistent with the level of
growth in average deposits. In 1994 service charges on deposits grew 24.1%
from 1993. Slightly less than half of the 1994 increase can be attributed to
a deposit product software conversion at the lead bank in July 1993. Prior to
the conversion, certain fee income had been classified as interest and fees on
loans. Subsequent to the conversion, this same income was combined with
service charges on deposits. In addition, during 1994 the Company expanded
its consumer deposit base. The Company made great strides in developing a
concept referred to as "relationship banking." Various advertising campaigns
stressed the relationship concept and generated a great deal of growth in both
consumer deposits and loans. As indicated in our 1994 Annual Report to
Shareholders, 1994's level of increased service charges on deposits was not to
be expected in future years. However, the Company continues to realize an
improvement in its collection of deposit fees and, through offering new and
improved deposit products to its customers, has been able to expand this
source of income.
Other service charges decreased by $1.1 million in 1995 from 1994. In 1995
the Company eliminated intracompany charges for data processing services. As
a result, data processing fees for 1995 were $390,000 below 1994. In
addition, the Company has seen a $340,000 reduction in the amount of income
generated from referrals on annuity prospects.
Other income reflected a $526,000 or 31.8% increase in 1995 from 1994
following the $1.6 million or 49.1% decrease in 1994 from 1993. In 1993 as a
result of declining mortgage loan interest rates, the Company's affiliate
banks saw heavy mortgage loan refinancing. In an effort to meet customer
demand, yet not assume additional interest rate risk, the Company originated
these mortgages and sold many of the new fixed rate mortgages in the secondary
market. Selling these mortgages generated gains in excess of $1 million in
1993. However, as mortgage rates increased quickly in the first part of 1994,
the Company generated losses of $379,000 on the sale of mortgage loans.
Mortgage refinancing and other new mortgage loan demand slowed significantly
during the later part of 1994 and into 1995. The Company recognized net gains
of $101,000 in 1995 from the sale of loans.
Securities transactions amounted to a net gain of $87,000 in 1995 compared to
$5,000 in 1994 and $402,000 in 1993. The slight gains for the Company in 1995
and 1994 were the result of certain issues being called and the sale of $6.7
million and $7.5 million of investments prior to maturity in 1995 and 1994,
respectively. During 1993, many bond issues were called as a result of the
lower interest rates at which the bonds could be reissued or refinanced.
Total noninterest expense increased 2.9% in 1995 over 1994 and 1.4% in 1994
over 1993. The most significant change to noninterest expense for 1995
occurred in the FDIC insurance expense category which decreased by $1.7
million or 46.9%. 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. The FDIC has
- 26 -
<PAGE>
set a current rate of zero percent and assuming no further changes, the
Company expects to realize a decrease in FDIC insurance of approximately $1.9
million in 1996.
Salaries and wages reflected a $1.4 million or 5.9% increase in 1995 following
the $253,000 or 1.1% increase in 1994 over 1993. Of the increase in salaries
and wages in 1995 over 1994, $220,000 was due to a decrease in the deferral of
salary expense allocated to generating new loans. Statement 91 requires
entities to defer an estimated portion of salary expense for each new loan
that is made. This expense is then amortized against the fees on these loans.
In 1994, deferred salaries and wages exceeded the amount for 1993 by $200,000.
In addition, staffing levels have increased moderately to support new products
and services and increased loan and deposit volumes.
Employee benefits reflected only a minor increase in 1995 from 1994 after
increasing by $667,000 or 12.6% in 1994 over 1993. Due to favorable claim
experience, the Company's health insurance premium rates were the same in 1995
as in 1994. As mentioned in last year's discussion, the Company anticipated
an increase in employee benefit expense in 1994. The use of a lower discount
rate in determining the funding cost of pensions in prior years had the effect
of increasing the obligation at the balance sheet date and increased the
interest cost in 1994 on that projected obligation by $130,000. In addition,
the expense of the Company's Benefit Restoration Plan increased by $474,000 in
1994. The Benefit Restoration Plan is a nonqualified plan that restores
certain benefits to employees whose benefits are limited by the Revenue
Reconciliation Act of 1993. These employees would otherwise be entitled to
these benefits under the Company's qualified plans.
Net occupancy expense increased just $80,000 or 1.6% in 1995 following the
$671,000 or 15.7% increase in 1994 over 1993. During 1993, the Company
renegotiated its long term lease on its main office facilities. A cumulative
adjustment increasing expense by approximately $265,000 relating to the 1993
renegotiation was recorded in the second quarter of 1994. Excluding this
adjustment, net occupancy expense would have increased by $345,000 or 7.4% in
1995 over 1994 as the Company has assumed additional space in its main office
headquarters to expand the loan and trust divisions.
Equipment expense increased by $331,000 or 8.5% in 1995 over 1994 and $64,000
or 1.7% in 1994 over 1993 as the Company continues to invest in computer
hardware and upgrade its software.
Other expense increased by $1.5 million or 9.9% in 1995 over 1994. Of this
increase, $576,000 was the result of funding certain operating expenses
related to loan collateral for a charged-off loan as discussed under the
caption "Provision and Allowance for Possible Loan Losses" above. In
addition, the Company incurred expenses totaling $222,000 to upgrade trust
management information software utilized by the trust departments of the
Company's affiliate banks and incurred start-up expenses related to a
conversion in processing services for the Company's credit card products.
Other expense for 1994 reflected a decrease of $875,000 or 5.5% from 1993.
During the third quarter of 1993, the Company incurred expenses totaling
$615,000 for the settlement of a pending claim. During the fourth quarter of
- 27 -
<PAGE>
1993, a loss of approximately $550,000 was sustained on the disposal of other
real estate property acquired through a foreclosure.
INCOME TAXES. 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.
The Company uses the liability method for recording income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
difference between financial reporting and tax bases of assets and
liabilities. These differences are measured using enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Applicable income taxes for 1995 decreased $928,000 or 8.0% compared to 1994.
This is the result of a decrease in the Company's taxable income along with a
change in estimate in connection with the calculation of the Company's overall
income tax accruals.
During 1995, the Company's ongoing state franchise tax dispute with the State
of Indiana was resolved. In 1994, the State tax court rendered a decision
that was favorable to the Company. That decision was appealed to the Indiana
Supreme Court which overruled the tax court's decision and ruled in favor of
the State of Indiana. While the Company appealed the Indiana Supreme Court's
decision to the United States Supreme Court, the higher court declined to
review the decision. This matter is now effectively closed and the Company
has made payment to the State of Indiana for all state franchise tax amounts
previously withheld.
ANALYSIS OF FINANCIAL CONDITION
Although competition continued to be intense in the Company's marketplace, the
Company's outstanding loans increased by 4.6% and outstanding deposits
increased 8.3% at year-end 1995 compared to year-end 1994. In addition, the
market share of total bank deposits outstanding in the Fort Wayne market for
the Company's lead bank has increased from an average of 32% in 1993 to 35% in
1994 and 36% in 1995.
LOANS. All categories of lending with the exception of installment loans
increased during 1995. Commercial lending increased by $44.5 million or 10.9%
to $453.2 million. Real estate loans, including real estate construction,
increased by $22.6 million from year-end 1994 and totaled nearly $622 million.
Real estate lending continues to be the major component of the Company's loan
portfolio. As can be seen in the Real Estate Loan Analysis table, the
majority of real estate holdings are 1-4 family residential loans which
account for 55% of total real estate holdings as of December 31, 1995.
The majority of the Company's real estate lending is concentrated in the
Company's trading area of northeastern Indiana. Commercial and residential
real estate values in this area have not experienced the volatility which
affected other markets in recent decades. In addition, the Company's
underwriting policy for 1-4 family residential loans follows that of industry
- 28 -
<PAGE>
standards and meets the criteria for sale in the secondary market. The growth
in real estate lending came even as the Company sold $11.7 million of
residential mortgages during 1995.
INVESTMENTS. Total investment securities increased $63.2 million or 9.0% from
December 31, 1994. On average during 1995, investment securities decreased
$12.8 million or 1.8%. This follows a decrease of $22.6 million or 3.0% in
1994 from 1993. The decrease in average securities is attributed to average
loans growing at a faster pace than total average funding sources. Average
short-term investments, including federal funds sold and time deposits with
other banks, increased $15.2 million or 137.1% from 1994 after decreasing
$30.0 million or 73.0% in 1994.
At December 31, 1993, the Company's investment securities, except for
investments in marketable securities held by the parent company, were stated
at cost adjusted for amortization of premiums and accretion of discounts. The
Company had no securities identified as being held for sale. In May 1993,
the Financial Accounting Standards Board issued Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under the new rules, 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 carried at fair value. Unrealized holding gains and losses on securities
classified as available for sale are carried as a separate component of
shareholders' equity, net of tax. Unrealized holding gains and losses on
securities classified as trading are reported in earnings.
Because of Statement 115, the Company reevaluated its investment policies and,
as a result, classified all investment securities held as of December 31, 1993
as available for sale as of January 1, 1994. Application of the new rules
resulted in an increase of $16.2 million to shareholders' equity as of
January 1, 1994, representing the recognition in shareholders' equity of
unrealized appreciation, net of taxes, for the Company's investment in debt
and equity securities determined to be available for sale that previously had
been carried at amortized cost or lower of cost or market. In addition, all
investment securities purchased during 1994 and the majority of securities
purchased in 1995 were classified as available-for-sale.
The net unrealized holding gains and losses on securities designated as
available for sale fluctuate as market interest rates rise and fall. The
adjustment to the carrying value of investment securities was a net unrealized
gain of $20.5 million at December 31, 1995 and a net unrealized loss of $15.1
million at December 31, 1994. The result on shareholders' equity, net of
taxes, was an increase of $12.2 million and a decrease of $9.0 million at
December 31, 1995 and 1994, respectively. The Federal Reserve Board and the
Office of the Comptroller of Currency, however, have determined that this
component of shareholders' equity will not be used in determining capital
adequacy or impact the calculations of FDIC premiums.
During 1995, the Company purchased approximately $25 million of securities
- 29 -
<PAGE>
designated as trading and sold trading securities with a carrying value of
$5.2 million, realizing a gain of $255,000. 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 has
also increased slightly to 26% of the total portfolio compared to 25% in 1994
and 23% in 1993. Other investments represented 8% of the total portfolio at
December 31, 1995, consistent with the percentages for 1994 and 1993.
DEPOSITS. The primary source of funds for the Company comes from the
acceptance of demand and time deposits generated at the affiliate banks. The
Company was pleased to realize an improvement in its deposits this year as
many financial institutions were realizing decreasing deposit levels.
Competition for deposits has been intense over the last several years as more
and more entities offered mutual funds, annuities, and other investment
alternatives for customers. The pressure for individuals to move bank
deposits into these products has been great. The Company began to realize
more significant growth in deposits in the later part of 1994 and into 1995
as interest rates on bank deposits increased. As more and more customers look
for a more stable and risk free investment, the Company hopes to again reflect
increased deposit levels.
Total deposits as of December 31, 1995 increased $135.2 million or 8.3% over
the totals achieved at the end of 1994. As depicted in the Deposits table,
total average deposits increased by $36.0 million or 2.2%. However, as was
realized in 1994 and 1993, the Company experienced a shift in the mix of the
different deposit categories. In 1993 and much of 1994 depositors did not
perceive a sufficient premium to extend maturities during the comparatively
lower interest rate environment. As a result, customers allowed maturing
deposits to roll into shorter-term instruments. Average demand deposits,
including both interest-bearing and noninterest-bearing, increased 7.7% in
1994 over 1993. Average savings deposits, which include traditional savings
and money market deposits, grew 8.6% in 1994 from 1993. Much of this growth
came from other time deposits as this category decreased $49.5 million or 5.5%
in 1994 from 1993. Late in 1994 and into 1995, however, the mix in the
Company's deposit portfolio began to shift back. For 1995, average demand
deposits, including both interest-bearing and noninterest-bearing, decreased
by $1.6 million. In addition, average savings deposits decreased $29.7
million or 8.7% in 1995. These decreases were more than offset however, by
the $67.3 million or 8.0% increase in average time deposits which includes the
Company's highly successful AnydayEveryday account. The combination of a
greater percentage of average total deposits in the time deposits category
along with the higher rates being paid on those deposits has placed
significant pressure on the Company's net interest earnings and net interest
margin.
- 30 -
<PAGE>
SHORT-TERM BORROWINGS AND LONG-TERM DEBT. Federal funds purchased and
securities sold under agreements to repurchase consist primarily of repurchase
arrangements the Company's affiliate banks' commercial customers utilize for
cash management services. In 1995, average federal funds purchased and
securities sold under agreements to repurchase increased $24.6 million or
11.2%, considerably more than the $2.6 million or 1.2% growth realized in 1994
over 1993.
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, which totaled $6.4 million at the end of 1995, decreased
$760,000 from 1994 as a result of scheduled principal payments. The Company
issued no new debt during the past year, nor did it refinance any of its
existing obligations. For a further discussion of the Company's long-term
debt obligations, maturities, and related dividend and other restrictions,
refer to Notes 10 and 12 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.
The Federal Reserve Board governs the activities of bank holding companies and
requires the Company to maintain an amount of capital based on risk-adjusted
assets, so that categories of assets with potentially higher credit risk
require more capital backing than assets with lower risk. Banks and bank
holding companies are also required to maintain capital to support, on a
risk-adjusted basis, certain off-balance-sheet activities such as loan
commitments. Also, Section 305 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 requires bank holding companies to maintain additional
capital for interest-rate risk inherent in the balance sheet.
The Federal Reserve Board standards classify capital into two tiers, referred
to as Tier I and Tier II. Tier I capital consists of common shareholders'
equity, noncumulative and cumulative perpetual preferred stock, and minority
interest less certain intangibles. Tier II capital consists of the allowance
for loan losses, hybrid capital instruments, term subordinated debt, and
intermediate-term preferred stock. The minimum required Tier I and Tier II
capital ratio is 8.0% with at least a 4.0% Tier I capital ratio. The
Company's Tier I capital ratio at December 31, 1995 was 15.02% compared to
16.03% in 1994 and 15.07% in 1993. Combined Tier I and Tier II capital of
16.27% at December 31, 1995 compared to 17.28% in 1994 and 16.32% in 1993.
Both of these ratios are substantially in excess of the required 8% due to the
high degree of quality in the loan and investment portfolios.
- 31 -
<PAGE>
RISK-BASED CAPITAL
The following table summarizes the Company's risk-based capital calculations
for the periods indicated.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Equity capital $ 233,711 $ 198,996 $ 191,080 $ 175,709 $ 161,309
Less: Net unrealized
gain (loss) on
available- for-sale
securities 12,171 (8,968) -- -- --
Disallowed intangibles 2,061 2,293 2,524 3,524 3,348
---------- ---------- ---------- ---------- ----------
Tier I Capital 219,479 205,671 188,556 172,185 157,961
Qualifying allowance
for loan losses and
other debt 18,261 16,036 15,754 13,113 16,083
---------- ---------- ---------- ---------- ----------
Total Tier I and
Tier II Capital $ 237,740 $ 221,707 $ 204,310 $ 185,298 $ 174,044
========== ========== ========== ========== ==========
Total assets $2,296,107 $2,135,961 $2,094,425 $2,034,049 $1,972,433
Risk - weighted assets $1,461,003 $1,283,057 $1,251,522 $1,210,325 $1,193,381
Tier I capital ratio 15.02% 16.03% 15.07% 14.23% 13.24%
Tier I and Tier II
capital ratio 16.27% 17.28% 16.32% 15.31% 14.58%
Leverage ratio 9.57% 9.64% 9.01% 8.48% 8.02%
</TABLE>
Dividends declared totalled $10.8 million, an increase from $10.0 million in
1994. This reflects the Company's trend of increasing dividends annually.
The Company's current annual dividend is $.96, up from the $.88 declared in
1994. The dividend payout ratio for 1995 was 40.3%, an increase over the
38.0% for 1994.
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 1995, the Company
repurchased 105,000 shares at a total cost of $2.8 million.
- 32 -
<PAGE>
LIQUIDITY AND RATE SENSITIVITY MANAGEMENT
Management meets regularly through its Asset/Liability committee to review
both the liquidity and rate sensitivity position of the Company. Effective
asset and liability management insures the Company's ability to monitor the
cash flow requirements of depositors along with the demands of borrowers.
While maintaining sufficient liquidity to meet these needs, the Company also
attempts to maximize net interest income through sensitivity analysis of its
assets and liabilities.
LIQUIDITY. The affiliate banks maintain a stable base of core deposits
provided by long-standing customer relationships with consumers and local
businesses. These deposits are the principal source of liquidity for the
Company. These sources are complemented with short-term borrowings through
correspondent bank relationships, in addition to other corporate customers,
through the use of repurchase agreements. The Company closely monitors these
sources to avoid any unwarranted market or customer concentrations.
Liquidity is also provided through the sales and maturities of various assets,
including short-term investments, securities, and loans. The greatest source
of asset liquidity lies in the Company's marketable securities. The
investment portfolio is highly liquid and has no securities in default. This
is evidenced by the fact that the taxable portfolio maintains a composite
rating of A or better on 98% of outstandings.
In an effort to maintain an adequate liquidity position, the Company's
investment strategy calls for laddering the maturities of investments
purchased. Scheduled maturities of investment securities within the next
twelve months amount to $143 million or 19% of the entire portfolio. In
addition, with the adoption of Statement 115, the entire portfolio has been
identified as available for sale or trading and could be liquidated should a
liquidity crisis occur.
- 33 -
<PAGE>
INTEREST 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,
1995.
<TABLE>
<CAPTION>
Total Over
0-3 3-12 One 1-5 Five
Months Months Year Years Years Total
--------- -------- ---------- -------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Net loans $ 617,033 $ 207,239 $ 824,272 $272,122 $177,000 $1,273,394
Investment
securities 40,481 102,321 142,802 437,925 183,833 764,560
Other earning
assets 27,250 -- 27,250 100 -- 27,350
--------- --------- ---------- -------- -------- -----------
Total $ 684,764 $ 309,560 $ 994,324 $710,147 $360,833 $2,065,304
Interest-bearing
liabilities:
Interest-bearing
deposits $ 717,395 $ 251,254 $ 968,649 $284,446 $230,432 $1,483,527
Short-term
borrowings 267,644 -- 267,644 -- -- 267,644
Long-term
notes -- 400 400 1,600 4,400 6,400
Hedged
interest-
bearing
liabilities (91,000) (117,000) (117,000) -- -- (117,000)
--------- --------- ---------- -------- -------- -----------
Total $ 894,039 $ 134,654 $1,119,693 $286,046 $234,832 $1,640,571
--------- --------- ---------- -------- -------- -----------
Periodic rate
sensitivity gap $(209,275)$ 174,906 $ (125,369)$424,101 $126,001 $ 424,733
========= ========= ========== ======== ======== ==========
Cumulative rate
sensitivity gap $(209,275)$(125,369)$ (125,369)$298,732 $424,733
========= ========= ========== ======== ========
Periodic rate
sensitivity
gap ratio .77 2.30 .89 2.48 1.54
========= ========= ========== ======== ========
Cumulative rate
sensitivity
gap ratio .77 .89 .89 1.21 1.26
========= ========= ========== ======== ========
</TABLE>
- 34 -
<PAGE>
INTEREST SENSITIVITY. The degree by which net interest income may fluctuate
due to changes in interest rates is monitored through interest-sensitivity
management. When the repricing opportunities of assets and liabilities are
not properly aligned, net interest income may be impacted when interest rates
change. Forecasting various interest rate scenarios and measuring the results
of the possible outcomes determine the exposure of interest rate risk inherent
in the Company's balance sheet.
Management's goal through the Asset/Liability committee is to manage
imbalanced positions that arise when the total amount of assets maturing or
repricing in a given period differs from that of the supporting liabilities.
The theory behind managing the difference between repricing assets and
liabilities is to have more liabilities reprice when interest rates are
declining and when interest rates are rising to have more assets reprice. As
of December 31, 1995, the Company had a negative gap or a net liability
sensitive position of .89. This indicates that the total amount of assets
repricing within one year represents 89% of the total amount of liabilities
repricing in the same time frame and compares to a net liability sensitive
position of .84 one year ago.
These figures represent one day's position, and changing market conditions may
create significant fluctuations. However, there are certain tools available
to management to reduce or minimize these conditions. Among them are specific
investment decisions, pricing structures of deposit funds, and financial
futures and options used to hedge specific asset or liability positions. The
Company uses exchange traded financial instruments such as futures and options
to hedge against interest rate risk. The Company has established policies,
guidelines and internal control procedures for the use of these instruments.
For a further discussion of the Company's use of financial futures and
options, refer to Note 16 in the Company's accompanying consolidated financial
statements.
- 35 -
<PAGE>
INFLATION AND CHANGING PRICES
Reported earnings are affected by inflation, indirectly through changing
interest rates, and directly by increased operating expenses. However, the
effects of general price level inflation have not had a material effect on the
information presented herein.
INDUSTRY OUTLOOK AND REGULATORY CHANGES
In 1994, many industry observers predicted that 1995 would be a quiet year for
consumer regulation. They were wrong. The regulatory burden for most banks
has not been reduced significantly, although some regulations have been
simplified or improved through amendments.
Many of the changes made in 1995 become effective in 1996. In addition,
regulators and legislators will be addressing other significant compliance
issues in 1996. Some of the more significant changes enacted in 1995 that had
a direct impact on the Company included revisions to the Real Estate
Settlement Procedures Act (RESPA), the Home Mortgage Disclosure Act (HMDA) and
the Community Reinvestment Act (CRA).
RESPA was amended to include the Department of Housing and Urban Development's
final rule on escrow accounting procedures which establishes a nationwide
standard accounting method known as aggregate accounting. This new procedure
is a change for the Company and will require an update to the loan accounting
software currently being used.
In February 1995, the Federal Reserve Board (the Fed) issued final rulings
amending the HMDA reporting requirements on refinanced loans to allow all
refinancings to be reported for HMDA purposes as long as the loan is secured
by a dwelling. These changes will help simplify the reporting process for
these types of loans.
In April 1995, the Fed approved the final version of the CRA regulation. The
new version makes changes in the way examiners will evaluate a bank's CRA
performance and places more emphasis on rating a bank's CRA performance rather
than a bank's CRA process. The Company and its subsidiary banks take the
Community Reinvestment Act seriously and are pleased to see that regulators
will be focusing on results rather than procedures.
Among the regulatory and compliance issues that are in the works for 1996 are
changes to the Bank Secrecy Act (BSA). In an attempt to plug perceived holes
in BSA regulations, the Fed and the Financial Crimes Enforcement Network
issued a joint and final rule in January 1995 on new record keeping
requirements for certain wire transfers and transmittal orders by financial
institutions. The new rules, which are effective in April of 1996, include
information gathering and retention procedures which differ for established
and non-established customers and set forth parameters on how banks must be
able to retrieve information about wire transfer payment orders. The new
rules will certainly add to the record keeping burden.
- 36 -
<PAGE>
One of the biggest changes in 1996 will be the way banks are examined for
compliance with the BSA. Banks will have to demonstrate to examiners that
they have an effective system for detecting and preventing money laundering.
The Fed will require banks to establish sound know-your-customer policies and
procedures which must be able to detect changes in activity of established
customers and ensure that information on the general business of new customers
is obtained.
Certainly regulations affecting the financial services industry will continue
to change. In the past, the Company has demonstrated its ability to react to
change. As part of the process of managing change, the Company has increased
its emphasis on strategic planning and its role in the financial services
industry. We believe the strength of the Company lies in its organizational
structure of allowing all affiliate banks to manage their institutions
according to their own marketplace demands. Providing the tools for the
affiliates to do this should come from a consolidation of "behind-the-scenes"
activities including accounting, data processing, and investments. In
addition the Company is currently in the process of standardizing all of its
products to improve operating efficiency and marketing efforts. During 1995,
the Company completed much of the groundwork for this consolidation. All of
the Company's affiliate banks have already been converted to the same data
processing software for loans, deposits, and investments, and all of the
Company's affiliate banks are now using the same processor for their credit
card activities. Consolidating these functions, and removing the burden of
the operations from the affiliate banks, permits our employees to further
develop customer relationships. Developing these relationships will allow the
Company to increase deposits and loans, while enhancing shareholder returns.
It has been several years since the Company was active in the merger and
acquisitions arena, instead concentrating on upgrading the internal
infrastructure of the Company. The Company is now poised to move forward in
the marketplace and on November 6, 1995 the Company entered into an Agreement
and Plan of Merger with Valley Financial Services, Inc. (VFS). Subject to
required approvals by regulators and the shareholders of VFS, consummation of
the merger is anticipated to occur during the second quarter of 1996. Based
upon December 31, 1995 data, the Company's combined post-merger total assets
will exceed $3.1 billion, total loans will exceed $1.7 billion and total
deposits will exceed $2.3 billion. The proposed acquisition is a strategic
move in the Company's goal to extend operations throughout northeastern and
north central Indiana. Currently, the Company and VFS do not compete directly
and have no overlap in location of offices.
The Company is very excited about this merger as the newly combined operations
will span all of northeastern and north central Indiana and include three of
the state's top five personal-income counties and three of the top six
counties in population. Management of the Company believes that this expanded
market area offers excellent opportunities for growth in the future in both
assets and earnings. The proposed merger will also allow the Company to
spread its recent investments in technology over a larger base.
There continues to be a niche in the market for a well-managed, conservative
financial institution offering high quality products and services. The
- 37 -
<PAGE>
Company excels in developing relationships with its customers which allows the
Company to remain strong and independent. As our customer relationships
expand, so will our ability to enhance shareholder value while maintaining our
strong commitment to the communities we serve.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Responsibilities for Financial Statements...................... 39
Report of Ernst & Young LLP, Independent Auditors.............. 40
Consolidated Balance Sheet as of December 31, 1995 and 1994.... 41
Consolidated Statement of Income for the years ended
December 31, 1995, 1994, and 1993............................ 43
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994, and 1993............................ 45
Consolidated Statement of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994, and 1993............ 47
Notes to Consolidated Financial Statements..................... 48
Quarterly Financial Information (Unaudited).................... 74
</TABLE>
- 38 -
<PAGE>
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 principals and, as
such, include amounts based on judgements 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
- 39 -
<PAGE>
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated 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 16, 1996
- 40 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31
1995 1994
___________ ___________
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 177,602 $ 156,284
Federal funds sold and securities
purchased under agreements to resell 27,150 1,900
Interest-bearing deposits with banks 200 200
Investment securities, at fair value 764,560 701,311
Loans 1,276,567 1,219,976
Less: Unearned income (3,173) (2,758)
Allowance for possible
loan losses (20,047) (21,795)
__________ __________
NET LOANS 1,253,347 1,195,423
Premises and equipment 33,664 32,756
Other assets 39,584 48,087
__________ __________
TOTAL ASSETS $2,296,107 $2,135,961
========== ==========
</TABLE>
[FN]
See accompanying notes.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Deposits:
Noninterest-bearing $ 284,003 $ 259,451
Interest-bearing 1,483,527 1,372,891
__________ __________
TOTAL DEPOSITS 1,767,530 1,632,342
Federal funds purchased and securities
sold under agreements to repurchase 241,263 255,010
Notes payable - U.S. Treasury and
other borrowings 26,381 21,884
Dividends payable 2,743 2,529
Accrued liabilities 16,852 16,547
Subordinated and other long-term notes 6,400 7,160
__________ __________
TOTAL LIABILITIES 2,061,169 1,935,472
Deferred gain on sale of premises 1,227 1,493
Shareholders' equity:
Preferred stock, without par value:
Class A Voting - 1,000,000 shares
authorized but unissued
Class B Nonvoting - 1,000,000 shares
authorized but unissued
Common stock, without par value:
Authorized shares: 20,000,000
Issued and outstanding shares -
1995 - 11,428,717; 1994 - 11,493,968 19,048 19,157
Capital surplus 31,502 31,618
Retained earnings 170,990 157,189
Unrealized gain (loss) on securities
available-for-sale 12,171 (8,968)
__________ __________
TOTAL SHAREHOLDERS' EQUITY 233,711 198,996
__________ __________
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $2,296,107 $2,135,961
========== ==========
</TABLE>
[FN]
See accompanying notes.
- 42 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For The Years Ended December 31
______________________________
1995 1994 1993
________ ________ ________
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $112,241 $95,346 $88,536
Tax-exempt 1,363 1,192 1,247
Interest and dividends on
investment securities:
Taxable 34,919 34,179 39,706
Tax-exempt 10,479 10,402 10,159
Interest on federal funds sold
and securities purchased under
agreements to resell 1,322 431 1,127
Interest on deposits with banks 8 24 72
_______ _______ _______
TOTAL INTEREST INCOME 160,332 141,574 140,847
INTEREST EXPENSE
Interest on deposits 65,414 52,165 54,398
Interest on federal funds
purchased and securities sold
under agreements to repurchase 13,346 8,922 6,303
Interest on notes payable -
U.S. Treasury and other
borrowings 1,348 709 610
Interest on subordinated and
other long-term notes 868 963 1,071
_______ _______ _______
TOTAL INTEREST EXPENSE 80,976 62,759 62,382
_______ _______ _______
NET INTEREST INCOME
BEFORE PROVISION FOR
POSSIBLE LOAN LOSSES 79,356 78,815 78,465
Provision for possible
loan losses 2,445 2,623 6,060
_______ _______ _______
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 76,911 76,192 72,405
- 43 -
<PAGE>
<S> <C> <C> <C>
NONINTEREST INCOME
Fiduciary fees 9,749 8,950 8,060
Service charges on deposit
accounts 4,705 4,561 3,674
Other service charges 2,880 3,943 3,483
Net securities gains 87 5 402
Other income 2,178 1,652 3,243
_______ _______ _______
TOTAL NONINTEREST INCOME 19,599 19,111 18,862
NONINTEREST EXPENSE
Salaries and wages 25,231 23,829 23,576
Employee benefits 6,006 5,969 5,302
Net occupancy expense 5,032 4,952 4,281
Equipment expense 4,213 3,882 3,818
FDIC assessment 1,939 3,649 3,617
Other expense 16,656 15,156 16,031
_______ _______ _______
TOTAL NONINTEREST EXPENSE 59,077 57,437 56,625
_______ _______ _______
INCOME BEFORE INCOME TAXES 37,433 37,866 34,642
Applicable income taxes 10,726 11,654 10,509
_______ _______ _______
NET INCOME $26,707 $26,212 $24,133
======= ======= =======
Net income per share $ 2.33 $ 2.28 $ 2.11
======= ======= =======
</TABLE>
[FN]
See accompanying notes.
- 44 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31
1995 1994 1993
________ ________ ________
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,707 $ 26,212 $ 24,133
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for possible
loan losses 2,445 2,623 6,060
Net accretion and amortization
of investment securities 210 411 1,692
Net accretion and amortization
of loans (26) (4) (42)
Provision for depreciation and
amortization of premises and
equipment 3,522 3,394 3,134
Deferred income taxes 1,433 (305) (1,986)
Amortization of deferred gain
on sale of premises (266) (266) (265)
Gain on sale of investment
securities (90) (132) (412)
Loss on sale of investment
securities 3 127 10
Loans originated for resale (12,341) (13,266) (85,628)
Unrealized (gain)loss on loans
held for sale (31) 31 --
Proceeds from sales of loans 11,732 29,985 82,923
Net (gain) loss on sale of loans (101) 379 (1,079)
Net (gain) loss on sale of
premises and equipment 21 10 (101)
(Increase)decrease in other
assets (7,334) (4,080) 4,934
Increase (decrease) in other
liabilities 305 (103) (1,914)
________ ________ ________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 26,189 45,016 31,459
INVESTING ACTIVITIES
Net (increase) decrease in
federal funds sold and
securities purchased under
agreements to resell (25,250) (1,900) 10,300
Net decrease in interest-bearing
deposits with banks -- 400 2,500
- 45 -
<PAGE>
<S> <C> <C> <C>
Proceeds from sales of investment
securities 6,650 7,547 602
Proceeds from maturities of
investment securities 172,275 291,278 278,338
Purchases of investment securities (206,754) (245,245) (294,937)
Net increase in loans (59,602) (96,234) (48,471)
Proceeds from disposals of premises
and equipment 32 52 111
Purchase of premises and equipment (4,483) (3,737) (4,245)
________ ________ ________
NET CASH USED IN INVESTING
ACTIVITIES (117,132) (47,839) (55,802)
FINANCING ACTIVITIES
Net increase in deposits 135,188 19,482 1,391
Net increase (decrease)in
short-term borrowings (9,250) 15,105 47,017
Principal payment on long-term debt (760) (760) (1,385)
Cash dividends paid (10,544) (9,790) (9,141)
Proceeds from exercise of stock
options 453 624 540
Repurchase of common stock (2,826) -- --
________ ________ ________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 112,261 24,661 38,422
________ ________ ________
INCREASE IN CASH AND
CASH EQUIVALENTS 21,318 21,838 14,079
Cash and cash equivalents at
beginning of period 156,284 134,446 120,367
________ ________ ________
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $177,602 $156,284 $134,446
======== ======== ========
Supplemental disclosures of
cash flow information:
Interest paid $ 79,878 $ 62,982 $ 64,080
======== ======== ========
Income taxes paid $ 9,764 $ 11,423 $ 11,700
======== ======== ========
</TABLE>
[FN]
See accompanying notes.
- 46 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For The Years Ended December 31, 1993, 1994, and 1995
(Dollars in thousands, except per share data)
Net
Unrealized
Gain (Loss)
On Total
Securities Share-
Common Capital Retained Available- holders'
Stock Surplus Earnings For-Sale Equity
_______ _______ ________ __________ ________
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $19,015 $30,596 $126,098 $ -- $175,709
Net Income -- -- 24,133 -- 24,133
Issuance of 47,317 shares
of common stock 78 462 -- -- 540
Cash dividends -
$.81 per share -- -- (9,302) -- (9,302)
_______ _______ ________ __________ ________
Balance at December 31, 1993 19,093 31,058 140,929 -- 191,080
Net Income -- -- 26,212 -- 26,212
Cumulative effect of
accounting change -- -- -- 16,175 16,175
Issuance of 37,904 shares
of common stock 64 560 -- -- 624
Cash dividends -
$.87 per share -- -- (9,952) -- (9,952)
Net unrealized loss
on securities
available-for-sale -- -- -- (25,143) (25,143)
_______ _______ ________ __________ ________
Balance at December 31, 1994 19,157 31,618 157,189 (8,968) 198,996
Net Income -- -- 26,707 -- 26,707
Issuance of 39,749 shares
of common stock 66 387 -- -- 453
Repurchase of 105,000 shares
of common stock (175) (503) (2,148) -- (2,826)
Cash dividends -
$.94 per share -- -- (10,758) -- (10,758)
Net unrealized gain
on securities
available-for-sale -- -- -- 21,139 21,139
_______ _______ ________ __________ ________
Balance at December 31, 1995 $19,048 $31,502 $170,990 $12,171 $233,711
======= ======= ======== ========== ========
</TABLE>
[FN]
See accompanying notes.
- 47 -
<PAGE>
Fort Wayne National Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
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 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), and Old-First National Bank in
Bluffton (Old-First). 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 Statement 115, "Accounting for Certain Investments in Debt and Equity
- 48 -
<PAGE>
Securities." 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.
Under the method previously applied, the Company presented most debt
securities at amortized cost. Securities held-for-sale were reported at the
lower of cost or market (LOCOM) and aggregate unrealized losses were reported
in earnings. Securities classified as trading were carried at fair value and
unrealized holding gains and losses were reported in earnings.
Application of the new rules resulted in an increase of $16,175,000 to
shareholders' equity on January 1, 1994, representing the recognition in
shareholders' equity of unrealized appreciation, net of taxes, for the
Company's investment in debt and equity securities determined to be available-
for-sale, previously carried at amortized cost or LOCOM.
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 impaired under Financial Accounting
Standards Board 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.
- 49 -
<PAGE>
Beginning in 1995, the Company adopted Statement 114. Under the new standard,
the 1995 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 borrowers'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 of $2,061,000 and $2,293,000 at December 31, 1995 and 1994,
respectively is amortized using the straight-line method over 15 years. The
carrying value of goodwill 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.
Income Taxes
The Company uses the liability method for recording income taxes. Under this
- 50 -
<PAGE>
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
The Company and its subsidiaries file a consolidated federal income tax
return. Each subsidiary provides for income taxes on a separate return basis.
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, a derivative designed as a hedge or matched to designated items is
terminated, 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.
2. Pending Acquisition
On November 6, 1995 the Company entered into an Agreement and Plan of Merger
with Valley Financial Services, Inc. (VFS). The terms of the agreement
provide that the Company will exchange approximately $53 million in cash, $20
million in common stock and $37 million in preferred stock for all outstanding
Valley Financial Services, Inc. common and preferred stock.
The acquisition is expected to be accounted for under the purchase method of
accounting. Subject to required approvals by regulators and the shareholders
of VFS, consummation of the merger is anticipated to occur during the second
quarter of 1996.
Total assets of Valley Financial Services, Inc. as of December 31, 1995 were
approximately $818,618,000.
- 51 -
<PAGE>
3. Restrictions on Cash and Due From Bank Accounts
The Company's subsidiary banks are required by the Federal Reserve Bank to
maintain average reserve balances. The amount of those required reserve
balances as of December 31, 1995 was approximately $20,975,000.
4. Investment Securities
A summary of available-for-sale investment securities is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Government
and federal agencies $476,848 $ 8,447 $ 1,247 $484,048
States and political
subdivisions 187,772 10,613 206 198,179
Corporate securities 48,873 1,857 11 50,719
Other 9,344 1,019 8 10,355
-------- ------- -------- --------
Total $722,837 $21,936 $ 1,472 $743,301
======== ======= ======== ========
December 31, 1994:
U.S. Government
and federal agencies $480,167 $ 632 $ 14,761 $466,038
States and political
subdivisions 178,599 3,530 4,709 177,420
Corporate securities 50,078 533 678 49,933
Other 7,546 580 206 7,920
-------- ------- -------- --------
Total $716,390 $ 5,275 $ 20,354 $701,311
======== ======= ======== ========
</TABLE>
- 52 -
<PAGE>
The amortized cost and fair value of available-for-sale investment securities
at December 31, 1995, 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ---------
(In thousands)
<S> <C> <C>
Due in one year or less $121,293 $121,543
Due after one year through five years 426,793 437,926
Due after five years through ten years 99,940 104,718
Due after ten years 65,572 68,863
--------- ---------
Total Debt Securities 713,598 733,050
Investments in equity securities 9,239 10,251
--------- ---------
Total $722,837 $743,301
========= =========
</TABLE>
Investment securities with a carrying value of approximately $420,758,000 and
$358,474,000 at December 31, 1995 and 1994, 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 and 1994 was $21,364,000 and $334,000, respectively. The
change in net unrealized holding gains on trading securities for the year
ended December 31, 1995 was $715,000. Realized gains on trading activities
were $255,000, $3,000 and zero in 1995, 1994 and 1993, respectively.
- 53 -
<PAGE>
5. Loans
Loans by classification as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Commercial $ 453,208 $ 408,706
Real estate - construction 31,312 23,686
Real estate - mortgage 590,599 575,648
Installment 192,307 204,707
Financing leases 9,141 7,229
---------- ----------
Gross Loans $1,276,567 $1,219,976
========== ==========
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered to
be impaired under Statement 114 was $19,749,000, for which the related
allowance for possible loan losses is $5,450,000. The average investment in
impaired loans during the year ended December 31, 1995 was approximately
$21,160,000. For the year ended December 31, 1995, the Company recognized
interest income on those impaired loans of $1,141,000.
At December 31, 1994, the Company had nonaccrual loans of $11,282,000
(all of which would have been considered impaired under Statement 114) and
restructured loans of $8,750,000. Gross interest income of $1,218,000, and
$1,513,000 would have been recorded in 1994 and 1993, respectively, for
nonaccrual and restructured loans, assuming these loans had been accruing
interest throughout the year in accordance with their original terms. The
amount of interest actually recorded in 1994 and 1993 was $442,000, and
$155,000, respectively.
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
$9,820,000 and $7,878,000 at December 31, 1995 and 1994, respectively.
During 1995, $8,256,000 of new loans were made and repayments and loan
reductions totaled $6,314,000.
- 54 -
<PAGE>
The fair value of loans consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Commercial $ 451,135 $ 405,862
Real estate - construction 32,267 26,415
Real estate - mortgage 665,045 559,555
Installment 189,742 195,970
Financing leases 8,765 6,496
---------- ----------
Gross Loans 1,346,954 1,194,298
Unearned income (3,173) (2,758)
---------- ----------
Net Loans $1,343,781 $1,191,540
========== ==========
</TABLE>
6. Allowance for Possible Loan Losses
Changes in the allowance for possible loan losses for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $21,795 $21,876 $16,682
Add (deduct):
Provisions 2,445 2,623 6,060
Recoveries 763 1,284 1,593
Loan charge-offs (4,956) (3,988) (2,459)
------- ------- -------
Balance At End Of Year $20,047 $21,795 $21,876
======= ======= =======
</TABLE>
- 55 -
<PAGE>
7. Premises and Equipment and Lease Agreements
Premises and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Land $ 3,881 $ 3,831
Buildings 21,717 21,407
Equipment 31,676 29,117
Leasehold improvements 8,688 8,015
------- -------
Total Cost 65,962 62,370
Allowances for depreciation
and amortization (32,298) (29,614)
------- -------
Net Premises And Equipment $33,664 $32,756
======= =======
</TABLE>
Total rental expense (principally buildings and equipment), net of sublease
income of $813,000 in 1995, $621,000 in 1994 and $621,000 in 1993 amounted to
$1,467,000, $1,817,000, and $1,387,000 in 1995, 1994 and 1993, respectively.
Future minimum rental commitments under noncancelable operating leases as of
December 31, 1995, net of future sublease rentals of approximately 26% of the
total in each period, are as follows (in thousands):
<TABLE>
<S> <C>
1996 $1,807
1997 1,809
1998 1,800
1999 1,809
2000 1,704
thereafter 8,035
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Gross occupancy expense $6,100 $5,834 $5,399
Rental income (1,068) (882) (1,118)
------ ------ ------
Net Occupancy Expense $5,032 $4,952 $4,281
====== ====== ======
</TABLE>
- 56 -
<PAGE>
8. Deposits
Time certificates of deposit of $100,000 or more amounted to $196,889,000 at
December 31, 1995 and $168,354,000 at December 31, 1994.
9. Income Taxes
Deferred tax assets and liabilities at December 31 are comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 8,124 $ 8,833
Net unrealized loss on securities
available-for-sale -- 6,110
Deferred gain on sale of premises 483 588
Accrued pension liability 416 609
Other 1,762 1,405
------- -------
Total Deferred Tax Assets 10,785 17,545
Deferred tax liabilities:
Net unrealized gain on securities
available-for-sale 8,293 --
Tax over book depreciation 1,213 1,108
Direct financing leases 1,037 398
Accreted discount on bonds 518 463
Other 549 565
------- -------
Total Deferred Tax Liabilities 11,610 2,534
------- -------
Net Deferred Tax Assets (Liabilities) $ (825) $15,011
======= =======
</TABLE>
- 57 -
<PAGE>
The components of income tax expense (credit) for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,534 $ 8,751 $ 9,128
State 2,759 3,208 3,367
------- ------- -------
Total Current Taxes 9,293 11,959 12,495
Deferred:
Federal 1,132 (241) (635)
State 301 (64) (1,351)
------- ------- -------
Total Deferred Taxes 1,433 (305) (1,986)
------- ------- -------
Total Tax Expense $10,726 $11,654 $10,509
======= ======= =======
</TABLE>
Included in income tax expense are applicable income taxes of $35,000,
$2,000, and $163,000 relating to investment securities gains for 1995, 1994,
and 1993, respectively.
A reconciliation of income taxes computed at the statutory federal income tax
rate (35%) to income tax expense is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Federal income tax $13,101 $13,253 $12,125
Add (deduct) tax effects of:
Tax-exempt income (4,145) (4,056) (3,992)
State income tax,
net of federal tax benefit 1,989 2,043 1,310
Other - net (219) 414 1,066
------- ------- -------
Total $10,726 $11,654 $10,509
======= ======= =======
</TABLE>
- 58 -
<PAGE>
Deferred income taxes result from temporary differences in the recognition of
certain items of income and expense for financial reporting and income tax
purposes. The tax effects of these differences for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Provision for possible loan losses $ 709 $ 29 $(2,136)
Other - net 724 (334) 150
------- ------- -------
Total $ 1,433 $ (305) $(1,986)
======= ======= =======
</TABLE>
10. Subordinated and Other Long-Term Notes
Subordinated and other long-term notes at December 31 consist of the
following:
<TABLE>
<CAPTION> 1995 1994
------ ------
(In thousands)
<S> <C> <C>
12.95% Series A Notes $6,400 $6,600
12.25% Series B Subordinated Notes -- 560
------ ------
Total $6,400 $7,160
====== ======
</TABLE>
Principal maturities of long-term notes for the next five years are as follows
(in thousands):
<TABLE>
<S> <C>
1996 $ 400
1997 400
1998 400
1999 400
2000 400
thereafter $4,400
</TABLE>
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 note agreement contains a number of covenants requiring the
Company to meet stipulated capital adequacy, indebtedness, and earnings to
fixed charges ratios, and contains restrictions with respect to funded debt,
leases, mergers, disposition of assets, and payment of dividends. At
December 31, 1995, the Company was in compliance with all debt covenants and
restrictions.
- 59 -
<PAGE>
11. Per Share Data
Net income per share data is based on weighted average number of shares
outstanding of 11,449,277; 11,480,372; and 11,432,624 in 1995, 1994, and
1993, respectively. All share and per share data have been adjusted to
reflect the 3-for-2 stock split effected May 21, 1994. Assumed exercise of
stock options would have no material effect on net income per share.
12. Restrictions on Dividends, Loans, or Advances
The payment of dividends by the Company to its shareholders is restricted by
provisions contained in the Series A note agreement described in Note 10.
Based upon the restrictions in the agreement, the Company could have
declared additional dividends of $8,016,000 to its shareholders in 1995.
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 $21,627,000 to the Company in 1995 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.
13. 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 currently follows the provisions of APB 25 which requires
compensation expense for the Company's options to be recognized only if the
market price of the underlying stock exceeds the exercise price on the date of
grant. Accordingly, the company has not recognized compensation expense for
its options granted in 1993, 1994, or 1995.
- 60 -
<PAGE>
A summary of the Company's stock option activity, and related information, for
the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of
year 448,741 $24.57 384,912 $22.76 257,220 $17.03
Options granted 103,100 $26.66 120,900 $27.58 189,745 $27.75
Options
exercised (55,199) $15.97 (42,746) $16.37 (58,304) $13.99
Options
forfeited (875) $27.68 (14,325) $25.71 (3,749) $18.54
--------- --------- ---------
Outstanding -
End Of Year 495,767 $25.96 448,741 $24.57 384,912 $22.76
========= ========= =========
Exercisable At
End Of Year 181,057 $25.10 150,470 $20.28 102,617 $17.54
========= ========= =========
Weighted Average
Fair Value Of
Options Granted
During The Year $26.66 $27.58 $27.75
====== ====== ======
</TABLE>
Exercise prices for options outstanding at December 31, 1995 range from $19.75
to $27.75. During 1995, 1994, and 1993, employees surrendered 17,460; 8,023;
and 10,987 shares, respectively, for payment to the Company for the stock
options exercised.
The Company also maintains a Nonemployee Director Stock Incentive Plan
(Director Plan), approved by the Company's shareholders on April 25,1994,
which calls for a formula-based grant of stock to active nonemployee members
of the Company's Board of Directors.
The Director Plan calls for the award of a number of shares of the Company's
common stock which have an aggregate fair market value as of the date of the
award equal to 100% of the Nonemployee Director's annualized retainer fee then
in effect, exclusive of committee or other like fees.
There is no specific limit on the overall number of shares of the Company's
- 61 -
<PAGE>
common stock which might be issued under the Director Plan. Practical limits
are imposed, however, by the number of Nonemployee Directors and the level of
the annualized retainer fee. In no event may shares in excess of 1% of the
outstanding Common Stock of the Company at the beginning of any calendar year
be issued under the Director Plan in that year.
During 1995 and 1994, there were 2,010 and 3,400 shares of the Company's
Common Stock issued under the Director Plan, respectively.
14. 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):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of
$15,974 in 1995 and $12,309 in 1994 $ 17,481 $ 13,630
======== ========
Actuarial present value of projected
benefit obligation for services rendered
to date $(22,818) $(17,491)
Plan assets at fair value, primarily investments
in bond and equity funds in 1995 and listed
stocks and U.S. bonds in 1994 26,258 20,846
-------- --------
Plan assets in excess of projected
benefit obligation 3,440 3,355
Unrecognized prior service cost 17 18
Unrecognized net gain (4,231) (4,370)
Unrecognized net asset, net of amortization (253) (507)
-------- --------
Accrued Pension Liability $ (1,027) $ (1,504)
======== ========
</TABLE>
At December 31, 1995 and 1994, plan assets include common stock of the
Company with a fair value of $2,520,000 and $2,629,000, respectively, and
investments in the FWNB Temporary Certificate of Deposit Fund of $851,000
- 62 -
<PAGE>
and $1,064,000, respectively. At December 31, 1995, plan assets also included
investments in common trust funds administered by FWNB with a fair value of
$22,887,000.
Net pension cost of the Company's defined benefit pension plan included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned
during the period $ 987 $ 1,076 $ 1,002
Interest cost on projected
benefit obligation 1,455 1,345 1,224
Actual return on plan assets (5,229) (641) (1,067)
Net amortization and deferral 3,083 (1,305) (859)
------- ------- -------
Net Pension Expense $ 296 $ 475 $ 300
======= ======= =======
</TABLE>
Assumptions used in determining the projected benefit obligations and net
periodic pension expense were:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rate 7.25% 8.50% 7.50%
Rate of increase in future
compensation levels 5.50% 5.50% 5.50%
Expected long-term rate of return
on plan assets 8.00% 8.00% 8.00%
</TABLE>
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.
- 63 -
<PAGE>
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):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of
$1,268 in 1995 and $863 in 1994 $ 1,346 $ 898
======= =======
Actuarial present value of projected
benefit obligation for services rendered
to date $(1,496) $(1,116)
Unrecognized prior service cost 79 119
Unrecognized net loss 287 80
Unrecognized net obligation 274 411
------- -------
Accrued Benefits Restoration Plan Liability $ (865) $ (506)
======= =======
</TABLE>
Net cost of the Company's unfunded Benefits Restoration Plan included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned
during the period $ 49 $ 37 $ 9
Interest cost on projected
benefit obligation 102 79 49
Net amortization and deferral 199 194 137
------ ------ -------
Net Benefits Restoration Plan Expense $ 350 $ 310 $ 195
====== ======= =======
</TABLE>
Assumptions used in determining the projected benefit obligations and net
periodic expense were:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rate 7.25% 8.50% 7.50%
Rate of increase in future
compensation levels 6.00% 6.00% 6.00%
Expected long-term rate of return
on plan assets 8.00% 8.00% 8.00%
</TABLE>
The Company has an employees' saving and profit sharing plan for all
full-time employees who have completed one year of continuous service. The
<PAGE> - 64 -
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 $1,906,000, $1,825,000, and $1,762,000 in
1995, 1994, and 1993, respectively.
15. 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
Indiana. The northeast Indiana 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 $415,775,000 and $49,112,000,
respectively, at December 31, 1995. Commitments under commercial letters of
credit were $2,393,000 and $1,008,000 at December 31, 1995 and 1994,
respectively.
16. 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.
The Company's objective in managing interest rate risk is to maintain a
balanced mix of assets and liabilities. However, the extent of rate
sensitivity can vary within financial reporting periods depending on both
current business conditions and the amount of assets and liabilities subject
- 65 -
<PAGE>
to repricing. Management's asset/liability management strategy is intended to
limit the impact of changes in interest rates on net interest income. The
Company uses financial futures and options to limit the exposure from
repricing and maturity of various financial obligations by hedging.
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 employs 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 $12,500 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% to zero. At
year end the Company had 653 Eurodollar contracts outstanding with a maximum
possible exposure of $8.2 million.
Deferred gains totaling $51,000 at December 31, 1995, resulting from
Eurodollar futures contracts, are included in interest-bearing liabilities and
will be amortized as a reduction of 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:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Contracts at beginning of year 458 439 319
New Contracts 909 780 1,414
Closed Contracts (714) (761) (1,294)
--------- --------- -----------
Contracts At End Of Year 653 458 439
========= ========= ===========
Increase (Decrease) To
Net Interest Income $ (152) $ 281 $ (796)
========= ========= ===========
</TABLE>
Beginning September, 1995, U.S. Treasury note and bond futures and option
contracts have been used 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. At year end, the Company had a total of 455
- 66 -
<PAGE>
U.S. Treasury futures and option contracts outstanding. If all of these were
exercised after offsetting purchases and sales, the total net obligation would
be to sell $22.5 million of U.S. Treasury securities. The securities owned by
the Company which were being hedged had a market value of $21.8 million at
year end.
A reconciliation of the gross contract amounts of U. S. Treasury note and
bond futures and option contracts for the year ended December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
Futures Option
Contracts Contracts
--------- ---------
<S> <C> <C>
Contracts at beginning of year -- --
New contracts 338 588
Closed contracts (203) (268)
--------- ---------
Contracts At End Of Year 135 320
========= =========
</TABLE>
Net losses from trading these financial futures and option contracts totaled
$807,000 for the year ended December 31, 1995 and the U.S. Securities hedged
by these financial futures and options had recognized gains of $971,000 in
1995. The average fair value of exchange traded futures and options used to
hedge the Company's trading activities was an unrealized loss of $115,000 for
the year ended December 31, 1995. The aggregate fair value of these futures
and option contracts was an unrealized loss of $310,000 at December 31, 1995.
17. Impact of Recently Adopted Accounting Standards
The Company will adopt Statement 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," effective January
1, 1996. Statement 121 requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. Based on current
circumstances, the Company does not believe the effect of adoption will be
material.
The Company will adopt Statement 122, "Accounting for Mortgage Servicing
Rights - An Amendment to Statement No. 65" effective January 1, 1996. As
a result of applying the new rules, the Company will be required to recognize
as separate assets rights to service mortgage loans for others. Statement 122
requires a mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained to allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
The Company does not expect the adoption of this statements to have a
material impact on the Company's financial position or results of operations.
<PAGE> - 67 -
18. Fair Values of Financial Instruments
Statement No. 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 No. 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.
- 68 -
<PAGE>
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).
- 69 -
<PAGE>
The estimated fair values of the Company's financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due
from banks $ 177,602 $ 177,602 $ 156,284 $ 156,284
Federal funds sold and
securities purchased under
agreements to resell 27,150 27,150 1,900 1,900
Interest-bearing deposits
with banks 200 200 200 200
Investment securities 764,560 764,560 701,311 701,311
Net loans 1,253,347 1,343,781 1,195,423 1,191,540
Financial Liabilities:
Deposits:
Noninterest-bearing 284,003 284,003 259,451 259,451
Interest-bearing 1,483,527 1,485,410 1,372,891 1,366,061
---------- ---------- ---------- ----------
Total Deposits 1,767,530 1,769,413 1,632,342 1,625,512
Federal funds purchased and
securities sold under
agreements to repurchase 241,263 241,263 255,010 255,010
Notes payable-U.S. Treasury
and other borrowings 26,381 26,381 21,884 21,884
Subordinated and other
long-term notes 6,400 8,057 7,160 8,344
Off-Balance-Sheet Instruments:
Loan commitments -- (520) -- (186)
Standby and commercial
letters of credit -- (246) -- (213)
Interest rate futures
contracts -- 785 -- 1,653
</TABLE>
- 70 -
<PAGE>
19. Fort Wayne National Corporation (Parent Company Only) Financial
Information
<TABLE>
<CAPTION>
Balance Sheet
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Assets
Cash $ 2,743 $ 2,529
Short-term investments 42,046 36,859
Investment in subsidiaries 192,251 164,470
Other assets 5,931 4,936
-------- --------
Total Assets $242,971 $208,794
======== ========
Liabilities and Shareholders' Equity
Dividends payable $ 2,743 $ 2,529
Other liabilities 117 109
Subordinated and other long-term notes 6,400 7,160
Shareholders' equity
Common stock 19,048 19,157
Capital Surplus 31,502 31,618
Retained Earnings 170,990 157,189
Net unrealized gain (loss) on available-
for-sale securities 12,171 (8,968)
-------- --------
Total Shareholders' Equity 233,711 198,996
-------- --------
Total Liabilities And Shareholders' Equity $242,971 $208,794
======== ========
</TABLE>
- 71 -
<PAGE>
<TABLE>
<CAPTION>
Statement of Income
For the Years
ended December 31
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income
Dividends from subsidiaries $18,897 $18,066 $16,817
Interest and dividends on investments 2,581 1,584 1,118
Other income 20 60 316
------- ------- -------
Total Income 21,498 19,710 18,251
Expenses
Interest on subordinated and
other long-term notes 868 963 1,057
Other expenses 593 195 315
------- ------- -------
Total Expenses 1,461 1,158 1,372
------- ------- -------
Income Before Applicable Income
Taxes And Equity In Undistributed
Net Income Of Subsidiaries 20,037 18,552 16,879
Applicable income taxes (credit) 350 43 (541)
------- ------- -------
Income Before Equity In Undistributed
Net Income Of Subsidiaries 19,687 18,509 17,420
Equity in undistributed
net income of subsidiaries 7,020 7,703 6,713
------- ------- -------
Net Income $26,707 $26,212 $24,133
======= ======= =======
</TABLE>
- 72 -
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
For the Years
ended December 31
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $26,707 $26,212 $24,133
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (7,020) (7,703) (6,713)
Gain on sale of securities -- (13) (252)
Loss on sale of property -- -- 12
Decrease in other assets 386 385 590
Increase (decrease) in other liabilities 9 91 (652)
------- ------- -------
Net Cash Provided By Operating Activities 20,082 18,972 17,118
Investing activities
Net increase in short-term investments (5,187) (9,373) (7,854)
Purchases of securities (1,004) (625) (500)
Proceeds from sales of securities -- 1,114 722
Proceeds from sale of property -- -- 36
------- ------- -------
Net Cash Used In Investing Activities (6,191) (8,884) (7,596)
Financing activities
Principal payments on long-term notes (760) (760) (760)
Cash dividends paid (10,544) (9,790) (9,141)
Proceeds from exercise of stock options 453 624 540
Repurchase of common stock (2,826) -- --
------- ------- -------
Net Cash Used In Financing Activities (13,677) (9,926) (9,361)
------- ------- -------
Net Increase In Cash 214 162 161
Cash at beginning of year 2,529 2,367 2,206
------- ------- -------
Cash At End Of Year $ 2,743 $ 2,529 $ 2,367
======= ======= =======
</TABLE>
- 73 -
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
1995
- ------------------------
Total interest income $ 38,159 $ 40,039 $ 40,851 $ 41,283 $160,332
Total interest expense 18,387 20,280 21,033 21,276 80,976
-------- -------- -------- -------- --------
Net Interest Income 19,772 19,759 19,818 20,007 79,356
Provision for possible
loan losses 735 260 715 735 2,445
-------- -------- -------- -------- --------
Net Interest Income
After Provision For
Possible Loan Losses 19,037 19,499 19,103 19,272 76,911
Noninterest income
Fiduciary fees 2,372 2,447 2,381 2,549 9,749
Other 2,346 2,529 2,378 2,510 9,763
Net securities gains 11 -- 58 18 87
-------- -------- -------- -------- --------
Total Noninterest Income 4,729 4,976 4,817 5,077 19,599
Noninterest expense
Salaries and benefits 7,950 7,549 7,761 7,977 31,237
Other 7,322 7,806 6,394 6,318 27,840
-------- -------- -------- -------- --------
Total Noninterest Expense 15,272 15,355 14,155 14,295 59,077
Income Before Income
Taxes 8,494 9,120 9,765 10,054 37,433
Applicable income taxes 2,273 2,498 2,910 3,045 10,726
-------- -------- -------- -------- --------
Net income $ 6,221 $ 6,622 $ 6,855 $ 7,009 $ 26,707
======== ======== ======== ======== ========
Per common share:
Net income $ .54 $ .58 $ .60 $ .61 $ 2.33
======== ======== ======== ======== ========
Dividends declared $ .22 $ .24 $ .24 $ .24 $ .94
======== ======== ======== ======== ========
- 74 -
<PAGE>
<S> <C> <C> <C> <C> <C>
1994
- ------------------------
Total interest income $ 33,653 $ 34,967 $ 35,471 $ 37,483 $141,574
Total interest expense 14,391 15,094 15,908 17,366 62,759
-------- --------- -------- -------- --------
Net Interest Income 19,262 19,873 19,563 20,117 78,815
Provision for possible
loan losses 1,010 693 410 510 2,623
-------- --------- -------- -------- --------
Net Interest Income
After Provision For
Possible Loan Losses 18,252 19,180 19,153 19,607 76,192
Noninterest income
Fiduciary fees 2,183 2,264 2,189 2,314 8,950
Other 2,173 2,535 2,662 2,786 10,156
Net securities gains
(losses) 1 (1) 1 4 5
-------- --------- -------- -------- --------
Total Noninterest Income 4,357 4,798 4,852 5,104 19,111
Noninterest expense
Salaries and benefits 7,167 7,401 7,619 7,611 29,798
Other 6,818 6,997 6,876 6,948 27,639
-------- --------- -------- -------- --------
Total Noninterest Expense 13,985 14,398 14,495 14,559 57,437
Income Before Income
Taxes 8,624 9,580 9,510 10,152 37,866
Applicable income taxes 2,560 2,972 2,951 3,171 11,654
-------- --------- -------- -------- --------
Net income $ 6,064 $ 6,608 $ 6,559 $ 6,981 $ 26,212
======== ======== ======== ======== ========
Per common share:
Net income $ .53 $ .57 $ .58 $ .60 $ 2.28
======== ======== ======== ======== ========
Dividends declared $ .21 $ .22 $ .22 $ .22 $ .87
======== ======== ======== ======== ========
</TABLE>
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, 1995.
- 75 -
<PAGE>
Part III
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 15, 1996 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)
<TABLE>
<CAPTION>
Name Age Positions Held during the past 5 years
<S> <C> <C>
Jackson R. Lehman 64 Chairman of the Board and Chief
Executive Officer of the Registrant
and Fort Wayne National Bank (4
years). Formerly President and Chief
Administrative Officer of the
Registrant and Fort Wayne National
Bank (6 years).
M. James Johnston 54 President and Chief Administrative
Officer of the Registrant and Fort
Wayne National Bank (4 years).
Formerly Executive Vice President
of the Registrant and Fort Wayne
National Bank (1-1/2 years).
Stephen R. Gillig 48 Executive Vice President, Chief
Financial Officer and Secretary of the
Registrant and Fort Wayne National
Bank (3 months). Formerly Executive
Vice President, Secretary and
Treasurer of the Registrant and
Executive Vice President of Fort Wayne
National Bank (3 years, 9 months).
Formerly Senior Vice President,
Secretary and Treasurer of the
Registrant and Senior Vice President
and Cashier of Fort Wayne National
Bank (4 years).
- 76 -
<PAGE>
<S> <C> <C>
Thomas L. Baumgartner 58 Executive Vice President and Chief
Operations Officer of the Registrant
and Executive Vice President and Chief
Operations Officer of Fort Wayne
National Bank (4 years). Formerly
Senior Vice President and Chief
Operations Officer of the Registrant
(2 years).
Michael J. Eikenberry 54 Executive Vice President of Loan
Administration of the Registrant and
Fort Wayne National Bank (2 years).
Formerly Senior Vice President of
Loan Administration of the Registrant
and Fort Wayne National Bank (2
years). Formerly Senior Vice
President and Loan Officer of Fort
Wayne National Bank (7 years).
Karen M. Kasper 40 Senior Vice President and Treasurer of
the Registrant and Fort Wayne National
Bank (3 months). Formerly Senior Vice
President and Controller of the
Registrant and Senior Vice President
and Controller of Fort Wayne National
Bank (3 years, 9 months). Formerly
Vice President and Controller of Fort
Wayne National Bank (4 years).
Thomas E. Elyea 50 Senior Vice President of the
Registrant (3 months) and Senior Vice
President Corporate / Correspondent
Banking of the Fort Wayne National
Bank (8 months). Formerly President
and Chief Executive Officer of Firstar
Bank Park Forest, Park Forest,
Illinois (5 years).
</TABLE>
- 77 -
<PAGE>
Other Executive Officers of Affiliate Banks
(All positions are for one year expiring at time of annual meeting)
<TABLE>
<CAPTION>
Name Age Position Held during the past 5 years
<S> <C> <C>
Kim Thomas Stacey 51 Executive Vice President and Senior
Trust Officer of Fort Wayne National
Bank (2 years). Formerly Senior Vice
President and Senior Trust Officer of
Fort Wayne National Bank (3-1/2
years).
John D. Weissert 66 Senior Vice President, Marketing
Division of Fort Wayne National Bank
(3 years).
Thomas J. Brita 53 Senior Vice President, Banking Center
Administration of Fort Wayne National
Bank (3 years). Formerly Vice
President, Banking Center
Administration of Fort Wayne National
Bank (15 years).
Michael C. Haggarty 60 Chairman of the Board, Chief Executive
Officer, and President of The Auburn
State Bank (2 years). Formerly Chief
Executive Officer and President of The
Auburn State Bank (21 years).
Willis E. Alt, Jr. 51 President and Chief Executive Officer
of First National Bank of Warsaw (5
years).
</TABLE>
There is no family relationship between any of the persons named above.
- 78 -
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Information required under this item, with respect to executive compensation,
is incorporated herein by reference from the March 15, 1996 Proxy Statement
under the caption "Executive Compensation."
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 15, 1996 Proxy Statement under the caption "Principal
Holders of Common Stock" and under the caption "Election of Directors."
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 15, 1996 Proxy Statement under the caption "Indebtedness of
Management."
- 79 -
<PAGE>
Part IV
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, 1995 and 1994
Consolidated Statement of Income for the years ended
December 31, 1995, 1994, and 1993
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994, and 1993
Consolidated Statement of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994, and 1993
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 2 -- Agreement and Plan of Merger
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 1995.
(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 81.
(d) Financial Statement Schedules
None
- 80 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number assigned per Sequential Numbering
Regulation S-K Item 601 Description Page Number
<S> <C> <C>
2 Agreement and Plan of Merger between Valley Financial
Services, Inc. and Fort Wayne National Corporation............ 86
3a Amended Articles of Incorporation............................... 82
3b Amended and Restated By-Laws.................................... 82
10a Fort Wayne National Bank Capital Note Purchase Agreement........ 82
10b Fort Wayne National Corporation Annual Management
Incentive Compensation Plan................................... 82
10c Supplemental Lease No. 1 (Registrant and FWNB's principal office) 82
10d Purchase Agreement Covering Fort Wayne National Corporation
12.95% Unsubordinated Note Due 2005 and 12.25% Subordinated
Note Due 1995................................................. 82
10e Fort Wayne National Corporation 1985 Stock Incentive Plan
(1989 Edition)................................................ 82
10f Fort Wayne National Corporation Benefit Restoration Plan........ 82
10g Fort Wayne National Corporation 1994 Stock Incentive Plan....... 82
10h Fort Wayne National Corporation 1994 Nonemployee Directors
Stock Incentive Plan.......................................... 82
11 Statement Re Computation of Earnings Per Share.................. 134
21 Subsidiaries of the Registrant.................................. 135
23 Consent of Ernst & Young LLP.................................... 136
27 Financial Data Schedule......................................... 137
</TABLE>
- 81 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION
FORM 10-K
EXHIBITS INCORPORATED BY REFERENCE
3a Amended Articles of Incorporation of Fort Wayne National Corporation.
Incorporated by reference to Exhibit 3b contained in the Company's
1994 Form 10-K, 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.
- 82 -
<PAGE>
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/ Jackson R. Lehman February 20, 1996
Jackson R. Lehman, Chairman of the Board (Date)
and Chief Executive Officer
Principal Executive Officers
/S/ Jackson R. Lehman February 20, 1996
Jackson R. Lehman, Chairman of the Board (Date)
and Chief Executive Officer
/S/ M. James Johnston February 20, 1996
M. James Johnston, President (Date)
and Chief Administrative Officer
Principal Financial and Accounting Officer
/S/ Stephen R. Gillig February 20, 1996
Stephen R. Gillig, Executive Vice President (Date)
Chief Financial Officer and Secretary
- 83 -
<PAGE>
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 February 20, 1996
Walter S. Ainsworth, Director (Date)
By /S/ Willis E. Alt, Jr. February 20, 1996
Willis E. Alt, Jr., Director (Date)
By /S/ Robert A. Anker February 20, 1996
Robert A. Anker, Director (Date)
By /S/ Stanley C. Craft February 20, 1996
Stanley C. Craft, Director (Date)
By /S/ Richard B. Doner February 20, 1996
Richard B. Doner, Director (Date)
By /S/ Jon F. Fuller February 20, 1996
Jon F. Fuller, Director (Date)
By /S/ Thomas C. Griffith February 20, 1996
Thomas C. Griffith, Director (Date)
By /S/ Michael C. Haggarty February 20, 1996
Michael C. Haggarty, Director (Date)
By /S/ M. James Johnston February 20, 1996
M. James Johnston, Director (Date)
By /S/ Joanne B. Lantz February 20, 1996
Joanne B. Lantz, Director (Date)
By /S/ Jackson R. Lehman February 20, 1996
Jackson R. Lehman, Director (Date)
- 84 -
<PAGE>
By /S/ Michael J, McClelland February 20, 1996
Michael J, McClelland, Director (Date)
By /S/ Richard C. Menge February 20, 1996
Richard C. Menge, Director (Date)
By /S/ Patrick G. Michaels February 20, 1996
Patrick G. Michaels, Director (Date)
By /S/ Patricia R. Miller February 20, 1996
Patricia R. Miller, Director (Date)
By /S/ James W. Rogers February 20, 1996
James W. Rogers, Director (Date)
By /S/ Paul E. Shaffer February 20, 1996
Paul E. Shaffer, Director (Date)
By /S/ Thomas M. Shoaff February 20, 1996
Thomas M. Shoaff, Director (Date)
By /S/ Jeff H. Towles February 20, 1996
Jeff H. Towles, M.D., Director (Date)
By /S/ Don A. Wolf February 20, 1996
Don A. Wolf, Director (Date)
- 85 -
<PAGE>
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
between
VALLEY FINANCIAL SERVICES, INC.
an Indiana corporation
and
FORT WAYNE NATIONAL CORPORATION
an Indiana corporation
Dated as of November 6, 1995
- 86 -
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
6, 1995, between VALLEY FINANCIAL SERVICES, INC., an Indiana corporation
("Valley"), and FORT WAYNE NATIONAL CORPORATION, an Indiana corporation
("FWNC").
In consideration of the promises and the mutual terms and provisions set
forth in this Agreement, the parties agree as follows.
ARTICLE ONE
TERMS OF MERGER AND CLOSING
SECTION 1.01. MERGER. Pursuant to the terms and provisions of this
Agreement and the Indiana Business Corporation Law (the "Corporate Law"),
Valley shall merge with and into FWNC (the "Merger").
SECTION 1.02. MERGING CORPORATION. Valley shall be the merging
corporation under the Merger and its corporate identity and existence, separate
and apart from FWNC, shall cease at the Effective Time (as hereinafter
defined) of the Merger.
SECTION 1.03. SURVIVING CORPORATION. FWNC shall be the surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Indiana, and the separate corporate existence of FWNC with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Amended Articles of Incorporation and the By-Laws of FWNC
in effect at the Effective Time shall be the Amended Articles of Incorporation
and the By-Laws of the surviving corporation, until duly amended in accordance
with the terms thereof and the Corporate Law; and the directors and officers of
FWNC at the Effective Time shall, from and after the Effective Time, be the
directors and officers, respectively, of the surviving corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with FWNC's Amended
Articles of Incorporation and By-Laws.
SECTION 1.04. EFFECTS OF MERGER. The Merger shall have all of the
effects provided by this Agreement and the Corporate Law.
SECTION 1.05. TOTAL VALLEY MERGER CONSIDERATION.
(a) The total consideration payable to all of the shareholders of
Valley (other than shareholders validly exercising dissenters' rights pursuant
to Chapter 44 the Corporate Law ("Dissenting Shareholders")) in the Merger (the
"Valley Merger Consideration") shall be (i) an aggregate amount in cash (the
"Cash Component") equal to (A) $53,000,000, MINUS (B) the Dissenting
Shareholder Reserve (as hereinafter defined), and MINUS (C) the aggregate
amount of cash to be paid to holders of shares of Valley Common and Valley
Preferred (each as hereinafter defined) in lieu of fractional shares as
hereinafter provided; (ii) an aggregate number of shares of Common Stock, no
par value per share, of FWNC (the "FWNC Common"), determined by dividing
$20,000,000 by the FWNC Average Price (as hereinafter defined) (the "FWNC
Common Component"); and (iii) an aggregate of 740,000 shares of 6% Cumulative
Convertible Class B Preferred Stock, Series 1, of FWNC (the "FWNC Preferred")
- 87 -
<PAGE>
(the "FWNC Preferred Component") having a stated value of Fifty Dollars
($50.00) per share. The Valley Merger Consideration shall be allocated to the
holders of Valley Common and Valley Preferred as provided in Sections 1.06 and
1.07 hereof, respectively.
(b) As used herein, the term "FWNC Average Price" shall mean the
average of the per share closing prices of a share of FWNC Common as reported
on the Nasdaq Stock Market's National Market ("Nasdaq"), as reported in THE
WALL STREET JOURNAL (Midwest Edition) during the twenty (20) trading day (as
defined below) period preceding the fifth (5th) calendar day preceding the
Closing Date (as hereinafter defined) (the "Adjustment Period"). As used
herein, the term "trading day" shall mean any day on which Nasdaq is open for
regular trading. If after the day prior to the start of the Adjustment Period
there occurs any Share Adjustment (as hereinafter defined), then the FWNC
Average Price shall be appropriately and proportionately adjusted to reflect
such Share Adjustment.
(c) As used herein, the term "Dissenting Shareholder Reserve" shall
mean an amount in cash equal to the sum of (i) the aggregate number of shares
of Valley Common held by Dissenting Shareholders multiplied by the cash
equivalent of the Valley Common Merger Consideration (as hereinafter defined)
per share of Valley Common, calculated assuming that (A) there are no
Dissenting Shareholders, (B) each share of the FWNC Common Component has a cash
equivalent value equal to the FWNC Average Price and (C) each share of the FWNC
Preferred Component has a cash equivalent value of $50 per share, PLUS (ii) the
aggregate number of shares of Valley Preferred held by Dissenting Shareholders
multiplied by the Valley Preferred Merger Consideration (as hereinafter
defined) per share of Valley Preferred.
SECTION 1.06. CONVERSION OF VALLEY COMMON; ALLOCATION OF VALLEY COMMON
MERGER CONSIDERATION.
(a) The portion of the Valley Merger Consideration allocated to the
holders of Common Stock, of Valley (the "Valley Common") is referred to herein
as the "Valley Common Merger Consideration." The Valley Common Merger
Consideration shall equal the aggregate of (i) the difference between the Cash
Component and the Preferred Cash Component (as hereinafter defined) (the
"Common Cash Component"); and (ii) the FWNC Common Component; and (iii) the
FWNC Preferred Component.
(b) At the Effective Time (as hereinafter defined), each share of
Valley Common issued and outstanding immediately prior to the Effective Time
(other than shares held by Dissenting Shareholders) shall be converted into
the right to receive (i) an amount of cash equal to the quotient of the Common
Cash Component divided by the aggregate number of shares of Valley Common to be
so converted; (ii) the number of shares of FWNC Common equal to the quotient of
the FWNC Common Component divided by the aggregate number of shares of Valley
Common to be so converted; and (iii) the number of shares of FWNC Preferred
equal to the quotient of the FWNC Preferred Component divided by the aggregate
number of shares of Valley Common to be so converted. The calculations
required by clause (i) above shall be made to the nearest cent, and the
calculations required by clauses (ii) and (iii) above shall be made to the
nearest ten-thousandth (.0001) of a share.
(c) At the Effective Time, all of the shares of Valley Common, by
virtue of the Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be canceled and retired and shall
- 88 -
<PAGE>
cease to exist, and each holder of any certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Valley Common (the "Common Certificates") shall thereafter cease to have any
rights with respect to such shares, except the right of such holders to
receive, without interest, the Valley Common Merger Consideration per share
upon the surrender of such Common Certificate or Common Certificates in
accordance with Section 1.12 hereof.
(d) At the Effective Time, each share of Valley Common, if any, held in
the treasury of Valley or by any direct or indirect subsidiary of Valley (other
than shares held in trust accounts for the benefit of others or in other
fiduciary, nominee or similar capacities) immediately prior to the Effective
Time shall be canceled without payment of any consideration therefor.
(e) If any Dissenting Shareholder shall be entitled to be paid the
"fair value" of his or her shares of Valley Common, as provided in Chapter 44
of the Corporate Law, Valley shall give FWNC notice thereof and FWNC shall have
the right to participate in all negotiations and proceedings with respect to
any such demands. Valley shall not, except with the prior written consent of
FWNC, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Shareholder shall fail
to perfect or shall have effectively withdrawn or lost the right to dissent,
the shares held by such Dissenting Shareholder shall thereupon be treated as
though such shares had been converted into the Valley Common Merger
Consideration pursuant to this Section 1.06.
- 89 -
<PAGE>
SECTION 1.07. CONVERSION OF VALLEY PREFERRED; ALLOCATION OF VALLEY
PREFERRED MERGER CONSIDERATION.
(a) The portion of the Valley Merger Consideration allocated to the
holders of Preferred Stock, par value $12.00 per share, of Valley (the "Valley
Preferred") is referred to herein as the "Valley Preferred Merger
Consideration." The Valley Preferred Merger Consideration shall equal $767,955
in cash, or such other amount not exceeding $1,000,000 in cash as shall be
determined by the Board of Directors of Valley as set forth in a notice
delivered to FWNC by Valley not less than ten (10) days prior to the mailing of
the Proxy Statement/Prospectus (as hereinafter defined) (the "Preferred Cash
Component").
(b) At the Effective Time, each share of Valley Preferred issued and
outstanding immediately prior to the Effective Time (other than shares held by
Dissenting Shareholders) shall be converted into the right to receive an amount
of cash equal to the quotient of the Preferred Cash Component divided by the
aggregate number of shares of Valley Preferred to be so converted. The
calculations required by subsection (b) shall be made to the nearest cent.
(c) At the Effective Time, all of the shares of Valley Preferred, by
virtue of the Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of any certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Valley Preferred (the "Preferred Certificates"; the Common Certificates and the
Preferred Certificates are referred to herein collectively as the
"Certificates") shall thereafter cease to have any rights with respect to such
shares, except the right of such holders to receive, without interest, the
Valley Preferred Merger Consideration per share upon the surrender of such
Preferred Certificate or Preferred Certificates in accordance with Section 1.12
hereof.
(d) At the Effective Time, each share of Valley Preferred, if any, held
in the treasury of Valley or by any direct or indirect subsidiary of Valley
(other than shares held in trust accounts for the benefit of others or in other
fiduciary, nominee or similar capacities) immediately prior to the Effective
Time shall be canceled without payment of any consideration therefor.
(e) If any Dissenting Shareholder shall be entitled to be paid the
"fair value" of his or her shares of Valley Preferred, as provided in Chapter
44 of the Corporate Law, Valley shall give FWNC notice thereof and FWNC shall
have the right to participate in all negotiations and proceedings with respect
to any such demands. Valley shall not, except with the prior written consent
of FWNC, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Shareholder shall fail
to perfect or shall have effectively withdrawn or lost the right to dissent,
the shares held by such Dissenting Shareholder shall thereupon be treated as
though such shares had been converted into the Valley Preferred Merger
Consideration pursuant to this Section 1.07.
SECTION 1.07A. FWNC CAPITAL STOCK. Each share of capital stock of FWNC
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding, unaffected by the Merger.
- 90 -
<PAGE>
SECTION 1.08. RESTRICTIONS ON FWNC PREFERRED.
(a) The shares of FWNC Preferred to be issued to the holders of Valley
Common pursuant to Section 1.06 hereof, and the shares of FWNC Common issuable
upon conversion of the shares of FWNC Preferred, may not be sold, assigned or
otherwise transferred by any holder thereof during the two (2) year period
commencing on the Closing Date, except upon (i) the death of the holder of such
shares; (ii) the occurrence of a Change of Control of FWNC (as hereinafter
defined); or (iii) the retirement (as such term is used in the FWNC Savings and
Profit Sharing Plan (the "SPSP")) of the holder of such shares, provided that
the exception described in this subpart (iii) shall apply only to those shares
allocated to such retiring holder's account under the SPSP, if any. The
certificates evidencing the shares of FWNC Preferred to be issued to
shareholders of Valley as provided in Section 1.12 hereof, and the certificates
evidencing shares of FWNC Common issuable upon the conversion of such shares of
FWNC Preferred, shall include appropriate legends reciting the restrictions
described in this Section 1.08(a).
(b) As used herein, the term "Change of Control of FWNC" shall mean (i)
the acquisition, other than from FWNC, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either the then outstanding shares of FWNC Common or the combined voting power
of the then outstanding voting securities of FWNC entitled to vote generally in
the election of directors, but excluding, for this purpose, any such
acquisition by FWNC or any of its subsidiaries, or any employee benefit plan
(or related trust) of FWNC or its subsidiaries, or any corporation with respect
to which, following such acquisition, more than 65% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the FWNC Common and
voting securities of FWNC immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of FWNC Common of FWNC or the
combined voting power of the then outstanding voting securities of FWNC
entitled to vote generally in the election of directors, as the case may be; or
(ii) individuals who, as of the date hereof, constitute the Board of Directors
of FWNC (as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of FWNC, provided that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by FWNC's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of FWNC (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or (iii) approval by the shareholders of FWNC of a reorganization, merger
or consolidation of FWNC, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the FWNC Common and voting securities of FWNC immediately
prior to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 65% of, respectively, the then outstanding shares of FWNC
- 91 -
<PAGE>
Common and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation, or
a complete liquidation or dissolution of FWNC or of the sale or other
disposition of all or substantially all of the assets of FWNC.
SECTION 1.09. TERMS OF FWNC PREFERRED. In addition to the restrictions
set forth in Section 1.08 hereof, the shares of FWNC Preferred to be issued to
the holders of Valley Common pursuant to Section 1.06 hereof shall have the
preferences, rights, qualifications and limitations described in Exhibit 1.09
attached hereto.
SECTION 1.10. FRACTIONAL SHARES.
(a) No fractional shares of FWNC Common shall be issued and, in lieu
thereof, holders of shares of Valley Common who would otherwise be entitled to
a fractional share interest of FWNC Common after taking into account all shares
of Valley Common held by such holder, shall be paid an amount in cash equal to
the product of such fractional share interest and the FWNC Average Price.
(b) No fractional shares of FWNC Preferred shall be issued and, in lieu
thereof holders of shares of Valley Common who would otherwise be entitled to a
fractional share interest of FWNC Preferred, after taking into account all
shares of Valley Common held by such holder, shall be paid an amount in cash
equal to the product of such fractional share interest and $50.
SECTION 1.11. CLOSING. The closing of the Merger (the "Closing") shall
take place at a location mutually agreeable to the parties at 10:00 a.m., Fort
Wayne, Indiana time, on the Closing Date.
SECTION 1.12. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
(a) Fort Wayne National Bank shall act as Exchange Agent in the Merger
(the "Exchange Agent").
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each record holder of any Certificate or
Certificates whose shares were converted into the right to receive the Valley
Merger Consideration, a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as FWNC may reasonably
specify) (each such letter shall be referred to as the "Merger Letter of
Transmittal") and instructions for use in effecting the surrender of the
Certificates in exchange for the Valley Merger Consideration. Upon surrender
to the Exchange Agent of a Certificate, together with a Merger Letter of
Transmittal duly executed and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefor solely the Valley
Merger Consideration. No interest on the Valley Merger Consideration issuable
upon the surrender of the Certificates shall be paid or accrued for the benefit
of holders of Certificates.
(c) Notwithstanding anything to the contrary contained herein, no
Valley Merger Consideration shall be delivered to a person who is an
"affiliate" (as such term is used in Section 4.04 hereof) of Valley unless such
"affiliate" shall have theretofore executed and delivered to FWNC the agreement
referred to in Section 4.04 hereof.
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(d) No dividends that are otherwise payable on shares of FWNC Common or
FWNC Preferred constituting the Valley Merger Consideration shall be paid to
persons entitled to receive such shares of FWNC Common or FWNC Preferred until
such persons validly surrender their Certificates. Upon such surrender, there
shall be paid to the person in whose name the shares of FWNC Common or FWNC
Preferred shall be issued any dividends which shall have become payable with
respect to such shares of FWNC Common or FWNC Preferred (without interest and
less the amount of taxes, if any, which may have been imposed thereon), between
the Effective Time and the time of such surrender.
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost stolen or destroyed and, if required by FWNC in its
sole discretion, the posting by such person of a bond in such amount as FWNC
may determine is reasonably necessary as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate the Valley
Merger Consideration deliverable in respect thereof pursuant to this Agreement.
SECTION 1.13. CLOSING DATE. The Closing shall take place on the third
business day following satisfaction or waiver of each of the conditions in
Sections 6.01 and 6.02 hereof or on such other date after such satisfaction or
waiver as Valley and FWNC may agree (the "Closing Date"). The Merger shall be
effective upon the filing of Articles of Merger with the Secretary of State of
the State of Indiana (the "Effective Time"), which the parties shall use their
best efforts to cause to occur on the Closing Date.
SECTION 1.14. CLOSING DELIVERIES.
(a) At the Closing, Valley shall deliver to FWNC :
(i) a certificate signed by an appropriate officer of Valley
stating that (A) each of the representations and warranties contained in
Article Two (including the Disclosure Schedule) is true and correct in
all material respects at the time of the Closing with the same force and
effect as if such representations and warranties (including the
Disclosure Schedule) had been made at Closing, and (B) all of the
conditions set forth in Section 6.01(b) and 6.01(h) hereof have been
satisfied or waived as provided therein;
(ii) a certified copy of the resolutions of Valley's Board of
Directors and shareholders, as required for valid approval of the
execution of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby;
(iii) a certificate of the Indiana Secretary of State, dated a
recent date, stating that Valley is validly existing;
(iv) a certificate from the Federal Deposit Insurance Corporation
(the "FDIC"), evidencing the fact that the deposits of The Valley
American Bank and Trust Company (the "Subsidiary Bank"), as in existence
immediately prior to the Effective Time, are fully insured to the extent
permitted by law;
(v) Articles of Merger executed by Valley, reflecting the terms
and provisions of this Agreement and in proper form for filing with the
Secretary of State of the State of Indiana in order to cause the Merger
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to become effective pursuant to the Corporate Law; and
(vi) a legal opinion from Barnes & Thornburg, counsel for Valley,
in form reasonably acceptable to FWNC's counsel, opining with respect to
the matters listed on Exhibit 1.14(a) hereto.
(b) At the Closing, FWNC shall deliver to Valley:
(i) a certificate signed by an appropriate officer of FWNC stating
that (A) each of the representations and warranties contained in Article
Three is true and correct in all material respects at the time of the
Closing with the same force and effect as if such representations and
warranties had been made at Closing, and (B) all of the conditions set
forth in Section 6.02(b) and 6.02(d) hereof (but excluding the approval
of Valley's shareholders) have been satisfied;
(ii) a certified copy of the resolutions of FWNC's Board of
Directors, as required for valid approval of the execution of this
Agreement and the consummation of the transactions contemplated hereby;
and
(iii) a legal opinion from Baker & Daniels, counsel for FWNC, in
form reasonably acceptable to Valley's counsel, opining with respect to
the matters listed on Exhibit 1.14(b) hereto.
ARTICLE TWO
REPRESENTATIONS OF VALLEY
Valley hereby makes the following representations and warranties:
SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.
(a) Valley is a corporation duly organized and validly existing under
the laws of the State of Indiana and has the corporate power to own all of its
property and assets and to carry on its business as now being conducted.
Valley does not do business in any jurisdiction other than the State of Indiana
in such a manner that would require qualification, registration or good
standing in any such jurisdiction or where the failure to qualify, register or
be in good standing would have a material adverse effect on Valley. Valley is
a bank holding company registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). True and complete copies of the Articles of
Incorporation and By-Laws of Valley as in effect on the date of this Agreement
have been provided to FWNC.
(b) The authorized capital stock of Valley consists of (i) 240,000
shares of Valley Common, of which, as of the date hereof, 204,788 shares are
issued and outstanding; and (ii) 60,000 shares of Valley Preferred, of which,
as of the date hereof, 51,197 shares are issued and outstanding. All of the
issued and outstanding shares of Valley Common and Valley Preferred are duly
and validly issued and outstanding and are fully paid and nonassessable. None
of the outstanding shares of Valley Common or Valley Preferred has been issued
in violation of any preemptive rights of the current or past shareholders of
Valley. The shareholder list of Valley set forth in Section 2.01(b)(1) of that
certain confidential writing delivered by Valley to FWNC and executed by Valley
and FWNC concurrently with the execution and delivery of this Agreement (the
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"Disclosure Schedule") is true, complete and accurate as of the date of this
Agreement.
(c) Except as set forth in subsection 2.01(b) above, there are no
shares of capital stock or other equity securities of Valley outstanding and no
outstanding options, warrants, rights to subscribe for, calls, or commitments
of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of Valley Common or Valley Preferred or other
capital stock of Valley or contracts, commitments, understandings or
arrangements by which Valley is or may be obligated to issue additional shares
of its capital stock or options, warrants or rights to purchase or acquire any
additional shares of its capital stock.
SECTION 2.02. AUTHORIZATION; NO DEFAULTS. Valley has the corporate
power and authority to enter into this Agreement and, subject to the approval
by its shareholders, to carry out its obligations hereunder. Valley's Board of
Directors has, by all necessary action, approved this Agreement and the Merger
and authorized the execution hereof on its behalf by its duly authorized
officers and the performance by Valley of its obligations hereunder. Nothing
in the Articles of Incorporation or By-Laws of Valley, as amended, or any
agreement, instrument, decree, judgment, proceeding, law or regulation (except
as specifically referred to in or contemplated by this Agreement) by or to
which it or any of its subsidiaries are bound or any of their properties are
subject would prohibit or inhibit Valley from consummating this Agreement and
the Merger on the terms and conditions herein contained. This Agreement has
been duly and validly executed and delivered by Valley and, subject to approval
of this Agreement and the Merger by the shareholders of Valley, constitutes the
legal, valid and binding obligation of Valley, enforceable against Valley in
accordance with its terms, subject to bankruptcy, insolvency, receivership,
moratorium or other laws relating to or affecting creditors' rights generally
and to general equity principles. Valley and its subsidiaries are neither in
default under nor in violation of any provision of their articles of
incorporation or association, as the case may be, or bylaws, and there has not
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default or violation. Except for approval of this
Agreement and the Merger by the shareholders of Valley the filing of the
Articles of Merger with the Indiana Secretary of State in the matters described
in Section 5.01 and except as may be set forth on Section 2.02 of the
Disclosure Schedule, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority, or any
other party, is necessary for the consummation by Valley of the transactions
contemplated by this Agreement. The shareholder vote required to approve this
Agreement and the Merger is the affirmative vote of the holders of (a) a
majority of the outstanding shares of Valley Common and (b) a majority of the
outstanding shares of Valley Preferred, voting as a separate group, in each
case entitled to vote at a meeting called for such purpose.
SECTION 2.03. SUBSIDIARIES. The Subsidiary Bank and each of Valley's
other direct or indirect subsidiaries (collectively including the Subsidiary
Bank, the "subsidiaries"), the name and jurisdiction of incorporation of which
are disclosed in Section 2.03 of the Disclosure Schedule, is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power to own its respective properties and
assets and to carry on its respective business as now being conducted. The
number of issued and outstanding shares of capital stock of each such
subsidiary is set forth in Section 2.03 of the Disclosure Schedule, all of
which shares (except as may be otherwise specified in Section 2.03 of the
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Disclosure Schedule) are owned by Valley or Valley's subsidiaries, as the case
may be, free and clear of all liens, encumbrances, rights of first refusal,
options or other restrictions of any nature whatsoever and are fully paid and
non-assessable. There are no options, warrants or rights outstanding to
acquire any capital stock of any of Valley's subsidiaries and no person or
entity has any other right to purchase or acquire any unissued shares of stock
of any of Valley's subsidiaries, nor does any such subsidiary have any
obligation of any nature with respect to its unissued shares of stock. Except
as may be disclosed in Section 2.03 of the Disclosure Schedule, neither Valley
nor any of Valley's subsidiaries is a party to any partnership or joint venture
or owns an equity interest in any other business or enterprise.
SECTION 2.04. FINANCIAL INFORMATION. The consolidated balance sheets of
Valley and its subsidiaries as of December 31, 1992, 1993 and 1994 and related
consolidated income statements and statements of changes in shareholders'
equity and of cash flows for each of the three (3) years ended December 31,
1992, 1993 and 1994, together with the notes thereto, and the report of Crowe,
Chizek and Company thereon, and the unaudited balance sheets of Valley and its
subsidiaries as of March 31, 1995, June 30, 1995 and September 30, 1995 and the
related unaudited income statements for the three (3) months, six (6) months
and nine (9) months, respectively, then ended, copies of each of which are
included in Section 2.04 of the Disclosure Schedule, and the year-end and
quarterly Reports of Condition and Reports of Income of the Subsidiary Bank
for December 31, 1994 and June 30, 1995, respectively, as currently on file
with the FDIC, copies of each of which are included in Section 2.04 of the
Disclosure Schedule (together, the "Valley Financial Statements"), have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis (except as may be disclosed therein and except
for regulatory reporting differences required by the Subsidiary Bank's reports)
and fairly present in all material respects the consolidated financial position
and the consolidated results of operations, changes in shareholders' equity and
cash flows of the respective entity and its respective consolidated
subsidiaries as of the dates and for the periods indicated (subject in the case
of interim financial statements, to normal recurring year-end adjustments which
will not be material in amount or effect). As of September 30, 1995, except to
the extent reflected, disclosed or reserved against on the Valley Financial
Statements at such date, and subject to normal recurring year end adjustments,
Valley has no material liabilities, whether absolute, accrued, contingent, or
otherwise, or due or to become due.
SECTION 2.05. ABSENCE OF CHANGES. Since September 30, 1995, Valley has
not incurred any obligation or liability (absolute or contingent), except
normal trade or business obligations or liabilities incurred in the ordinary
course of business, and there has not been any material adverse change in the
financial condition, the results of operations or the business of Valley and
its subsidiaries taken as a whole, nor have there been any events or
transactions having such a material adverse effect which should be disclosed in
order to make the Valley Financial Statements not misleading. Since the date
of its most recent FDIC examination report, there has been no material adverse
change in the financial condition, the results of operations or the business of
the Subsidiary Bank.
SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Except as may be
disclosed in Section 2.06 of the Disclosure Schedule, neither Valley nor the
Subsidiary Bank or any other of Valley's subsidiaries is subject or is party
to, or has received any notice or advice that it may become subject or party
to, any cease-and-desist order, agreement, consent agreement, memorandum of
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understanding or other regulatory enforcement action, proceeding or order with
or by, or is a party to any commitment letter or similar undertaking to, or is
subject to any directive by, or has been since January 1, 1992, a recipient of
any supervisory letter from, or since January 1, 1992, has adopted any board
resolutions at the request of, any Regulatory Agency (as defined below in this
Section 2.06) that currently restricts in any respect the conduct of its
business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business (each, a "Regulatory Agreement"), nor
has Valley or any of its subsidiaries been advised since January 1, 1992, by
any Regulatory Agency that it is considering issuing or requesting any such
Regulatory Agreement. As used in this Agreement, the term "Regulatory Agency"
means any federal or state agency charged with the supervision or regulation of
banks or bank holding companies, or engaged in the insurance of bank deposits,
or any court administrative agency or commission or other governmental agency,
authority or instrumentality having supervisory or regulatory authority with
respect to Valley or any of its subsidiaries. The deposits of the Subsidiary
Bank are insured by the BIF or the Savings Association Insurance Fund (SAIF) up
to applicable limits.
SECTION 2.07. TAX MATTERS.
(a) Each of Valley and its subsidiaries has filed with the appropriate
governmental agencies all federal, state and local Tax (as defined below in
this Section 2.07) returns and reports required to be filed by it. Neither
Valley nor its subsidiaries are (i) delinquent in the payment of any Taxes
shown on such returns or reports or on any assessments received by it for such
Taxes; (ii) subject to any agreement extending the period for assessment or
collection of any Tax; or (iii) a party to any action or proceeding with, nor
has any claim been asserted or, to the best of Valley's knowledge, threatened
against any of them by, any governmental authority for assessment or collection
of Taxes. The income tax returns of Valley and its subsidiaries have been
examined by the Internal Revenue Service (the "IRS") and any liability with
respect thereto has been satisfied for all years to and including 1991 and
either no material deficiencies were asserted as a result of such examination
for which Valley does not have adequate reserves or all such deficiencies have
been satisfied. The reserve for Taxes in the Valley Financial Statements, is
adequate to cover all of the liabilities for Taxes of Valley and its
subsidiaries that may become payable in future years with respect to any
transactions consummated prior to September 30, 1995. As used in this
Agreement, the term "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add on minimum, estimated
or other tax of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or undisputed.
(b) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Valley or any of its
affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury Regulation Section 1.28OG-1) under any employment severance
or termination agreement other compensation arrangement or Valley Employee Plan
(as hereinafter defined) would not be characterized as an "excess parachute
payment" (as such term is defined in Section 28OG(b)(1) of the Internal Revenue
Code of 1986, as amended (the "Code")).
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(c) Valley has not been subject to any disallowance of a deduction
under Section 162(m) of the Code nor does Valley reasonably believe that such a
disallowance is reasonably likely to be applicable for any tax year of the
Valley ended on or before the Closing Date.
SECTION 2.08. LITIGATION. Except as may be disclosed in Section 2.08 of
the Disclosure Schedule, there are no actions, suits or proceedings pending or,
to the best knowledge of Valley, threatened against Valley or any of its
subsidiaries, and neither Valley nor any of its subsidiaries is subject to any
order, judgment or decree, that, in the aggregate could reasonably be expected
to have a material adverse effect on the financial condition, properties,
business or results of operations of Valley and its subsidiaries taken as a
whole. Without limiting the generality of the foregoing, there are no actions,
suits or proceedings pending or threatened against Valley, any subsidiary or
any of their officers or directors by any shareholder of Valley or involving
claims under the Community Reinvestment Act of 1977 (the "CRA"), the Real
Estate Settlement Procedures Act of 1974 ("RESPA") or the Home Mortgage
Disclosure Act of 1975 ("HMDA").
SECTION 2.09. EMPLOYMENT AGREEMENTS. Except as may be disclosed in
Section 2.09 of the Disclosure Schedule, neither Valley nor any of its
subsidiaries is a party to or bound by any agreement, arrangement, commitment
or contract (whether written or oral) for the employment, election, retention
or engagement, or with respect to the severance, of any present or former
officer, employee, agent, consultant or other person or entity which, by its
terms, is not terminable by Valley or such subsidiary on thirty (30) days
written notice or less without the payment of any amount by reason of such
termination. A true, accurate and complete copy of each such agreement and any
and all amendments or supplements thereto (or a description thereof if such
agreement is not in writing) is included in Section 2.09 of the Disclosure
Schedule.
SECTION 2.10. REPORTS. Valley and each of its subsidiaries has filed
all reports and statements, together with any amendments required to be made
with respect thereto, if any, that it was required to file with (i) the Federal
Reserve Board; (ii) the FDIC; (iii) any state banking or securities
authorities; and (iv) any other Regulatory Agency with jurisdiction over Valley
or any of its subsidiaries. As of their respective dates, each of such reports
and documents, including any financial statements, exhibits and schedules
thereto, complied in all material respects with the relevant statutes, rules
and regulations enforced or promulgated by the Regulatory Agency with which
they were filed, and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
SECTION 2.11. LOAN PORTFOLIO.
(a) All loans and discounts shown on the Valley Financial Statements or
which were entered into after the date of the most recent balance sheet
included in the Valley Financial Statements were and will be made in all
material respects for good, valuable and adequate consideration in the ordinary
course of the business of Valley and its subsidiaries, in accordance in all
material respects with sound banking practices.
(b) The allowances for loan or lease losses contained in the Valley
Financial Statements were established in accordance with GAAP and the rules and
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regulations of the applicable Regulatory Agency and the past practices of
Valley.
(c) The sum of the aggregate amount of (i) all Nonperforming Assets (as
defined below), (ii) all troubled debt restructurings (as defined under GAAP)
("TDRs"), and (iii) excluding those TDRs that are at current market rates that
meet current underwriting guidelines, that management does not consider to have
significant risk, and that have not been delinquent in the past 12 months, on
the books of Valley does not exceed $3,500,000. "Nonperforming Assets" shall
mean (A) accruing loans and leases delinquent 90 days or more, (B) assets
classified as other real estate owned and other assets acquired through
foreclosure, including in-substance foreclosed real estate, and (C) loans and
leases that are on non-accrual status, in each case under (A), (B) and (C)
above, pursuant to the definitions applied by the Regulatory Agencies.
SECTION 2.12. INVESTMENT PORTFOLIO. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by Valley or its subsidiaries, as
reflected in the latest consolidated balance sheet of Valley included in the
Valley Financial Statements, are carried in the aggregate at no more than cost
adjusted for amortization of premiums and accretion of discounts in accordance
with generally accepted accounting principles, specifically including but not
limited to FAS 115.
SECTION 2.13. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest
rate swaps, caps, floors, option agreements and other interest rate risk
management arrangements, whether entered into for the account of Valley or its
subsidiaries or for the account of a customer of Valley or one of its
subsidiaries, were entered into in the ordinary course of business and in
accordance with prudent banking practice and applicable rules, regulations and
policies and with counterparties believed to be financially responsible at the
time.
SECTION 2.14. EMPLOYEE MATTERS AND ERISA.
(a) Neither Valley nor any of its subsidiaries has entered into any
collective bargaining agreement with any labor organization with respect to any
group of employees of Valley or any of its subsidiaries and to the knowledge of
Valley there is no present effort nor existing proposal to attempt to unionize
any group of employees of Valley or any of its subsidiaries.
(b) Except as may be disclosed in Section 2.14(b) of the Disclosure
Schedule, (i) Valley and its subsidiaries are and have been in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and neither
Valley nor any of its subsidiaries is engaged in any unfair labor practice;
(ii) there is no material unfair labor practice complaint against Valley or any
subsidiary pending or, to the knowledge of Valley, threatened before the
National Labor Relations Board; (iii) there is no labor dispute, strike,
slowdown or stoppage actually pending or, to the knowledge of Valley,
threatened against or directly affecting Valley or any subsidiary; and (iv)
neither Valley nor any subsidiary has experienced any material work stoppage or
other material labor difficulty during the past five (5) years.
(c) Except as may be disclosed in Section 2.14(c) of the Disclosure
Schedule, neither Valley nor any subsidiary maintains, contributes to or
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participates in or has any liability under any employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any nonqualified employee benefit plans or deferred
compensation, bonus, stock or incentive plans, or other employee benefit,
fringe, medical or insurance benefit programs for the benefit of former or
current employees or directors of Valley or any subsidiary (the "Valley
Employee Plans"). To the knowledge of Valley, no present or former employee of
Valley or any subsidiary has been charged with breaching a fiduciary duty under
any of the Valley Employee Plans. Neither Valley nor any of its subsidiaries
participates in, nor has it any present or future obligation or liability
under, any multiemployer plan (as defined at Section 3(37) of ERISA). Except
as may be separately disclosed in Section 2.14(c) of the Disclosure Schedule,
neither Valley nor any subsidiary maintains, contributes to, or participates
in, any plan that provides health, major medical, disability or life insurance
benefits to former employees of Valley or any subsidiary. True and correct
copies of all plans reflected in Section 2.14(c) will be supplied to FWNC
within seven (7) days following date of execution of this Agreement.
(d) Neither Valley nor any of its subsidiaries maintain, nor have any
of them maintained for the past ten years, any Employee Plans subject to Title
IV of ERISA or Section 412 of the Code. No reportable event (as defined in
Section 4043 of ERISA) has occurred with respect to any Employee Plans as to
which a notice would be required to be filed with the Pension Benefit Guaranty
Corporation. No claim is pending, and Valley has not received notice of any
threatened or imminent claim with respect to any Employee Plan (other than a
routine claim for benefits for which plan administrative review procedures have
not been exhausted) for which Valley or any of its subsidiaries would be liable
after December 31, 1994, except as reflected on the Valley Financial
Statements. Valley and its subsidiaries do not have any liabilities for excise
taxes under Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Internal
Revenue Code of 1986, as amended (the "Code") or for a fine under Section 502
of ERISA with respect to any Employee Plan. All Employee Plans have in all
material respects been operated, administered and maintained in accordance with
the terms thereof and in compliance with the requirements of all applicable
laws, including, without limitation, ERISA, COBRA and the Code.
(e) Except as may be disclosed in Section 2.14(e) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby (either alone or upon the
occurrence of any additional acts or events) will (i) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director, officer or employee of
Valley or any of its affiliates from Valley or any of its affiliates under any
Valley Employee Plan or otherwise; (ii) increase any benefits otherwise payable
under any Valley Employee Plan; or (iii) result in any acceleration of the time
of payment or vesting of any such benefits or constitute a payment which fails
to be deductible for federal income tax under 280G.
SECTION 2.15. TITLE TO PROPERTIES; INSURANCE. Except as may be
disclosed in Section 2.15 of the Disclosure Schedule, (i) Valley and its
subsidiaries have marketable title, insurable at standard rates, free and clear
of all liens, charges and encumbrances (except taxes which are a lien but not
yet payable and liens, charges or encumbrances reflected in the Valley
Financial Statements and easements, rights-of-way, and other restrictions which
are not material and further excepting in the case of Other Real Estate Owned
("O.R.E.O."), as such real estate is internally classified on the books of
Valley or its subsidiaries, rights of redemption under applicable law) to all
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of their real properties; (ii) all leasehold interests for real property and
any material personal property used by Valley and its subsidiaries in their
businesses are held pursuant to lease agreements which to the best knowledge of
Valley are valid and enforceable in accordance with their terms; (iii) all such
properties comply in all material respects with all applicable private
agreements, zoning requirements and other governmental laws and regulations
relating thereto and there are no condemnation proceedings pending or, to the
knowledge of Valley, threatened with respect to such properties; (iv) all such
properties are free of liens and encumbrances; and (v) all material insurable
properties owned or held by Valley and its subsidiaries are adequately insured
by financially sound and reputable insurers in such amounts and against fire
and other risks insured against by extended coverage and public liability
insurance, as is customary with bank holding companies of similar size.
SECTION 2.16. ENVIRONMENTAL MATTERS.
(a) As used in this Agreement, "Environmental Laws" means all local,
state and federal environmental, health and safety laws and regulations in all
jurisdictions in which Valley and its subsidiaries have done business or owned,
leased or operated property, including, without limitation, the Federal
Resource Conservation and Recovery Act, the Federal Comprehensive Environmental
Response, Compensation and Liability Act, the Federal Clean Water Act, the
Federal Clean Air Act, and the Federal Occupational Safety and Health Act.
(b) Except as may be disclosed in Section 2.16 of the Disclosure
Schedule, neither the conduct nor operation of Valley or its subsidiaries nor
any condition of any property presently or previously owned, leased or operated
by any of them violates or violated Environmental Laws in any respect material
to the business of Valley and its subsidiaries and no condition has existed or
event has occurred with respect to any of them or any such property that, with
notice or the passage of time, or both, would constitute a violation material
to the business of Valley and its subsidiaries of Environmental Laws or
obligate (or potentially obligate) Valley or its subsidiaries to remedy,
stabilize, neutralize or otherwise alter the environmental condition of any
such property where the aggregate cost of such actions would be material to
Valley and its subsidiaries. Neither Valley nor any of its subsidiaries has
received any notice from any person or entity that Valley or its subsidiaries
or the operation or condition of any property ever owned, leased or operated by
any of them are or were in violation of any Environmental Laws or that any of
them are responsible (or potentially responsible) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on or beneath any such property.
SECTION 2.17. COMPLIANCE WITH LAW.
(a) Valley and its subsidiaries have all material permits, licenses,
authorizations, orders and approvals of, and have made all filings,
applications and registrations with, all Regulatory Agencies that are required
in order to permit them to own or lease their properties and assets and to
carry on their businesses as presently conducted; all such permits, licenses,
authorizations, orders and approvals are in full force and effect and no
suspension or cancellation of any of them is threatened; and all such filings,
applications and registrations are current.
(b) Valley and each of its subsidiaries has complied in all material
respects with all laws, regulations and orders (including without limitation
zoning ordinances, building codes, ERISA, securities, tax, environmental, civil
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rights and occupational health and safety laws and regulations, and including,
without limitation, all statutes, rules, regulations and policy statements
pertaining to the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing instruments
applicable to it and to the conduct of its business. Without limitation of the
foregoing, Valley and the Subsidiary Bank are in material compliance with the
applicable provisions of the CRA and the regulations promulgated thereunder,
and currently have a CRA rating of satisfactory or better. There is no fact or
circumstance or set of facts or circumstances which would cause Valley and the
Subsidiary Bank to fail to comply with such provisions or cause the CRA rating
of Valley and the Subsidiary Bank to fall below satisfactory.
SECTION 2.18. BROKERAGE. Except may be disclosed in Section 2.18 of the
Disclosure Schedule, there are no existing claims or agreements for brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement payable by Valley or its
subsidiaries.
SECTION 2.19. INTERIM EVENTS. Except as disclosed in Section 2.19 of
the Disclosure Schedule, since September 30, 1995, neither Valley nor its
subsidiaries has paid or declared any dividend (other than dividends on the
Valley Preferred Stock, payable in the amount of thirty cents ($.30) per
quarter per share) or made any other distribution to shareholders or taken any
action which if taken after the date of this Agreement would require the prior
written consent of FWNC pursuant to Section 4.01(b) hereof.
SECTION 2.20. NON-BANKING ACTIVITIES. Except as disclosed in Section
2.20 of the Disclosure Schedule, neither Valley nor any of its subsidiaries
engages in or controls, directly or indirectly, any business or activity which
is not listed at 12 C.F.R. Section 225.25.
SECTION 2.21. PROPERTIES; CONTRACTS AND OTHER AGREEMENTS. Section 2.21
of the Disclosure Schedule lists or describes or attaches the following:
(i) Each parcel of real property owned by Valley or its subsidiaries
and the principal buildings and structures located thereon;
(ii) Each lease of real property to which Valley or its subsidiaries is
a party, identifying the parties thereto, the annual rental payable, the term
and expiration date thereof and a brief description of the property covered;
(iii) Each loan and credit agreement, conditional sales contract,
indenture or other title retention agreement or security agreement relating to
money borrowed by Valley or its subsidiaries (excluding repurchase agreements
and Federal Home Loan Bank borrowings in the ordinary course of business);
(iv) Each guaranty by Valley or any of its subsidiaries of any
obligation for the borrowing of money or otherwise (excluding any endorsements
and guarantees in the ordinary course of business and letters of credit issued
by the Subsidiary Bank in the ordinary course of its business) or any warranty
or indemnification agreement;
(v) Each loan or guaranty of a loan in an amount in excess of $50,000 to
any director, executive officer or five percent (5%) shareholder of Valley or
any spouse, parent, grandparent, child, grandchild or sibling of any director,
executive officer or five percent (5%) shareholder of Valley (each, a "Valley
Affiliate"); and
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(vi) Each agreement of Valley or its subsidiaries not referred to
elsewhere in this Section 2.21 which involves payment by Valley or its
subsidiaries (other than as disbursement of loan proceeds to customers) of more
than $50,000.
SECTION 2.22. STATEMENTS TRUE AND CORRECT. None of the information
supplied by Valley or its subsidiaries about Valley or its subsidiaries herein
or in the Disclosure Statement, or which is supplied for inclusion in (i) the
Registration Statement (as hereinafter defined); (ii) the Proxy
Statement/Prospectus; and (iii) any other documents to be filed with any
Regulatory Agency in connection with the transactions contemplated hereby does
now or will, at the respective times such documents are filed, and, in the case
of the Registration Statement, when it becomes effective, and, with respect to
the Proxy Statement/Prospectus, when first mailed to the shareholders of Valley
and at the time of the Valley Shareholder Meeting (as hereinafter defined),
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE THREE
REPRESENTATIONS OF FWNC
FWNC hereby makes the following representations and warranties to Valley:
SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.
(a) FWNC is a corporation duly incorporated and validly existing under
the laws of the State of Indiana with full corporate power and authority to
carry on its business as it is now being conducted. FWNC is a bank holding
company registered with the Federal Reserve Board under the BHCA.
(b) The authorized capital stock of FWNC consists of (i) 20,000,000
shares of FWNC Common, of which 11,424,073 shares are issued and outstanding;
and (ii) 2,000,000 shares of preferred stock consisting of 1,000,000 shares of
Class A Voting Preferred Stock and 1,000,000 shares of Class B Non-voting
Preferred Stock, of which none are issued and outstanding. All of the issued
and outstanding shares of FWNC Common are duly and validly issued and
outstanding and are fully paid and non-assessable. The terms of the FWNC
Preferred to be issued in the Merger may be established by the board of
directors of FWNC, without shareholder approval, as contemplated by Chapter 25,
Section 2 of the Corporation Law.
(c) None of the shares referred to in Sections 3.01(b) above has been
issued in violation of any preemptive rights and, except as provided below in
this subsection (c), there are no outstanding options, warrants, rights to
subscribe for, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, such shares or
contracts, commitments, understandings or arrangements by which FWNC is or may
be obligated to issue additional shares of capital stock or options, warrants
or rights to purchase or acquire any additional shares of capital stock. There
are outstanding options to purchase 503,736 shares of FWNC Common pursuant to
the Fort Wayne National Corporation 1985 Stock Incentive Plan and Fort Wayne
National Corporation 1994 Stock Incentive Plan, of which 161,586 shares are
currently exercisable by the holders.
(d) The shares of FWNC Common and FWNC Preferred to be issued as part
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of the Valley Common Merger Consideration shall, when issued and delivered in
accordance with the terms of this Agreement and the Merger Letter of
Transmittal, be duly authorized, validly issued, fully paid and nonassessable
without violation of any preemptive or similar right of any person.
SECTION 3.02. AUTHORIZATION. The Board of Directors of FWNC has, by all
necessary action, approved this Agreement and the Merger and authorized the
execution hereof on its behalf by its duly authorized officers and the
performance by FWNC of its obligations hereunder. Subject to the filing of
Articles of Amendment of FWNC's Amended Articles of Incorporation to authorize
the FWNC Preferred (the "Articles of Amendment") and to the receipt of such
approvals of the Regulatory Authorities as may be required by statute or
regulation to consummate the transactions contemplated hereby, nothing in the
Amended Articles of Incorporation or By-Laws of FWNC, as amended, or any
agreement, instrument, decree, proceeding, law or regulation, by or to which
FWNC or any of its subsidiaries are bound or subject will or would prohibit or
inhibit FWNC from entering into and consummating this Agreement and the Merger
on the terms and conditions herein contained. This Agreement has been duly and
validly executed and delivered by FWNC and, subject to the filing of the
Articles of Amendment and to the receipt of such approvals of the Regulatory
Agencies as may be required by statute or regulation in order to consummate the
transactions contemplated hereby, this Agreement is a valid and binding
obligation of FWNC, enforceable against FWNC in accordance with its terms,
subject to bankruptcy, insolvency, receivership, moratorium or other laws
relating to or affecting creditors' rights generally and to general equity
principles. Other than the filings of the Articles of Amendment and the
Articles of Merger with the Indiana Secretary of State under the Corporate Law
and the filings, consents, reviews, authorizations, approvals or exemptions
required under the BHCA and the Indiana Financial Institutions Act, as
amended, or as may be required by the Securities Act, the Exchange Act and the
securities or blue sky laws of the various states, no notice to, filing with,
exemption or review by, or authorization, consent or approval of, any public
body or authority, or any other party, is required for the consummation by FWNC
of the transactions contemplated by this Agreement.
SECTION 3.03. SUBSIDIARIES. Each of FWNC's significant subsidiaries (as
such term is defined under regulations of the Securities and Exchange
Commission (the "SEC")) is duly organized, validly existing and in good
standing (if applicable) under the laws of the jurisdiction of its
incorporation and has the corporate power to own its respective properties and
assets and to carry on its respective business as now being conducted.
SECTION 3.04. FINANCIAL INFORMATION. The consolidated balance sheets of
FWNC and its subsidiaries as of December 31, 1993 and 1994 and related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three (3) years ended December 31, 1994, together with the notes
thereto, included in FWNC's Form 10-K for the year ended December 31, 1994, as
currently on file with the SEC, and the unaudited consolidated balance sheets
of FWNC and its subsidiaries as of March 31, 1995 and June 30, 1995 and the
related unaudited consolidated income statements and statements of changes in
stockholders' equity and cash flows for the three (3) months and six (6)
months, respectively, then ended included in FWNC's Quarterly Reports on Form
10-Q for the quarters then ended, as currently on file with the SEC (together,
the "FWNC Financial Statements"), have been prepared in accordance with GAAP
applied on a consistent basis (except as may be disclosed therein) and fairly
present in all material respects the consolidated financial position and the
consolidated results of operations, changes in stockholders' equity and cash
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flows of FWNC and its consolidated subsidiaries as of the dates and for the
periods indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which will be material). As of
June 30, 1995, except as reflected or disclosed in the FWNC Financial
Statements, FWNC had no liabilities, whether absolute, accrued, contingent, or
otherwise, or due or to become due.
SECTION 3.05. ABSENCE OF CHANGES. Since June 30, 1995, FWNC has not
incurred any obligation or liability (absolute or contingent), except normal
trade or business obligations or liabilities incurred in the ordinary course of
business, and there has not been any material adverse change in the financial
condition, the results of operations or the business of FWNC and its
subsidiaries taken as a whole, nor have there been any events or transactions
having such a material adverse effect which should be disclosed in order to
make the FWNC Financial Statements not misleading.
SECTION 3.06. LITIGATION. Except as disclosed in the FWNC Financial
Statements, there are no actions, suits or proceedings pending or, to the best
knowledge of FWNC, threatened against FWNC or any of its subsidiaries, and
neither FWNC nor any of its subsidiaries is subject to any order, judgment or
decree, that, in the aggregate could reasonably be expected to have a material
adverse effect on the financial condition, properties, business or results of
operations of FWNC and its subsidiaries taken as a whole.
SECTION 3.07. REPORTS. FWNC and each of its significant subsidiaries
has filed all material reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (i)
the SEC, (ii) the Federal Reserve Board, (iii) the Office of the Comptroller
of the Currency; (iv) the FDIC; (v) any state securities authorities; (vi)
Nasdaq; and (vii) any other Regulatory Agency with jurisdiction over FWNC or
any of its significant subsidiaries. As of their respective dates, each of
such reports and documents, as amended, including the financial statements,
exhibits and schedules thereto, complied in all material respects with the
relevant statutes, rules and regulations enforced or promulgated by the
Regulatory Agency with which they were filed, and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
SECTION 3.08. COMPLIANCE WITH LAW. FWNC and its significant
subsidiaries have all licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses in all material respects and are in compliance in all
material respects with all applicable laws and regulations.
SECTION 3.09. STATEMENTS TRUE AND CORRECT. None of the information
supplied by FWNC about FWNC or its subsidiaries herein, or to be supplied by
FWNC for inclusion in (i) the Registration Statement (ii) the Proxy
Statement/Prospectus and (iii) any other documents to be filed with any
Regulatory Agency in connection with the transactions contemplated hereby does
now or will, at the respective times such documents are filed, and, in the case
of the Registration Statement, when it becomes effective, and with respect to
the Proxy Statement/Prospectus, when first mailed to the shareholders of Valley
and at the time of the Valley Shareholder Meeting, contain any untrue statement
of a material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they are made, not misleading.
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ARTICLE FOUR
AGREEMENTS OF VALLEY
SECTION 4.01. BUSINESS IN ORDINARY COURSE.
(a) Valley shall not declare or pay any dividend or make any other
distribution to shareholders, whether in cash, stock or other property, after
the date of this Agreement, except for quarterly dividends in amounts that are
not greater than $.30 per share on the Valley Preferred.
(b) Valley shall, and shall cause each of its subsidiaries to, continue
to carry on after the date hereof its respective business only in the usual,
regular and ordinary course of business, as heretofore conducted, and by way of
amplification and not limitation, Valley and each of its subsidiaries will not,
without the prior written consent of FWNC (which shall not be unreasonably
withheld):
(i) issue or agree to issue any Valley Common or Valley Preferred
or other capital stock or any options, warrants, or other rights to
subscribe for or purchase Valley Common or Valley Preferred or any other
capital stock or any securities convertible into or exchangeable for any
capital stock of Valley or any of its subsidiaries; or
(ii) redeem or commit to redeem, purchase or otherwise acquire any
Valley Common or Valley Preferred or any other capital stock of Valley or
its subsidiaries; or
(iii) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in or to any
capital stock or otherwise reorganize or recapitalize; or
(iv) change its certificate or articles of incorporation or
association, as the case may be, or bylaws; or
(v) grant any unusual increase in the compensation payable or to
become payable to officers or salaried employees (other than the year end
1995 bonuses payable to certain officers in the amounts
described in Section 4.01(b)(v) of the Disclosure Schedule), grant any
stock options or, except as required by law, adopt or make any change in
any bonus, insurance, pension, or other Valley Employee Plan, agreement
or arrangement made to, for or with any of such officers or employees; or
(vi) borrow or agree to borrow any amount of funds, or directly or
indirectly guarantee or agree to guarantee any obligations of others,
except in the ordinary course of business; or
(vii) make or commit to make any new loan or letter of credit or
any new or additional discretionary advance under any existing line of
credit in a manner inconsistent with its written underwriting policies in
effect on the date of this Agreement; or
(viii) enter into any material agreement, contract or commitment
out of the ordinary course of business; or
(ix) except in the ordinary course of business, place on any of
its assets or properties any mortgage, pledge, lien, charge, or other
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encumbrance; or
(x) sell or otherwise dispose of any real property or any material
amount of any tangible or intangible personal property other than
properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness to Valley and its subsidiaries; or
(xi) commit any act or fail to do any act which will cause a
breach of any material agreement, contract or commitment and which will
have a material adverse effect on Valley's and its subsidiaries'
business, financial condition, or earnings; or
(xii) take any action which would adversely effect or delay the
ability of either FWNC or Valley to obtain any necessary approvals of any
Regulatory Agency or other governmental authority required for the
transactions contemplated hereby or to perform its covenants and
agreements under this Agreement.
(c) Valley shall promptly notify FWNC in writing of the occurrence of
any matter or event known to and directly involving Valley, which would not
include any changes in conditions that affect the banking industry generally,
that is materially adverse to the business, operations, properties, assets, or
condition (financial or otherwise) of Valley and its subsidiaries taken as a
whole.
(d) Valley shall not, on or before the earlier of the Closing Date or
the date of termination of this Agreement, solicit or encourage, or, subject to
the fiduciary duties of its directors as advised in writing by counsel, hold
discussions or negotiations with or provide any information to, any person in
connection with, any proposal from any person for the acquisition of all or any
substantial portion of the business, assets, shares of Valley Common or Valley
Preferred or other securities of Valley and its subsidiaries. Valley shall
promptly (which for this purpose shall mean within two (2) business days)
advise FWNC of its receipt of any such proposal or inquiry concerning any
possible such proposal, the substance of such proposal or inquiry, and the
identity of such person.
SECTION 4.02. SUBMISSION TO SHAREHOLDERS. Valley shall cause to be duly
called and held a special meeting of the holders of Valley Common and Valley
Preferred (the "Valley Shareholders Meeting") for submission of this Agreement
and the Merger for approval of such Valley shareholders as required by the
Corporate Law. In connection with the Valley Shareholders' Meeting, (i) Valley
shall cooperate and assist FWNC in preparing and filing a Registration
Statement on Form S-4 covering the shares of FWNC Common and FWNC Preferred to
be issued in the Merger, and any amendments or supplements thereto (the
"Registration Statement"), including a Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") with the SEC and applicable state securities
authorities, and Valley shall mail the Proxy Statement/Prospectus to its
shareholders; (ii) Valley shall furnish FWNC all information concerning itself
that FWNC may reasonably request in connection with such Proxy
Statement/Prospectus; and (iii) the Board of Directors of Valley (subject to
compliance with its fiduciary duties as advised in writing by counsel) shall
recommend to its shareholders the approval of this Agreement and the Merger
contemplated hereby and use its best efforts to obtain such shareholder
approval.
SECTION 4.03. CONSUMMATION OF AGREEMENT. Valley shall use its best
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efforts to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and provisions hereof, Valley shall furnish to FWNC
in a timely manner all information, data and documents in the possession of
Valley requested by FWNC as may be required to obtain any necessary regulatory
or other approvals of the Merger or to file the Registration Statement, and
shall otherwise cooperate fully with FWNC to carry out the purpose and intent
of this Agreement.
SECTION 4.04. RESTRICTION ON RESALES. Valley shall obtain and deliver
to FWNC, at least thirty-one (31) days prior to the Closing Date, the signed
agreement, in the form of Exhibit 4.04 hereto, of each person who may
reasonably be deemed an "affiliate" of Valley within the meaning of such term
as used in Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), regarding compliance with the provisions of such Rule 145.
SECTION 4.05. ACCESS TO INFORMATION. Valley shall permit FWNC
reasonable access in a manner which will avoid undue disruption or interference
with Valley's normal operations to its properties and staff and shall permit
FWNC to consult and confer with Valley's independent accountants and shall
disclose and make available to FWNC all books, documents, papers and records
relating to its assets, stock ownership, properties, operations, obligations
and liabilities, including, but not limited to, all books of account (including
the general ledger), tax records, minute books of directors' and shareholders'
meetings, organizational documents, material contracts and agreements, loan
files, filings with any regulatory authority, accountants' workpapers (if
available and subject to the respective independent accountants' consent),
litigation files (but only to the extent that such review would not result in a
material waiver of the attorney-client or attorney work product privileges
under the rules of evidence), plans affecting employees, and any other business
activities or prospects in which FWNC may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
Valley shall make available for review to FWNC copies of all regulatory reports
of the nature described in Section 2.10 above, as and when they are filed, as
well as all financial and other information furnished to its Board of
Directors, executive committee, loan committee (provided, that a summary may be
supplied in lieu of a loan file) or trust committee of Valley or the Subsidiary
Bank, or to shareholders of Valley, as and when they are so furnished. FWNC
will hold any such information which is nonpublic in confidence in accordance
with the provisions of Section 8.01 hereof.
ARTICLE FIVE
AGREEMENTS OF FWNC
SECTION 5.01. REGULATORY APPROVALS AND REGISTRATION STATEMENT.
(a) FWNC will cause the Articles of Amendment to be properly approved,
filed and effective on or prior to the Closing Date.
(b) FWNC shall file all regulatory applications required in order to
consummate the Merger, including but not limited to the necessary applications
for the prior approval of the Federal Reserve Board and the Indiana Department
of Financial Institutions. FWNC shall keep Valley reasonably informed as to
the status of such applications and make available to Valley, upon reasonable
request by Valley from time to time, copies of such applications and any
supplementally filed materials.
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(c) FWNC shall file with the SEC the Registration Statement relating to
the shares of FWNC Common and FWNC Preferred to be issued to the shareholders
of Valley pursuant to this Agreement, and shall use its best efforts to cause
the Registration Statement to become effective. At the time the Registration
Statement becomes effective, the Registration Statement shall comply in all
material respects with the provisions of the Securities Act and the published
rules and regulations thereunder, and shall not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not false or misleading, and at the
time of mailing thereof to the shareholders of Valley, at the time of the
Valley Shareholders Meeting and at the Effective Time the Proxy
Statement/Prospectus included as part of the Registration Statement, as amended
or supplemented by any amendment or supplement, shall not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not false or misleading. FWNC shall timely file
all documents required to obtain all necessary Blue Sky permits and approvals
required to carry out the transactions contemplated by this Agreement, shall
pay, all expenses incident thereto and shall use its reasonable efforts to
obtain such permits and approvals on a timely basis; provided, however, that
FWNC shall not be required to obtain any such permit or approval in any
jurisdiction in which holders of less than 5% of the Valley Common and Valley
Preferred reside if, in FWNC's judgment, obtaining such permit or approval
would involve unreasonable expense or delay in consummation of the Merger.
SECTION 5.02. CONSUMMATION OF AGREEMENT. FWNC shall use its best
efforts to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and conditions of this Agreement.
SECTION 5.03. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND
INDEMNIFICATION.
(a) Following the Effective Time, FWNC will provide the directors and
officers of Valley and its subsidiaries with the same directors' and officers'
liability insurance coverage that FWNC provides to directors and officers of
its other banking subsidiaries generally. FWNC shall use its best efforts
(which shall not be deemed to require, however, the payment of any special
premium or other charge or expense) to obtain an endorsement to its directors'
and officers' liability insurance policy to cover acts and omissions of the
directors and officers of Valley and its subsidiaries occurring or failing to
occur prior to the Closing Date; provided, however, that if FWNC is unable to
obtain such endorsement, then Valley may purchase tail coverage under its
existing directors' and officers' liability insurance on such terms and
provisions as Valley deems appropriate provided that the total cost thereof
shall not exceed $100,000.
(b) For six (6) years after the Effective Time, FWNC shall indemnify,
defend and hold harmless the present and former officers, directors, employees
and agents of Valley and its subsidiaries and the trustees of the Employee
Stock Ownership Plan sponsored by Valley ("KSOP") (each, an "Indemnified
Party") against all losses, expenses, claims, damages, or liabilities arising
out of actions or omissions in such capacities or in any other "official
capacity" (as such term is defined in Section 9.05F.(3) of Valley's Articles of
Incorporation as in effect on the date hereof) occurring on or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the full extent then permitted under the Corporate Law and
by Valley's Articles of Incorporation as in effect on the date hereof,
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including provisions relating to advances of expenses incurred in the defense
of any action or suit.
(c) If, after the Effective Time, FWNC or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger; or (ii) shall transfer all or substantially all
of its properties and assets to any individual, corporation or other entity,
then and in each such case, proper provision shall be made so that the
successors and assigns of FWNC shall assume any remaining obligations set forth
in this Section 5.03.
SECTION 5.04. EMPLOYEE BENEFITS.
(a) FWNC shall, with respect to each employee of Valley or its
subsidiaries who becomes an employee of FWNC or its subsidiaries upon the
Merger (each a "Continued Employee"), provide the benefits described in this
Section 5.04. Subject to the right of subsequent amendment, modification or
termination in FWNC's sole discretion, each Continued Employee shall be
entitled, as a new employee of FWNC or its subsidiaries, to participate in such
employee benefit plans, as defined in Section 3(3) of ERISA, or any
non-qualified employee benefit plans or deferred compensation, stock option,
bonus or incentive plans, or other employee benefit or fringe benefit programs
that may be in effect generally for employees of FWNC and its subsidiaries (the
"FWNC Plans"), and as a Continued Employee shall be eligible and, if required,
selected for participation therein under the terms thereof. Continued
Employees shall be eligible to participate on the same basis as similarly
situated employees of FWNC and its subsidiaries. All such participation shall
be subject to such terms of such plans as may be in effect from time to time
and this Section 5.04 is not intended to give Continued Employees any rights or
privileges superior to those of other employees of FWNC or its subsidiaries.
FWNC may terminate or modify all Valley Employee Plans except insofar as
benefits thereunder shall have vested one hundred percent (100%) and regardless
of years of service on the Closing Date and cannot be modified and FWNC's
obligation under this Section 5.04 shall not be deemed or construed so as to
provide duplication of similar benefits but, subject to that qualification,
FWNC shall, for purposes of vesting and any age or period of service
requirements for commencement of participation with respect to any FWNC Plans
in which Continued Employees may participate, credit each Continued Employee
with his or her term of service and any other eligibility requirement with
Valley and its subsidiaries.
(b) Between the date of this Agreement and the Closing Date, FWNC shall
make every effort to merge one hundred percent (100%) of Valley's Plan into
FWNC Plans and fully cooperate with Valley to determine the actions to be taken
with respect to the Employee Stock Ownership Plan ("KSOP") sponsored by Valley
in a manner that is mutually satisfactory to FWNC and Valley and that will
provide (i) one hundred percent (100%) full vesting and nonforfeitability of
participants' interest in their accounts transferred from the KSOP, regardless
of years of service, and (ii) continued administration of existing KSOP
participant loans within the limitations of 26 USC Section 72(p).
SECTION 5.05. BOARD COMPOSITION. FWNC's Board of Directors shall take
all requisite action to elect Dennis J. Schwartz as a director of FWNC
effective as of the first meeting of FWNC's Board of Directors following the
Effective Time.
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SECTION 5.06. ACCESS TO INFORMATION. FWNC shall permit Valley
reasonable access in a manner which will avoid undue disruption or interference
with FWNC's normal operations to its properties and shall disclose and make
available to Valley all books, documents, papers and records relating to its
assets, stock ownership, properties, operations, obligations and liabilities,
including, but not limited to, all books of account (including the general
ledger), tax records, minute books of directors' and shareholders' meetings,
organizational documents, material contracts and agreements, loan files,
filings with any regulatory authority, accountants' workpapers (if available
and subject to the respective independent accountants' consent), litigation
files (but only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges under the
rules of evidence), plans affecting employees, and any other business
activities or prospects in which Valley may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
Valley will hold any such information which is nonpublic in confidence in
accordance with the provisions of Section 8.01 hereof.
SECTION 5.07. NO NAME CHANGE. FWNC will not allow the name of the
Subsidiary Bank, "Valley American Bank and Trust Company," to be changed for
two (2) years after the Effective Time without the written consent of Darwin L.
Wiekamp or Dennis J. Schwartz.
SECTION 5.08. VALUE OF FWNC PREFERRED STOCK. FWNC agrees that it will
record on its financial records that the value of the FWNC Preferred Stock at
the Effective Time is $50.00 per share.
ARTICLE SIX
CONDITIONS PRECEDENT TO MERGER
SECTION 6.01. CONDITIONS TO FWNC'S OBLIGATIONS. FWNC's obligation to
effect the Merger shall be subject to the satisfaction (or waiver by FWNC)
prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by Valley in this Agreement
and in the Disclosure Schedule shall be true in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date;
(b) Valley shall have performed and complied in all material respects
with all of its obligations and agreements required to be performed on or prior
to the Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger shall be in effect, nor shall any proceeding by any bank regulatory
authority or other person seeking any of the foregoing be pending; and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal or which, in the reasonable opinion of
counsel for FWNC, after an independent review of readily available facts and
applicable law, poses a risk of resulting in the divestiture of Valley or the
Subsidiary Bank, or any portion of FWNC's or Valley's consolidated assets, or
the assessment of material damages against FWNC or its subsidiaries if the
Merger is consummated;
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(d) All necessary regulatory approvals, consents, authorizations and
other approvals, including the requisite approval of this Agreement and the
Merger by the shareholders of Valley, required by law for consummation of the
Merger shall have been obtained and all waiting periods required by law shall
have expired;
(e) FWNC shall have received all certificates, opinions and other
documents required by this Agreement to be received from Valley on or prior to
the Closing Date, all in form and substance reasonably satisfactory to FWNC;
(f) The Registration Statement shall be effective under the Securities
Act and no stop order suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC or any state securities agency;
(g) That certain Agreement (the "Designated Valley Shareholders
Agreement"), of even date herewith, among FWNC, Dennis J. Schwartz, James T.
Schwartz, Mary Lou Schwartz, Darwin L. Wiekamp, Dorothy J. Wiekamp, Donald L
Zimmerman, Mary E. Zimmerman and MARDOT, Ltd. (the "Designated Valley
Shareholders"), shall not have been breached by any Designated Valley
Shareholder (or by the estate of any Designated Valley Shareholder who shall
have died between the date hereof and the Closing Date) and shall remain in
full force and effect as of the Closing Date enforceable by the parties thereto
in accordance with its terms; and
(h) Since September 30, 1995, there shall have been no material adverse
change in the business, results of operations, assets, liabilities, contingent
liabilities, obligations, working capital, reserves or financial condition of
Valley and its subsidiaries taken as a whole, whether or not in the ordinary
course of business. Neither Valley nor any of its subsidiaries, nor any of
their respective properties or assets shall be (i) a party to or subject to any
pending or threatened claim, action, suit, investigation or proceeding, or
subject to any order, judgment or decree or (ii) subject to any notice of
violation or have violated or be in violation of any law, statute, regulation,
rule, license, judgment, decree, order, agreement or other instrument, which in
case of any matter described in a(i) or (ii) would individually or in the
aggregate, have or could reasonably be expected to have a material adverse
effect on the business, results of operations, assets, liabilities, contingent
liabilities, obligations, working capital, prospects, reserves or financial
condition of Valley and its subsidiaries taken as a whole; and
(i) The FWNC Average Price shall not be less than $26.00, provided, if,
between the date hereof and the Effective Time, a share of FWNC Common shall be
changed into a different number of shares of FWNC Common or a different class
of shares by reason of reclassification, recapitalization, splitup, exchange of
shares or readjustment or if a stock dividend thereon shall be declared after
the date hereof (a "Share Adjustment"), then the $26.00 amount used in this
Section 6.01(i), shall be appropriately and proportionately adjusted to reflect
such Share Adjustment.
SECTION 6.02. CONDITIONS TO VALLEY'S OBLIGATIONS. Valley's obligation
to effect the Merger shall be subject to the satisfaction (or waiver by Valley)
prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by FWNC in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made or
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given on the Closing Date;
(b) FWNC shall have performed and complied in all material respects
with all of its obligations and agreements hereunder required to be performed
on or prior to the Closing Date under this Agreement;
(c) No Injunction preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
governmental agency seeking any of the foregoing be pending. There shall not
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal;
(d) All necessary regulatory approvals, consents, authorizations and
other approvals, including the requisite approval of this Agreement and the
Merger by the shareholders of Valley, required by law for consummation of the
Merger shall have been obtained and all waiting periods required by law shall
have expired;
(e) Valley shall have received all certificates, opinions and other
documents required by this Agreement to be received from FWNC on or prior to
the Closing Date, all in form and substance reasonably satisfactory to Valley;
(f) The Registration Statement shall be effective under the Securities
Act and no stop order suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC or any state securities agency;
(g) Valley shall have received an opinion of its counsel, Barnes &
Thornburg, to the effect that, if the Merger is consummated in accordance with
the terms set forth in this Agreement, the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code; and that
opinion will further conclude that the Cash Component received by Valley
Shareholders will not, under Section 356 of the Code, have the effect of a
distribution of a dividend, that the FWNC Preferred will not be 306 stock under
Section 306 of the Code, and that Valley Shareholders shall not be deemed to
have received a distribution under Section 305 of the Code; and
(h) The FWNC Average Price shall not be less than $26.00, provided, if,
between the date hereof and the Effective Time, a share of FWNC Common shall be
changed into a different number of shares of FWNC Common or a different class
of shares by reason of reclassification, recapitalization, splitup, exchange of
shares or readjustment or a stock dividend thereon shall be declared after the
date hereof (a "Share Adjustment"), then the $26.00 amount used in this Section
6.02(h), shall be appropriately and proportionately adjusted to reflect such
Share Adjustment; and
(i) The Trustees of Valley's KSOP shall have received the opinion of
Southard Financial, dated as of the date of the Proxy Statement, to the effect
that the consideration to be received in the Merger by the KSOP is fair from a
financial point of view, and such opinion shall not have been withdrawn at the
time of the Closing Date.
(j) The directors of Valley shall have received the opinion of Keefe
Bruyette & Woods that the fair market value of the FWNC preferred at the
Effective Time is not less than $45.00 per share.
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ARTICLE SEVEN
TERMINATION OR ABANDONMENT
SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be terminated by the
mutual written agreement of FWNC and Valley at any time prior to the Closing
Date, regardless of whether approval of this Agreement and the Merger by the
shareholders of Valley shall have been previously obtained.
SECTION 7.02. BREACH OF AGREEMENTS. In the event that there is a
material breach in any of the representations and warranties or agreements of
FWNC or Valley, which breach is not cured within thirty (30) days after notice
to cure such breach is given to the breaching party by the non-breaching party,
then the non-breaching party, regardless of whether shareholder approval of
this Agreement and the Merger shall have been previously obtained, may
terminate and cancel this Agreement by providing written notice of such action
to the other party hereto.
SECTION 7.03. FAILURE OF CONDITIONS. In the event any of the conditions
to the obligations of either party are not satisfied or waived on or prior to
the Closing Date, and if any applicable cure period provided in Section 7.02
hereof has lapsed, then such party may, regardless of whether approval of this
Agreement and the Merger by the shareholders of Valley shall have been
previously obtained, terminate and cancel this Agreement by delivery of written
notice of such action to the other party on such date.
SECTION 7.04. REGULATORY APPROVAL DENIAL. If any regulatory application
filed pursuant to Section 5.01(a) hereof should be finally denied or
disapproved by the respective regulatory authority, then this Agreement
thereupon shall be deemed terminated and canceled; provided, however, that a
request for additional information or undertaking by FWNC, as a condition for
approval, shall not be deemed to be a denial or disapproval so long as FWNC
diligently provides the requested information or undertaking. In the event an
application is denied pending an appeal, petition for review, or similar such
act on the part of FWNC (hereinafter referred to as the "appeal") then the
application will be deemed denied unless FWNC prepares and timely files such
appeal and continues the appellate process for purposes of obtaining the
necessary approval.
SECTION 7.05. SHAREHOLDER APPROVAL DENIAL. If this Agreement or the
relevant transactions contemplated hereby are not approved by the requisite
vote of the shareholders of Valley at the Valley Shareholders Meeting, then
either party may terminate this Agreement.
SECTION 7.06. TERMINATION DATE. If the Closing Date does not occur on
or prior to September 1, 1996, then this Agreement may be terminated by either
party by giving written notice thereof to the other, provided that the party
seeking to terminate has not breached any of its representations, warranties,
covenants or agreements contained herein.
SECTION 7.07. TERMINATION FEE.
(a) Upon the occurrence of one or more Triggering Events (as defined in
Section 7.07(b) hereof, Valley shall pay to FWNC the sum of $2,000,000:
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(b) As used herein, the term "Triggering Event" shall mean the
occurrence of the following after the date hereof:
(i)(A) termination of this Agreement by either party due to the
failure of Valley's shareholders to approve this Agreement and the
transactions contemplated hereby at a meeting called for such
purpose(provided FWNC is not then in material breach of this Agreement),
(B) a majority of the board of directors of Valley shall have determined
to recommend a Competing Transaction to Valley's shareholders, (C) Valley
shall enter into a definitive agreement with respect to a Competing
Transaction, or (D) the board of directors of Valley shall have withdrawn
or modified in any manner adverse to FWNC its approval or recommendation
of the Merger or this Agreement, and (ii) within twelve (12) months
thereafter, a Competing Transaction shall occur, which in the case of (B)
and (C) of clause (i) involves a party to whom the event described in (B)
or (C) relates.
For purposes of this Section 7.07, the term "Competing Transaction" means
any of the following, other than the transactions contemplated by the
Agreement: (i) any person or group of persons (other than FWNC) shall acquire
after the date hereof beneficial ownership of twenty-five percent (25%) or more
of the Valley Common or Valley Preferred, exclusive of shares of Valley Common
or Valley Preferred sold directly or indirectly to such person or group of
persons by FWNC; or (ii) a merger, consolidation, share exchange, business
combination, or similar transaction involving Valley or Valley's banking
subsidiary shall occur; or (iii) a sale, lease, exchange, transfer or other
disposition of twenty-five percent (25%) or more of the assets of Valley or its
banking subsidiary shall occur.
(c) As used in this Agreement, the terms "person" and "group of
persons" shall have the meanings conferred thereon by Sections 3(a)(9) and
13(d)(3) of the Exchange Act and the regulations promulgated thereunder and the
term "beneficial ownership" shall have the meaning conferred thereon by Section
13(d) of the Exchange Act and the regulations promulgated thereunder.
ARTICLE EIGHT
GENERAL
SECTION 8.01. CONFIDENTIAL INFORMATION. The parties acknowledge the
confidential and proprietary nature of the "Information" (as herein described)
which has heretofore been exchanged and which will be received from each other
hereunder and agree to hold and keep the same confidential. Such Information
will include any and all financial, technical, commercial, marketing, customer
or other information concerning the business, operations and affairs of a party
that may be provided to the other, irrespective of the form of the
communications, by such party's employees or agents. Such Information shall
not include information which is or becomes generally available to the public
other than as a result of a disclosure by a party or its representatives in
violation of this Agreement. The parties agree that the Information will be
used solely for the purposes contemplated by this Agreement and that such
Information will not be disclosed to any person other than employees and agents
of a party who are directly involved in evaluating the transaction. The
Information shall not be used in any way detrimental to a party, including use
directly or indirectly in the conduct of the other party's business or any
business or enterprise in which such party may have an interest, now or in the
future, and whether or not now in competition with such other party.
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SECTION 8.02. PUBLICITY. FWNC and Valley shall cooperate with each
other in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger and shall not issue any
news release or make any other public disclosure without the prior consent of
the other party, unless it reasonably believes such is required by law upon the
advice of counsel or is in response to published newspaper or other mass media
reports regarding the transaction contemplated hereby, in which such latter
event the parties shall give reasonable notice, and to the extent practicable,
consult with each other regarding such responsive public disclosure.
SECTION 8.03. RETURN OF DOCUMENTS. Upon termination of this Agreement
without the Merger becoming effective, each party (i) shall deliver to the
other originals and all copies of all Information made available to such party;
(ii) will not retain any copies, extracts or other reproductions in whole or in
part of such Information; and (iii) will destroy all memoranda, notes and other
writings prepared by any party based on the Information.
SECTION 8.04. NOTICES. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery,
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to FWNC :
Fort Wayne National Corporation
110 West Berry Street
Fort Wayne, Indiana 46802
Attention: Jackson R. Lehman, Chairman
with a copy to:
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, Indiana 46802
Attention: Steven H. Hazelrigg, Esq.
and
(b) if to Valley:
Valley Financial Services, Inc.
P.O. Box 328
South Bend, Indiana 46624-0328
Attention: Darwin L. Wiekamp
Chairman of the Board
Facsimile: 219-256-6014
with a copy to:
Barnes & Thornburg
600 1st Source Bank Center
100 North Michigan
South Bend, Indiana 46601-1632
Attention: John A. Burgess, Esq.
Facsimile: (219) 237-1125
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or to such other address as any party may from time to time designate by notice
to the others.
SECTION 8.05. LIABILITIES. Except as provided in Section 7.07 hereof,
in the event that this Agreement is terminated pursuant to the provision of
Article Seven hereof, no party hereto shall have any liability to any other
party for costs, expenses, damages or otherwise; provided, however, that,
notwithstanding the foregoing, in the event that this Agreement is terminated
pursuant to Section 7.02 hereof on account of a willful breach of any of the
representations and warranties set forth herein or any breach of any of the
agreements set forth herein, then the non-breaching party shall be entitled to
recover appropriate damages from the breaching party.
SECTION 8.06. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Except for, and as provided in, this Section 8.06, no representation, warranty
or agreement contained in this Agreement shall survive the Effective Time or
the earlier termination of this Agreement; provided, however, that no such
representation, warranty or covenant shall be deemed to be terminated or
extinguished so as to deprive FWNC or Valley (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any person (including, without
limitation, any shareholder or former shareholder of either FWNC or Valley),
the aforesaid representations, warranties and covenants being material
inducements to the consummation by FWNC and Valley of the transactions
contemplated herein. The agreements set forth in Sections 1.08, 5.03, 5.04,
5.05 and 5.07 hereof shall survive the Effective Time and the agreements set
forth in Sections 7.07, 8.01, 8.02, 8.03 and 8.05 hereof shall survive the
Effective Time or the earlier termination of this Agreement.
SECTION 8.07. ENTIRE AGREEMENT. This Agreement (including the
Disclosure Schedule and the exhibits hereto) constitutes the entire agreement
between the parties and supersedes and cancels any and all prior discussions,
negotiations, undertakings, agreements in principle or other agreements between
the parties relating to the subject matter hereof.
SECTION 8.08. HEADINGS AND CAPTIONS. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
SECTION 8.09. WAIVER, AMENDMENT OR MODIFICATION. The conditions of this
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may be amended or modified
by the parties hereto, at any time before or after shareholder approval of the
Agreement; provided, however, that after any such approval no such amendment or
modification shall alter the amount or change the form of the Valley Merger
Consideration contemplated by this Agreement to be received by shareholders of
Valley. This Agreement may not be amended or modified except by a written
document duly executed by the parties hereto.
SECTION 8.10. RULES OF CONSTRUCTIONS. Unless the context otherwise
requires, (i) a term has the meaning assigned to it; (ii) an accounting term
not otherwise defined has the meaning assigned to it in accordance with GAAP;
and (iii) words in the singular may include the plural and in the plural
include the singular.
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SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any party thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have
the same binding effect as an original signature on an original document. At
the request of any party, any facsimile or telecopy document shall be
re-executed in original form by the parties who executed the facsimile or
telecopy document. No party may raise the use of a facsimile machine or
telecopier or the fact that any signature was transmitted through the use of a
facsimile or telecopier machine as a defense to the enforcement of this
Agreement or any amendment or other document executed in compliance with this
Section 8.11.
SECTION 8.12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. There shall be no third party beneficiaries hereof,
except for and to the extent of persons with a demonstrable interest in the
provisions of Sections 5.03 and 5.04 hereof.
SECTION 8.13. SEVERABILITY. In the event that any provisions of this
Agreement or any portion thereof shall be finally determined to be unlawful or
unenforceable, such provision or portion thereof shall be deemed to be severed
from this Agreement, and every other provision, and any portion of a provision,
that is not invalidated by such determination, shall remain in full force and
effect. To the extent that a provision is deemed unenforceable by virtue of
its scope but may be made enforceable by limitation thereof, such provision
shall be enforceable to the fullest extent permitted under the laws and public
policies of the State whose laws are deemed to govern enforceability. It is
declared to be the intention of the parties that they would have executed the
remaining provisions without including any that may be declared unenforceable.
SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement shall be
governed by the laws of the State of Indiana and applicable federal laws and
regulations. This Agreement may not be assigned by either of the parties
hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
VALLEY FINANCIAL SERVICES, INC.
By: /s/ Darwin L. Wiekamp
___________________________________
Darwin L. Wiekamp
Chairman of the Board
FORT WAYNE NATIONAL CORPORATION
By: /s/ Jackson R. Lehman
___________________________________
Jackson R. Lehman, Chairman of the
Board of Directors and Chief
Executive Officer
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EXHIBIT 1.09
SUBDIVISION C. CLASS B PREFERRED STOCK, SERIES 1.
SUBSECTION 5.03.7. DESIGNATION AND OTHER TERMS OF 6% CUMULATIVE
CONVERTIBLE CLASS B PREFERRED STOCK, SERIES 1.
(a) DESIGNATION AND RANK.
(i) The designation of this series of Class B Preferred
Stock is the 6% Cumulative Convertible Class B Preferred Stock,
Series 1 (hereinafter referred to as the "Series 1 Stock"), and the
number of shares constituting such series shall be 740,000. Series
I stock shall be without value but shall have a stated value of
fifty dollars per share ($50.00).
(ii) The Series 1 Stock shall, with respect to dividend
rights, rights upon liquidation, winding up or dissolution, and
redemption rights, rank (A) junior to any other class or series of
Class A Preferred Stock or Class B Preferred Stock hereafter duly
established by the Board of Directors of the Corporation, the terms
of which shall specifically provide that such series shall rank
prior to the Series 1 Stock as to the payment of dividends and
distribution of assets upon liquidation (the "Senior Preferred
Stock") (B) PARI PASSU with any other class of series of Class A
Preferred Stock or Class B Preferred Stock hereafter duly
established by the Board of Directors of the Corporation, the terms
of which shall specifically provide that such class or series shall
rank PARI PASSU with the Series 1 Stock as to the payment of
dividends and distribution of assets upon liquidation (the "Parity
Preferred Stock") and (C) prior to any other class or series of
capital stock of or other equity interests in the Corporation,
including, without limitation, the Common Stock of the Corporation,
whether now existing or hereafter created (all of such classes or
series of capital stock and other equity interests of the
Corporation, including, without limitation, the Common Stock of the
Corporation are collectively referred to herein as the "Junior
Securities").
(b) DIVIDEND RIGHTS.
(i) The holders of shares of Series 1 Stock shall be
entitled to receive, when and as declared by the Board of
Directors, out of funds legally available therefor, cash dividends,
accruing from the date of initial issuance (the "Issue Date"), at
the annual rate of 6.00% per annum, and no more, computed on the
stated value of $50.00 for each share. Dividends shall be payable,
when and as declared by the Board of Directors, quarterly on April
1, July 1, October 1, and January 1 of each year (each quarterly
period ending on any such date being hereinafter referred to as a
"dividend period"), commencing July 11, 1996. Each dividend will
be payable to holders of record as they appear on the stock books
of the Corporation on such record dates as shall be fixed by the
Board of Directors of the Corporation. Dividends payable on the
<PAGE> - 120 -
Series 1 Stock (A) for any period other than a full dividend period
shall be computed based upon the actual number of days elapsed up
to but not including the dividend payment date divided by 365, and
(B) for each full dividend period shall be computed by dividing the
annual dividend rate by four.
(ii) Holders of shares of the Series 1 Stock shall not be
entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends on such shares. No
interest or sum of money in lieu of interest shall be payable in
respect of any dividend payment or payments which may be in
arrears.
(iii) Unless full cumulative dividends on all outstanding
shares of the Series 1 Stock shall have been paid or declared and
set aside for payment for all past dividend periods, no dividend
(other than a dividend in Common Stock or in any Junior Securities)
shall be declared upon the Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such Junior
Securities) by the Corporation except for any redemption, purchase
or acquisition relating to a conversion of or exchange for such
Junior Securities.
(c) LIQUIDATION PREFERENCES.
(i) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of Series 1 Stock shall be entitled to
receive out of the assets of the Corporation available for
distribution to shareholders an amount equal to $50.00 per share
plus an amount equal to any accrued and unpaid dividends thereon to
and including the date of such distribution, and no more, before
any distribution shall be made to the holders of any Junior
Securities. After payment of such liquidating distributions, the
holders of shares of Series 1 Stock shall not be entitled to any
further participation in any distribution of assets by the
Corporation.
(ii) In the event the assets of the Corporation available
for distribution to shareholders upon any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary
or involuntary, shall be insufficient to pay in full the amounts
payable with respect to the Series 1 Stock and any other Parity
Preferred Stock, the holders of Series 1 Stock and the holders of
such Parity Preferred Stock shall share ratably in any distribution
of assets of the Corporation in proportion to the full respective
amounts to which they are entitled.
(iii) The merger or consolidation of the Corporation into or
with any other corporation, the merger or consolidation of any
other corporation into or with the Corporation or the sale of the
assets of the Corporation substantially as an entirety shall not be
deemed a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this subsection (c).
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(d) REDEMPTION.
(i) Subject to obtaining the prior approval of the Board of
Governors of the Federal Reserve System, if necessary, the
Corporation, at its option, may redeem any or all shares of Series
1 Stock, at any time or from time to time, on or after April 1,
2002 at a redemption price of $50.00 per share, plus an amount
equal to accrued and unpaid dividends thereon to but not including
the date of redemption (the "Redemption Price").
(ii) If less than all the outstanding shares of Series 1
Stock are to be redeemed, the shares to be redeemed shall be
selected pro rata as nearly as practicable.
(iii) Notice of any redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the date fixed for redemption to the holders of
record of the shares of Series 1 Stock to be redeemed, at their
respective addresses appearing on the books of the Corporation.
Notice so mailed shall be conclusively presumed to have been duly
given whether or not actually received. Such notice shall state
(A) the date fixed for redemption; (B) the Redemption Price; (C)
that the holder has the right to convert such shares into Common
Stock until the close of business on the tenth day preceding the
redemption date; (D) the then effective Conversion Ratio (as
defined in section (e) below) and the place where certificates for
such shares may be surrendered for conversion; (E) the number of
shares of Series 1 Stock to be redeemed and if less than all the
shares held by such holder are to be redeemed, the number of such
shares to be so redeemed from such holder; (F) the place where
certificates for such shares are to be surrendered for payment of
the Redemption Price; and (G) that after such date fixed for
redemption the shares to be redeemed shall not accrue dividends.
If such notice is mailed as aforesaid, and if on or before the date
fixed for redemption funds sufficient to redeem the shares called
for redemption are set aside by the Corporation in trust for the
account of the holders of the shares to be redeemed,
notwithstanding the fact that any certificate for shares called for
redemption shall not have been surrendered for cancellation, on and
after the redemption date the shares represented thereby so called
for redemption shall be deemed to be no longer outstanding,
dividends thereon shall cease to accrue and all rights of the
holders of such shares as shareholders of the Corporation shall
cease (except the right to receive the Redemption Price, without
interest, upon surrender of the certificate representing such
shares). Upon surrender in accordance with the aforesaid notice of
the certificate for any shares so redeemed (duly endorsed or
accompanied by appropriate instruments of transfer, if so required
by the Corporation in such notice), the holders of record of such
shares shall be entitled to receive the Redemption Price, without
interest. Notwithstanding the foregoing, however, as and to the
extent that the Corporation is required or permitted under the
abandoned property laws of any jurisdiction to escheat any
redemption funds held in trust for the benefit of any holder, the
Corporation shall be absolved of any further obligation or
liability to such holder to the full extent provided by any such
law. In case fewer than all the shares represented by any such
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certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder
thereof.
(iv) At the option of the Corporation, if notice of
redemption is mailed as aforesaid, and if prior to the date fixed
for redemption funds sufficient to pay in full the Redemption Price
are deposited in trust, for the account of the holders of the
shares to be redeemed, with a bank or trust company named in such
notice doing business in the State of Indiana or the Borough of
Manhattan, The City of New York, State of New York, and having
capital and surplus of at least $50 million (which bank or trust
company also may be the transfer agent and/or paying agent for the
Series 1 Stock) notwithstanding the fact that any certificate(s)
for shares called for redemption shall not have been surrendered
for cancellation, on and after such date of deposit the shares
represented thereby so called for redemption shall be deemed to be
no longer outstanding, and all rights of the holders of such shares
as shareholders of the Corporation shall cease, except the right of
the holders thereof to convert such shares in accordance with the
provisions of section (e) below at any time prior to the close of
business on the tenth day preceding the redemption date and the
right of the holders thereof to receive out of the funds so
deposited in trust the Redemption Price, without interest, upon
surrender of the certificate(s) representing such shares. Any
funds so deposited with such bank or trust company in respect of
shares of Series 1 Stock converted before the close of business on
the tenth day preceding the redemption date shall be returned to
the Corporation upon such conversion. Unless otherwise required by
law, any funds so deposited with such bank or trust company which
shall remain unclaimed by the holders of shares called for
redemption at the end of two years after the redemption date shall
be repaid to the Corporation, on demand, and thereafter the holder
of any such shares shall look only to the Corporation for the
payment, without interest, of the Redemption Price.
Notwithstanding the foregoing, however, as and to the extent that
the Corporation is required or permitted under the abandoned
property laws of any jurisdiction to escheat any redemption funds
held in trust for the benefit of any holder, the Corporation shall
be absolved of any further obligation or liability to such holder
to the full extent provided by any such laws.
(v) Any provision of this section (d) to the contrary
notwithstanding, in the event that any dividends payable on the
Series 1 Stock shall be in arrears and until all such dividends in
arrears shall have been paid or declared and set apart for payment
the Corporation shall not redeem any shares of Series 1 Stock
unless all outstanding shares of Series 1 Stock are simultaneously
redeemed and shall not purchase or otherwise acquire any shares of
Series 1 Stock except in accordance with a purchase or exchange
offer made on the same terms to all holders of record of Series 1
Stock for the purchase of all outstanding shares thereof.
(e) CONVERSION RIGHTS. The holders of shares of Series 1 Stock
shall have the right, at their option, to convert such shares into shares
of Common Stock on the following terms and conditions:
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(i) Each Share of Series 1 Stock shall be convertible at any
time into fully paid and nonassessable shares of Common Stock at a
conversion ratio (the "Conversion Ratio") equal to $50 divided by
120% of the average of the per share closing prices of a share of
Common Stock as reported on the Nasdaq Stock Market's National
Market as reported in the WALL STREET JOURNAL (Midwest Edition)
during the twenty (20) trading day period preceding the fifth (5th)
calendar day preceding the Issue Date. The Conversion Ratio shall
be subject to adjustment from time to time as hereinafter provided.
No payment or adjustment shall be made on account of any accrued
and unpaid dividends on shares of Series 1 Stock surrendered for
conversion prior to the record date for the determination of
shareholders entitled to such dividends or on account of any
dividends on the shares of Common Stock issued upon such conversion
subsequent to the record date for the determination of shareholders
entitled to such dividends. If any shares of Series 1 Stock shall
be called for redemption, the right to convert the shares
designated for redemption shall terminate at the close of business
on the tenth day preceding the date fixed for redemption unless
default is made in the payment of the Redemption Price. In the
event of default in the payment of the Redemption Price, the right
to convert the shares designated for redemption shall terminate at
the close of business on the business day immediately preceding the
date that such default is cured.
(ii) In order to convert shares of Series 1 Stock into
Common Stock, the holder thereof shall surrender the certificates
therefor, duly endorsed if the Corporation shall so require, or
accompanied by appropriate instruments of transfer satisfactory to
the Corporation, at the office of the transfer agent for the Series
1 Stock, or at such other office as may be designated by the
Corporation, together with written notice that such holder
irrevocably elects to convert such shares. Such notice shall also
state the name and address in which such holder wishes the
certificate for the shares of Common Stock issuable upon conversion
to be issued. As soon as practicable after receipt of the
certificates representing the shares of Series 1 Stock to be
converted and the notice of election to convert the same, the
Corporation shall issue and deliver at said office a certificate
for the number of whole shares of Common Stock issuable upon
conversion of the shares of Series 1 Stock surrendered for
conversion, together with a cash payment in lieu of any fraction of
a share, as hereinafter provided, to the person entitled to receive
the same. If more than one stock certificate for Series 1 Stock
shall be surrendered for conversion at one time by the same holder,
the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of
shares represented by all the certificates so surrendered. Shares
of Series 1 Stock shall be deemed to have been converted
immediately prior to the close of business on the date such shares
are surrendered for conversion and notice of election to convert
the same is received by the Corporation in accordance with the
foregoing provision, and the person entitled to receive the Common
Stock issuable upon such conversion shall be deemed for all
purposes as the record holder of such Common Stock as of such date.
(iii) In the case of any share of Series 1 Stock which is
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<PAGE>
converted after any record date with respect to the payment of a
dividend on the Series 1 Stock and on or prior to the date on which
such dividend is payable by the Corporation (the "Dividend Due
Date"), the dividend due on such Dividend Due Date shall be payable
on such Dividend Due Date to the holder of record of such shares as
of such preceding record date notwithstanding such conversion.
Shares of Series 1 Stock surrendered for conversion during the
period from the close of business on any record date with respect
to the payment of a dividend on the Series 1 Stock next preceding
any Dividend Due Date to the opening of business on such Dividend
Due Date shall (except in the case of shares of Series 1 Stock
which have been called for redemption on a redemption date within
such period) be accompanied by payment of an amount equal to the
dividend payable on such Dividend Due Date on the shares of Series
1 Stock being surrendered for conversion. The dividend with
respect to a share of Series 1 Stock called for redemption on a
redemption date during the period from the close of business on any
record date with respect to the payment of a dividend on the Series
1 Stock next preceding any Dividend Due Date to the opening of
business on such Dividend Due Date shall be payable on such
Dividend Due Date to the holder of record of such share on such
dividend record date, notwithstanding the conversion of such share
of Series 1 Stock after such record date and prior to such Dividend
Due Date, and the holder converting such share of Series 1 Stock
called for redemption need not include a payment of such dividend
amount upon surrender of such share of Series 1 Stock for
conversion. Except as provided in this subsection (iii), no
payment or adjustment shall be made upon any conversion on account
of any dividends accrued on shares of Series 1 Stock surrendered
for conversion or on account of any dividends on the shares of
Common Stock issued upon conversion.
(iv) No fractional shares of Common Stock shall be issued
upon conversion of any shares of Series 1 Stock. If the conversion
of any shares of Series 1 Stock results in a fractional share of
Common Stock, the Corporation shall pay cash in lieu thereof in an
amount equal to such fraction multiplied by the Current Market
Price of the Common Stock (as defined below), on the date on which
the shares of Series 1 Stock were duly surrendered for conversion,
or if such date is not a trading date, on the next succeeding
trading date.
(v) The Conversion Ratio shall be adjusted from time to time
after the Issue Date, as follows:
(A) In case the Corporation shall pay or make a
dividend or other distribution on shares of Common Stock in
Common Stock, the Conversion Ratio in effect at the opening
of business on the date following the date fixed for the
determination of shareholders entitled to receive such
dividend or other distribution shall be increased by dividing
such Conversion Ratio by a fraction of which the numerator
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<PAGE>
shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such
determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the
day following the date fixed for such determination.
(B) In case the Corporation shall issue additional
rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price
of the Common Stock on the date fixed for the determination
of shareholders entitled to receive such rights or warrants
(other than pursuant to a dividend reinvestment plan), the
Conversion Ratio in effect at the opening of business on the
day following the date fixed for such determination shall be
increased by dividing such Conversion Ratio by a fraction of
which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common
Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription
or purchase would purchase at the Current Market Price of the
Common Stock and the denominator shall be the number of
shares of Common Stock outstanding at the close of business
on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or
purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed
for such determination.
(C) In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of Common
Stock, the Conversion Ratio in effect at the opening of
business on the day following the day upon which such
subdivision becomes effective shall be proportionately
increased, and, conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Ratio in effect at the
opening of business on the day following the day upon which
such combination becomes effective shall be proportionately
reduced, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on
the day following the day upon which such subdivision or
combination becomes effective.
(D) In case the Corporation shall, by dividend or
otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness or assets (including
securities, but excluding (1) any rights or warrants referred
to in clause (B) above, (2) any dividend or distribution paid
in cash out of the retained earnings of the Corporation, and
(3) any dividend or distribution referred to in clause (A)
above), the Conversion Ratio shall be adjusted so that the
same shall equal the ratio determined by multiplying the
Conversion Ratio in effect immediately prior to the close of
business on the date fixed for the determination of
shareholders entitled to receive such distribution by a
fraction of which the numerator shall be the Current Market
Price of the Common Stock on the date fixed for such
determination less the then fair market value (as determined
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<PAGE>
by the Board of Directors, whose determination shall be
conclusive and shall be described in a statement filed with
the transfer agent for the Series 1 Stock) of the portion of
the evidences of indebtedness or assets so distributed
applicable to one share of Common Stock and the denominator
shall be the Current Market Price of the Common Stock, such
adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for
the determination of shareholders entitled to receive such
distribution.
(E) For the purposes of this section (e), the
reclassification of Common Stock into securities including
securities other than Common Stock (other than any
reclassification upon a consolidation or merger to which
subsection (vi) below applies) shall be deemed to involve (1)
a distribution of such securities other than Common Stock to
all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be "the date fixed for
the determination of shareholders entitled to receive such
distribution" and the "date fixed for such determination"
within the meaning of clause (D) above), and (2) a
subdivision or combination, as the case may be, of the number
of shares of Common Stock outstanding immediately prior to
such reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the effective
date of such reclassification shall be deemed to be "the day
upon which such subdivision became effective" or "the day
upon which such combination becomes effective" as the case
may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of clause
(C) above).
(F) For purposes of this section (e), (other than
subsection e(i)) the Current Market Price of the Common Stock
on any day shall be deemed to be the average of the daily
closing prices for the 30 consecutive trading days commencing
45 trading days before the day in question. The closing
price for each day shall be the reported last sale price or,
in case no such reported sale takes place on such day, the
average of the reported closing bid and asking prices, in
either case on the Nasdaq Stock Market's National Market
("Nasdaq") or, if the Common Stock is no longer quoted for
trading on such system, on the principal national securities
exchange on which the Common Stock is then listed or admitted
to trading or, if the Common Stock is not quoted on Nasdaq or
listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by the
Board of Directors for that purpose.
(G) Notwithstanding the foregoing, no adjustment in
the Conversion Ratio for the Series 1 Stock shall be required
unless such adjustment would require an increase or decrease
of at least 1% in such ratio; PROVIDED, HOWEVER, that any
adjustments which are not required to be made shall be
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<PAGE>
carried forward and taken into account in any subsequent
adjustment. All calculations under this section (e) shall be
made to the nearest cent or to the nearest one-ten thousandth
of a share (0.0001), as the case may be.
(vi) Whenever the Conversion Ratio shall be adjusted as
herein provided (A) the Corporation shall forthwith make available
at the office of the transfer agent for the Series 1 Stock a
statement describing in reasonable detail the adjustment, the facts
requiring such adjustment and the method of calculation used; and
(B) the Corporation shall cause to be mailed by first class mail,
postage prepaid, as soon as practicable to each holder of record of
shares of Series 1 Stock a notice stating that the Conversion Ratio
has been adjusted and setting forth the adjusted Conversion Ratio.
(vii) In the event of any consolidation of the Corporation
with or merger of the Corporation into any other corporation (other
than a merger in which the Corporation is the surviving
corporation) or a sale, lease or conveyance of the assets of the
Corporation as an entirety or substantially as an entirety, or any
statutory exchange of securities with another corporation, the
holder of each share of Series 1 Stock shall have the right, after
such consolidation, merger, sale or exchange to convert such share
into the number and kind of shares of stock or other securities and
the amount and kind of property which such holder would have been
entitled to receive upon such consolidation, merger, sale or
exchange of the number of shares of Common Stock that would have
been issued to such holder had such shares of Series 1 Stock been
converted immediately prior to such consolidation, merger or sale.
The provisions of this subsection (vii) shall similarly apply to
successive consolidations, mergers, sales or exchanges.
(viii) The Corporation shall pay any taxes that may be
payable in respect of the issuance of shares of Common Stock upon
conversion of shares of Series 1 Stock, but the Corporation shall
not be required to pay any taxes which may be payable in respect of
any transfer involved in the issuance of shares of Common Stock in
the name other than that in which the shares of Series 1 Stock so
converted are registered, and the Corporation shall not be required
to issue or deliver any such shares unless and until the person
requesting such issuance shall have paid to the Corporation the
amount of any such taxes, or shall have established to the
satisfaction of the Corporation that such taxes have been paid.
(ix) The Corporation may (but shall not be required to) make
such increases and reductions in the Conversion Ratio, in addition
to those required by clauses (A) through (D) of subsection (v)
above, as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipients.
(x) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the full
number of shares of Common Stock issuable upon the conversion of
all shares of Series 1 Stock then outstanding.
(xi) In the event that:
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<PAGE>
(A) the Corporation shall declare a dividend or any
other distribution on its Common Stock, payable otherwise
than in cash out of retained earnings; or
(B) the Corporation shall authorize the granting to
the holders of its Common Stock of rights to subscribe for or
purchase any shares of capital stock of any class or of any
other rights; or
(C) any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation,
consolidation or merger of the Corporation with or into
another corporation (other than a merger in which the
Corporation is the surviving corporation), or sale, lease or
conveyance of the assets of the Corporation as an entirety or
substantially as an entirety to another corporation occurs;
or
(D) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation occurs, the
Corporation shall cause to be mailed to the holders of record
of Series 1 Stock at least 15 days prior to the applicable
date hereinafter specified a notice stating (x) the date on
which a record is to be taken for the purpose of such
dividend, distribution of rights or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or
rights are to be determined, or (y) the date on which such
reorganization, reclassification, consolidation, merger,
sale, lease, conveyance, dissolution, liquidation or winding
up is expected to take place, and the date, ff any is to be
fixed, as of which holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
sale, lease, conveyance, dissolution, liquidation or winding
up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend,
distribution, reorganization, reclassification,
consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding up.
(f) VOTING RIGHTS. Other than as required by applicable law
or as expressly provided in subsection 5.03.3 of the Corporation's
Amended Articles of Incorporation, the holders of Series 1 Stock
shall not have any voting rights.
(g) REACQUIRED SHARES. Shares of Series 1 Stock converted,
redeemed, or otherwise purchased or acquired by the Corporation
shall be restored to the status of authorized but unissued shares
of Class B Preferred Stock without designation as to series and may
thereafter be issued, but not as Series 1 Stock.
(h) NO SINKING FUND. Shares of Series 1 Stock are not
subject to the operation of a sinking fund or other obligation of
the Corporation to redeem or retire the Series 1 Stock.
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EXHIBIT 1.14(a)
OPINION OF COUNSEL FOR VALLEY
Capitalized terms used herein have the meanings assigned to them in the
Agreement:
1. Valley is a corporation duly organized and validly existing under the
laws of the State of Indiana and has the corporate power to own all of its
property and assets and to carry on its business as now being conducted.
Valley does not do business in any jurisdiction other than the State of Indiana
in such a manner that would require qualification, registration or good
standing in any such jurisdiction.
2. The authorized capital stock of Valley consists of (i) 240,000 shares
of Valley Common, of which, as of the date hereof, 204,788 shares are issued
and outstanding; and (ii) 60,000 shares of Valley Preferred, of which, as of
the date hereof, 51,197 shares are issued and outstanding. To the best of such
counsel's knowledge, there are no other shares of capital stock or other equity
securities of Valley outstanding and no outstanding options, warrants, rights
to subscribe for, calls, or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
Valley Common or Valley Preferred or other capital stock of Valley or
contracts, commitments, understandings or arrangements by which Valley is or
may be obligated to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock. All of the issued and outstanding shares of Valley Common and Valley
Preferred are duly and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of Valley Common or Valley
Preferred has been issued in violation of any preemptive rights of the current
or past shareholders of Valley.
3. Valley has the corporate power and authority to enter into the
Agreement and to carry out its obligations thereunder. The Board of Directors
of Valley has, by all necessary action, approved the Agreement and the Merger
and authorized the execution of the Agreement on behalf of Valley by its duly
authorized officers and the performance by Valley of its obligations hereunder.
The holders of Valley Common and Valley Preferred have duly approved the
Agreement and the Merger in accordance with the Corporate Law and Valley's
Articles of Incorporation and By-Laws. No other corporate proceedings on the
part of Valley are required in order for Valley to enter into and perform its
obligations under the Agreement. The Agreement has been duly executed and
delivered by Valley and is a valid and binding obligation of Valley,
enforceable against Valley in accordance with its terms, subject to bankruptcy,
insolvency, receivership, moratorium or other laws relating to or affecting
creditors' rights generally and to general equity principles.
4. Nothing in the Articles of Incorporation or By-Laws of Valley, as
amended, or any agreement, instrument, decree or proceeding known to such
counsel, or any law or regulation of the State of Indiana or the United States,
by or to which Valley or any of its subsidiaries are bound or subject,
prohibits Valley from entering into and consummating the Agreement and the
Merger on the terms and conditions contained in the Agreement.
5. Other than the filing of the Articles of Merger with the Indiana
Secretary of State under the Corporate Law, no notice to, filing with,
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<PAGE>
exemption or review by, or authorization, consent or approval of, any
Regulatory Agency is required under the laws of the United States or the State
of Indiana for the consummation by Valley of the transactions contemplated by
the Agreement.
6. To the best knowledge of such counsel, except as disclosed in Section
2.08 of the Disclosure Schedule, there are no actions, suits or proceedings
pending or threatened against Valley or any of its subsidiaries, and neither
Valley nor any of its subsidiaries is subject to any order, judgment or decree,
that, in the aggregate could reasonably be expected to have a material adverse
effect on the financial condition, properties, business or results of
operations of Valley and its subsidiaries taken as a whole.
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<PAGE>
EXHIBIT 1.14(b)
OPINION OF COUNSEL FOR FWNC
Capitalized terms used herein have the meanings assigned to them in the
Agreement:
1. FWNC is a corporation duly incorporated and validly existing under
the laws of the State of Indiana with full corporate power and authority
to carry on its business as it is now being conducted.
2. The Board of Directors of FWNC has, by all necessary action, approved
the Agreement and the Merger and authorized the execution of the Agreement on
behalf of FWNC by its duly authorized officers and the performance by FWNC of
its obligations hereunder. The Agreement has been duly executed and delivered
by FWNC and is a valid and binding obligation of FWNC, enforceable against FWNC
in accordance with its terms, subject to bankruptcy, insolvency, receivership,
moratorium or other laws related to or affecting creditors' rights generally
and to general equity principles.
3. Nothing in the Amended Articles of Incorporation or By-Laws of
FWNC, as amended, or any agreement, instrument, decree or proceeding known
to such counsel, or any law or regulation of the State of Indiana or the
United States, by or to which FWNC or any of its subsidiaries are bound or
subject, prohibits FWNC from entering into and consummating the Agreement and
the Merger on the terms and conditions contained in the Agreement.
4. The Registration Statement has become effective under the Securities
Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened.
5. Other than the filings and approvals required under the BHCA and
the Indiana Financial Institutions Act, as amended, all of which have been
made or obtained, or as may be required by the securities or blue shy laws of
the various states (as to which such counsel shall express no opinion), and
other than the filing of the Articles of Merger with the Indiana Secretary of
State under the Corporate Law, no notice to, filing with, exemption or review
by, or authorization, consent or approval of, any Regulatory Agency is
required under the laws of the United States or the State of Indiana for the
consummation by FWNC of the transactions contemplated by the Agreement.
6. The shares of FWNC Common and Preferred to be issued as part of the
Valley Merger Consideration shall, when issued and delivered in accordance with
the terms of the Agreement and the Merger Letter of Transmittal, be authorized,
validly issued, fully paid and nonassessable.
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<PAGE>
11/06/95
All matters listed, disclosed or attached to any Section of this
Disclosure Schedule shall be deemed to be disclosed in any Section of this
Disclosure Schedule where it could be interpreted that disclosure of said
matter in that Section was also required. Stated otherwise, disclosure of a
matter in one Section of this Disclosure Schedule is Disclosure in each
Section of the Disclosure Schedule where such disclosure may be required.
IN WITNESS WHEREOF, the parties hereto have duly executed this Disclosure
Schedule as of the 6 day of Nov, 1995.
VALLEY FINANCIAL SERVICES, INC.
By: /s/ Darwin L. Wiekamp
----------------------
Darwin L. Wiekamp
Chairman of the Board
FORT WAYNE NATIONAL CORPORATION
By: /s/ Jackson R. Lehman
----------------------
Chairman and Chief Executive Officer
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<PAGE>
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
-------- -------- --------
(Amounts in thousands, except
per share data)
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 11,449 11,480 11,433
Net effect of dilutive stock options --
based on the treasury stock method
using average market price 55 42 77
------- ------- -------
TOTAL 11,504 11,522 11,510
======= ======= =======
Net Income $26,707 $26,212 $24,133
======= ======= =======
Earnings per Share $2.32 $2.27 $2.10
======= ======= =======
FULLY DILUTED
Average shares outstanding 11,449 11,480 11,433
Net effect of dilutive stock options --
based on the treasury stock method
using the higher of the end of the
period market price or average
market price 87 42 77
------- ------- -------
TOTAL 11,536 11,522 11,510
======= ======= =======
Net Income $26,707 $26,212 $24,133
======= ======= =======
Earnings per Share $2.32 $2.27 $2.10
======= ======= =======
</TABLE>
[FN]
NOTE -- Average shares outstanding were used for the earnings per share
calculation included in the Company's financial statements since
the dilutive effect of stock options granted were less than 3%.
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<PAGE>
FORT WAYNE NATIONAL CORPORATION
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are wholly owned subsidiaries of the Registrant:
Fort Wayne National Bank, Fort Wayne, Indiana, a national banking
association formed under the laws of the United State.
The Auburn State Bank, Auburn, Indiana, chartered by the State of Indiana.
Churubusco State Bank, Churubusco, Indiana, chartered by the State of Indiana.
Old-First National Bank in Bluffton, Bluffton, 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.
First National Bank of Huntington, Huntington, Indiana, a national banking
association formed under the laws of the United States.
Fort Wayne National Life Insurance Company, Phoenix, Arizona, chartered by
the State of Arizona.
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<PAGE>
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 16, 1996, 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, 1995.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 27, 1996
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<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 177,602
<INT-BEARING-DEPOSITS> 200
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0
0
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<ALLOWANCE-UNALLOCATED> 20,047
</TABLE>
