UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File
September 30, 1996 Number 0-10869
FORT WAYNE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter.)
INDIANA 35-1502812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 West Berry Street
Post Office Box 110, Fort Wayne, Indiana 46801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219) 426-0555
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,
and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Class Outstanding November 7, 1996
________________________________ ______________________________
Common Shares, Without Par Value 11,710,209
6% Cumulative Convertible Class B
Preferred Stock, Series 1 739,976
The exhibit index appears on page 18.
This report, including the cover page contains a total of 20 pages.
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FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Consolidated balance sheet -- September 30, 1996,
December 31, 1995 and September 30, 1995......... 3.
Consolidated statement of income -- three months
and nine months ended September 30, 1996 and 1995 4.
Consolidated statement of cash flows -- nine
months ended September 30, 1996 and 1995......... 5.
Notes to consolidated financial statements --
September 30, 1996............................... 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 8 - 15.
</TABLE>
<TABLE>
<CAPTION>
PART II OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings................................ 16.
Item 2. Changes in Securities............................ 16.
Item 3. Defaults on Senior Securities.................... 16.
Item 4. Submission of Matters to a Vote of Security
Holders......................................... 16.
Item 5. Other Information................................ 16.
Item 6. Exhibits and Reports on Form 8-K................. 16.
</TABLE>
SIGNATURES.................................................. 17.
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<TABLE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
Sept 30 Dec 31 Sept 30
1996 1995 1995
__________ __________ __________
(In thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 182,083 $ 177,602 $ 135,619
Federal funds sold and securities
purchased under agreements to
resell 23,500 27,150 22,625
Interest-bearing deposits with banks 426 200 200
Investment securities 989,041 764,560 734,712
Loans 1,832,691 1,276,567 1,287,616
Less: Unearned income (2,442) (3,173) (2,973)
Allowance for possible
loan losses (32,105) (20,047) (19,836)
__________ __________ __________
NET LOANS 1,798,144 1,253,347 1,264,807
Premises and equipment 55,330 33,664 32,870
Other assets 106,093 39,584 39,741
__________ __________ __________
TOTAL ASSETS $3,154,617 $2,296,107 $2,230,574
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Deposits:
Noninterest-bearing $ 375,745 $ 284,003 $ 267,078
Interest-bearing 1,975,112 1,483,527 1,452,672
__________ __________ __________
TOTAL DEPOSITS 2,350,857 1,767,530 1,719,750
Federal funds purchased and
securities sold under agreements
to repurchase 386,474 241,263 216,487
Notes payable - U.S. Treasury and
other borrowings 82,150 26,381 41,866
Dividends payable 3,419 2,743 2,742
Accrued liabilities 22,000 16,852 17,079
Subordinated and other long-term
notes 25,114 6,400 6,400
__________ __________ __________
TOTAL LIABILITIES 2,870,014 2,061,169 2,004,324
Deferred gain on sale of premises 1,028 1,227 1,293
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:
Series 1 6% convertible shares
outstanding - 1996 - 739,976 36,999 -- --
Common stock, without par value:
Authorized shares: 20,000,000
Issued and outstanding shares -
September 30,1996 - 11,751,959;
December 31, 1995 - 11,428,717
September 30,1995 - 11,424,073; 19,587 19,048 19,040
Capital surplus 49,467 31,502 31,438
Retained earnings 174,557 170,990 166,724
Unrealized gain on securities
available-for-sale 2,965 12,171 7,755
__________ __________ __________
TOTAL SHAREHOLDERS' EQUITY 283,575 233,711 224,957
__________ __________ __________
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $3,154,617 $2,296,107 $2,230,574
========== ========== ==========
</TABLE>
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<TABLE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended Sept 30 Ended Sept 30
________________ ________________
1996 1995 1996 1995
_______ _______ _______ _______
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $40,213 $28,771 $99,082 $83,540
Tax-exempt 280 345 724 1,087
Interest and dividends on
investment securities:
Taxable 12,759 8,596 32,272 25,870
Tax-exempt 2,984 2,596 8,367 7,827
Interest on federal funds
sold and securities
purchased under agreements
to resell 382 540 1,271 720
Interest on deposits with
banks 5 3 12 5
_______ _______ _______ _______
TOTAL INTEREST INCOME 56,623 40,851 141,728 119,049
INTEREST EXPENSE
Interest on deposits 22,445 16,915 57,705 48,027
Interest on federal funds
purchased and securities
sold under agreements
to repurchase 4,861 3,468 10,843 9,981
Interest on notes payable -
U.S. Treasury and other
borrowings 835 443 1,584 1,031
Interest on subordinated and
other long-term notes 543 207 1,071 661
_______ _______ _______ _______
TOTAL INTEREST EXPENSE 28,684 21,033 71,203 59,700
_______ _______ _______ _______
NET INTEREST INCOME
BEFORE PROVISION FOR
POSSIBLE LOAN LOSSES 27,939 19,818 70,525 59,349
Provision for possible
loan losses 940 715 2,825 1,710
_______ _______ _______ _______
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 26,999 19,103 67,700 57,639
NONINTEREST INCOME
Fiduciary fees 3,443 2,381 9,168 7,200
Service charges on deposit
accounts 1,910 1,205 4,624 3,523
Other service charges 838 679 2,241 2,180
Net securities gains 9 58 389 69
Other income 830 494 2,031 1,550
_______ _______ _______ _______
TOTAL NONINTEREST INCOME 7,030 4,817 18,453 14,522
NONINTEREST EXPENSE
Salaries and wages 8,833 6,316 22,661 18,742
Employee benefits 2,084 1,445 5,455 4,518
Net Occupancy 1,993 1,257 4,781 3,916
Equipment expense 1,442 1,029 3,876 3,062
FDIC assessment (61) (91) (34) 1,769
Amortization of goodwill and
other intangibles 718 58 1,054 174
Other expense 5,822 4,141 14,588 12,601
_______ _______ _______ _______
TOTAL NONINTEREST EXPENSE 20,831 14,155 52,381 44,782
_______ _______ _______ _______
INCOME BEFORE INCOME TAXES 13,198 9,765 33,772 27,379
Applicable income taxes 4,280 2,910 10,788 7,681
_______ _______ _______ _______
NET INCOME $ 8,918 $ 6,855 $22,984 $19,698
======= ======= ======= =======
Net income per common share $ .70 $ .60 $ 1.91 $ 1.72
======= ======= ======= =======
</TABLE>
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<TABLE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months
Ended Sept 30
1996 1995
________ ________
(In thousands)
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,984 $ 19,698
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for possible loan losses 2,825 1,710
Net accretion and amortization
of investment securities 203 144
Net accretion and amortization
of loans (18) (20)
Provision for depreciation and
amortization of premises and
equipment 3,372 2,614
Deferred income taxes 375 1,289
Capitalized originated mortgage
servicing rights (160) --
Amortization of capitalized
originated mortgage
servicing rights 10 --
Amortization of goodwill and
Other intangibles 1,054 174
Amortization of deferred gain
on sale of premises (199) (200)
Gain on sale of investment
securities available-for-sale (419) (72)
Loss on sale of investment
securities available-for-sale 30 3
Market value adjustment on
investment securities held for
trading purposes 1,321 (57)
Net loss on sale of investment
securities held for trading 1,451 --
Proceeds from sale of investment
securities held for trading 39,546 --
Purchase of investment securities
held for trading (79,079) (20,520)
Loans originated for resale (25,966) (6 869)
Unrealized gain on loans held
for sale -- (31)
Proceeds from sales of loans 24,696 6,748
Net (gain) loss on sale of loans 88 (70)
Net (gain) loss on sale of premises
and equipment (4) 13
(Increase)decrease in other assets 989 (4,455)
Increase (decrease) in
other liabilities (474) 532
________ ________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (7,375) 631
INVESTING ACTIVITIES
Net (increase) decrease in federal
funds sold and securities purchased
under agreements to resell 80,250 (20,725)
Net increase in interest-bearing
deposits with banks 18 --
Proceeds from sales of investment
securities available-for-sale 3,574 1,650
Proceeds from maturities of investment
securities available-for-sale 127,882 134,096
Purchases of investment securities
available-for-sale (178,075) (120,584)
Net increase in loans (25,969) (70,852)
Proceeds from disposals of premises
and equipment 13 32
Purchase of premises and equipment (6,900) (2,773)
Purchase of net assets of Valley
Financial Services, Inc.,
net of cash acquired (62,637) --
________ ________
NET CASH USED IN INVESTING ACTIVITIES (61,844) (79,156)
FINANCING ACTIVITIES
Net increase in deposits 19,695 87,408
Net increase (decrease)
in short-term borrowings 4,816 (18,541)
Issuance of long-term debt 15,000 --
Principal payment on long-term debt (2,563) (760)
Issuance of preferred stock 36,999 --
Issuance of common stock 20,000 --
Cash dividends paid on preferred stock (185) --
Cash dividends paid on common stock (8,831) (7,802)
Proceeds from exercise of stock options 1,030 381
Repurchase of common stock (12,261) (2,826)
________ ________
NET CASH PROVIDED BY
FINANCING ACTIVITIES 73,700 57,860
________ ________
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,481 (20,665)
Cash and cash equivalents at beginning
of period 177,602 156,284
________ ________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $182,083 $135,619
======== ========
</TABLE>
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FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Principals of Consolidation
The financial statements are consolidated statements of Fort
Wayne National Corporation(the Company) and its wholly-
owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. A description of all
significant accounting policies is included in the 1995 Annual
Report to Shareholders.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been made. Operating results for the three-month and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
2. Shareholders' Equity and Per Share Data
Net income per share is based on weighted average shares outstanding of
11,860,931 and 11,424,044 for the three months ended September 30, 1996 and
1995, respectively and 11,630,199 and 11,457,088, for the nine months ended
September 30, 1996 and 1995, respectively.
3. Acquisition of Valley Financial Services, Inc.
On June 1, 1996 the Company acquired, through merger of Valley Financial
Services, Inc, with and into the Company, all of the issued and outstanding
stock of VFS's only banking subsidiary, Valley American Bank and Trust
Company. The merger was completed in accordance with an Agreement and Plan of
Merger between VFS and the Company, dated November 6, 1995. Merger
consideration consisted of $53 million in cash, $20 million in common stock
and $37 million in preferred stock. Goodwill and other intangibles of
$52,804,000 recorded in connection with this acquisition is being amortized
over 20 years. VFS had assets of $823,574,000 at June 1, 1996. This
acquisition has been accounted for as a purchase for accounting purposes, and
accordingly, the results of operations of VFS have ben included in the
consolidated results of operations of the Company from the date of
acquisition.
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FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)- Continued
4. Recently Adopted Accounting Standards
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 122, "Accounting for Mortgage Servicing Rights - An
Amendment to Statement No. 65." The Company has adopted this statement as of
January 1, 1996. Statement 122 prohibits retroactive application to 1995,
therefore the reported results for the three-month and nine-month periods
ended September 30, 1996 are not directly comparable to the three-month and
nine-month periods ended September 30, 1995.
Statement 122 requires the total cost of acquiring mortgage loans, either
through loan origination activities or purchase transactions, to be allocated
to the mortgage servicing rights and the loans based on their relative fair
values. The statement requires entities to measure impairment on a
disaggregated basis by stratifying the capitalized servicing asset based on
one or more predominant risk characteristics of the underlying loans.
Impairment is recognized through a valuation allowance for each individual
stratum as necessary. The adoption of Statement 122 resulted in a pretax gain
of $39,000 and $150,000 for the three and nine months ended September 30,
1996, respectively representing capitalized originated mortgage servicing
rights, net of amortization.
In October 1995, the Financial Accounting Standards Board issued Statement
123, "Accounting for Stock Based Compensation." As permitted by Statement
123, the Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its 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 and,
accordingly, recognizes no compensation for the stock option grants.
5. Reclassifications
Certain amounts in the consolidated financial statements for the three and
nine months ended September 30, 1995 have been reclassified to conform to the
1996 presentation. Such reclassifications had no effect on net income or on
net cash provided or used in operating, investing or financing activities.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FORT WAYNE NATIONAL CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The Company completed the acquisition of Valley Financial Services, Inc. (VFS)
on June 1, 1996. With this acquisition, VFS was merged with and into the
Company and VFS's wholly-owned banking subsidiary, Valley American Bank and
Trust Company (Valley), became a wholly-owned subsidiary of the Company. This
acquisition was accounted for under the purchase method of accounting and,
accordingly, all major balance sheet categories reflected increases as a
result of this acquisition. Total assets of the Company increased $859 million
at September 30, 1996 when compared to December 31, 1995 of which $849 million
is attributable to the Valley acquisition. As the acquisition of Valley was
accounted for as a purchase, the average balances for the third quarter of
1996 include the balances of Valley for a full quarter while the average
balances for the nine months ended September 30, 1996 include the balances of
Valley for the four months since the date of the acquisition. Average daily
assets for the third quarter of 1996 of $3.115 billion were $567 million over
the average for the second quarter of 1996 of which $560 million was
attributable to the Valley acquisition. For the first nine months of 1996,
average daily assets were $2.635 billion compared to $2.149 billion for the
same period in 1995 with $381 million of the increase attributable to the
Valley acquisition.
Loans, net of unearned income, as of September 30, 1996 were $1.830 billion of
which $524 million represented net loans outstanding at Valley on that date.
Excluding the September 30, 1996 Valley balances, loans, net of unearned
income, were $33 million over the amount outstanding at year-end 1995. This
increase was comprised of increases of $22 million, $12 million and $2 million
in real estate mortgage, commercial and industrial, and installment loans,
respectively, offset by a $3 million decrease in commercial real estate loans.
Compared to September 30, 1995, loans, net of unearned income, (excluding
loans outstanding at Valley) increased by $22 million. This is the net of
increases of $22 million and $23 million in real estate mortgage and
commercial real estate loans, respectively, and decreases of $18 million and
$5 million in commercial and industrial and installment loans, respectively.
Average loans outstanding also continued to increase. For the third quarter
of 1996, loans averaged $1.817 billion, a $367 million increase from the
second quarter of 1996. For the nine months ended September 30, 1996, net
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loans outstanding averaged $1.508 billion compared to $1.251 billion for the
same period in 1995. Average loans outstanding at Valley contributed $352
million to the increase over the second quarter of 1995 and $235 million to
the increase over the nine months ended September 30, 1996.
The Company's investment securities portfolio is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Sept 30, 1996 Dec 31, 1995 Sept 30, 1995
------------- ------------ -------------
<S> <C> <C> <C>
Available-for-sale:
Amortized cost $925,512 $722,837 $701,103
Unrealized gain 5,508 20,464 13,031
-------- -------- --------
Total available-for-sale 931,020 743,301 714,134
Held for trading 58,021 21,259 20,578
-------- -------- --------
Total securities $989,041 $764,560 $734,712
======== ======== ========
</TABLE>
Available-for-sale securities, excluding the market valuation adjustment,
increased $203 million from December 31, 1995 with securities held by Valley
accounting for $192 million of this increase. For the first nine months of
1996, excluding the market valuation adjustment and the securities held by
Valley, the average balance of the available-for-sale investment portfolio was
$40 million over the same period last year. Securities held for trading
purposes increased by $38 million from December 31, 1995 to September 30, 1996
and are $37 million over the balance outstanding on September 30, 1995. These
securities are used in a program designed to assist the Company in managing
it's exposure to changing interest rates on certain liabilities.
Federal funds sold and securities purchased under agreements to resell
decreased $4 million as of September 30, 1996 compared to year-end 1995.
However, Valley accounted for over $19 million of the balance on September 30,
1996 and therefore, excluding Valley, the balance decreased by $23 million
from December 31, 1995 to September 30, 1996. On average, federal funds sold
and securities purchased under agreements to resell for the third quarter were
$19 million below the third quarter of 1995. For the nine-month period ended
September 30, 1996, average federal funds sold and securities purchased under
agreements to resell were $13 million above the same period in 1995.
The Company's total deposits increased $583 million at September 30, 1996 when
compared to December 31, 1995 with September 30, 1996 Valley deposits
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accounting for $568 million of the increase. The total deposit balance at
September 30, 1996 was $2.351 billion, a decrease from the $2.383 billion
outstanding at June 30, 1996. However, average total deposits for the third
quarter of 1996 exceeded average total deposits for the second quarter of 1996
by $391 million. For the third quarter, the inclusion of average total
deposits for Valley for the full quarter contributed $377 million to this
increase from the second quarter which included average total deposits of
Valley for only one month. Through September 30, 1996, year-to-date average
deposits were $372 million over the September 30, 1995 year-to-date average.
Valley average deposits accounted for $252 million of this increase, and
therefore excluding Valley, total average deposits for the nine months ended
September 30, 1996 are $120 million or 7.3% above the same period in 1995. On
average, and excluding the balances contributed by Valley, average
interest-bearing checking, savings accounts were $446 million for the nine
months ended September 30, 1996, as compared to $522 million for the same
period of 1995, a decrease of $76 million. In contrast, average
noninterest-bearing checking and average total time deposits for these time
periods were $241 million and $1.072 billion, respectively (exclusive of
Valley averages) in 1996 and $228 million and $888 million, respectively in
1995. The $184 million increase in average time deposits includes an increase
of $149 million in the Company's very popular Anyday/Everyday money market
deposit product.
Short-term borrowings, including federal funds purchased and securities sold
under agreements to repurchase and notes payable, increased $201 million at
September 30, 1996 from December 31, 1995, of which $155 million represents
September 30 ,1996 balances of Valley. On average, short-term borrowings for
the third quarter and nine months ended September 30, 1996 (without Valley)
were $91 million and $30 million above the same periods in 1995, respectively.
Subordinated and other long-term notes increased by $19 million from December
31, 1995 to September 30, 1996. Of this increase, $14 million represents the
remaining balance on a $15 million term note entered into with another
financial institution which is payable in quarterly principal installments
through June, 2003. While this term note bears interest at a variable rate,
the Company has also entered into a rate swap transaction with the holder of
this term note which has the effect of fixing the effective rate of this note
at 6.705%. The remaining $5 million increase represents the current
outstanding balance on subordinated notes originally issued by VFS that were
assumed by the Company upon consummation of the merger of VFS with and into
the Company. These subordinated notes (which bear interest at rates ranging
from 5% to 9%) are unsecured with maturities ranging from 1996 to 2000 and are
subordinated to all other indebtedness of the Company.
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Capital Resources
On June 1, 1996, in connection with the acquisition of VFS, the Company issued
739,976 shares of 6% Cumulative Convertible Class B Preferred Stock Series 1
at a stated value of $50 per share and 646,187 shares of common stock at a
price of $30.95 per share. The Series 1 preferred stock qualifies as Tier 1
capital for purposes of risk-based capital calculations. However, such shares
are not considered common stock equivalents for purposes of the calculation of
primary earnings per share. The Company also repurchased 196,204 shares of
its common stock during the third quarter at a total cost of $6.267 million
bringing the total shares repurchased during 1996 to 388,473 shares at a total
cost of $12.261 million.
The Federal Reserve Board standards classify capital into two categories,
called Tier I and Tier II. The Company is required to maintain a certain
amount of capital in each category based on "risk-adjusted" assets. The
capital guidelines require a combined Tier I and Tier II ratio of 8.0% with at
least a 4.0% Tier I capital ratio. In addition, the Federal Reserve Board
requires a minimum Tier I leverage ratio of 4.0%. Tier I leverage ratio is
defined as Tier I capital divided by total assets less goodwill. While the
Company's risk-based capital ratios have declined after the acquisition of
VFS, the Company's ratios continue to exceed minimum regulatory requirements
as shown in the following table (in thousands of dollars).
<TABLE>
RISK-BASED CAPITAL
<CAPTION>
Sept 30, 1996 Dec 31, 1995 Sept 30, 1996
_____________ ____________ _____________
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tier I Capital $ 226,784 $ 219,479 $ 215,083
Tier II Capital 24,411 18,261 18,062
____________ ____________ ____________
Total Tier I and
Tier II Capital $ 251,195 $ 237,740 $ 233,145
============ ============ ============
Risk-weighted Assets $ 1,945,376 $ 1,461,003 $ 1,445,105
============ ============ ============
Tier I Capital Ratio 11.66% 15.02% 14.88%
Tier II Capital Ratio 1.25% 1.25% 1.25%
____________ ____________ ____________
Total Tier I and
Tier II Capital
Ratio 12.91% 16.27% 16.13%
============ ============ ============
Tier I Leverage Ratio 7.31% 9.57% 9.65%
============ ============ ============
</TABLE>
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<PAGE>
Results of Operations
Net income for the third quarter of 1996 amounted to $8.918 million or $.70
per common share, compared to $6.855 million or $.60 per common share for the
third quarter of 1995. For the first nine months of 1996, net income was
$22.984 million or $1.91 per common share compared to $19.698 million or $1.72
per common share for the same period in 1995. The 1996 results of operations
include the results of Valley from the date of acquisition, June 1, 1996
through September 30, 1996 of $2.876 million.
The net interest margin, measured on a fully taxable equivalent basis, for the
third quarter of 1996 was 4.19% which is comparable to the 4.18% for both the
first and second quarters of 1996. The year-to-date net interest margin of
4.18% represents a decrease of 15 basis points from the 4.33% for the nine
months ended September 30, 1995. Compared to the second quarter of 1996 the
Company's yield on earning assets increased by 16 basis points during the
third quarter of 1996 while the cost of interest-bearing liabilities increased
by 11 basis points.
The Company uses exchange traded financial futures contracts as a part of its
overall interest rate management strategy. Eurodollar futures contracts are
used to hedge interest rate exposure on specific short-term liabilities. The
net increase (decrease) to net interest income from Eurodollar futures
contract transactions was $(145,000) and $(345,000) for the three- and
nine-month periods ended September 30, 1996, respectively and $(138,000) and
$139,000, respectively for the same periods of 1995. Starting in September of
1995 the Company also began using exchange traded U.S. Treasury note and bond
futures and option contracts along with specific U.S. Treasury Securities held
in the Company's trading accounts to hedge against interest rate changes on
certain interest-bearing liability accounts. The net increase (decrease) in
pretax income resulting from realized and unrealized gains and losses on these
securities and futures and option contracts was $9,000 and $(490,000) for the
three- and nine-month periods ended September 30, 1996, respectively, and
$32,000 for both the three- and nine-month periods ended September 30, 1995.
The allowance for possible loan losses is established through a provision for
possible loan losses charged against income. The allowance for possible loan
losses is maintained at a level believed adequate by management to absorb
estimated probable loan losses. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay (including the timing of future payments), the
estimated value of 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.
- 12 -
PAGE
<PAGE>
The allowance for possible loan losses amounted to $32.1 million at September
30, 1996, an increase of $12.1 million from the $20.0 million at December 31,
1995 and $12.3 million over the $19.8 million at September 30, 1995.
Valley's allowance for possible loan losses was $12 million at September 30,
1996. The ratio of the allowance to total loans outstanding at September 30,
1996 was 1.75%, as compared to 1.57% at December 31, 1995 and 1.54% at
September 30, 1995.
The Company's nonperforming loans, including nonaccrual, past due 90 days, and
restructured loans are summarized as follows (in thousands of dollars).
<TABLE>
NONPERFORMING ASSET TABLE
<CAPTION>
Sept 30, 1996 Dec 31, 1995 Sept 30, 1995
_____________ ____________ _____________
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual Loans $ 15,999 $ 18,450 $ 9,730
90 Days Past Due 2,227 1,467 1,763
Restructured 913 -- --
____________ ____________ ____________
Total Nonperforming
Loans $ 19,139 $ 19,917 $ 11,493
============ ============ ============
Nonperforming Loans
as a Percent of
Total Loans
Outstanding 1.05% 1.56% .89%
============ ============ ============
Other Real Estate 1,958 319 324
____________ ____________ ____________
Total Nonperforming
Assets $ 21,097 $ 20,236 $ 11,817
============ ============ ============
Nonperforming Assets
as a Percent of
Total Assets .67% .88% .53%
============ ============ ============
</TABLE>
Amounts attributable to Valley included in the above totals include $1,359,000
in nonaccrual loans, $147,000 in loans 90 days past due, $913,000 in
restructured loans and $1,859,000 in other real estate. Excluding Valley
- 13 -
PAGE
<PAGE>
totals, the Company's total nonperforming loans decreased by $3.2 million from
December 31, 1995 to September 30, 1996.
As of December 31, 1995, the Company had reported an additional $3.2 million
of loans where management was closely monitoring the borrower's ability to
comply with payment terms. Of this amount $332,000 has been paid in full and
$2.3 million was on nonaccrual status at the end of the third quarter of 1996.
Subsequent to September 30, 1996, $1.1 million of the $2.3 million on
nonaccrual status has been paid in full. Management is still closely
monitoring the remaining loans.
Net charge-offs for the third quarter of 1996 amounted to $1,990,000 following
net charge-offs of $291,000 and $286,000 during the second and first quarters
of 1996, respectively. The third quarter increase reflects the partial
charge-off of a nonaccrual loan in the amount of $1,053,000 that had been
fully provided for.
The Company provided $940,000 for possible loan losses during the third
quarter of 1996 compared to $715,000 during the same period of the prior year.
Valley's provision was $150,000 during the third of 1996. The $2,825,000
provided for the nine months ended September 30, 1996, which includes
$200,000 at Valley, was $1,115,000 more than the amount provided for the nine
months ended September 30, 1995.
The Company's noninterest income for the third quarter of 1996 increased $2.2
million from the third quarter of 1995 with Valley contributing $1.3 million
in noninterest income during the third quarter of 1996. For the period ended
September 30, 1996 noninterest income of $18.5 million was $4.0 million above
the prior year's results, with $1.7 million coming from Valley and $1.5
million coming from increased fiduciary fees. Also included in noninterest
income is $389,000 of net securities gains during the nine months ended
September 30, 1996 as compared to $69,000 for the nine months ended September
30, 1995.
As mentioned in Note 4, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights - An Amendment to
Statement No. 65" effective January 1, 1996. As a result of adopting
Statement 122, the Company capitalized $44,000 and $160,000 in originated
mortgage servicing rights for the three- and nine-month periods ended
September 30, 1996. Statement 122 prohibits retroactive application to 1995,
therefore the reported results for the three and nine months ended September
30, 1996 are not directly comparable to the three and nine months ended
September 30,1995 as no amounts were capitalized during 1995.
Noninterest expense increased $6,676,000 during the third quarter of 1996 over
the third quarter of 1995 and $7,599,000 for the nine months ended September
30, 1996 over the same period of 1995. Noninterest expense for Valley
- 14 -
PAGE
<PAGE>
included in the 1996 amounts were $5,502,000 for the third quarter of 1996 and
$7,161,000 for the nine months ended September 30, 1996. Excluding the
results of Valley, noninterest expense would have increased by $1,174,000 or
8.3% from the third quarter of 1995 to the third quarter of 1996 and $438,000
or 1.0% for the nine months ended September 30, 1996 from the same period in
1995.
Salaries and wages increased $3,919,000 for the first nine months of 1996
compared to the same period in 1995 of which approximately 73% represents
salaries and wages for Valley. Excluding Valley, salaries and wages increased
by 5.6%. Employee benefit expense for the for the nine months ended September
30, 1996, without Valley's expenses of $618,000, increased by $319,000 or 7.1%
from the nine months ended September 30, 1996 due to increased pension
expense.
Net occupancy expense for the third quarter of 1996, after deducting Valley's
expenses of $556,000, was $180,000 above the third quarter of 1995. For the
nine months ended September 30, 1996, after deducting Valley's expenses of
$747,000, net occupancy expense was $118,000 or 3.0% above the same period in
1995.
For the three months ended September 30, 1996, equipment expense increased
$413,000 with Valley expenses accounting for $330,000 of the increase. For
the nine months ended September 30, 1996, equipment expense increased by
$814,000 with expenses at Valley accounting for $431,000 of the increase. The
remaining variances reflect increased depreciation and service contract costs
on recent additions to the Company's wide area computer network and the new
loan/teller/platform system.
Other noninterest expense of $14.6 million for the nine months ended September
30, 1996 represents a $2.0 million increase over the $12.6 million for the
same period of 1996. However, Valley contributed $1,664,000 to the 1996 total
and therefore, excluding Valley, this category increased by $323,000 or 2.6%.
Applicable income taxes for the nine months ended September 30, 1996 amounted
to 31.9% of pre-tax net income as compared to 28.1% for the same period of
1995. However, the 1995 effective tax rate was low due to a change in estimate
in connection with the calculation of the Company's overall income tax
accruals.
- 15 -
PAGE
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
This item is inapplicable or is omitted pursuant to
the instructions to Part II.
Item 2. Changes in Securities.
This item is inapplicable or is omitted pursuant to
the instructions to Part II.
Item 3. Defaults on Senior Securities.
This item is inapplicable or is omitted pursuant to
the instructions to Part II.
Item 4. Submission of Matters to a Vote of Security Holders.
This item is inapplicable or is omitted pursuant to
the instructions to Part II.
Item 5. Other Information.
This item is inapplicable or is omitted pursuant to
the instructions to Part II.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Exhibit 11 - Statement Re Computation of Earnings Per Share.
Exhibit 27 - Financial Data Schedule.
b.) Reports on Form 8-K
No Form 8-K was filed during the third quarter of 1996.
- 16 -
PAGE
<PAGE>
FORT WAYNE NATIONAL CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FORT WAYNE NATIONAL CORPORATION
REGISTRANT
November 14, 1996 /s/ Jackson R. Lehman
Date Jackson R. Lehman
Chairman of the Board
November 14, 1996 /s/ Karen M. Kasper
Date Karen M. Kasper
Senior Vice President and Treasurer
- 17 -
PAGE
<PAGE>
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number
Assigned Per
Regulation Sequential
S-K Item 601 Description Page No.
____________ _____________________________________________ _______
<S> <C> <C>
11. Statement RE Computation of Earnings Per Share. 18.
27. Financial Data Schedule. 20.
- 18 -
PAGE
<PAGE>
</TABLE>
<TABLE>
EXHIBIT 11
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended Sept 30 Ended sept 30
________________ ________________
1996 1995 1996 1995
_______ _______ _______ _______
(In thousands, except per share data)
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 11,861 11,424 11,630 11,457
Net effect of dilutive
stock options -- based on
the treasury stock method
using average market price 82 91 74 45
_______ _______ _______ _______
TOTAL 11,943 11,515 11,704 11,502
======= ======= ======= =======
Net income $ 8,918 $ 6,855 $22,984 $19,698
Preferred stock dividends 555 -- 740 --
_______ _______ _______ _______
$ 8,363 $ 6,855 $22,244 $19,698
======= ======= ======= =======
Earnings per share $ .70 $ .60 $ 1.90 $ 1.71
======= ======= ======= =======
FULLY DILUTED
Average shares outstanding 11,861 11,424 11,630 11,457
Net effect of conversion
of preferred stock 996 -- 444 --
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 87 103 87 103
_______ _______ _______ _______
TOTAL 12,944 11,527 12,161 11,560
======= ======= ======= =======
Net income $ 8,918 $ 6,855 $22,984 $19,698
======= ======= ======= =======
Earnings per share $ .69 $ .59 $ 1.89 $ 1.70
======= ======= ======= =======
<FN>
Note - Average shares outstanding were used for earnings per share amounts
included in the Company's financial statements since the dilutive
effect of the assumed conversion of preferred stock and stock options
granted were less than 3%.
</TABLE>
- 19 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORT WAYNE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTH PERIOD
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 182,083
<INT-BEARING-DEPOSITS> 426
<FED-FUNDS-SOLD> 23,500
<TRADING-ASSETS> 58,021
<INVESTMENTS-HELD-FOR-SALE> 931,020
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,830,249
<ALLOWANCE> 32,105
<TOTAL-ASSETS> 3,154,617
<DEPOSITS> 2,350,857
<SHORT-TERM> 468,624
<LIABILITIES-OTHER> 26,447
<LONG-TERM> 25,114
<COMMON> 19,587
0
36,999
<OTHER-SE> 226,989
<TOTAL-LIABILITIES-AND-EQUITY> 3,154,617
<INTEREST-LOAN> 99,806
<INTEREST-INVEST> 40,369
<INTEREST-OTHER> 1,283
<INTEREST-TOTAL> 141,728
<INTEREST-DEPOSIT> 57,705
<INTEREST-EXPENSE> 71,203
<INTEREST-INCOME-NET> 70,525
<LOAN-LOSSES> 2,825
<SECURITIES-GAINS> 389
<EXPENSE-OTHER> 52,381
<INCOME-PRETAX> 33,772
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,984
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.18
<LOANS-NON> 15,999
<LOANS-PAST> 2,227
<LOANS-TROUBLED> 913
<LOANS-PROBLEM> 524
<ALLOWANCE-OPEN> 20,047
<CHARGE-OFFS> 3,351
<RECOVERIES> 784
<ALLOWANCE-CLOSE> 32,105
<ALLOWANCE-DOMESTIC> 32,105
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 32,105
</TABLE>
