<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________
Commission file number: 0-13161
FIRST-KNOX BANC CORP.
Incorporated - Ohio I.R.S. Identification
Number-31-1121049
One South Main Street
P. O. Box 871
Mount Vernon, Ohio 43050
Telephone: (614) 393-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $3.125 Per Share
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 herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 13, 1996: $71,876,973
<TABLE>
<S> <C>
Common Stock Par Value: $3.125 per share
Common shares outstanding at March 13, 1996: 3,560,262 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1995, and Definitive Proxy Statement dated March 1, 1996, are
incorporated by reference into Parts I, II and III.
Page 1 of 96 Pages
Exhibit Index Appears on Page 20
<PAGE> 2
PART I
ITEM 1. BUSINESS
Introduction
First-Knox Banc Corp. (the "Corporation") was incorporated under the laws of the
State of Ohio on July 27, 1984. Its principal business is to act as a bank
holding company for its wholly-owned subsidiaries, The First-Knox National Bank
of Mount Vernon ("First-Knox") and The Farmers & Savings Bank, Loudonville, Ohio
("Farmers" and collectively with First-Knox, the "Banks"). Reference is made to
the Statistical Disclosures included elsewhere herein and Item 8., of this Form
10-K for financial information about the Corporation's banking business.
Revenues from loans accounted for 71.7% in 1995, 71.4% in 1994 and 73.9% in 1993
of total consolidated revenues. Revenues from investments and mortgage-backed
securities accounted for 19.9% in 1995, 20.6% in 1994 and 18.1% in 1993 of total
consolidated revenues.
The business of the Corporation and its subsidiaries is not seasonal to any
significant degree, nor is it dependent upon a single or small group of
customers. The Corporation and its subsidiaries do not have any banking offices
located in a foreign country nor do they have any foreign assets, liabilities or
income. In the opinion of management, the Corporation does not have exposure to
material costs associated with environmental hazardous waste clean-up.
First-Knox Business
The First-Knox National Bank of Mount Vernon, a successor by various
reorganizations to Knox County Bank, which was chartered in Ohio in 1847, has
been a national banking association under its present name in Mount Vernon,
Ohio, since 1939.
In terms of total assets, loans and deposits within its primary market area of
Knox, Morrow, Richland and Holmes counties in Ohio, First-Knox is the largest of
fifteen banks and bank offices and six savings associations and credit unions.
At December 31, 1995, First-Knox had assets of $441.8 million, loans and leases
of $291.4 million, and deposits of $356.3 million.
First-Knox is a full service commercial bank providing checking accounts,
savings accounts, certificates of deposit, commercial loans, installment loans,
credit card loans, commercial and residential real estate mortgage loans,
vehicle and equipment leasing, corporate and personal trust services, discount
brokerage services, and safe deposit rental facilities. Services are provided
through walk-in offices, automated teller machines, and automobile drive-in
facilities.
Five of First-Knox's ten offices are located in Knox County, Ohio. First- Knox's
Main Office and one full service branch office are located in Mount Vernon, one
branch is located in Fredericktown, one branch is located in
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Danville, and one branch is located in Centerburg, each providing walk-in,
drive-through and automated teller machine facilities.
Full service branches providing walk-in, drive-through and automated teller
machine facilities are located in Millersburg (Holmes County), as well as the
Richland County communities of Lexington and Bellville.
Two branches are located in Mount Gilead (Morrow County), Ohio, one a full
service branch providing walk-in services and one a full service branch
providing walk-in, drive-through and automated teller machine facilities.
First-Knox faces strong competition from other banks, savings associations,
credit unions, insurance companies, securities brokers, and retailers offering
financial services.
At December 31, 1995, First-Knox had 182 full-time and 58 part-time employees.
First-Knox is not a party to any collective bargaining agreement. Management
considers its relationship with its employees to be good.
First-Knox accounts for approximately 89% of the Corporation's consolidated
assets.
Farmers Business
The Farmers & Savings Bank, Loudonville, Ohio, was chartered as an Ohio
corporation in 1905 and has operated under its present name in Loudonville,
Ohio, since 1930. At December 31, 1995, Farmers had assets of $54.9 million,
loans of $39.2 million, and deposits of $49.7 million. Within the Loudonville
banking market, Farmers faces competition from one commercial bank branch and
one savings and loan branch. Farmers is the largest of the three institutions in
terms of deposits.
Farmers is a full service commercial bank providing checking accounts, savings
accounts, certificates of deposit, commercial loans, installment loans,
commercial and residential mortgage loans, and safe deposit rental facilities.
Services are provided through walk-in offices, automobile drive through
facilities, and an automated teller machine.
At December 31, 1995, Farmers had 29 full-time and 15 part-time employees.
Farmers is not a party to any collective bargaining agreement. Management
considers its relationship with its employees to be good.
Farmers accounts for approximately 11% of the Corporation's assets. In addition
to the above information, a further description of First-Knox and Farmers is
contained in the Financial Review section (page 35) of the Annual Report to
Shareholders for the fiscal year ended December 31, 1995 ("the 1995 Annual
Report") included as Exhibit 13 hereto and incorporated herein by reference.
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Supervision and Regulation
The following is a summary of certain statutes and regulations affecting the
Corporation and its subsidiaries. The summary is qualified in its entirety by
reference to the statutes and regulations. Management is not aware of any
current recommendations by regulatory authorities which, if they were
implemented, would have a material effect on the Corporation.
The Corporation
The Corporation is a bank holding company under the Bank Holding Company Act of
1956, as amended, which restricts the activities of the Corporation and the
acquisition by the Corporation of voting stock or assets of any bank, savings
association or other company. The Corporation is also subject to the reporting
requirements of, and examination and regulation by, the Board of Governors of
the Federal Reserve system ("Federal Reserve Board"). Subsidiary banks of a bank
holding company are subject to certain restrictions imposed by the Federal
Reserve Act on transactions with affiliates, including any loans or extensions
of credit to the bank holding company or any of its subsidiaries, investments in
the stock or other securities thereof and the taking of such stock or securities
as collateral for loans to any borrower; the issuance of guarantees, acceptances
or letters of credit on behalf of the bank holding company and its subsidiaries;
purchases or sales of securities or other assets; and the payment of money or
furnishing of services to the bank holding company and other subsidiaries. A
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with extensions of credit or provision
of property or services.
Bank holding companies are prohibited from acquiring direct or indirect control
of more than 5% of any class of voting stock or substantially all of the assets
of any bank holding company without the prior approval of the Federal Reserve
Board. In addition, acquisitions across state lines are limited to acquiring
banks in those states specifically authorizing such interstate acquisitions.
However, since September 1995, federal law has permitted interstate acquisitions
of banks, if the bank acquired retains its separate charter.
Banks
As a national bank, First-Knox is supervised and regulated by the Comptroller of
the Currency ("Comptroller"). As an Ohio chartered bank, Farmers is supervised
and regulated by the Ohio Division of Financial Institutions and the Federal
Deposit Insurance Corporation ("FDIC"). The deposits of First- Knox and Farmers
are insured by the FDIC and both entities are subject to the applicable
provisions of the Federal Deposit Insurance Act. A subsidiary of a bank holding
company can be liable to reimburse the FDIC if the FDIC incurs or anticipates a
loss because of a default of another FDIC-insured subsidiary of the bank holding
company or in conjunction with FDIC assistance provided to such subsidiary in
danger of default. In addition, the holding company of any insured financial
institution that submits a capital plan under the federal banking agencies'
regulations on prompt corrective action guarantees a portion of the
institution's capital shortfall, as discussed below.
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Various requirements and restrictions under the laws of the United States and
the State of Ohio affect the operations of the Banks, including requirements to
maintain reserves against deposits, restrictions on the nature and amount of
loans which may be made and the interest which may be charged thereon,
restrictions relating to investments and other activities, limitation on credit
exposure to correspondent banks, limitations based on capital and surplus,
limitations on payment of dividends, and limitations on branching. Under current
law, the Banks may establish branch offices throughout the State of Ohio.
Pursuant to recent federal legislation, First-Knox may branch across state
lines, if permitted by the law of the other state. In addition, effective June
1997, such interstate branching will be authorized, unless the law of the other
state specifically prohibits the interstate branching authority granted by
federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies and for state member banks. The risk-based capital guidelines
include both a definition of capital and a framework for calculating
risk-weighted assets by assigning assets and off-balance sheet items to broad
risk categories. The required minimum ratio of capital to risk-weighted assets
(including certain off-balance sheet items, such as stand-by letters of credit)
was 8.0% at December 31, 1995, as disclosed in Note 14 (page 30) of the
Corporations's 1995 Annual Report (See Exhibit 13). At least half of the total
regulatory capital is to be comprised of common stockholders' equity, including
retained earnings, non-cumulative perpetual preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in equity accounts
of consolidated subsidiaries less goodwill ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of, among other things, mandatory convertible
debt securities, a limited amount of subordinated debt, other preferred stock
and a limited amount of allowance for loan and lease losses. The Federal Reserve
Board has also imposed a minimum leverage ratio (Tier 1 capital to total assets)
of 4% for bank holding companies and state member banks that meet certain
specified conditions, including no operational, financial or supervisory
deficiencies, and including those having the highest regulatory (CAMEL) rating.
The minimum leverage ratio is 1.0-2.0% higher for other holding companies and
state member banks based on their particular circumstances and risk profiles and
those experiencing or anticipating significant growth. National banks are
subject to similar capital requirements adopted by the Comptroller and state
non-member banks are subject to similar capital requirements adopted by the FDIC
and the Ohio Division of Financial Institutions.
The Corporation and its subsidiaries currently satisfy all regulatory capital
requirements. Failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities, including dividend restrictions and the termination of deposit
insurance by the FDIC.
Under an outstanding proposal of the Comptroller and the FDIC, the subsidiaries
may be required to have additional capital if their interest rate risk exposure
exceeds acceptable levels provided for in the regulation when adopted. In
addition, the federal banking regulators have established regulations governing
prompt corrective action to resolve capital deficient
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banks. Under these regulations, banks which become undercapitalized become
subject to mandatory regulatory scrutiny and limitations, which increase as
capital continues to decrease. Such banks are also required to file capital
plans with their primary federal regulator, and their holding companies must
guarantee the capital shortfall up to 5% of the assets of the capital deficient
bank at the time it becomes undercapitalized.
Dividend Regulation
The ability of the Corporation to obtain funds for the payment of dividends and
for other cash requirements is largely dependent on the amount of dividends
which may be declared by its subsidiary banks. However, the Federal Reserve
Board expects the Corporation to serve as a source of strength to the
subsidiaries, which may require it to retain capital for further investment in
the subsidiaries, rather than for dividends for shareholders of the Corporation.
Generally, First-Knox and Farmers must have the approval of their respective
regulatory authorities if a dividend in any year would cause the total dividends
for that year to exceed the sum of the current year's net profits and the
retained net profits for the preceding two years, less required transfers to
surplus. A national bank may not pay a dividend in an amount greater than its
net profits then on hand, after deducting its losses and bad debts. In addition,
if the surplus fund of the national bank is less than or equal to its common
capital, no dividends may be declared unless there has been carried to the
surplus fund not less than one-tenth part of the national bank's net profits of
the preceding half-year in the case of quarterly or semiannual dividends, or not
less than one-tenth part of its net profits of the preceding two consecutive
half-year periods in the case of an annual dividend. The Banks may not pay
dividends to the Corporation if, after such payment, they would fail to meet the
required minimum levels under the risk-based capital guidelines and the minimum
leverage ratio requirements. Payment of dividends by the Banks may be restricted
at any time at the discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice or if
necessary to maintain adequate capital for the Banks. See Exhibit 13, 1995
Annual Report page 2, Comparative Stock Data and page 30, Note 14 and Item 5.,
which are herein incorporated by reference.
Monetary Policy and Economic Conditions
The commercial banking business is affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities and, in particular, the Federal Reserve Board. It regulates money
and credit conditions and interest rates in order to influence general economic
conditions primarily through open market operations in U.S. Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against bank deposits. These policies and regulations
significantly affect the overall growth and distribution of bank loans,
investments and deposits, and the interest rates charged on loans, as well as
interest rates paid on deposits and accounts.
The monetary policies of the Federal Reserve Board are expected to continue
their substantial influence on the operating results of commercial banks.
Coupled with the changing conditions in the economy and the money market, the
impacts on the performance of the Corporation and the Banks are difficult to
predict.
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Growth Strategy
The Corporation's Board of Directors and management have identified various
corporate, business and financial objectives. One such objective is growth of
the organization through the acquisition of community banks and savings and loan
associations located within the State of Ohio. Benefits of this strategy include
increasing the opportunities for earning asset and core deposit growth,
enhancement of fee based income, and realization of operating economies of
scale. The Corporation intends to seek and pursue acquisition opportunities
which fit these strategic objectives.
STATISTICAL DISCLOSURES
The following section contains financial disclosures as required under Industry
Guide 3, "Statistical Disclosure by Bank Holding Companies." The information
provided should be read in conjunction with the narrative analysis presented in
the Financial Review and Consolidated Financial Statements of the Corporation
and its subsidiaries contained in the 1995 Annual Report.
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The average balance sheet information and the related analysis of net
interest income for the years ended December 31, 1995, 1994 and 1993, as
required is included in Table II "Average Balances and Analysis of Net
Interest Income" on page 37 of the Corporation's 1995 Annual Report (See
Exhibit 13) which is herein incorporated by reference.
The analysis of the changes in interest income and expense from 1994 to
1995 and from 1993 to 1994 is included in Table III "Rate and Volume
Analysis of Changes in Interest Income and Interest Expense" on page 38 of
the Corporation's 1995 Annual Report (See Exhibit 13) which is herein
incorporated by reference.
II. Investment Portfolio
A schedule of the carrying value of investment and mortgage-backed
securities and related information on fair values, maturities and average
yields is included in Table IV "Investment and Mortgage-backed Securities"
on page 47 of the Corporation's 1995 Annual Report (See Exhibit 13) which
is herein incorporated by reference.
Excluding obligations of the U.S. Treasury and other agencies and
corporations of the U.S. government, there were no investment or
mortgage-backed securities of any one issuer which exceeded 10% of
consolidated shareholders' equity at December 31, 1995.
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VI. Return on Equity and Assets
The return on assets, return on equity, dividend payout ratio and equity
to assets ratio, for the years ended December 31, 1995, 1994 and 1993, as
required, are included in Table I "Financial Ratios For Five Years" on
page 35 of the Corporation's 1995 Annual Report (See Exhibit 13) which is
herein incorporated by reference.
VII. Short Term Borrowings
The information in item VII is not required to be given because the
average balance for any category of short-term borrowings for 1995, 1994
and 1993 did not exceed 30% of stockholders' equity at the end of those
respective years.
See the following pages for Item III, Loan Portfolio; Item IV, Summary of
Loan Loss Experience; and Item V, Deposits.
Page 8
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III Loan Portfolio, December 31,
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
% of % of % of % of % of
Year End Balances: Balance Total Balance Total Balance Total Balance Total Balance Total
- ------------------ -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Other $ 95,009 28.7% $ 85,971 28.3% $ 93,474 32.1% $ 90,189 32.6% $ 84,875 32.5%
Real Estate (1) 162,495 49.2% 149,018 49.0% 135,287 46.5% 116,861 42.3% 105,234 40.2%
Consumer and Credit Cards 73,137 22.1% 69,179 22.7% 62,147 21.4% 69,387 25.1% 71,445 27.3%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total Loans & Leases $330,641 100.0% $304,168 100.0% $290,908 100.0% $276,437 100.0% $261,554 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Non-Performing Loans
at December 31: (2),(3) 1995 1994 1993 1992 1991
- ----------------------- -------- -------- -------- -------- --------
Non-Accrual $ 197 $ 805 $ 474 $ 913 $ 1,542
90 Day and Over Past Due 862 457 1,214 884 974
Restructured 1,122 885 934
-------- -------- -------- -------- --------
Total $ 2,181 $ 2,147 $ 2,622 $ 1,797 $ 2,516
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Maturity Schedule: Within 1 to 5 5 Years
December 31, 1995 1 year Years & Over Total
- ----------------- ------ ------- -------- -----
<S> <C> <C> <C> <C>
Commercial & Other-
Fixed Rate $ 5,368 $ 5,324 $ 1,773 $12,465
Adjustable Rate 27,445 16,708 38,391 $82,544
------ ------ ------ -------
Total $32,813 $22,032 $40,164 $95,009
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Predetermined Adjustable
Commercial & Other Loans Fixed Rates Rates
- ------------------------ ------------- ----------
<S> <C> <C>
Maturing After One Year $7,097 $55,099
====== =======
</TABLE>
See page 11 for footnote explanations.
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IV Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Loan Loss Experience: 1995 1994 1993 1992 1991
- --------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Loans $314,259 $298,161 $283,550 $271,345 $254,812
======== ======== ======== ======== ========
Allowance for Loan
Losses, Jan. 1 $ 3,876 $ 3,597 $ 3,162 $ 2,905 $ 2,715
Losses Charged Off:
Commercial and Other 160 182 448 521 312
Real Estate (1) 12 62 53 69
Consumer and Credit Cards 379 447 372 744 593
-------- -------- -------- -------- --------
Total 539 641 882 1,318 974
-------- -------- -------- -------- --------
Recoveries:
Commercial and Other 31 64 38 26 20
Real Estate (1) 6 1 1
Consumer and Credit Cards 214 218 149 154 77
-------- -------- -------- -------- --------
Total 245 282 193 181 98
-------- -------- -------- -------- --------
Net Loan Charge-Offs 294 359 689 1,137 876
Additions Charged
to Operations 584 638 1,124 1,394 1,066
-------- -------- -------- -------- --------
Allowance for Loan Losses
at December 31: $ 4,166 $ 3,876 $ 3,597 $ 3,162 $ 2,905
======== ======== ======== ======== ========
Ratio of Net Charge-Offs
to Average Loan Balances 0.09% 0.12% 0.24% 0.42% 0.34%
======== ======== ======== ======== ========
</TABLE>
See page 11 for footnote explanations.
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<TABLE>
<CAPTION>
IV Loan Portfolio - Continued
(in thousands) 1995 1994 1993 1992 1991
------------------ ----------------- ----------------- ------------------ ------------------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Allocation of Allowance for To Total To Total To Total To Total To Total
Loan Losses as of Dec. 31: Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
- -------------------------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Other $ 591 28.7% $ 667 28.3% $ 903 32.1% $1,287 32.6% $1,368 32.5%
Real Estate (1) 151 49.2% 156 49.0% 178 46.5% 261 42.3% 326 40.2%
Consumer and Credit Cards 393 22.1% 472 22.7% 711 21.4% 676 25.1% 773 27.3%
Unallocated 3,031 N/A 2,581 N/A 1,805 N/A 938 N/A 438 N/A
------ ----- ------ ----- ------ ----- ----- ----- ------ -----
Total $4,166 100.0% $3,876 100.0% $3,597 100.0% $3,162 100.0% $2,905 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
(1) Real estate construction loans are included in this amount and represent
less than 5% of total real estate loans and less than 3% of total loans and
leases for all years presented. These loans are principally to construct
residential housing.
(2) The accrual of interest on loans and leases is suspended when in
management's opinion, the collection of all or a portion of the interest has
become doubtful. When a loan is placed on nonaccrual status, accrued and unpaid
interest is charged against income. The accrual of interest on loans 90 days
past due will continue until it is determined that collection of all or a
portion of the interest has become doubtful. If all loans were current and
interest had been earned on non-accrual loans, interest income would have
increased approximately $20,000 in 1995.
(3) Restructured loans were less than one percent of non-performing loans at
December 31, 1992 and December 31, 1991.
(4) Potential Problem Loans - At December 31, 1995 there are approximately $8
million of loans which management doubts the borrowers' ability to completely
comply with the present payment terms which are not on non-accrual status as
described in note (2) above. These loans and their potential loss exposure have
been considered in management's analysis of the adequacy of the allowance for
loan losses. Also refer to Note 1 of the consolidated financial statements
regarding the allowance for loan and lease losses on page 16 of the
Corporation's 1995 Annual Report, (See Exhibit 13), which is herein incorporated
by reference.
(5) There were no foreign loans in any period presented.
(6) As of December 31, 1995, there are no concentrations of loans greater than
10% of total loans which are not otherwise disclosed as a category of loans in
the above analysis. Also refer to Note 1 of the consolidated financial
statements regarding concentrations of credit risk on page 16 of the
Corporation's 1995 Annual Report, (Exhibit 13), which is herein incorporated by
reference.
(7) No material amount of loans that have been classified by the regulatory
examiners as loss, substandard, doubtful, or special mention have been excluded
from the amounts disclosed as non-accrual, past due 90 days or more,
restructured or potential problem loans.
(8) For the periods presented, there were no interest bearing assets other than
loans, that were restructured, past-due, placed on non-accrual status or which
management had doubts as to repayment.
(9) Impaired loans were not material at December 31, 1995. Also refer to Note 1
of the consolidated financial statements regarding allowance for loan and lease
losses on pages 16-17 of the Corporation's 1995 Annual Report (Exhibit 13),
which is herein incorporated by reference.
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V Deposits
Time Deposit Maturity Distribution as of December 31, 1995: (In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Under 3 - 6 6 - 12 Over 12
3 Mo. Months Months Months Total
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Time Deposits of $100,000
or More $13,781 $5,387 $7,550 $9,699 $36,417
======= ====== ====== ====== =======
</TABLE>
Average Deposits and Interest Expense Analysis: (In thousands)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ------------------------- ------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Demand $ 47,023 $ 44,722 $ 39,877
Interest Bearing Demand 42,216 1.97% 43,249 1.98% 41,677 2.31%
Savings 107,879 2.97% 118,563 2.71% 116,875 2.86%
Time 193,554 5.75% 172,148 4.49% 167,420 4.61%
-------- ------- ------- ------- -------- --------
Total $390,672 $378,682 $365,849
======== ======== ========
</TABLE>
There were no material foreign deposits in any period presented.
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ITEM 2. PROPERTIES
First-Knox owns and occupies its headquarters in Mount Vernon, Ohio. Farmers
owns and occupies its headquarters in Loudonville, Ohio. First-Knox owns a
free-standing operations center in Mount Vernon, Ohio. All branch office
locations for both Banks are owned with the exception of the Millersburg branch
of First-Knox where a portion is leased. The Corporation considers its
properties to be satisfactory for current operations. See information under the
heading "First-Knox National Bank Offices" and "Farmers and Savings Bank
Offices" on page 52 of the Corporation's 1995 Annual Report (Exhibit 13), which
is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Corporation had various claims and lawsuits pending at December 31, 1995,
arising out of the ordinary course of its business. It is the opinion of
management that such litigation will not materially affect the Corporation's
financial position or earnings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See: 1995 Annual Report, page 2 - Comparative Stock Data, and page 30 - Note
14, which are incorporated herein by reference (See Exhibit 13).
ITEM 6. SELECTED FINANCIAL DATA
See: 1995 Annual Report, page 35 Table I, "Financial Ratios for Five Years,"
and page 49 Table VI, "Ten Years of Progress Statement Summary," which
is incorporated herein by reference (See Exhibit 13).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See: 1995 Annual Report, pages 35 through 49, "Financial Review," which are
incorporated herein by reference (See Exhibit 13).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements included in the Corporation's 1995 Annual
Report to Shareholders for the fiscal year ended December 31, 1995, and the
report of Crowe, Chizek and Company LLP contained therein are incorporated
herein by reference. See Item 14, index to financial statements and schedules.
The supplementary financial information specified by item 302 of Regulation S-K
is not applicable.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding directors and executive officers also serving as directors
is set forth in the Corporation's Definitive Proxy Statement dated March 1,
1996, pages 3 - 6, which is included as Exhibit 99 hereto and incorporated
herein by reference. No facts exist which would require disclosure under Item
405 for Regulation S-K.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to executive
officers who do not serve as directors:
<TABLE>
<CAPTION>
Position
-------------------------------
First-Knox First-Knox
Name Age Banc Corp. National Bank
---- --- ---------- -------------
<S> <C> <C> <C>
Gordon Yance 48 Vice Pres. Vice President and
& Treasurer Chief Financial
Officer
Ian Watson 45 Vice Pres. Vice President of
& Secretary Operations, Deposits
and Investments
</TABLE>
Mr. Yance has held these positions for more than five years. Mr. Watson has
held his position with First-Knox National Bank for more than five years. He
was elected Vice President and Secretary of the Corporation in 1991.
ITEM 11. EXECUTIVE COMPENSATION
See: The Corporation's Definitive Proxy Statement dated March 1, 1996, pages
7 - 12, which is included as Exhibit 99 hereto and incorporated herein
by reference. Neither the "Report of Stock Option Committee and
Personnel Committee on Executive Compensation" nor "Comparison of Five
Year Cumulative Total Return Among First-Knox Banc Corp., S&P 500 Index
and KBW 50 Index," on pages 10 - 13, in the Corporation's Definitive
Proxy Statement dated March 1, 1996, shall be deemed to be incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See: The Corporation's Definitive Proxy Statement dated March 1, 1996, pages
2 - 5, which is included as Exhibit 99 hereto and incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See: The Corporation's 1995 Annual Report (Exhibit 13) page 30, Note 15,
which is incorporated herein by reference and the Corporation's
Definitive Proxy Statement (Exhibit 99) dated March 1, 1996, pages 10 &
14, which is incorporated herein by reference.
Page 15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
First-Knox Banc Corp.
Index to Financial Statements and Schedules
For the Three Years Ended December 31, 1995
------------
(a) The following financial statements are incorporated herein by reference
from the Annual Report to Shareholders filed as Exhibit 13 to this
filing:
<TABLE>
<CAPTION>
Annual Report
First-Knox Banc Corp. and Subsidiaries: Reference
- --------------------------------------- -------------
<S> <C>
Report of Independent Auditors Page 34
Consolidated balance sheets - December 31, 1995 & 1994 Page 11
Consolidated statements of income for the years
ended December 31, 1995, 1994, and 1993. Page 12
Consolidated statements of changes in
shareholders' equity for the
years ended December 31, 1995, 1994 and 1993. Page 13
Consolidated statements of cash flows for the
years ended December 31, 1995, 1994 and 1993. Page 14
Notes to the consolidated financial statements Pages 15-33
First-Knox Banc Corp:
- ---------------------
Holding company only financial statements Pages 32-33
</TABLE>
Schedules have been omitted since they are either not required or not
applicable, or since the required information is shown in the financial
statements or related notes.
Page 16
<PAGE> 17
The following table provides certain information concerning the executive
compensation plans and arrangements required to be filed as exhibits to this
report:
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
10(a) Summary of Incentive Compensation Incorporated
Plan dated December 9, 1983. herein by
reference to
Exhibit 10(a) to
the Corporation's
Annual Report on
Form 10-K For the
period ending
December 31, 1992
(File No. 0-13161)
("1992 Form 10-K")
10(b) Employees Retirement Plan dated Incorporated
January 1, 1984 herein by
reference to
Exhibit 10(a) to
the Corporation's
Annual Report on
Form 10-K for the
period ending
December 31, 1986
(File No. 0-13161)
("1986 Form 10-K")
10(c) Supplemental Retirement Agreement Incorporated
dated August 11, 1987 herein by
Reference to
Exhibit 10(c) to
the 1992 Form 10-K
10(d) Non-qualified Stock Option and Incorporated
Stock Appreciation Rights Plan herein by
reference to
Exhibit 23 to
the Corporation's
Form 10-K for the
period ending
December 31, 1989
(File No. 0-13161)
(1989 Form 10-K)
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<S> <C> <C>
10(e) First-Knox Banc Corp. Savings Incorporated
Retirement Plan herein by
reference to
Exhibit 10(e)
to the
Corporation's
Annual Report on
Form 10-K for the
period ending
December 31, 1993
(File No. 0-13161)
("1993 Form 10-K")
10(g) First-Knox Banc Corp. Stock Option Incorporated
And Stock Appreciation Rights Plan herein by
reference to
exhibit 10(g) to
the March 31, 1995
Form 10-Q
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibit List and Index. Page 20
Page 18
<PAGE> 19
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 signed on its
behalf by the undersigned, thereunto duly authorized.
First-Knox Banc Corp.
(Registrant)
By Carlos E. Watkins March 28, 1996
---------------------------------
Carlos E. Watkins, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 28, 1996, by the following persons on behalf of the
Registrant and in the capacities indicated.
- -s- Russell E. Ramser, Jr. -s- John B. Minor
Chairman of the Board of Director
Directors, and Director
- -s- Carlos E. Watkins -s- James A. McElroy
President & Director Director
- -s- Robert S. Gregg -s- Noel C. Parrish
Director Director
- -s- James J. Cullers -s- George T. Culbertson, Jr.
Director Director
- -s- Kenneth W. Stevenson -s- Maureen Buchwald
Director Director
- -s- Alan E. Riedel -s- Philip H. Jordan, Jr.
Director Director
-s- Gordon E. Yance
Vice President, Treasurer
(chief financial officer
and chief accounting officer)
Page 19
<PAGE> 20
EXHIBIT LIST AND INDEX
FIRST-KNOX BANC CORP. FORM 10-K
for the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
3(a)(1) Articles of Incorporation, as amended Incorporated herein by
on March 15, 1988. reference to Exhibit
3 to the Corporation's
Annual Report on Form
10-K for the period
ending December 31, 1988
(File No. 0-13161)
("1988 Form 10-K")
3(a)(2) Amendment to Articles of Incorpora- Incorporated herein by
tion, April 10, 1990. reference to Exhibit 3
to the Corporation's
Form 10-K for the period
ending December 31, 1990
(File No. 0-13161)
("1990 Form 10-K")
3(a)(3) Amendment to Articles of Incorpora- Incorporated herein by
tion, March 25, 1992. reference to Exhibit 3
to the Corporation's
Form 10-K for the period
ending December 31, 1991
("1991 Form 10-K")
3(a)(4) Amendment to Articles of Incorpora- Incorporated herein by
tion, March 29, 1994. reference to Exhibit 3
to the Corporation's
Form 10-Q for the period
ending March 31, 1994
3(a)(5) Amendment to the Articles of Incorpora- Incorporated herein by
tion, March 28, 1995. reference to Exhibit 3
to the Corporation's
Form 10-Q for the period
ending March 31, 1995
3(b)(1) Amendment to Code of Regulations Incorporated herein by
March 15, 1988 reference to Exhibit 3
to the 1987 Form 10-K
3(b)(2) Amendment to Code of Regulations Incorporated herein by
March 26, 1991 reference to Exhibit 3 to the
1990 Form 10-K
3(b)(3) Amendment to Code of Regulations Incorporated herein
March 23, 1993 reference to Exhibit 3 to the
1992 Form 10-K
</TABLE>
Page 20
<PAGE> 21
EXHIBIT LIST AND INDEX
FIRST-KNOX BANC CORP. FORM 10-K
For the Year Ended December 31, 1995
(Continued)
<TABLE>
<S> <C> <C>
4(b) First-Knox Banc Corp. Dividend Incorporated herein by
Reinvestment Plan the Corporation's
Registration Statement
on Form S-3 (Registration
No. 33-52590)
4(b)1 Amendment to the First-Knox Banc Incorporated herein by
Corp. Dividend Reinvestment Plan reference to exhibit
4(b)1 to the March 31, 1995
Form 10-Q
10(a) Summary of Incentive Compensation Incorporated herein by
Plan dated December 9, 1983. reference to Exhibit 10(a) to
the 1992 Form 10-K
10(b) Employees Retirement Plan dated Incorporated herein by
January 1, 1984. reference to Exhibit 10(a) to
the 1986 Form 10-K
10(c) Supplemental Retirement Agreement Incorporated herein by
dated August 11, 1987. reference to Exhibit 10(C) to
the 1992 Form 10-K
10(d) Non-qualified Stock Option and Incorporated herein by
Stock Appreciation Rights Plan. reference to Exhibit 23 to
the 1989 Form 10-K
10(e) First-Knox Banc Corp. Savings Incorporated herein by
Retirement Plan reference to Exhibit 10(e) to
the 1993 Form 10-K
10(f) Project Services Agreement between Incorporated herein by
First-Knox National Bank and reference to Exhibit 10(f)
Sverdrup Building Corporation to the 1993 Form 10-K
11 Statement regarding computation Page 40 - Note 1 to
of per share earnings. consolidated financial
statements
13 First-Knox Banc Corp. Annual Report Page 23
to Shareholders for the Year Ended
December 31, 1995.
21 Subsidiaries of First-Knox Banc Corp. Page 94
</TABLE>
Page 21
<PAGE> 22
EXHIBIT LIST AND INDEX
FIRST-KNOX BANC CORP. FORM 10-K
For the Year Ended December 31, 1995
(Continued)
<TABLE>
<S> <C> <C>
23 Consent of Independent Accountants Page 95
27 Financial Data Schedule Page 96
99 First-Knox Banc Corp. Definitive Proxy Page 77
Statement dated March 1, 1996.
</TABLE>
Page 22
<PAGE> 1
Exhibit 13
1995 ANNUAL REPORT
[LOGO] FIRST-KNOX BANC CORP.
Page 23
<PAGE> 2
[PICTURE 1]
<TABLE>
<CAPTION>
Table of Contents
============================================================
<S> <C>
Financial Highlights 2
Letter to Shareholders 3
Highlights of 1995 6
Consolidated Financial Statements 11
Financial Review 35
Directors/Officers 50
Shareholder Information/Offices 52
</TABLE>
Page 24
<PAGE> 3
First-Knox Banc Corp. 1995 Annual Report
FINANCIAL HIGHLIGHTS
COMPARATIVE BALANCES
<TABLE>
<CAPTION>
Percent
(in thousands of dollars) 1995 1994 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets........................................ $496,899 $467,191 6.4%
Deposits...................................... 404,067 377,180 7.1%
Loans and Leases.............................. 330,641 304,168 8.7%
Investments................................... 131,988 131,211 0.6%
Borrowings.................................... 41,401 46,172 (10.3)%
Shareholders' Equity.......................... 46,659 40,832 14.3%
Net Income.................................... 5,709 5,164 10.6%
Cash Dividends................................ 1,751 1,527 14.7%
Trust Department Assets....................... 82,696 78,157 5.8%
FACILITIES AND STAFF
Banking Offices............................... 12 12
Total Staff................................... 256 264
</TABLE>
COMPARATIVE STOCK DATA
<TABLE>
<CAPTION>
Per Share Data
------------------------------------------------------------------
1995 1994
---------------------------- -------------------------------
Market Price Cash Market Price Cash
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $21.75 $20.50 $.11 $16.91 $15.48 $.10
Second Quarter 21.88 20.91 .11 21.67 16.67 .10
Third Quarter 25.00 21.00 .12 22.86 20.50 .10
Fourth Quarter 26.50 24.00 .15 23.00 20.50 .12
</TABLE>
<TABLE>
<CAPTION>
Percent
1995 1994 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year-End Market Price......................... $25.00 $21.00 19.0%
Year-End Book Value........................... 13.11 11.23 16.7%
Fully-Diluted Earnings Per Share.............. 1.57 1.41 11.3%
Price Earnings Ratio.......................... 15.9x 15.0x
Cash Dividend Payout Ratio.................... 30.7% 29.6%
Number of Shareholders........................ 1,404 1,327 5.8%
Average Shares Outstanding
Primary..................................... 3,636,914 3,669,468
Fully Diluted............................... 3,639,609 3,672,390
Stock Split/Stock Dividend.................... 100% 5%
</TABLE>
The stock of First-Knox Banc Corp. was traded locally over-the-counter
through registered brokers McDonald & Company and The Ohio Company until March
29, 1994. The range of market price through that date was compiled from data
provided by the brokers based on limited trading. On March 30, 1994, the stock
began trading on the NASDAQ National Market under the symbol "FKBC." The market
prices represent quotations between dealers without adjustment for retail
markups, markdowns, or commissions and may not necessarily represent actual
transactions. All per share data has been restated to give retroactive effect to
the two for one stock split in the form of a 100% stock dividend in 1995 and a
5% stock dividend in 1994.
The ability of the Corporation to pay cash dividends is based upon
receiving dividends from its bank subsidiaries. See Note 14 to the consolidated
financial statements regarding regulatory restrictions.
2 Page 25
<PAGE> 4
First-Knox Banc Corp. 1995 Annual Report
LETTER TO SHAREHOLDERS
As we approach our 150th anniversary in 1997, we are proud of the
accomplishments of First-Knox Banc Corp. and the individuals who made it happen.
The past year economically can be described as one of decreasing interest rates
and margins with uncertain government fiscal responsibility. First-Knox,
however, continued its goal of consistency in performance by posting net
earnings 10.6% higher than the previous year.
Assets of the Corporation increased 6.4% and shareholders' equity increased
14.3% over last year. Shareholders received a two-for-one stock split in the
form of a 100% stock dividend in 1995, marking the thirtieth consecutive year in
which a stock dividend or split has been issued. The market price of the
Corporation's stock appreciated approximately 19% in 1995, following an increase
of 35.7% in 1994. Cash dividends paid by the Corporation increased 14.7%. A
review of our earnings performance is provided in greater detail beginning on
page thirty-five, and the following graphs are provided for a quick overview of
performance in the last five years.
[PHOTO]
Carlos E. Watkins, President and Chief Executive Officer (left), and Willam A.
Stroud, Chairman of the Board.
Many initiatives started earlier in the nineties came to fruition in 1995.
The new and renovated main office in Mount Vernon was completed with June open
houses conducted for employee families, shareholders, customers, and the
community. The new facilities not only provide for better customer access and
enhanced service environment, but also encouragement for other businesses to
invest in the downtown area of Mount Vernon. Five years ago, a major investment
was made in computer technology, and today we are continuing to see the benefits
of that investment.
During the past year, many "firsts" were recorded by First-Knox Banc Corp.
In January, an open house at our Danville Office celebrated the opening of the
new drive-in facility and the first MAC(R) machine in the community. For the
first time, our Annual Shareholders meeting was held in the auditorium of the
R. R. Hodges
3 Page 26
<PAGE> 5
First-Knox Banc Corp. 1995 Annual Report
Chapel/Fine Arts Center at the Mount Vernon Nazarene College. In late spring, a
voice response system was implemented providing our customers with another
24-hour service delivery mechanism. The centralization of loan operations for
First-Knox National Bank began during the summer and late fall, and a portion of
the operations from the Farmers and Savings Bank was consolidated allowing them
to offer check imaging to their customers. The Corporation filed its first
electronic Form 10-Q with the SEC in November. Just as we began the year with a
construction project, we ended the year with the installation of a new drive-in
and ATM at our Edison Office.
NET INCOME
(in millions of dollars)
[CHART 1]
On the cover of the 1995 annual report are photographs depicting the
interface of individuals and the computer chip. Technology and the Internet were
at the forefront of the news in 1995, dominating share and fund performance in
the stock market and changing corporate strategic plan directions. The ability
to collect and distribute information without geographic boundaries or time
limitations changes the way we all do business, and forces us to consider the
implications of cyberspace. It does not help that electronic technology is not
foolproof, more expensive than anticipated, and changes faster than a speeding
bullet. However, we must stay abreast and be involved in new developments. Many
people believe the developments in electronic banking are more significant to
the industry than the current wave of mergers, interstate banking, federal
deposit insurance, or Glass-Steagall reform.
FULLY-DILUTED EARNINGS
PER SHARE (in dollars)
[CHART 2]
First-Knox has always been an innovator and has used technology as an
active ingredient in the process. However, individual to individual service
remains the cornerstone to our success. Technology is a resource to provide
customers with higher quality, lower cost, products and services. Our past
belief in "high tech, high touch" service is still a valid objective in a world
where values change daily. Our customers have indicated that the two most
critical factors in providing service to them are responsiveness and competence.
Upgrading our organization through technological advancements will enable us to
continue providing the convenient and quality service that they have come to
expect.
4 Page 27
<PAGE> 6
First-Knox Banc Corp. 1995 Annual Report
Today, banks are losing customers to non-bank competitors. To thrive in the
future, we must find ways to enhance current revenues and create new sources of
revenue, as well as to control costs. In addition, we must provide value in
product and quality to our customers. The affiliate banks of First-Knox
continually look for new ways to serve our markets and to encourage growth
within the communities we serve. An example of this would be the participation
of James McClure, Chairman of Farmers and Savings Bank, in assisting local
development efforts in attracting a corporation to the Perrysville industrial
park. Knowing our communities and customers well and providing them with the
financial services they need are the primary keys to providing our shareholders
with the greatest potential for continued future earnings growth.
CASH DIVIDENDS
(in thousands of dollars)
[CHART 3]
During 1995, Mr. J. Robert Purdy retired from the Board of First-Knox Banc
Corp. Mr. Purdy was one of the charter Board members of the Corporation and
served both the holding company and First-Knox National Bank for a period
spanning thirty-plus years. We will miss Mr. Purdy's wise counsel and support.
Our success in the past has been a result of the foresight and hard work of
the directors, officers, and staff of First-Knox and its affiliates. Our future
success also lies in their hands and their ability to provide customers with
superior service and shareholders with continued investment value. With your
continued support in the future, the opportunities for First-Knox Banc Corp.
remain unlimited.
/s/ Willam A. Stroud /s/ Carlos E. Watkins
Chairman of the Board President and Chief Executive Officer
5 Page 28
<PAGE> 7
First-Knox Banc Corp. 1995 Annual Report
HIGHLIGHTS OF 1995
It is seemingly paradoxical, but to get a glimpse of our future, we need to
look at our past, see where we have been, and then view our recent
accomplishments as a midpoint in a time line. Only then can we appreciate the
ever-increasing pace of change and create methodologies that will serve us well
into the future.
Even back in 1850, when the bank was just beginning to be recognized as a
financial leader, the simple agrarian life was undergoing a transformation.
Population grew, railroads compressed time and distance, governments grew, and
the economy evolved.
News of events that influence our economy that used to take days to receive
now travels in time measured in nanoseconds. As improved technologies fuel the
fires of change, they also provide the means to create innovative responses to
changing needs.
[PHOTO]
Stephen M. Franko and Michelle R. Winings, LifeLink Investment Representatives,
reviewing product alternatives with James E. McLaughlin, Manager of the
Bellville Office.
Express-Line was introduced to First-Knox and Farmers customers to meet
mounting demands for account information and other routine inquiries by
telephone. Express-Line, a fully automated, computer response system, provides
answers, permits funds transfers, and functions as a message center . . . all in
a confidential manner, anytime of the day or night. In addition to providing the
customer with timely information delivery, Express-Line has allowed our service
representatives to utilize their time more productively. Response to this new
service went beyond our expectations as Express-Line now handles an average of
200 inquiries daily.
TOTAL ASSETS
(in millions of dollars)
[CHART 4]
Another new technology-based service was the offering of the MAC(R) prepaid
long-distance telephone card. This enables individuals and businesses to control
their long distance costs, while enjoying a guaranteed single low rate for all
long distance calls anywhere within the continental USA. It is simple to use,
ends the confusion over rates and conditions, does not require changing
carriers, and can be replenished by telephone.
A variety of new investment opportunities were created in 1995. Timed to
capitalize on market uncertainties, the 9-Month
6 Page 29
<PAGE> 8
First-Knox Banc Corp. 1995 Annual Report
Advantage, the 18-Month Market Plus, and the Super 6 certificates were received
with enthusiasm. First offered in August, the Super 6 certificate generated
deposits of $8 million, of which over $3 million was new money.
Making housing affordable to all, a long term bank objective, came closer
to realization late in the year with approval to offer VA and FHA mortgage
loans. These two federally-guaranteed programs allow us to provide mortgage
loans with no or minimal down payments to the homebuyers in the communities we
serve.
Mortgage loan service also was expanded for commercial borrowers with the
development of a Personal Reserve Account for businesses. We are one of a very
few institutions to create such a program. Similar to our consumer PRA, the
business PRA will allow the business person to borrow up to 70% of the equity in
their commercial real estate.
[PHOTO]
Cuddles, the First-Knox bear mascot.
The "Business Manager," a new service for business and industry, was first
offered in the third quarter of the year. It provides complete management of
accounts receivable, including billing and collections. This enables a company
to improve cash flow for reinvestment, debt reduction, inventory expansion, and
other such purposes. Initial reaction, particularly from small businesses, has
been very positive.
Around the time of the Civil War, a busy day at the bank saw as many as 15
transactions being recorded...all in pen and ink. Today our thirteen
MAC(R)automated teller machines execute almost 1,500 transactions daily.
The volume of information that must be recorded and reported has increased,
and will continue to increase, at a tremendous rate. This is attributable to the
expansion of product offerings, the proliferation of regulatory demands, and
customer desire for "no waiting" service, as well as normal growth.
7 Page 30
<PAGE> 9
First-Knox Banc Corp. 1995 Annual Report
Increased productivity, capacity enlargement, and cost effectiveness were
the main objectives of our information system upgrades in 1995. Our facilities
are now linked with fiber optics which enables the movement of more information
at a faster pace. Check processing has become more efficient with the addition
of enlarged optical storage, amount recognition readers, and the conversion of
Farmers and Savings Bank to check imaging.
Our computerized audit program was enhanced and account coding software
added to fulfill regulatory requirements. All offices now have central computer
connections to standardize and facilitate commercial loan applications. Laptop
computers also are being used to expedite off-site mortgage applications.
[PHOTO]
Ian Watson, Vice President, and Rebecca K. Rodeniser, Operations Officer,
reviewing a research item on one of the high resolution VGA monitors in the
proof department.
The Securities and Exchange Commission has developed an electronic filing
system called EDGAR (Electronic Data Gathering Analysis and Retrieval).
Implementation of the system began with the filing of our first electronic
report in November. EDGAR filings ultimately will result in simultaneous filing
with the SEC, state securities commissions, and self-regulatory organizations,
such as NASDAQ. Once fully implemented, investors will be able to access a
complete database of financial information.
Starting with the creation of the Federal Reserve System in 1915, the need
for greater financial knowledge has increased. Today, with the expansion of
traditional and non-traditional services and legal complexities, the need for
staff education and training has become of paramount importance.
Our "lunch and learn" program presented a variety of topics, including
trusts, pension plans, alternative investments, and stress management. More
formal training sessions were conducted regarding IRA's, the MAC(R) Phone Card,
ramifications of the Bank Secrecy Act, and Fair Lending compliance.
8 Page 31
<PAGE> 10
First-Knox Banc Corp. 1995 Annual Report
American Institute of Banking classes on "Principles of Banking," "Consumer
Lending," and "Check Cashing Guidelines," were offered to all employees. Seven
employees were sent to Ohio Banking Association schools, while numerous others
attended various job-related seminars. W. Douglas Leonard, Vickie A. Sant, and
Kimberly S. Miller who qualified for tuition reimbursement by the bank,
completed their bachelors degree under the Mount Vernon Nazarene College EXCEL
program.
SHAREHOLDERS' EQUITY
(in millions of dollars)
[CHART 6]
With the advent of Windows 95 and other associated software, personal
computer training was accelerated. Also, a number of employees participated in
our 10% reimbursement program for the purchase of personal computer hardware and
software.
Industry leadership and community involvement always have been part of our
founder's vision of the future. Henry B. Curtis, our first president, was very
instrumental in the formation of the Ohio Bankers Association and served as its
first vice president 135 years ago. It was appropriate to our tradition when our
current president, Carlos Watkins, took office as president of that organization
in October. William A. Stroud, Chairman, served as president of the Ohio Bankers
Association in 1977.
Earlier in the year, Mr. Watkins was honored by his appointment to the
Fourth District Community Bank Advisory Council of the Federal Reserve Board.
Cheri L. Butcher, Assistant Vice President, was a graduate of the first class of
the Ohio Bankers Association Leadership School, and was further honored by being
named as Employee of the Year at First-Knox National Bank.
Community outreach efforts took on new dimensions in 1995. LifeLink
investment seminars were held in branch communities. William C. Brunka, Vice
President, Retail Loan and Compliance Officer, was co-chairman of family budget
education sponsored by the Knox County Resource Group. First-Knox National Bank
subsequently became the lead bank in an affordable housing grant application
submitted by the same organization.
[PHOTO]
The 1995-96 Ohio Bankers Association President Carlos E. Watkins and his wife
Bunny on the cover of the Ohio Banker magazine.
9 Page 32
<PAGE> 11
First-Knox Banc Corp. 1995 Annual Report
First-Knox also became the lead bank in financing community projects,
including the Dan Emmett House Hotel and Conference Center in Mount Vernon, and
the Hamilton Hills housing development in Bellville.
Participation in local community events was at an all-time high with the
addition of sponsoring "Business After Hours" for the Mount Vernon/Knox County
Chamber of Commerce. Once again, the First-Knox Classic world-class cycling
event was a highlight of the summer.
First-Knox closed out the year with a public outreach in cyberspace with
its own home page on the Internet through the Knox Net!
From our beginnings in the Curtis home, the bank has grown, both in size
and in the number of services provided. The new Main Office addition, which
officially opened in June, is a reflection of that progress.
[PHOTO]
Carlos E. Watkins, President (right), and David R. Irvin, Vice President (left),
in the trust department's new location on the first floor of the new Main
Office.
Opening celebrations at this five-level, 40,000 square foot facility
attracted crowds of more than 1,500. This tangible representation of our
commitment to customer convenience and service was also reflected in the
complete remodeling of our Fredericktown Office.
BOOK VALUE PER SHARE
(in dollars)
[CHART 7]
Customer convenience was a major consideration at our drive-in facilities
in Danville. The entrance way was relocated to South Market Street to alleviate
traffic congestion, a second window was added, and a MAC(R) teller machine was
installed.
Successful utilization of all of our resources, human and technological,
anticipating the needs of our community, and fulfilling those needs in a
productive, effective, and profitable manner made 1995 a very eventful year.
10 Page 33
<PAGE> 12
First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 and 1994
(In thousands of dollars except per share data) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and deposits with banks (Note 9) ..................... $ 17,012 $ 18,110
Federal funds sold ........................................ 3,400
--------- ---------
Total cash and cash equivalents ............... 20,412 18,110
Investment securities available for sale,
at fair value (Notes 2 and 8) ....................... 94,694 33,804
Mortgage-backed securities available for
sale, at fair value (Notes 2 and 8) ................. 37,294 42,657
Investment securities held to maturity
(fair value approximates $51,847) (Note 2) .......... 54,750
--------- ---------
Total investment and
mortgage-backed securities .............. 131,988 131,211
Loans and lease financing (Notes 3 and 8) ................. 330,641 304,168
Less allowance for loan and
lease losses (Note 4) ............................... (4,166) (3,876)
--------- ---------
Net loans and lease financing ................. 326,475 300,292
Premises and equipment, net (Note 5) ...................... 10,993 10,035
Accrued interest receivable and other assets .............. 7,031 7,543
--------- ---------
TOTAL ASSETS .................................. $ 496,899 $ 467,191
========= =========
LIABILITIES
Deposits (Note 6) ......................................... $ 404,067 $ 377,180
Short-term borrowings (Note 7) ............................ 7,986 11,452
Long-term debt (Note 8) ................................... 33,415 34,720
Accrued interest payable and other liabilities ............ 4,772 3,007
--------- ---------
TOTAL LIABILITIES ............................. 450,240 426,359
--------- ---------
Commitments and Contingencies (Note 9)
SHAREHOLDERS' EQUITY
Common stock, par value $3.125 per share; 6,000,000
shares authorized; 3,650,225 shares issued in 1995 and
1,818,250 shares issued and outstanding in 1994 ..... 11,407 5,682
Paid-in capital ........................................... 24,042 23,864
Retained earnings ......................................... 11,187 12,922
Net unrealized holding gains (losses) on
securities available for sale (Note 1) .............. 1,912 (1,636)
Common stock in treasury, 89,965 shares at cost ........... (1,889)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .................... 46,659 40,832
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........................ $ 496,899 $ 467,191
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
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<PAGE> 13
First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three years ended December 31, 1995
(In thousands of dollars except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases . $ 28,854 $ 25,238 $ 24,960
Interest on investment and
mortgage-backed securities
Taxable ................... 5,214 4,477 4,293
Tax exempt ................ 2,792 2,800 1,831
Interest on federal funds sold ........ 228 79 208
----------- ---------- ----------
Total interest income ..... 37,088 32,594 31,292
----------- ---------- ----------
INTEREST EXPENSE
Interest on deposits (Note 6) ......... 15,158 11,800 12,023
Interest on short-term borrowings ..... 390 349 347
Interest on long-term debt ............ 1,951 1,478 327
----------- ---------- ----------
Total interest expense .... 17,499 13,627 12,697
----------- ---------- ----------
NET INTEREST INCOME . 19,589 18,967 18,595
PROVISION FOR LOAN AND
LEASE LOSSES (NOTE 4) ........... 584 638 1,124
----------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES ....... 19,005 18,329 17,471
----------- ---------- ----------
OTHER INCOME
Trust department income ............... 702 588 521
Customer service fees and commissions . 2,315 1,926 1,758
Loan sale gains ....................... 27 29 70
Securities gains (losses), net ........ (20) 11 15
Other operating income ................ 103 193 101
----------- ---------- ----------
Total other income ........ 3,127 2,747 2,465
----------- ---------- ----------
OTHER EXPENSES
Salaries and benefits (Notes 10 and 11) 7,081 6,756 6,378
Occupancy expenses .................... 2,121 1,825 1,636
Other operating expenses (Note 12) .... 5,656 6,064 5,813
----------- ---------- ----------
Total other expenses ...... 14,858 14,645 13,827
----------- ---------- ----------
INCOME BEFORE INCOME TAXES 7,274 6,431 6,109
INCOME TAXES (Note 13) ................ 1,565 1,267 1,443
----------- ---------- ----------
NET INCOME ................ $ 5,709 $ 5,164 $ 4,666
=========== ========== ==========
EARNINGS PER COMMON SHARE (Note 1)
Primary ................... $ 1.57 $ 1.41 $ 1.37
=========== ========== ==========
Fully diluted ............. $ 1.57 $ 1.41 $ 1.33
=========== ========== ==========
WEIGHTED AVERAGE SHARES (Note 1)
Primary ................... 3,636,914 3,669,468 3,397,196
=========== ========== ==========
Fully diluted ............. 3,639,609 3,672,390 3,604,154
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
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<PAGE> 14
First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
Number Of (Loss) On Total
For the three years ended Common Securities Share-
December 31, 1995 (In thousands Shares Common Paid-In Retained Available Treasury holders'
of dollars except per share data) Outstanding Stock Capital Earnings For Sale Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1993 ............ 1,413,703 $ 4,418 $ 13,659 $ 12,038 $ 30,115
Net income ............................. 4,666 4,666
Issuance of shares under the
dividend reinvestment plan ....... 11,888 37 315 352
Issuance of shares upon conversion
of 8.5% subordinated debentures .. 209,881 656 3,879 4,535
Issuance of shares under the employee
retirement savings plan .......... 1,734 6 51 57
Cash dividends declared,
$.37 per share ................... (1,302) (1,302)
5% stock dividend ...................... 81,773 255 2,260 (2,515)
--------- -------- -------- -------- ------- ------- --------
BALANCES AT JANUARY 1, 1994 ............ 1,718,979 5,372 20,164 12,887 38,423
Net income ............................. 5,164 5,164
Issuance of shares under the
dividend reinvestment plan ....... 6,797 21 218 239
Issuance of shares under the employee
retirement savings plan .......... 3,423 11 103 114
Issuance of shares for stock
options exercised ................ 2,499 8 47 55
Cash dividends declared,
$.42 per share ................... (1,527) (1,527)
Net unrealized holding gain (loss)
on securities available for sale
At January 1, 1994 ......... $ 706 706
Change during 1994 ......... (2,342) (2,342)
5% stock dividend ...................... 86,552 270 3,332 (3,602)
--------- -------- -------- -------- ------- ------- --------
BALANCES AT JANUARY 1, 1995 ............ 1,818,250 5,682 23,864 12,922 (1,636) 40,832
Net income ............................. 5,709 5,709
Treasury stock purchased ............... (45,868) $(1,926) (1,926)
Issuance of shares under the
dividend reinvestment plan ....... 5,147 16 110 126
Issuance of shares under the employee
retirement savings plan .......... 475 2 10 12
Issuance of shares for stock
options exercised ................ 6,400 16 66 27 109
Cash dividends declared,
$.49 per share ................... (1,751) (1,751)
Change in unrealized holding gain (loss)
on securities available for sale . 3,548 3,548
Two-for-one stock split in the
form of a 100% stock dividend .... 1,775,856 5,693 (5,693)
--------- -------- -------- -------- ------- ------ --------
BALANCES AT DECEMBER 31, 1995 .......... 3,560,260 $ 11,407 $ 24,042 $ 11,187 $ 1,912 $(1,889) $ 46,659
========= ======== ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
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<PAGE> 15
First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
For the three years ended December 31, 1995
(In thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 5,709 $ 5,164 $ 4,666
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan and lease losses ........... 584 638 1,124
Depreciation, accretion, and amortization ..... 1,004 1,199 1,401
Market loss on loans held for sale ............ 121
Securities (gains) losses ..................... 20 (11) (15)
Loan sale gains ............................... (27) (29) (70)
Deferred income tax expense (benefit) ......... 5 (160)
(Increase) decrease in interest receivable .... (354) (398) 259
Increase (decrease) in interest payable ....... 704 234 (133)
Increase in net deferred loan costs ........... (37) (55) (201)
Change in other assets and liabilities, net ... (239) (1,092) (142)
-------- -------- --------
Net cash provided by operating activities 7,369 5,771 6,729
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment and
mortgage-backed securities held to maturity ......... (1,351) (17,135) (37,313)
Purchases of investment and mortgage-backed
securities available for sale ....................... (27,617) (26,112)
Proceeds from sales of investment and
mortgage-backed securities available for sale ....... 17,560
Proceeds from calls, payments, and maturities of
investment and mortgage-backed
securities held to maturity ......................... 3,109 4,321 32,147
Proceeds from calls, payments, and
maturities of investment and mortgage-
backed securities available for sale ................ 13,099 15,959
Net increase in loans and leases .......................... (28,318) (16,824) (22,156)
Proceeds from sale of loans ............................... 1,578 3,113 7,046
Expenditures for premises and equipment ................... (1,944) (4,551) (1,904)
Proceeds from sales of other real estate owned ............ 52 217
-------- -------- --------
Net cash applied to investing activities (23,832) (41,229) (21,963)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts ............... 26,887 (997) 15,883
Net increase (decrease) in short-term borrowings .......... (3,466) (2,053) 4,980
Proceeds from long-term debt .............................. 5,000 30,110 6,000
Payments on long-term debt ................................ (6,305) (1,290) (499)
Issuance of common stock .................................. 247 408 409
Purchase of treasury shares ............................... (1,926)
Cash dividends paid ....................................... (1,672) (1,468) (1,218)
-------- -------- --------
Net cash provided by financing activities 18,765 24,710 25,555
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 2,302 (10,748) 10,321
CASH AND CASH EQUIVALENTS AT JANUARY 1 .................... 18,110 28,858 18,537
-------- -------- --------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 .................. $ 20,412 $ 18,110 $ 28,858
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
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<PAGE> 16
First-Knox Banc Corp. 1995 Annual Report
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
First-Knox Banc Corp. (the Corporation), a two-bank holding company,
provides a broad range of banking, financial, and fiduciary services. Its
principal subsidiaries, The First-Knox National Bank (First-Knox) and The
Farmers and Savings Bank (Farmers), operate predominantly in the central Ohio
counties of Knox, Morrow, Holmes, Ashland, and Richland. The banks' primary
services include accepting demand, savings, and time deposits; making
commercial, industrial, real estate, and consumer loans; and providing trust
services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The following is a summary of the significant accounting policies followed
in the preparation of the consolidated financial statements.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries, First-Knox and Farmers. All
significant intercompany transactions and balances have been eliminated.
INDUSTRY SEGMENT INFORMATION
The Corporation is engaged in the business of banking, which accounts for
substantially all of its revenues and assets.
INVESTMENT SECURITIES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards 115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." SFAS 115 requires corporations to classify certain debt
and equity securities as held to maturity, trading or available for sale. The
initial effect of adopting SFAS 115 on January 1, 1994 was an increase in
shareholders' equity of $706,000, representing the net unrealized gains on
securities classified as available for sale, net of the related tax effect.
Securities classified as available for sale are carried at fair value. Net
unrealized gains and losses are reflected as a separate component of
shareholders' equity, net of tax effects. Securities classified as available for
sale are those that management intends to sell or that could be sold for
liquidity, investment management, or similar reasons, even if there is not a
present intention of such a sale. Equity securities that have a readily
determinable fair value are also classified as available for sale.
Securities classified as held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts using the interest method.
Securities classified as held to maturity are those management has the positive
intent and ability to hold to maturity. Trading securities are those purchased
principally to sell in the near term and are carried at fair value,with
unrealized holding gains and losses reflected in earnings. The Corporation does
not have trading securities.
(Continued)
15
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<PAGE> 17
First-Knox Banc Corp. 1995 Annual Report
Prior to the adoption of SFAS 115, the Corporation recorded investment
securities at amortized cost. Marketable equity securities were carried at the
lower of cost or estimated market value in the aggregate.
Realized gains and losses on disposition are based on net proceeds and the
adjusted carrying amount of the security sold, using the specific identification
method.
INTEREST AND FEES ON LOANS AND LEASES
Interest on loans and leases is recognized on the interest method. The
accrual of interest on loans is suspended when, in management's opinion, the
collection of all or a portion of the interest has become doubtful. When a loan
is placed on non-accrual status, accrued and unpaid interest at risk is charged
against income. Payments received on non-accrual loans are applied against
principal until recovery of the remaining balance is reasonably assured.
Loan fees and direct costs associated with originating or acquiring loans
and leases are deferred and recognized over the life of the related loan or
lease, as an adjustment of the yield.
CONCENTRATIONS OF CREDIT RISK
The Corporation, through its subsidiary banks, grants residential,
consumer, and commercial loans to customers located primarily in the central
Ohio counties of Knox, Morrow, Holmes, Ashland, and Richland. In addition, the
Corporation is in the business of commercial and consumer leasing. Commercial
loans, residential real estate loans, consumer loans, and leases comprise 31.1%,
46.3%, 22.1%, and 0.5% of total loans and leases, respectively, at December 31,
1995.
The Corporation, in the normal course of business, makes commitments to
extend credit which are not reflected in the financial statements. A summary of
these commitments is discussed in Note 9.
LOANS HELD FOR SALE
Real estate loans held for sale in the secondary market are carried at the
lower of cost or estimated market value in the aggregate. Net unrealized losses
are recognized in a valuation allowance by charges to income.
ALLOWANCE FOR LOAN AND LEASE LOSSES
Because some loans and leases may not be repaid in full, an allowance for
loan and lease losses is recorded. Increases to the allowance are recorded by a
provision charged to expense. Estimating the risk of loss and the amount of loss
on any loan or lease is necessarily subjective. Accordingly, the allowance is
maintained by management at a level considered adequate to cover losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial positions and collateral values, and other factors and estimates which
are subject to change over time. While management may periodically allocate
portions of the allowance for specific problem situations, the entire allowance
is available for any charge-offs that occur. A loan or lease is charged-off by
management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur.
Statements of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" and No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" became effective
January 1, 1995, and require
(Continued)
16
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<PAGE> 18
First-Knox Banc Corp. 1995 Annual Report
recognition of loan impairment. Loans are considered impaired if full principal
or interest payments are not anticipated. Impaired loans are carried at the
present value of expected cash flows discounted at the loan's effective interest
rate or at the fair value of the collateral if the loan is collateral dependent.
A portion of the allowance for loan losses is allocated to impaired loans.
Changes in the carrying value of impaired loans due to changes in estimates of
future payments or the passage of time are reported as increases or decreases in
the provision for loan losses. The effect of adopting these standards in 1995
was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one-to-four
family residences, residential construction loans, and automobile, home equity,
and second mortgages. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans are often
also considered impaired. Impaired loans, or portions thereof, are charged off
when deemed uncollectible. The nature of disclosures for impaired loans is
considered generally comparable to prior nonaccrual and renegotiated loans and
non-performing and past-due asset disclosures.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
life of the asset. Maintenance and repairs are charged to expense as incurred,
and major improvements are capitalized.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure is
included in other assets at the lower of cost or fair value, less estimated
costs to sell. Any reduction from carrying value of the related loan to fair
value at the time of acquisition is accounted for as a loan loss. Any subsequent
reduction in fair value is reflected in a valuation allowance account through a
charge to income. Costs incurred to carry other real estate are charged to
expense.
Other real estate owned totaled $92,000 and $144,000 at December 31, 1995,
and 1994, respectively.
INTANGIBLES
Intangible assets arising from branch and bank acquisitions, and included
with other assets in the accompanying consolidated balance sheet, are summarized
as follows at December 31, 1995, net of accumulated amortization:
<TABLE>
<S> <C>
Goodwill $ 416,000
Core deposit intangibles 653,000
</TABLE>
Goodwill is being amortized using the straight-line method over periods of
up to fifteen years. Core deposit intangibles are being amortized using various
methods over periods of up to fifteen years for intangibles arising from
acquisitions prior to 1989, and over ten years for branch acquisitions in 1989.
Amortization of goodwill and core deposit intangibles totaled $240,000,
$248,000, and $256,000 in 1995, 1994, and 1993, respectively.
(Continued)
17
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<PAGE> 19
First-Knox Banc Corp. 1995 Annual Report
INCOME TAXES
Beginning in 1993, the Corporation adopted SFAS 109, "Accounting for
Income Taxes." The Corporation records income tax expense based upon the amount
of tax due on its tax return plus deferred taxes computed based upon the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates. The
cumulative effect of the adoption of SFAS 109 as of January 1, 1993, was not
material.
STATEMENT OF CASH FLOWS
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold, all of which have
original maturities of 90 days or less.
The Corporation paid interest of $16,795,000, $13,393,000, and $12,830,000
for the years ended December 31, 1995, 1994, and 1993, respectively. Cash paid
for income taxes was $1,477,000, $1,378,000, and $1,958,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Corporation adopted stock option and stock appreciation rights plans
in 1995 and 1990. Stock options and stock appreciation rights may be granted at
a price not less than the fair market value of the stock at the date of the
grant. Stock options are reflected as common stock and paid-in capital when
exercised, in an amount equal to the option price received. Any benefit
associated with the tax deduction received for the difference between the fair
market value at the date of exercise and the option price is recorded as paid-in
capital. Compensation expense associated with stock appreciation rights granted
is accrued based on the increase in the value of the underlying common shares.
EARNINGS AND DIVIDENDS DECLARED PER SHARE
Primary earnings per share is computed based on the weighted average
shares outstanding during the year plus common equivalent shares arising from
dilutive stock options, using the treasury method. Fully-diluted earnings per
share reflects additional dilution related to stock options due to the use of
the market price at the end of the period when higher than the average price for
the period. For 1993, the computation of fully-diluted earnings per share
further assumes adding the after-tax interest cost of the convertible,
subordinated debentures to net income and dividing the result by the
fully-diluted weighted average shares outstanding during the year. Fully-diluted
shares related to the debentures are calculated assuming the conversion of each
$1,000 of debentures outstanding for 97.24 shares of common stock at the
beginning of 1993. All of the outstanding debentures were redeemed or converted
as of June 17, 1993. The calculation of fully-diluted weighted average shares
outstanding is adjusted for the actual debentures converted.
In July, 1995, the Corporation declared a two-for-one stock split in the
form of a 100% stock dividend. The related shares were distributed September 1,
1995, to shareholders of record on August 18, 1995. This was recorded by
transferring the par value of the shares issued from retained earnings to common
stock. The Corporation declared 5% stock dividends in 1994 and 1993. These stock
dividends were recorded by transferring the fair market value of the shares
issued from retained earnings to common stock and paid-in capital. All per share
data has been retroactively adjusted for the stock split and stock dividends
declared.
FINANCIAL STATEMENT PRESENTATION
Certain items in the 1994 and 1993 financial statements have been reclassified
to correspond with the 1995 presentation.
18
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<PAGE> 20
First-Knox Banc Corp. 1995 Annual Report
NOTE 2 - INVESTMENT SECURITIES AND
MORTGAGE-BACKED SECURITIES
The amortized cost and estimated fair values of investment and
mortgage-backed securities available for sale are summarized as follows at
December 31, 1995:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities .......... $27,955 $ 312 $ (51) $28,216
Obligations of states and political
subdivisions ................ 53,407 1,867 (77) 55,197
Obligations of U.S. government
corporations and agencies ... 6,932 59 6,991
Other securities .................. 4,041 249 4,290
------- ------ ------- -------
TOTAL ................. $92,335 $2,487 $ (128) $94,694
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA certificates ............................... $ 9,357 $ 385 $ 9,742
FHLMC certificates .............................. 12,658 199 $ (23) 12,834
FNMA certificates ............................... 13,320 51 (46) 13,325
Collateralized mortgage obligations ............. 1,421 1 (29) 1,393
------- ------- ------ -------
TOTAL ............................... $36,756 $ 636 $ (98) $37,294
======= ======= ====== =======
</TABLE>
The amortized cost and estimated fair values of investment and
mortgage-backed securities available for sale and held to maturity are
summarized as follows at December 31, 1994:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...... $28,300 $ 1 $ (881) $27,420
Obligations of U.S. government
corporations and agencies 2,497 (104) 2,393
Other securities .............. 3,864 127 3,991
------- ----- ------- -------
TOTAL ............. $34,661 $ 128 $ (985) $33,804
======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA certificates .................................. $ 2,946 $ (182) $ 2,764
FHLMC certificates ................................. 15,663 $ 54 (548) 15,169
FNMA certificates .................................. 22,710 17 (922) 21,805
Collateralized mortgage obligations ................ 2,961 1 (43) 2,919
------- -------- -------- -------
TOTAL $44,280 $ 72 $ (1,695) $42,657
======= ======== ======== =======
</TABLE>
(Continued)
19
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<PAGE> 21
First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS ...... $54,750 $555 $(3,458) $51,847
======= ==== ======= =======
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities available for sale at December 31, 1995, by contractual maturity,
are shown below. Expected maturities will likely differ from contractual
maturities because some issuers have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
(IN THOUSANDS OF DOLLARS) COST FAIR VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less ........................ $ 13,807 $ 13,816
Due after one year through five years .......... 31,000 31,785
Due after five years through ten years ......... 22,824 23,743
Due after 10 years ............................. 24,704 25,350
-------- --------
92,335 94,694
Mortgage-backed and related securities ......... 36,756 37,294
-------- --------
TOTAL INVESTMENTS IN DEBT SECURITIES ..... $129,091 $131,988
======== ========
</TABLE>
Proceeds from the sales of investment and mortgage-backed securities
during 1995 were $17,580,000, resulting in gross gains of $50,000 and gross
losses of $93,000. There were no sales in 1994 and 1993. Gross gains from calls
of investment securities were $23,000, $11,000, and $15,000 in 1995, 1994, and
1993, respectively.
As of December 31,1995 and 1994, securities having estimated fair values
of $60,297,000 and $56,093,000, respectively, were pledged to collateralize
governmental and trust department deposits and repurchase agreements (See Note
7) in accordance with federal and state requirements.
To provide additional flexibility to meet liquidity and asset/liability
management needs, the Corporation reclassified its obligations of states and
political subdivisions from held to maturity to available for sale. The
securities, with an amortized cost of $53,407,000, were transferred on December
31, 1995, as allowed by the SFAS 115 implementation guide issued by the
Financial Accounting Standards Board. The related unrealized gain of $1.8
million is reflected, net of tax as an increase to shareholders' equity.
20
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<PAGE> 22
First-Knox Banc Corp. 1995 Annual Report
NOTE 3 - LOANS AND LEASE FINANCING
Loans and leases are comprised of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate loans held for sale .......... $ 5,020
Residential real estate loans ........................ 147,927 $142,785
Commercial real estate loans ......................... 9,548 6,233
Commercial and industrial loans ...................... 88,632 79,453
Consumer and credit card loans ....................... 73,137 69,286
Obligations of states and political subdivisions ..... 4,678 5,291
Lease financing, net ................................. 1,699 1,120
-------- --------
TOTAL LOANS AND LEASE FINANCING ................ $330,641 $304,168
======== ========
</TABLE>
Loans and leases over 90 days past due and still accruing interest
approximated $862,000 and $457,000 at December 31, 1995 and 1994, respectively.
Loans on non-accrual status at December 31, 1995 and 1994 approximated $197,000
and $805,000, respectively. Impaired loans were not material at December 31,
1995, or during 1995.
Components of the investment in direct financing leases at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Total minimum lease payments to be received ........ $ 2,012 $ 1,323
Less unearned income on leases ..................... (313) (203)
------- -------
TOTAL LEASE FINANCING, NET ............. $ 1,699 $ 1,120
======= =======
</TABLE>
Future minimum annual rentals under the direct-financing leases are as
follows in thousands of dollars:
<TABLE>
<S> <C> <C>
1996................... $ 421
1997................... 534
1998................... 411
1999................... 452
2000................... 194
------
$2,012
======
</TABLE>
21
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<PAGE> 23
First-Knox Banc Corp. 1995 Annual Report
NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
Activity in the allowance for loan and lease losses is summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year .............. $ 3,876 $ 3,597 $ 3,162
Provision for loan and lease losses ..... 584 638 1,124
Losses charged to the allowance ......... (539) (641) (862)
Recoveries .............................. 245 282 173
------- ------- -------
BALANCE, END OF YEAR .............. $ 4,166 $ 3,876 $ 3,597
======= ======= =======
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land ....................................................... $ 1,701 $ 1,629
Construction in progress.................................... 279
Buildings .................................................. 9,229 7,798
Equipment .................................................. 7,713 7,074
------- -------
Total premises and equipment................................ 18,643 16,780
Less accumulated depreciation............................... (7,650) (6,745)
------- -------
PREMISES AND EQUIPMENT, NET .......................... $10,993 $10,035
======= =======
</TABLE>
Total depreciation expense was $1,018,000 in 1995, $716,000 in 1994, and
$643,000 in 1993.
The Corporation has annual renewable leases for certain office and
business equipment. Total rental expense for renewable and noncancelable
operating leases was $211,000, $202,000, and $169,000 in 1995, 1994, and 1993,
respectively. Future lease commitments are not material.
NOTE 6 - DEPOSITS
Deposits are comprised of the following categories at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Non interest-bearing demand ....................... $ 54,706 $ 51,184
Interest-bearing demand ........................... 39,882 42,525
Savings ........................................... 99,133 109,675
Time .............................................. 210,346 173,796
-------- --------
TOTAL DEPOSITS .............................. $404,067 $377,180
======== ========
</TABLE>
Time deposits of $100,000 or more included above were $36,417,000 in 1995
and $32,658,000 in 1994.
22
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<PAGE> 24
First-Knox Banc Corp. 1995 Annual Report
NOTE 7 - SHORT-TERM BORROWINGS
The outstanding balances for short-term borrowings as of December 31, are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements ............ $7,453 $ 5,700
Demand note due to the U. S. Treasury .................. 533 1,852
Federal funds purchased ................................ 3,900
------ -------
TOTAL SHORT-TERM BORROWINGS ...................... $7,986 $11,452
====== =======
</TABLE>
Securities sold under repurchase agreements represent borrowings with
maturities from 1 to 89 days, and are collateralized by selected Corporation
securities as discussed in Note 2.
NOTE 8 - LONG-TERM DEBT
Long-term borrowings as of December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate Federal Home Loan Bank advances with
monthly principal and interest payments:
5.60% Advance due August 1, 2003 ................. $ 2,442 $ 2,690
6.35% Advance due August 1, 2013 ................. 2,812 2,896
5.95% Advance due March 1, 2004 .................. 649 708
5.70% Advance due May 1, 2004 .................... 5,262 5,736
5.85% Advance due January 1, 2016 ................ 5,000
Fixed rate Federal Home Loan Bank advances
with monthly interest payments:
5.35% Advance due February 1, 1999 ............... 5,000 5,000
6.60% Advance due April 1, 1999 .................. 5,000 5,000
5.70% Advance due June 1, 1999 ................... 7,000 7,000
6.35% Advance due March 1, 2004 .................. 250 250
Variable rate Federal Home Loan Bank advances
with monthly interest payments:
6.11% Advance due May 1, 2004 .................... 4,400
5.68% Advance due June 1, 2004 ................... 1,040
------- -------
TOTAL LONG-TERM DEBT ....................... $33,415 $34,720
======= =======
</TABLE>
At December 31, 1995, Federal Home Loan Bank (FHLB) advances were
collateralized by all shares of FHLB stock owned by the Corporation, with a
carrying value of $3,546,000, and by 100% of the Corporation's qualified real
estate-backed investments and qualified mortgage loan portfolio totaling
approximately $195,000,000. Based on the carrying amount of FHLB stock owned by
the Corporation, total FHLB advances were limited to approximately $40,400,000
at December 31, 1995. Future advances to be received by the Corporation above
this limit would require additional purchases of FHLB stock.
The aggregate future minimum annual principal payments on borrowings are
$1,540,000 in 1996, $1,527,000 in 1997, $1,524,000 in 1998, $18,530,000 in 1999,
$1,546,000 in 2000, and $8,748,000 thereafter.
23
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<PAGE> 25
First-Knox Banc Corp. 1995 Annual Report
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The subsidiary banks have various commitments and contingencies arising in
the normal course of business, such as standby letters of credit and commitments
to extend credit, which are not reflected in the consolidated financial
statements. The exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans is
represented by the contractual amount of those instruments. The subsidiary banks
follow the same credit policy in making such commitments as is followed for
loans recorded in the financial statements.
As of December 31, 1995 and 1994, unused credit lines amounted to
approximately $56,334,000 and $56,954,000, respectively. As of December 31, 1995
and 1994, commitments under outstanding letters of credit amounted to
approximately $364,000 and $320,000, respectively. Since many commitments to
make loans expire without being used, the amount does not necessarily represent
future cash commitments. Collateral obtained related to the commitments is
determined using management's credit evaluation of the borrower and may include
real estate, vehicles, business assets, deposits, and other items. In
management's opinion, these commitments represent normal banking transactions,
and no material losses are expected to result therefrom.
The Corporation's subsidiary banks are required to maintain cash on hand
and in reserve balances at the Federal Reserve Bank. This requirement as of
December 31, 1995, was $4,692,000. These balances do not earn interest.
The Corporation and its subsidiaries have various claims and lawsuits
pending at December 31, 1995, arising in the ordinary course of their business.
It is the opinion of management and legal counsel that such disputes will not
materially affect the Corporation's financial position or earnings.
In January, 1991, a facilities management agreement was entered into with
AT&T Corporation regarding on-site data processing services for First-Knox Banc
Corp. and its subsidiaries. The agreement covers the period through January 31,
1998, during which time AT&T is responsible for upgrading computer hardware and
software, as well as managing the data processing function. All operating
expenses related to the function, including personnel salaries and benefits,
equipment and software maintenance, and depreciation, are the responsibility of
AT&T. The agreement calls for payments with limits defined by inflation and
customer account volumes. Payments under this agreement amounted to $1.27
million in 1995, $1.21 million in 1994, and $1.16 million in 1993. The annual
amount of anticipated payments is expected to range from $1.33 million in 1996
to $1.39 million in 1997 with a final payment of $107,000 in January 1998.
24
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<PAGE> 26
First-Knox Banc Corp. 1995 Annual Report
NOTE 10 - EMPLOYEE BENEFIT PLANS
PENSION PLAN:
The Corporation has a noncontributory defined benefit pension plan
covering substantially all of its employees. The plan provides benefits based on
an employee's years of service and compensation. The Corporation's funding
policy is to contribute annually an amount that can be deducted for federal
income tax purposes using a different actuarial cost method and different
assumptions from those used for financial reporting. For financial reporting
purposes, pension expense is calculated using the projected unit cost method.
Net pension expense for 1995, 1994, and 1993 is comprised of the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned
during the year .......................... $ 224 $ 262 $ 233
Interest cost on projected
benefit obligation ....................... 351 315 303
Actual return on plan assets ................... (460) (413) (381)
Net amortization and deferral
of initial transition credit and
subsequent (gains) and losses ............ (43) (32) (40)
----- ----- -----
NET PENSION EXPENSE .................. $ 72 $ 132 $ 115
===== ===== =====
</TABLE>
The funded status of the plan and the prepaid pension cost recognized at
December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits ............................... $ 3,798 $ 3,121 $ 3,218
Non-vested benefits ........................... 117 79 378
------- ------- -------
ACCUMULATED BENEFIT OBLIGATION .......... $ 3,915 $ 3,200 $ 3,596
======= ======= =======
Projected benefit obligation ........................ $ 5,042 $ 4,182 $ 4,522
Plan assets at fair value
(primarily U. S. government obligations, listed
stocks, and corporate bonds) .................. 5,620 4,646 4,481
------- ------- -------
Plan assets in excess of
(less than) projected benefit obligation ...... 578 464 (41)
Items not yet recognized in income:
Unrecognized prior service adjustment ......... 90 96 136
Unrecognized net loss ......................... 474 205 566
Initial transition credit which is being
amortized over 15 years ....................... (242) (291) (339)
------- ------- -------
PREPAID PENSION COST INCLUDED
IN OTHER ASSETS ................... $ 900 $ 474 $ 322
======= ======= =======
Assumptions used at December 31:
Discount rate ................................. 7.50% 8.50% 7.00%
Rate of increase in compensation level ........ 4.75% 5.50% 5.00%
Long-term rate of return on assets ............ 9.00% 9.00% 9.00%
</TABLE>
To better reflect the pension obligation at December 31, 1995, the
Corporation changed the assumptions from those used at December 31, 1994. These
changes were the primary factors in the change in the unrecognized net loss
reflected in the prepaid pension cost analysis at December 31, 1995.
25
Page 48
<PAGE> 27
First-Knox Banc Corp. 1995 Annual Report
POSTRETIREMENT HEALTHCARE PLAN:
SFAS 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions," was adopted by the Corporation in 1993. This pronouncement requires
employers to accrue the cost of retirees' health and other postretirement
benefits during the working career of active employees. The Corporation sponsors
a postretirement healthcare plan which covers former employees who retired prior
to January 1, 1993.
The following table sets forth the plan's funded status reconciled with
the amount recorded in the Corporation's balance sheet at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation ................................... $ 821 $ 732
Unrecognized transition asset, net of amortization ......... (808) (855)
Unrecognized net gain ...................................... 174 258
----- -----
ACCRUED POSTRETIREMENT BENEFIT
COST INCLUDED IN OTHER LIABILITIES ................... $ 187 $ 135
===== =====
</TABLE>
Postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest cost on accumulated postretirement benefit obligation ... $ 63 $ 56
Amortization of transition obligation over 20 years .............. 37 48
---- ----
POSTRETIREMENT BENEFIT COST ...................................... $100 $104
==== ====
</TABLE>
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995. The rate was assumed
to decrease gradually to 5% in 2000 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated benefit obligation as of
December 31, 1995, by $81,000. The weighted average discount rate used in
determining expense, and accumulated postretirement benefit obligation was
7.50%.
EMPLOYEE RETIREMENT SAVINGS PLAN:
On January 1, 1993, the Corporation adopted a 401(k) plan which covers all
employees who are at least 21 years of age and who have completed one year of
service. The Corporation contributes a matching 30% of employee contributions up
to a maximum of 6% of the employee's annual salary. All matching contributions
vest immediately. The Corporation's expense related to the matching provisions
of this plan was $78,000 for 1995 and $76,000 for 1994.
26
Page 49
<PAGE> 28
First-Knox Banc Corp. 1995 Annual Report
NOTE 11 - STOCK OPTION PLAN
The Corporation was authorized in 1990 to grant options on 175,032 shares
of common stock and 87,516 stock appreciation rights (adjusted for stock splits
and stock dividends) to key management employees of the Corporation and its
subsidiaries. This plan authorized the issuance of options and stock
appreciation rights at fair market value at the date of the grant and for terms
not exceeding ten years from the date of the grant. No consideration was paid by
the employees to exercise the stock appreciation rights. This plan expired on
March 27, 1995.
The Corporation was authorized in 1995 to grant options on 180,000 shares
of common stock and 60,000 stock appreciation rights to key management employees
and directors of the Corporation and subsidiaries under a new plan. This plan
authorizes the issuance of stock options and stock appreciation rights at fair
market value at the date of the grant and for terms not exceeding ten years from
the date of the grant. No consideration is paid by employees to exercise stock
appreciation rights. Common shares related to cancelled stock options and stock
appreciation rights become available for subsequent grant under terms of the
plan. Stock options and stock appreciation rights may not be granted under this
plan after March 28, 2005.
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------
OUTSTANDING
----------------------------
RANGES OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1993 .................. 55,614 119,418 $10.54 - 12.47
Granted .......................... (35,500) 35,500 13.27 - 13.27
------- -------
December 31, 1993 ................ 20,114 154,918 10.54 - 13.27
Granted .......................... (19,950) 19,950 20.89 - 20.89
Exercised ........................ (5,184) 10.54 - 10.59
------- -------
December 31, 1994 ................ 164 169,684 10.54 - 20.89
Authorized ....................... 180,000
Canceled ......................... (1,296) 11.88 - 11.88
Expired .......................... (164)
Granted .......................... (16,000) 16,000 21.53 - 21.53
Exercised ........................ (9,884) 10.54 - 11.88
------- -------
DECEMBER 31, 1995 ................ 164,000 174,504 10.54 - 21.53
======= =======
</TABLE>
27
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<PAGE> 29
First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
STOCK APPRECIATION RIGHTS
-------------------------------
OUTSTANDING
---------------------------
RANGE OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1993 .................. 55,854 23,884 $10.54 - 12.47
Granted .......................... (7,100) 7,100 13.27 - 13.27
------- ------
December 31, 1993 ................ 48,754 30,984 10.54 - 13.27
Granted .......................... (11,768) 11,768 20.89 - 20.89
Exercised ........................ (1,034) 10.54 - 10.59
------- ------
December 31, 1994 ................ 36,986 41,718 10.54 - 20.89
Authorized ....................... 60,000
Canceled ......................... (260) 11.88 - 11.88
Expired .......................... (36,986)
Exercised ........................ (1,970) 10.54 - 11.88
------- ------
DECEMBER 31, 1995 ................ 60,000 39,488 10.54 - 20.89
====== ======
</TABLE>
Compensation related to stock appreciation rights was $150,000 in 1995,
$139,000 in 1994, $68,000 in 1993.
NOTE 12 - OTHER OPERATING EXPENSES
Other operating expenses consist of the following major items:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Data processing (Note 9) ................... $1,764 $1,611 $1,551
Franchise taxes ............................ 559 542 446
FDIC insurance ............................. 580 980 809
Advertising ................................ 387 357 292
Stationery and office supplies ............. 423 358 369
Professional fees .......................... 358 411 291
Other ...................................... 1,585 1,805 2,055
------ ------ ------
TOTAL OTHER OPERATING EXPENSES .... $5,656 $6,064 $5,813
====== ====== ======
</TABLE>
28
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<PAGE> 30
First-Knox Banc Corp. 1995 Annual Report
NOTE 13 - INCOME TAXES
Income taxes consist of the following for the years ended December 31,
1995, 1994, and 1993:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense .................. $1,560 $1,267 $1,603
Deferred tax expense (benefit) ........ 5 (160)
------ ------- ------
TOTAL INCOME TAXES .............. $1,565 $ 1,267 $1,443
====== ======= ======
</TABLE>
The difference between the provision for income taxes and amounts computed
by applying the statutory income tax rate of 34% to income before taxes is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at the statutory
tax rate on pre-tax income ......... $ 2,473 $ 2,187 $ 2,077
Add/(subtract) tax effect of:
Tax exempt income .................. (906) (932) (659)
Other .............................. (2) 12 25
------- ------- -------
TOTAL INCOME TAXES ......... $ 1,565 $ 1,267 $ 1,443
======= ======= =======
</TABLE>
The income tax expense (benefit) attributable to securities transactions
approximated $(7,000) in 1995, $4,000 in 1994, and $5,000 in 1993.
The tax effects of principal temporary differences and the resulting
deferred tax assets and liabilities that comprise the net deferred tax asset
(liability) included in the balance sheet are as follows at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses ............................. $ 1,040 $ 942
Unrealized loss on securities available for sale ...... 843
Other ................................................. 279 220
------- -------
Deferred tax asset ........................... 1,319 2,005
------- -------
Pension ............................................... (299) (154)
Depreciation .......................................... (306) (353)
Direct financing and leveraged leases ................. (185) (206)
Unrealized gains on securities available for sale ..... (985)
Other ................................................. (405) (320)
------- -------
Deferred tax liability ....................... (2,180) (1,033)
------- -------
NET DEFERRED TAX ASSET (LIABILITY) ........... $ (861) $ 972
======= =======
</TABLE>
The Corporation has paid sufficient taxes in the current and prior years
to warrant recording full deferred tax assets without a valuation allowance.
29
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<PAGE> 31
First-Knox Banc Corp. 1995 Annual Report
NOTE 14 - REGULATORY MATTERS
The payment of dividends to the Corporation by its banking subsidiaries is
subject to restriction by various regulatory authorities. These restrictions
generally limit dividends to earnings retained in the current and prior two
years, as defined by regulation. In addition, dividend payments may not reduce
capital levels below minimum regulatory guidelines. As of December 31, 1995,
$4.4 million was available for dividend payments under the more restrictive of
the two limitations.
The Corporation complies with the capital requirements established by the
Federal Reserve System, which are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL POSITION
AS OF
REGULATORY DECEMBER 31,
MINIMUM 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I risk-based capital 4.00% 14.29% 14.45%
Total risk-based capital 8.00% 15.45% 15.63%
Tier I leverage 3.00-5.00% 8.84% 8.80%
</TABLE>
Under "Prompt Corrective Action" regulations, the FDIC has defined five
categories of capitalization (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized). The Corporation meets the "well capitalized" definition which
requires a total risk-based capital ratio of at least 10%, a Tier 1 risk-based
ratio of at least 6%, a leverage ratio of at least 5%, and the absence of any
written agreement, order, or directive from any regulatory agency. "Well
capitalized" status affords the Corporation the ability to operate with the
greatest flexibility under current laws and regulations.
NOTE 15 - RELATED PARTY TRANSACTIONS
In the course of their business, the subsidiary banks have granted loans
to executive officers, directors, and their related business interests. The
following is an analysis of activity of related party loans aggregating $60,000
or more to any one related party for the year ended December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995
- ----------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1995 $10,657
New loans and advances 2,686
Repayment (1,972)
-------
BALANCE AT DECEMBER 31, 1995 $11,371
=======
</TABLE>
Total loans to executive officers included above were $1,359,000 and
$1,262,000 at December 31, 1995 and 1994, respectively.
30
Page 53
<PAGE> 32
First-Knox Banc Corp. 1995 Annual Report
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value of the Corporation's
financial instruments and the related carrying values at December 31, 1995 and
1994. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS OF DOLLARS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents ............... $ 20,412 $ 20,412 $ 18,110 $ 18,110
Investment and mortgage-backed
securities available for sale 131,988 131,988 76,461 76,461
Investment and mortgage-backed
securities held to maturity .. 54,750 51,847
Loans, net of allowance for
loan losses .................. 324,776 327,296 299,172 295,337
Accrued interest receivable ........ 3,702 3,702 3,348 3,348
Demand and savings deposits ........ (193,721) (193,721) (203,384) (203,384)
Time deposits ...................... (210,346) (214,737) (173,796) (170,488)
Short-term borrowings .............. (7,986) (7,986) (11,452) (11,452)
Long-term debt ..................... (33,415) (29,218) (34,720) (24,468)
Accrued interest payable ........... (2,272) (2,272) (1,568) (1,568)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1995 and 1994. The estimated
fair value for cash and cash equivalents is considered to approximate cost. The
estimated fair value for securities is based on quoted market values for the
individual securities or for equivalent securities. Carrying value is considered
to approximate fair value for loans that contractually reprice at intervals of
less than six months, for short-term borrowings, and for deposit liabilities
subject to immediate withdrawal. The fair values of fixed-rate loans, loans that
reprice less frequently than each six months, time deposits, and long-term debt
are approximated by a discount rate value technique utilizing estimated market
interest rates as of December 31, 1995 and 1994. The fair values of unrecorded
commitments at December 31, 1995 and 1994 are not material.
While these estimates are based on management's judgment of the
appropriate valuation factors, there is no assurance that were the Corporation
to have liquidated such items the estimated fair values would necessarily have
been realized. The estimated fair values should not be considered to apply at
subsequent dates.
Other assets and liabilities of the Corporation that are not defined as
financial instruments are not included in the above disclosures. These would
include, among others, such items as property and equipment, financing leases,
and the intangible value of the Corporation's customer base and profit
potential.
31
Page 54
<PAGE> 33
First-Knox Banc Corp. 1995 Annual Report
NOTE 17 - PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994
- ------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents ............................. $ 6,654 $ 6,517
Interest-bearing deposit in subsidiary bank ........... 57 105
Investment security ................................... 364 295
Debenture receivable from subsidiary bank ............. 2,000 2,000
Investment in subsidiaries ............................ 38,152 32,374
Other assets .......................................... 14 14
-------- --------
TOTAL ASSETS .................................... $ 47,241 $ 41,305
======== ========
LIABILITIES
Dividends payable ..................................... $ 534 $ 455
Other liabilities ..................................... 48 18
-------- --------
TOTAL LIABILITIES ............................... 582 473
-------- --------
EQUITY
Common stock .......................................... 11,407 5,682
Paid-in capital ....................................... 24,042 23,864
Retained earnings ..................................... 11,187 12,922
Common stock in treasury .............................. (1,889)
Unrealized gain (loss) on securities available for sale 1,912 (1,636)
-------- --------
TOTAL EQUITY .................................... 46,659 40,832
-------- --------
TOTAL LIABILITIES AND EQUITY .............. $ 47,241 $ 41,305
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries ................. $ 3,401 $ 6,933 $ 1,048
Interest and dividend income ................ 193 196 198
Total expenses .............................. (150) (125) (277)
------- ------- -------
Income before taxes and equity in
undistributed earnings of subsidiaries 3,444 7,004 969
Income tax expense (benefit) ................ 9 20 (31)
Equity in undistributed earnings
of subsidiaries ....................... 2,274 (1,820) 3,666
------- ------- -------
NET INCOME ......................... $ 5,709 $ 5,164 $ 4,666
======= ======= =======
</TABLE>
32
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<PAGE> 34
First-Knox Banc Corp. 1995 Annual Report
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................... $ 5,709 $ 5,164 $ 4,666
Adjustments to reconcile net income to cash
provided by operations
Amortization ..................... 14
Equity in undistributed earnings
of subsidiaries .............. (2,274) 1,820 (3,666)
Changes in other, net ........................ 5 8 (38)
------- ------- -------
Net cash provided by operating activities .... 3,440 6,992 976
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposit
in subsidiary bank ..................... 48 142 90
------- ------- -------
Net cash provided by investing activities .... 48 142 90
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid .......................... (1,672) (1,468) (1,218)
Issuance of common stock ..................... 247 408 409
Purchase of treasury shares .................. (1,926)
Debentures redeemed for cash ................. (169)
------- ------- -------
Net cash used in financing activities ........ (3,351) (1,060) (978)
------- ------- -------
Net change in cash ................................. 137 6,074 88
Beginning cash ..................................... 6,517 443 355
------- ------- -------
ENDING CASH ........................................ $ 6,654 $ 6,517 $ 443
======= ======= =======
</TABLE>
NOTE 18 - QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of consolidated quarterly financial data:
<TABLE>
<CAPTION>
QUARTER ENDED:
(IN THOUSANDS OF ------------------------------------------------------
DOLLARS EXCEPT PER SHARE DATA) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income..................... $ 9,733 $ 9,465 $ 9,214 $ 8,676
Net interest income ................ 5,108 4,924 4,887 4,670
Provision for loan losses........... 182 166 158 78
Net income.......................... 1,563 1,488 1,390 1,268
Fully-diluted earnings per share.... 0.44 0.41 0.38 0.34
1994
Interest income..................... $ 8,553 $ 8,314 $ 8,096 $ 7,631
Net interest income................. 4,772 4,759 4,822 4,614
Provision for loan losses........... 129 154 178 177
Net income.......................... 1,326 1,303 1,355 1,180
Fully-diluted earnings per share.... 0.37 0.35 0.37 0.32
</TABLE>
Fully-diluted earnings per share have been restated to reflect the
two-for-one stock split in the form of a 100% stock dividend distributed in
September, 1995.
33
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<PAGE> 35
First-Knox Banc Corp. 1995 Annual Report
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
First-Knox Banc Corp.
Mount Vernon, Ohio
We have audited the accompanying consolidated balance sheets of FIRST-KNOX
BANC CORP. as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in shareholders' equity and cash flows 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FIRST-KNOX BANC CORP. as of December 31, 1995 and 1994, and the results of its
operations and its 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 Notes 1 and 10 to the financial statements, the
Corporation changed its methods of accounting for impaired loans in 1995, for
certain investment and mortgage-backed securities in 1994 and for income taxes
and postretirement benefits in 1993 to conform with new accounting guidance.
/s/ CROWE, CHIZEK AND COMPANY LLP
---------------------------------
CROWE, CHIZEK AND COMPANY LLP
Columbus, Ohio
January 18, 1996
34
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<PAGE> 36
First-Knox Banc Corp. 1995 Annual Report
FINANCIAL REVIEW
INTRODUCTION
The following discussion and financial information are presented to aid
in understanding the consolidated financial condition and results of operations
of First-Knox Banc Corp. and its bank subsidiaries, The First-Knox National Bank
(First-Knox) and the Farmers and Savings Bank (Farmers). Both banks are insured
by the Federal Deposit Insurance Corporation (FDIC) and provide banking services
to individual and commercial customers in the Central Ohio area. The Corporation
is subject to supervision, examination, and regulation by the Federal Reserve
System. First-Knox is a member of the Federal Reserve System and is subject to
supervision, examination, and regulation by the Comptroller of the Currency and
the FDIC. Farmers is chartered by the State of Ohio and is subject to
supervision, examination, and regulation by the FDIC and the Ohio Division of
Banks.
Emphasis in this analysis is placed on comparisons of the years 1995 to
1994 and 1994 to 1993, with further discussion of historic data where
appropriate. This review should be read in conjunction with the audited
consolidated financial statements and footnotes and with the ratios, statistics,
and discussions.
TABLE I FINANCIAL RATIOS FOR FIVE YEARS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PROFITABILITY
Rate of return on:
Average assets ............................. 1.20% 1.13% 1.12% .99% .91%
Average equity ............................. 13.16 12.94 13.50 13.84 13.67
Beginning equity ........................... 13.98 13.44 15.49 14.56 14.36
As a percent of average assets
Net interest income
(fully-taxable equivalent basis) ........... 4.45% 4.51% 4.74% 4.40% 4.17%
Non-interest income ........................ .66 .60 .59 .61 .62
Provision for loan and lease losses ........ .12 .14 .27 .35 .28
Non-interest expense ....................... 3.12 3.21 3.33 3.14 3.11
Cash dividends per share (1) ................. $.49 $.42 $.37 $.34 $.31
Cash dividends as a percentage
of net income .............................. 30.7% 29.6% 27.9% 26.6% 27.6%
OTHER
Average loans and leases to
average deposits ........................... 80.4% 78.7% 77.5% 75.9% 73.6%
Net loan and lease charge-offs
to average loans and leases ................ .09 .12 .24 .42 .34
Allowance to year-end loans and leases ....... 1.26 1.27 1.24 1.14 1.11
Average shareholders' equity
to average assets .......................... 9.10 8.75 8.32 7.12 6.67
Changes in average balances:
Total assets ............................... 4.5% 9.8% 3.7% 3.6% 6.6%
Shareholders' equity ....................... 8.7 15.4 21.1 10.5 10.4
Loans and leases ........................... 5.4 5.2 4.5 6.5 8.0
Deposits ................................... 3.2 3.5 2.3 3.3 6.2
</TABLE>
(1) Restated for stock dividends and stock splits.
35 Page 58
<PAGE> 37
First-Knox Banc Corp. 1995 Annual Report
RESULTS OF OPERATIONS
Net income of $5,709,000 for 1995 represented a 10.6% increase over
1994. 1994's net income of $5,164,000 represented a 10.7% increase over 1993.
The return on average assets was 1.20% for 1995 compared to 1.13% for
1994 and 1.12% for 1993. The return on average shareholders' equity was 13.16%
for 1995, compared to 12.94% in 1994 and 13.50% in 1993.
As discussed in more detail below, the increase in net income for 1995
resulted primarily from higher net interest income, higher non-interest income,
and a reduced provision for loan losses. The net income increase was partially
offset by a $213,000 or 1.5% increase in non-interest expenses. Non-interest
income recorded growth of $380,000 or 13.8% compared to 1994. Compared to 1993,
1994 non-interest income and non-interest expense increased 11.4% and 5.9%,
respectively.
NET INTEREST INCOME
Net interest income, the amount by which interest and fees from earning
assets exceed the interest cost of liabilities, is the most important component
of consolidated earnings. Net interest income is affected by the volumes,
interest rates, and composition of earning assets and interest-bearing
liabilities, as well as by the levels of non-interest bearing demand deposits
and shareholders' equity. The accompanying tables contain a ten-year comparison
of net interest income as well as detailed ratios regarding its components
during the past three years.
On a fully-taxable equivalent (FTE) basis (tax exempt income restated
to a pre-tax equivalent based on the statutory federal income tax rate), net
interest income was $21.21 million in 1995, $20.58 million in 1994, and $19.72
million in 1993. The 1995 net interest spread declined 21 basis points while
average earning assets increased 4.3% and average interest-bearing liabilities
increased 3.5% over 1994. The 1994 net interest spread declined 24 basis points
while average earning assets increased 9.5% and average interest-bearing
liabilities increased 9.1% over 1993. A rate and volume analysis of interest
income and interest expense changes for 1995 and 1994 is provided in Table III.
As noted in Table II, average earning asset yields (FTE) were 8.59% in
1995, 7.91% in 1994, and 8.21% in 1993. Average interest-bearing liability costs
were 4.57% in 1995, 3.68% in 1994, and 3.74% in 1993. The net interest margin
(FTE net interest income divided by average earning assets) was 4.71%, 4.76%,
and 4.99% for the same respective years.
The decline in net interest margin during 1995 resulted primarily from
earning asset rates increasing slower than interest rates paid on
interest-bearing liabilities. A shift in the composition of customer deposits
during 1995 contributed to the margin decline over 1994, as average balances for
savings and interest-bearing demand deposits declined by 7.2% or $11.7 million
while higher cost time deposits increased by 12.4% or $21.4 million. New lower
yielding non-taxable securities were added during the first quarter of 1994
contributing to the margin decline in 1994 compared to 1993. The
36
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<PAGE> 38
First-Knox Banc Corp. 1995 Annual Report
TABLE II AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
(In thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ----------------------------- ------------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
Taxable .......................... $ 82,390 $ 5,214 6.33% $ 81,549 $ 4,477 5.49% $ 74,730 $ 4,293 5.74%
Non-taxable (1) .................. 49,889 4,288 8.60 50,024 4,242 8.48 29,497 2,800 9.49
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 132,279 9,502 7.18 131,573 8,719 6.63 104,227 7,093 6.81
--------- ------- ----- -------- -------- ----- -------- ------- -----
Loans and leases (2):
Commercial (1) ................... 95,629 9,411 9.84 94,468 8,021 8.49 92,719 7,499 8.09
Real estate ...................... 146,803 11,941 8.13 137,409 10,947 7.97 124,475 10,708 8.60
Consumer (3) ..................... 70,468 7,470 10.60 65,354 6,345 9.71 65,366 6,773 10.36
Leases ........................... 1,359 155 11.41 930 99 10.65 990 135 13.64
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 314,259 28,977 9.22 298,161 25,412 8.52 283,550 25,115 8.86
--------- ------- ----- -------- -------- ----- -------- ------- -----
Money market investments:
Federal funds sold ............... 4,068 228 5.60 2,376 79 3.32 6,973 208 2.98
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 4,068 228 5.60 2,376 79 3.32 6,973 208 2.98
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL EARNING
ASSETS ........................... 450,606 38,707 8.59 432,110 34,210 7.91 394,750 32,416 8.21
------- -------- -------
Loan and lease allowance ......... (3,983) (3,784) (3,552)
Other assets ..................... 30,154 27,902 24,432
--------- --------- --------
TOTAL ASSETS ..................... $ 476,777 $ 456,228 $415,630
========= ========= ========
Interest-bearing deposits:
Savings and interest-bearing
demand deposits .......... $ 150,095 4,029 2.68% $161,812 4,072 2.52% $158,552 4,309 2.72%
Time deposits .................... 193,554 11,129 5.75 172,148 7,728 4.49 167,420 7,714 4.61
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 343,649 15,158 4.41 333,960 11,800 3.53 325,972 12,023 3.69
--------- ------- ----- -------- -------- ----- -------- ------- -----
Borrowed funds:
Short-term ....................... 6,196 390 6.29 9,153 349 3.81 8,669 346 3.99
Long-term ........................ 33,413 1,951 5.84 27,246 1,478 5.42 4,773 328 6.87
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 39,609 2,341 5.91 36,399 1,827 5.02 13,442 674 5.01
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL INTEREST-
BEARING LIABILITIES ...... 383,258 17,499 4.57 370,359 13,627 3.68 339,414 12,697 3.74
------- -------- -------
Non-interest bearing
demand deposits .......... 47,023 44,722 39,877
--------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES AND
DEMAND DEPOSITS .......... 430,281 17,499 4.07 415,081 13,627 3.28 379,291 12,697 3.35
------- -------- -------
Other liabilities ................ 3,106 1,248 1,778
--------- -------- --------
TOTAL LIABILITIES ........ 433,387 416,329 381,069
Shareholders' equity ............. 43,390 39,899 34,561
--------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY ................... $ 476,777 $ 456,228 $415,630
========= ========= ========
Interest spread .................. $21,208 4.02% $ 20,583 4.23% $19,719 4.47%
======= ======== =======
As a percentage of earning assets:
Interest income .......... 8.59% 7.91% 8.21%
Interest expense ......... 3.88 3.15 3.22
----- ----- -----
Net interest income....... 4.71% 4.76% 4.99%
===== ===== =====
</TABLE>
(1) Income is computed on a fully-taxable equivalent basis utilizing
a 34% tax rate. The amount of such adjustment was:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Non-taxable securities.. $1,496 $1,442 $ 969
Commercial loans ....... 123 174 155
$1,619 $1,616 $1,124
</TABLE>
(2) Non-accruing loans are included in the
average balances presented.
(3) Includes balances outstanding under home
equity lines of credit.
37
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<PAGE> 39
First-Knox Banc Corp. 1995 Annual Report
TABLE III RATE AND VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
<TABLE>
<CAPTION>
1995-1994 1994-1993
------------------------------ ---------------------------------
Change In Change In
Income/ Rate Volume Income/ Rate Volume
(In thousands of dollars) Expense Effect Effect Expense Effect Effect
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in interest income
Securities:
Taxable .............. $ 737 $ 688 $ 49 $ 184 $ (168) $ 352
Non-taxable (1) ...... 46 58 (12) 1,442 (260) 1,702
------- ------ ------- ------- ------- -------
Total ............. 783 746 37 1,626 (428) 2,054
------- ------ ------- ------- ------- -------
Loans and leases:
Commercial (1) ....... 1,390 1,295 95 522 378 144
Real estate (2) ...... 994 213 781 239 (571) 810
Consumer ............. 1,125 589 536 (428) (426) (2)
Leases ............... 56 6 50 (36) (28) (8)
------- ------ ------- ------- ------- -------
Total ............. 3,565 2,103 1,462 297 (647) 944
------- ------ ------- ------- ------- -------
Money market investments (3).. 149 77 72 (129) 27 (156)
------- ------ ------- ------- ------- -------
Total interest income .. 4,497 2,926 1,571 1,794 (1,048) 2,842
------- ------ ------- ------- ------- -------
Change in interest expense
Savings and interest-
bearing demand deposits .... (43) 186 (229) (237) (329) 92
Time deposits ................ 3,401 2,338 1,063 14 (165) 179
------- ------ ------- ------- ------- -------
Total deposits ......... 3,358 2,524 834 (223) (494) 271
Short-term borrowings ........ 41 85 (44) 3 (13) 16
Long-term borrowings ......... 473 101 372 1,150 (54) 1,204
------- ------ ------- ------- ------- -------
Total interest expense.. 3,872 2,710 1,162 930 (561) 1,491
------- ------ ------- ------- ------- -------
Net interest income .... $ 625 $ 216 $ 409 $ 864 $ (487) $ 1,351
======= ====== ======= ======= ======= =======
</TABLE>
(1) Non-taxable income is adjusted to a fully-taxable equivalent basis utilizing
a 34% tax rate. The effect of this adjustment is disclosed in Table II.
(2) Real-estate construction loans are included in this amount and represent
less than 5% of total real estate loans and less than 2% of total loans and
leases for the periods presented. These are principally loans to construct
one-to-four family residential housing.
(3) Primarily related to federal funds sold balances.
For purposes of this table, changes attributable to both rate and
volume which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
Non-accruing loan balances are included for purposes of computing the
rate and volume effects although interest on these balances has been excluded.
Table II contains the average balances and related interest amounts.
38 Page 61
<PAGE> 40
First-Knox Banc Corp. 1995 Annual Report
portfolio yield on non-taxable securities declined during 1994 by 101
basis points. The principal effort to maintain interest spreads, and to offset
the anticipated effect of increased dependence on interest-bearing liabilities,
has been to focus on opportunities to enhance earning asset yields. The
Corporation will face competitive pressure to maintain higher deposit rates in
1996 which could further compress the net interest margin.
The difference between a financial institution's interest-sensitive
assets (i.e., assets which will mature or reprice within a specific time period)
and interest-sensitive liabilities (i.e., liabilities which will mature or
reprice within the same time period) is commonly referred to as its "gap" or
"interest rate sensitivity gap." An institution having more interest rate
sensitive liabilities than interest rate sensitive assets repricing within a
given time period is said to have a "negative gap." At December 31, 1995, the
Corporation's gap position was negative within one year with $39.2 million of
interest-bearing liabilities repricing in excess of earnings assets. This
represents 8.42% of total earning assets. Approximately 53.4% of earning assets
and 73.7% of interest-bearing liabilities reprice within one year of December
31, 1995. Generally, this gap position will improve net interest income in a
declining interest rate environment.
Management committees of the subsidiary banks regularly monitor the
maturity structures of interest-sensitive assets and liabilities to stabilize
net interest earnings during periods of changing interest rates. Based on the
current structure, net interest income is projected to decline approximately 7%
over a twelve month period if interest rates were to immediately rise 2%.
Conversely, net interest income is projected to improve by approximately 7% over
a twelve month period if interest rates were to immediately fall by 2%. The
current goal of these committees is to limit fluctuations in net interest
earnings over a twelve month period to plus or minus 10% for an immediate 2%
change in interest rates. Expectations are for stable to modestly falling
interest rates during 1996. Management intends to maintain a negative one year
gap position as it believes this is an optimum structure to attain the
Corporation's long-term profit goals. An analysis of interest rate sensitive
assets and liabilities at December 31, 1995 can be found in Table V.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is an operating expense
recorded to maintain the related balance sheet allowance at a level adequate to
provide for credit losses. Economic conditions, loss experience, levels of
non-performing assets, credit portfolio mix, delinquency statistics, and
analysis of selected loans are factors affecting management's evaluation of the
adequacy of the allowance. The expense provision for 1995 was 8.5% lower than in
1994, principally as a result of reduced loan delinquencies and decreased loan
charge-offs. As percentages of average loans and leases, the expense provisions
were .19%, .21%, and .40% in 1995, 1994, and 1993, respectively.
Net loan and lease charge-offs represented .09%, .12%, and .24% of the
average outstanding balances during 1995, 1994, and 1993, respectively.
Approximately 43.7% of
39 Page 62
<PAGE> 41
First-Knox Banc Corp. 1995 Annual Report
net charge-offs in 1995 resulted from commercial related loans and leases, with
consumer loans accounting for 56.3% of the balance. Over the past five years,
consumer related loans and leases accounted for approximately 51.4% of net
charge-offs, commercial loans approximately 43.0%, and mortgage loans
approximately 5.6%.
As a percentage of year-end loan and lease balances, the allowance for
possible losses was 1.26% in 1995, 1.27% in 1994, and 1.24% in 1993. During
1995, the allowance was increased through expense provisions that exceeded the
net losses charged against the allowance. At the end of 1995, approximately 70%
of the allowance is unallocated; i.e., not allocated to specific loans or
portfolios based on historical portfolio losses, compared to 67% at the previous
year end.
Management anticipates that, as a percentage of loan and lease
balances, 1996 net loan and lease charge-offs should approximate 1995 levels.
Declines in nonperforming loans (loans on non-accrual status or past due 90 days
or more) and improvements in overall delinquency statistics are the primary
reasons for this expectation. Non-performing loans and leases of $1.06 million
represented .32% of 1995 year-end balances compared to $1.26 million and .41% at
December 31, 1994.
NON-INTEREST INCOME
This income represents non-interest sources of revenue such as customer
service fees, trust income, and other income. Total non-interest income of $3.13
million was $380,000 or 13.8% higher than in 1994. Customer service fees and
commissions increased $353,000 compared to 1994. Trust department income
increased $114,000 or 19.4%.
Realized security gains and losses were minimal in each of the past
three years. Gains and losses recognized in 1993 and 1994 were principally the
result of calls of municipal securities. In 1995, the Corporation sold $17.6
million of mortgage-backed securities from its available-for-sale portfolio as
part of an asset/liability strategy to improve long-term returns in a period of
declining interest rates.
Loan sale gains of $27,000 in 1995 were down 6.9% or $2,000 from
similar gains in 1994. During 1995 loan sale gains were the result of selling in
the secondary market $1.6 million of the mortgage loans originated during that
year. The gains during 1994 were the results of sales of student loans.
Total non-interest income of $2.75 million in 1994 was 11.4% higher
than 1993 as customer service fees and trust department income increases were
offset by reduced securities gains. Customer service fees increased $168,000
compared to 1993 and trust department income increased 12.9% compared to 1993.
Non-interest income was enhanced in 1995 as a result of deposit service
charge pricing changes made during the third quarter of 1994, and as a result of
mutual fund and annuity products which were introduced during the fourth quarter
of 1994.
40 Page 63
<PAGE> 42
First-Knox Banc Corp. 1995 Annual Report
NON-INTEREST EXPENSE
Non-interest expenses include employee salaries and benefits as well as
occupancy, FDIC insurance, advertising, state franchise taxes, and other
operating expenses. Total non-interest expenses increased by $213,000 or 1.5% in
1995 after increasing $818,000 or 5.9% in 1994.
A reduction in FDIC insurance expense of $400,000 in 1995 contributed
significantly to the small increase. The FDIC reduced deposit insurance premiums
from $.23 to $.04 per $100 of deposits as of June 1, 1995. No deposit insurance
expense is expected for the Corporation in 1996, because the FDIC suspended
deposit insurance premiums as of January 1, 1996. Occupancy expenses increased
in 1995 by $296,000 or 16.22% principally related to the Main Office expansion
of First-Knox National Bank. Salaries and employee benefits were higher in 1995
by $325,000 or 4.81%, while on a net basis, other expenses were down $8,000 or
0.16%.
Approximately 46% of 1994's increase in non-interest expenses related
to increases in salaries and benefits of $378,000 or 5.9% compared to 1993.
Legal and professional fees increased by $120,000 or 41.2% during 1994. This
increase was primarily driven by a consulting study to enhance non-interest
income in 1995 and thereafter. The Corporation also recognized an expense of
$121,000 during 1994 relating to a write-down of loans held for sale to the
lower of cost or market.
INCOME TAXES
Income tax expenses of $1,565,000, $1,267,000, and $1,443,000, were
recorded in 1995, 1994, and 1993, respectively, representing 21.5%, 19.7%, and
23.6% of income before income taxes for each of the respective years. These
effective tax rates are all lower than the statutory rate of 34%. Tax-exempt
income from obligations of states and political subdivisions and non-taxable
loans are the primary cause of these deviations from statutory rates. The
Corporation does not plan to significantly increase its holdings of tax-exempt
obligations during 1996. Tax-exempt income from investment securities and loans
represented 41.7%, 48.7%, and 35.7% of income before federal income taxes in
1995, 1994, and 1993, respectively. As a percentage of average earning assets,
average non-taxable balances were approximately 12.0% in 1995, 12.9% in 1994,
and 8.0% in 1993.
FINANCIAL CONDITION
Total assets grew by $29.7 million or 6.4% in 1995 compared to growth
of $27.8 million or 6.3% in 1994. The growth in 1995 was the result of increased
retail customer time deposits. Total deposits grew by $26.8 million or 7.1% in
1995. The growth in 1994 was primarily funded by Federal Home Loan Bank
advances. Total deposits declined by $1.0 million or 0.3% during 1994.
41 Page 64
<PAGE> 43
First-Knox Banc Corp. 1995 Annual Report
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The consolidated investment and mortgage-backed securities portfolio
increased by $0.8 million or 0.6% during 1995. U.S. Treasury securities
increased from 20.9% of investments at the end of 1994 to 21.4% at the end of
1995. Mortgage-backed securities represented 28.3% and 32.5% of the total
investment portfolio at year-end 1995 and 1994, respectively.
As a percentage of the total investment and mortgage-backed security
portfolio, municipal securities represented 41.8% at year-end 1995 and 41.7% at
year-end 1994. To provide additional flexibility to meet liquidity and
asset/liability management needs, the Corporation reclassified its municipal
securities from held to maturity to available for sale. These securities, with
an amortized cost of $53,407,000, were transferred on December 31, 1995, as
allowed by the SFAS 115 implementation guide issued by the Financial Accounting
Standards Board. The related unrealized gain of $1.8 million is reflected net of
tax as an increase to shareholders' equity.
The average investment portfolio, including federal funds sold,
represented 30.3% of average earning assets in 1995, 31.0% in 1994, and 28.2% in
1993. At the end of 1995, the estimated fair value of all investment and
mortgage-backed securities exceeded amortized cost by $2.90 million or 2.2%. At
the end of 1994, the amortized cost of investment and mortgage-backed securities
exceeded estimated fair value by $5.38 million or 4.2%. This rise in market
value during 1995 resulted from lower market interest rates at December 31,
1995. Approximately 16.0% of the total portfolio at the end of 1995 will mature
in 1996. The average maturity of the investment portfolio was 4.8 years at the
end of 1993, compared to 5.5 years in both 1994 and 1995. The Corporation's
investment portfolio contained no derivative securities during any period
covered by this report. Additional detail regarding investment securities is
included in Table IV.
LOANS AND LEASES
Loans and lease financing represented 69.7% of average earning assets
in 1995, 69.0% in 1994, and 71.8% in 1993. In terms of full year average
balances, loans and leases have grown by 5.4%, 5.2%, and 4.5% in 1995, 1994, and
1993, respectively. Residential real estate loans grew by $10.2 million, or 7.1%
in 1995, while commercial loan balances increased by $11.9 million, or 13.1%.
Consumer loan balances increased $3.9 million, or 5.6% during 1995.
While the loan and lease portfolios are the highest yielding corporate
assets, they also contain the most risk of loss. The real estate loan portfolio
is principally residential mortgages in the north central Ohio area. Real estate
construction loans are not a material component of this portfolio. The
commercial loan portfolio represents loans to business interests in the north
central Ohio area with no significant industry concentration. The consumer loan
and lease portfolio is composed principally of financing to individuals for
vehicles and consumer assets. All of these loan and lease portfolios could be
negatively impacted by an economic downturn in this north central Ohio market
area. To mitigate
42 Page 65
<PAGE> 44
First-Knox Banc Corp. 1995 Annual Report
risks associated with changes in the borrowers' future ability to
repay, the Corporation generally requires collateral on loans. To reduce the
risk of fluctuating collateral values, the Corporation generally requests down
payments on its real estate and consumer loans and scheduled periodic payments
on most types of financing. As of December 31, 1995, only 6.1% of total loans
and leases were unsecured.
DEPOSITS
Customer deposits from local markets are the Corporation's primary
source of funds. Deposits totaled $404.1 million at the end of 1995, 7.1% higher
than a year ago. Based on full year average balances, deposits grew by 3.2% in
1995, 3.5% in 1994, and 2.3% in 1993.
The Corporation experienced a shift in the composition of its deposits
during 1995. Non-interest bearing demand deposits increased by $3.5 million or
6.9% during 1995 and represented 13.5% of all deposits at year end.
Interest-bearing demand deposits declined by $2.6 million or 6.2% during 1995
and represented 9.9% of all deposits compared to 11.3% in 1994. Savings deposits
declined by $10.5 million or 9.6% during 1995 and represented 24.5% of all
deposits compared to 29.1% in 1994. Time deposits increased by $36.6 million or
21.0% during 1995 and represented 52.1% of all deposits compared to 46.1% in
1994.
BORROWINGS
The Corporation and its subsidiaries incur short-term borrowings
through customer related repurchase agreements and daily amounts due to the U.S.
Treasury. These amounts are subject to rapid balance and rate fluctuations and,
as described in Note 7, are collateralized by the pledge of selected securities.
Short-term borrowings averaged $6.2 million, $9.2 million, and $8.7 million for
1995, 1994, and 1993, respectively.
Long-term borrowings at the end of 1995 are comprised of FHLB advances,
a source of loan funding made available as a result of both subsidiary banks
becoming members of the FHLB of Cincinnati during 1993. The amounts and terms of
these advances are disclosed in Note 8, along with the collateral required, and
limitations imposed, by the FHLB. Such advances are viewed as an alternative to
deposits for funding certain types of loan growth. These advances declined $1.3
million or 3.9% during 1995.
FHLB advances entirely funded the growth in assets during 1994. These
long-term borrowings increased by $28.8 million or 488.5% over 1993.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $46.7 million at December 31, 1995,
compared to $40.8 million at December 31, 1994. At December 31, 1995 and
December 31, 1994, the ratio of shareholders' equity to assets was 9.39% and
8.74%, respectively. The Corporation complied with the capital requirements
established by the Federal Reserve System at each of those dates.
43 Page 66
<PAGE> 45
First-Knox Banc Corp. 1995 Annual Report
Under "Prompt Corrective Action" regulations, the FDIC has defined five
categories of capitalization (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized). The Corporation meets the "well capitalized" definition which
requires a total risk-based capital ratio of at least 10%, a Tier 1 risk-based
ratio of at least 6%, and a leverage ratio of at least 5%, and the absence of
any written agreement, order, or directive from a regulatory agency.
"Well-capitalized" status affords the Corporation the ability to operate with
the greatest flexibility under current laws and regulations.
As discussed in Note 1 to the consolidated financial statements, the
Corporation adopted SFAS 115 on January 1, 1994. The impact of adopting this
pronouncement for the Corporation is to subject shareholders' equity to
fluctuations depending upon the impact of market interest rate changes on the
valuation of securities available for sale. Under the pronouncement, an upward
movement of interest rates will tend to decrease shareholders' equity while a
downward movement will tend to increase shareholders' equity for the
Corporation. The impact of SFAS 115 is disregarded by banking regulators in
determining compliance with capital requirements.
Under a current regulatory proposal, interest rate risk would become an
additional element in measuring risk-based capital. This proposed change is not
expected to significantly impact the Corporation's compliance with capital
guidelines.
Cash dividends declared to shareholders of the Corporation in 1995
totaled $1,751,000, representing an increase of 14.7% over 1994 and 30.7% of
1995 net income. Over the past five years, the payout ratio has consistently
been between 26% and 31% of net income. Dividends paid to the Corporation by the
subsidiary banks are the primary source of funds for payment of dividends to the
Corporation's shareholders. Regulatory restrictions on the dividends from the
subsidiary banks are described in Note 14 of the consolidated financial
statements. Shareholders' equity could be enhanced during 1996 through the
issuance of common stock under the stock option, dividend reinvestment, and
employee retirement savings plans.
LIQUIDITY
Liquidity refers to the ability to meet cash flow needs which, in the
banking industry, refers to the ability to fund customer borrowing needs as well
as deposit withdrawals. Assets such as cash and non-interest bearing deposits
with banks, federal funds sold, maturing securities, and loan repayments are the
Corporation's principal sources of liquidity. Access to FHLB advances, described
elsewhere in this report, is a supplemental source of cash to meet liquidity
needs. Operating activities provided cash of $7.4 million, $5.8 million, and
$6.7 million in 1995, 1994, and 1993, respectively. Cash and cash equivalents
increased from $18.1 million at December 31, 1994 to $20.4 million at December
31, 1995. Refer to the consolidated statement of cash flows for a summary of the
sources and uses of cash in 1995, 1994, and 1993.
44 Page 67
<PAGE> 46
First-Knox Banc Corp. 1995 Annual Report
Taking into account the capital adequacy, profitability, and reputation
maintained by the Corporation, the available liquidity sources are considered
adequate to meet current and projected needs.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation disclosed the estimated fair values and related
carrying values of its financial instruments at December 31, 1995 and 1994 in
Note 16 of the consolidated financial statements.
The estimated fair value of loans, net of the allowance for loan
losses, increased from 98.7% of the carrying value at December 31, 1994 to
100.8% at December 31, 1995. This relative increase in value resulted primarily
from lower market rates at December 31, 1995.
While these estimates of fair value are based on management's judgment
of the most appropriate factors, there is no assurance that, were the
Corporation to have liquidated such items, the estimated fair values would
necessarily have been realized. The methodologies utilized in evaluating the
estimated fair values at December 31, 1995 and 1994 were consistently applied.
The estimated fair values at December 31, 1995 and 1994, should not be
considered to apply at subsequent dates.
Other assets and liabilities of the Corporation that are not defined as
financial instruments under SFAS 107, "Fair Values of Financial Instruments,"
are not included in this disclosure. These would include, among others, such
items as property and equipment, financing leases, and the intangible value of
the Corporation's customer base and profit potential.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results primarily in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Corporation's operations.
Nearly all the assets and liabilities of the Corporation are financial, unlike
most industrial companies. As a result, the Corporation's performance is
directly impacted by changes in interest rates, which are indirectly influenced
by inflationary expectations. The Corporation's ability to match the interest
sensitivity of its financial assets to the interest sensitivity of its financial
liabilities in its asset/liability management may tend to minimize the effect of
change in interest rates on the Corporation's performance. Changes in interest
rates do not necessarily fluctuate in the same manner and to the same extent as
changes in the price of goods and services.
45 Page 68
<PAGE> 47
First-Knox Banc Corp. 1995 Annual Report
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 122, "Accounting for Mortgage Servicing Rights" requires
companies to recognize, as separate assets, rights to service mortgage loans for
others, however those servicing rights are acquired. A company that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to mortgage servicing rights and
to loans (without the mortgage servicing rights) based on their relative fair
values. Mortgage servicing rights recorded as a separate asset will be amortized
in proportion to, and over the period of, estimated net servicing income. This
statement becomes effective for the Corporation in 1996. While the exact impact
of this pronouncement depends on market conditions and loan volume, management
does not anticipate that it will have a material impact on the Corporation's net
income based on historic sales volume.
In 1996, the Corporation is required to adopt SFAS No. 123 "Accounting
for Stock-Based Compensation." SFAS No. 123 encourages but does not require
entities to use a fair value based method to account for stock-based
compensation plans such as the Corporation's stock option plans. If the fair
value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and earnings per share had the
accounting been adopted. Fair value of a stock option is to be estimated using
an option-pricing model that considers exercise price, expected life of the
option, current price of the stock, expected price volatility, expected
dividends on the stock, and the risk-free interest rate. The Corporation will
disclose the pro forma impact of this pronouncement in 1996.
46 Page 69
<PAGE> 48
First-Knox Banc Corp. 1995 Annual Report
TABLE IV INVESTMENT AND MORTGAGE-BACKED SECURITIES
(In thousands of dollars)
<TABLE>
<CAPTION>
State Tax
U.S. Federal and Mortgage- Equivalent
Treasury Agencies Political Backed (2) Other Total Yield (1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
(At fair value)
Maturity:
Within one year ......... $10,554 $ 999 $ 2,263 $ 7,341 $ 21,157 5.88%
After one year through
five years ......... 17,662 2,754 11,369 27,948 59,733 7.35%
After five years through
ten years ........... 3,238 20,505 2,005 25,748 8.00%
After ten years ......... 21,060 $4,290 25,350 8.90%
------- ------ ------- ------- ------ -------- -----
Total carrying value ............ $28,216 $6,991 $55,197 $37,294 $4,290 $131,988
Taxable equivalent
purchase yield (1) .......... 5.70% 6.66% 8.58% 7.03% 6.95% 7.36%
Average maturity (in years) ..... 1.3 5.3 8.2 3.0 20.0 5.5
</TABLE>
<TABLE>
<CAPTION>
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994
Total carrying value .......... $27,420 $2,393 $54,750 $42,657 $3,991 $131,211
Estimated fair value .......... $27,420 $2,393 $51,847 $42,657 $3,991 $128,308
Taxable equivalent
purchase yield (1) ........ 5.19% 6.89% 8.64% 6.00% 6.42% 6.94%
Average maturity (in years) ... 1.7 1.1 7.4 2.8 20.0 5.5
</TABLE>
<TABLE>
<CAPTION>
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993
Total carrying value .......... $23,974 $500 $41,584 $42,664 $2,225 $110,947
Estimated fair value .......... $24,351 $503 $44,337 $43,173 $2,406 $114,770
Taxable equivalent
purchase yield (1) ........ 5.14% 8.03% 9.02% 5.55% 4.97% 6.76%
Average maturity (in years) ... 2.4 0.7 7.6 2.8 20.0 4.8
</TABLE>
(1) Yields are based on historical cost and computed on a fully tax-equivalent
basis assuming a rate of 34%.
(2) Mortgage-backed securities are reported by expected average maturities.
Actual maturities will differ due to scheduled payments and the rights of
borrowers to prepay.
47 Page 70
<PAGE> 49
First-Knox Banc Corp. 1995 Annual Report
TABLE V INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity measures the exposure of net interest income
to possible changes in interest rates. The following interest rate sensitivity
table presents the traditional static gap position of First-Knox Banc Corp. at
December 31, 1995. The table depicts the time periods in which certain
interest-earning assets and certain interest-bearing liabilities will mature or
reprice in accordance with their contractual terms. This table does not,
however, necessarily indicate the impact of general interest rate movements on
the Corporation's net interest yield because the repricing of various categories
of assets and liabilities is subject to competitive factors and customer
preferences. As a result, various assets and liabilities indicated as repricing
within the same period may in fact reprice at different times and at different
rate levels.
<TABLE>
<CAPTION>
After 1 After 3 After 6
Month Months Months
Within But But But Total Total
One Within Within Within Within After
(In thousands of dollars) Month 3 Months 6 Months 1 Year 1 Year 1 Year Total
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE
SENSITIVE ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Loans and leases ............ $ 124,126 $ 15,872 $ 23,347 $ 49,670 $ 213,015 $ 117,626 $330,641
Investment securities and
federal funds sold .. 3,748 2,452 2,554 9,236 17,990 80,104 98,094
Mortgage-backed
securities (1) ...... 13,390 295 830 3,335 17,850 19,444 37,294
--------- -------- -------- -------- --------- --------- --------
TOTAL ....................... 141,264 18,619 26,731 62,241 248,855 217,174 466,029
--------- -------- -------- -------- --------- --------- --------
INTEREST RATE
SENSITIVE LIABILITIES
Interest-bearing deposits (2) 187,443 25,337 27,596 38,678 279,054 70,307 349,361
Borrowings .................. 8,072 172 260 532 9,036 32,365 41,401
--------- -------- -------- -------- --------- --------- --------
TOTAL ....................... 195,515 25,509 27,856 39,210 288,090 102,672 390,762
--------- -------- -------- -------- --------- --------- --------
INTEREST RATE
SENSITIVITY GAP ............. $ (54,251) $ (6,890) $ (1,125) $ 23,031 $ (39,235) $ 114,502 $ 75,267
========= ======== ======== ======== ========= ========= ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP ............. $ (54,251) $(61,141) $(62,266) $(39,235) $ (39,235) $ 75,267
========= ======== ======== ======== ========= =========
INTEREST RATE
SENSITIVITY GAP RATIO ....... 0.72x 0.73x 0.96x 1.59x 0.86x 2.12x 1.19x
========= ======== ======== ======== ========= ========= ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP AS A
PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS...... (11.64)% (13.12)% (13.36)% (8.42)% (8.42)% 16.15% 16.15%
========= ======== ======== ======== ========= ========= ========
</TABLE>
(1) Mortgage-backed securities are included at the earlier date of repricing or
average maturity, such maturity giving effect to prepayment estimates.
(2) Interest-bearing demand deposits and savings accounts are included in the
amount to be repriced within one month since the Corporation has the ability
to reprice these accounts at any time.
48 Page 71
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First-Knox Banc Corp. 1995 Annual Report
TABLE VI TEN YEARS OF PROGRESS STATEMENT SUMMARY
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders' Equity ($000) ... $46,659 $40,832 $38,423 $30,115 $27,144 $24,586 $22,290 $20,198 $18,298 $16,615
Book Value Per Share .......... 13.11 11.23 10.65 9.66 8.73 7.91 7.17 6.50 5.88 5.35
Fully-Diluted Earnings
Per Share ............. 1.57 1.41 1.33 1.18 1.06 .98 .92 .86 .77 .69
Cash Dividends ($000) ......... 1,751 1,527 1,302 1,051 973 927 856 786 721 667
Stock Dividend/Split .......... 100% 5% 5% 5% 5% 60% 5% 5% 5% 5%
Banking Offices ............... 12 12 12 12 12 12 12 9 8 8
Total Staff ................... 256 264 251 245 239 250 243 230 210 197
</TABLE>
CONSOLIDATED BALANCE SHEET SUMMARY
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks ....... $ 17,012 $ 18,110 $ 16,158 $ 14,687 $ 11,824 $ 12,628 $ 13,538 $ 11,389 $ 8,489 $ 8,489
Investments ................... 131,988 131,211 110,947 106,268 100,953 94,434 100,020 86,747 86,494 86,542
Federal Funds Sold ............ 3,400 12,700 3,850 7,800 8,050 4,950 1,900 2,400 9,200
Total Loans and Lease
Financing .............. 330,641 304,168 290,908 276,437 261,554 248,110 223,076 195,182 166,276 142,992
Less Allowance for Loan and
Lease Losses .................. (4,166) (3,876) (3,597) (3,162) (2,905) (2,715) (2,338) (1,980) (1,748) (1,625)
Net Loans and Lease Financing . 326,475 300,292 287,311 273,275 258,649 245,395 220,738 193,202 164,528 141,367
Bank Premises and Equipment ... 10,993 10,035 6,200 4,939 5,073 5,300 5,387 4,351 3,807 3,443
Other Assets .................. 7,031 7,543 6,098 6,586 7,445 8,264 9,084 7,084 7,208 6,963
TOTAL ......................... $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926 $256,004
LIABILITIES
Demand Deposits ............... $ 94,588 $ 93,709 $ 91,384 $ 86,394 $ 68,162 $ 66,222 $ 64,169 $ 58,170 $ 53,930 $ 52,239
Savings Deposits .............. 99,133 109,675 115,587 112,619 100,093 80,285 80,430 68,838 69,419 67,923
Other Time Deposits ........... 210,346 173,796 171,206 163,281 178,665 186,122 172,258 144,160 119,321 108,225
Total Deposits ................ 404,067 377,180 378,177 362,294 346,920 332,629 316,857 271,168 242,670 228,387
Long-Term Debt ................ 33,415 34,720 5,900 5,159 5,300 5,370 5,440 2,510 2,580 2,650
Other Liabilities ............. 12,758 14,459 16,914 12,037 12,380 11,486 9,130 10,797 9,378 8,352
Total Deposits and
Other Liabilities ...... 450,240 426,359 400,991 379,490 364,600 349,485 331,427 284,475 254,628 239,389
Shareholders' Equity .......... 46,659 40,832 38,423 30,115 27,144 24,586 22,290 20,198 18,298 16,615
TOTAL ......................... $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926 $256,004
</TABLE>
CONSOLIDATED STATEMENT OF INCOME SUMMARY
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees
on Loans and Leases .... $ 28,699 $ 25,139 $ 24,825 $ 25,276 $ 26,968 $ 26,214 $ 23,390 $ 19,030 $ 16,143 $ 12,270
Interest and Dividends Earned
on Total Securities .... 8,006 7,277 6,124 6,960 8,021 8,012 7,295 6,400 6,363 5,907
Federal Funds Sold ............ 228 79 208 301 646 860 550 326 363 477
Lease Financing ............... 155 99 135 172 246 200 385 392 493 247
TOTAL INTEREST INCOME ......... 37,088 32,594 31,292 32,709 35,881 35,286 31,620 26,148 23,362 18,901
INTEREST EXPENSE
Interest on Deposits .......... 15,158 11,800 12,023 15,157 19,720 20,735 18,539 14,651 12,959 11,379
Interest on Borrowed Money .... 2,341 1,827 674 904 1,016 914 973 715 657 377
TOTAL INTEREST EXPENSE ........ 17,499 13,627 12,697 16,061 20,736 21,649 19,512 15,366 13,616 11,756
Net Interest Income ........... 19,589 18,967 16,648 15,145 18,595 13,637 12,108 10,782 9,746 7,145
Provision for Credit Losses ... (584) (638) (1,124) (1,394) (1,066) (957) (911) (785) (400) (580)
Other Income .................. 3,127 2,747 2,465 2,452 2,389 2,005 1,716 1,685 1,777 1,848
Other Expenses ................ (14,858) (14,645) (13,827) (12,584) (12,022) (10,649) (9,427) (8,379) (8,268) (6,376)
INCOME BEFORE FEDERAL
INCOME TAXES ........... 7,274 6,431 6,109 5,122 4,446 4,036 3,486 3,303 2,855 2,037
Federal Income Taxes .......... (1,565) (1,267) (1,443) (1,171) (915) (813) (537) (616) (451) 102
NET INCOME .................... $ 5,709 $ 5,164 $ 4,666 $ 3,951 $ 3,531 $ 3,223 $ 2,949 $ 2,687 $ 2,404 $ 2,139
</TABLE>
49 Page 72
<PAGE> 51
First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
FIRST-KNOX DIRECTORS
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Maureen Buchwald George T. Culbertson, Jr. James J. Cullers Robert S. Gregg
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Philip H. Jordan James A. McElroy John B. Minor Noel C. Parrish
[PHOTO] [PHOTO] [PHOTO]
Russell E. Ramser, Jr. Alan E. Riedel Kenneth W. Stevenson
[PHOTO] [PHOTO] [PHOTO]
William A. Stroud Stephen P. Upham, Jr. Carlos E. Watkins
FARMERS AND SAVINGS BANK DIRECTORS
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Patricia A. Byerly L. Eugene Byers Dwight D. Mathias James E. McClure
[PHOTO] [PHOTO] [PHOTO]
Roger E. Stitzlein Chris D. Tuttle Gordon E. Yance
</TABLE>
FIRST-KNOX BANC CORP.
DIRECTORS
William A. Stroud, Chairman of the Board,
Retired President
Russell E. Ramser, Jr., Vice-Chairman of
the Board, President, Maram Energy Company
George T. Culbertson, Jr., Retired
Newspaper Publisher
James J. Cullers, Lawyer,
Zelkowitz, Barry & Cullers
Robert S. Gregg, President,
Phoenix Holding Company
Philip H. Jordan, Jr., Retired President,
Kenyon College
James A. McElroy, Chairman of the Board,
AMG Industries
John B. Minor, Consultant
Noel C. Parrish, President, NOE, Inc.
Alan E. Riedel, Retired Vice Chairman,
Cooper Industries
Stephen P. Upham, Jr., Entrepreneur
Carlos E. Watkins, President and
Chief Executive Officer,
First-Knox National Bank,
President and Chief Executive Officer
FIRST-KNOX NATIONAL BANK
DIRECTORS
Philip H. Jordan, Jr., Chairman of the Board,
Retired President, Kenyon College
Maureen Buchwald, Vice President,
Ariel Corporation
George T. Culbertson, Jr., Retired
Newspaper Publisher
James J. Cullers, Lawyer,
Zelkowitz, Barry & Cullers
Robert S. Gregg, President,
Phoenix Holding Company
James A. McElroy,
Chairman of the Board,
AMG Industries
John B. Minor, Consultant
Noel C. Parrish, President, NOE, Inc.
Russell E. Ramser, Jr., President,
Maram Energy Company
Kenneth W. Stevenson, Retired President,
Cooper Energy Services
Carlos E. Watkins, President and
Chief Executive Officer,
First-Knox National Bank
DIRECTORS EMERITI
Robert B. Lantz
J. Robert Purdy
William A. Stroud
Stephen P. Upham, Jr.
50 Page 73
<PAGE> 52
First-Knox Banc Corp. 1995 Annual Report
FARMERS AND SAVINGS BANK
DIRECTORS
James E. McClure, Chairman of the Board, Retired President, McClure Motors, Inc.
Patricia A. Byerly, Vice President and Secretary, Byerly Funeral Home, Inc.
L. Eugene Byers, DVM, Owner, Byland Animal Hospital and Farms
Dwight D. Mathias, President and Chief Executive Officer, Farmers and Savings
Bank
Roger E. Stitzlein, General Manager, Loudonville Farmers Equity
Chris D. Tuttle, President, Amish Oak Furniture Company, Inc.
Gordon E. Yance, Vice President and Treasurer, First-Knox Banc Corp.
FIRST-KNOX BANC CORP.
OFFICERS
Carlos E. Watkins, President and Chief Executive Officer
Gordon E. Yance, Vice President and Treasurer
Ian Watson, Vice President and Secretary
Vickie A. Sant, Auditor
OFFICERS
Carlos E. Watkins, President and Chief Executive Officer
FINANCE, HUMAN RESOURCES, AND BRANCH ADMINISTRATION
Gordon E. Yance, Vice President and Chief Financial Officer
Kathy K. Blackburn, Vice President, Human Resources
Vickie A. Sant, Auditor
Lynn B. Fawcett, Comptroller
Emily P. Snyder, Assistant Vice President
Rebecca A. Brownfield, Administrative Officer
OPERATIONS, DEPOSITS AND INVESTMENTS
Ian Watson, Vice President and Secretary
Bruce B. Hite, Assistant Vice President and Security Officer
Cheri L. Butcher, Assistant Vice President
Diana L. Doerr, Administrative Officer
Rebecca K. Rodeniser, Operations Officer
Betty L. Mossholder, Administrative Officer
CREDIT ADMINISTRATION
Lawrence A. Dailey, Vice President, Senior Credit Policy and Control Officer
W. Douglas Leonard, Vice President and Senior Retail Loan Officer
Louis G. Petros, Vice President and Senior Commercial Loan Officer
James E. Brinker, Vice President, and Commercial Loan Officer
William C. Brunka,Vice President, Retail Loan and Compliance Officer
Mark P. Leonard, Vice President and Commercial Loan Officer
David R. Ewart, Assistant Vice President and Commercial Loan Officer
Charlene V. Beckley, Assistant Vice President, Card Services
Eritt A. Coon, Administrative
Loan Officer
Joan M. Stout, Mortgage Loan Officer
Christopher D. Anderson, Administrative Officer
Jeanette A. Carpenter, Mortgage Loan Officer
Kimberly J. Peck, Mortgage Loan Officer
Anita K. Earlywine, Administrative Officer
Valerie J. Smith, Administrative Officer
TRUST
David R. Irvin, Vice President and Trust Officer
Mark B. Iverson, Trust Officer
Mary T. Collins, Trust Officer
MARKETING
J. Curtis Cree, Vice President and CRA Officer
Barbara A. Barry, Assistant Vice President
BRANCH OFFICE DIVISION
MAIN OFFICE
Frederick T. Baldeschwiler, Assistant Vice President and Manager
Patti J. Frazee, Assistant Manager
COSHOCTON AVENUE
Deborah K. Steinhauser, Assistant Vice President and Manager
Nancy L. Rice, Assistant Manager
BELLVILLE
James E. McLaughlin, Manager
Julie A. Cline, Assistant Manager
CENTERBURG
Sharon A. Cline, Assistant Vice President and Manager
Ella E. Altizer, Assistant Manager
DANVILLE
Cynthia L. Rhodes, Manager
Patty S. Durbin, Assistant Manager
EDISON
J. Blair Strain, Manager
FREDERICKTOWN
Ronald L. McMillan, Assistant Vice President and Manager
Marilyn L. Reed, Assistant Manager
LEXINGTON
Debra E. Holiday, Manager
Jennifer S. Mack, Assistant Manager
MILLERSBURG
William J. Mohr, Assistant Vice President and Manager
Rea D. Wirt, Assistant Manager
MOUNT GILEAD
R. Edward Kline, Assistant Vice President and Manager
William F. Wieland, Assistant Manager
FARMERS AND SAVINGS BANK
OFFICERS
Dwight D. Mathias, President and Chief Executive Officer
Stanley D. Young, Senior Vice President and Cashier
James S. Lingenfelter, Vice President
Wayne D. Young, Vice President
Karen S. Burgess, Assistant Vice President
Gregory A. Henley, Assistant Vice President
Barbara J. Young, Assistant Vice President
Janeen R. Lackey, Assistant Cashier and Manager, Perrysville Office
51 Page 74
<PAGE> 53
First-Knox Banc Corp. 1995 Annual Report
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
The Corporation's headquarters are located at: One South Main Street,
Mount Vernon, Ohio 43050, phone: 614/399-5500, 800/837-5266.
ANNUAL MEETING
The Annual Shareholders' Meeting of First-Knox Banc Corp. will be held
on Tuesday, March 26, 1996, at 3:00 p.m. at Thorne Performance Hall in the R. R.
Hodges Chapel/Auditorium and Fine Arts Center at the Mount Vernon Nazarene
College, 800 Martinsburg Road, Mount Vernon, Ohio.
TRANSFER AGENT AND REGISTRAR
First-Knox National Bank, P.O. Box 871, One South Main Street, Mount
Vernon, Ohio 43050
INDEPENDENT AUDITORS
Crowe, Chizek and Company LLP, Columbus, Ohio
CORPORATE COUNSEL
Vorys, Sater, Seymour and Pease, Columbus, Ohio
FORM 10-K AND OTHER
FINANCIAL INFORMATION
A copy of First-Knox Banc Corp.'s Annual Report Form 10-K for the
period ending December 31, 1995, may be obtained by shareholders without charge
upon written request to Ian Watson, Vice President and Secretary, First-Knox
Banc Corp., P. O. Box 871, One South Main Street, Mount Vernon, Ohio 43050.
DIVIDEND REINVESTMENT PLAN
The Corporation offers a Dividend Reinvestment Plan which generally
allows shareholders to reinvest their First-Knox Banc Corp. dividends in
additional Corporate stock at the prevailing market price. Participation in the
Plan is offered only by means of a prospectus which describes the Plan in
detail. Plan information and a Plan prospectus may be obtained by calling the
Trust Department of First-Knox National Bank at 614-399-5505, 800-837-5266, or
by writing: First-Knox National Bank, Attn: Dividend Reinvestment Plan, P. O.
Box 871, One South Main Mount Vernon, Ohio 43050.
COMMON STOCK LISTING
The common shares of First-Knox Banc Corp. are traded on the NASDAQ
National Market under the symbol FKBC.
MARKET MAKERS
McDonald & Company Securities, Inc.,
Cleveland, Ohio
The Ohio Company, Columbus, Ohio
Sweney Cartwright & Co., Columbus, Ohio
FIRST-KNOX NATIONAL BANK OFFICES
Main Office
One South Main Street
Mount Vernon 43050
614/399-5500
Coshocton Avenue
Office
810 Coshocton Avenue
Mount Vernon 43050
614/397-5551
Bellville Office
154 Main Street
Bellville 44813
419/886-3711
Centerburg Office
35 West Main Street
Centerburg 43011
614/625-6136
Danville Office
Public Square
Danville 43014
614/599-6686
Edison Office
504 West High Street
Mount Gilead 43338
419/947-4686
Fredericktown
Office
137 North Main Street
Fredericktown 43019
614/694-2015
Lexington Office
10 Plymouth Street
Lexington 44904
419/884-3005
Millersburg Office
60 West Jackson Street
Millersburg 44654
330/674-2610
Mount Gilead Office
17 West High Street
Mount Gilead 43338
419/946-9010
FARMERS AND SAVINGS BANK OFFICES
Loudonville Office
120 North Water Street
Loudonville 44842
419/994-4115
Perrysville Office
112 North Bridge Street
Perrysville 44864
419/938-5622
Page 75
<PAGE> 54
[LOGO] First-Knox Banc Corp.
P.O. - One South Main Street - Mount Vernon, Ohio 43050
An Equal Opportunity Employer
Page 76
<PAGE> 1
EXHIBIT 21. SUBSIDIARIES OF FIRST-KNOX BANC CORP.
The First-Knox National Bank of Mount Vernon
One South Main Street
P.O. Box 871
Mount Vernon, Ohio 43050
State of Incorporation - Ohio
A Wholly-Owned Subsidiary of First-Knox Banc Corp.
First-Knox, Inc.
One South Main Street
P.O. Box 871
Mount Vernon, Ohio 43050
State of Incorporation - Ohio
A Wholly-Owned Subsidiary of The First-Knox National Bank of Mount Vernon
The Farmers & Savings Bank
120 North Water Street
P.O. Box 179
Loudonville, Ohio 44842
State of Incorporation - Ohio
A Wholly-Owned Subsidiary of First-Knox Banc Corp.
Page 94
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8(No. 33-40042),
Form S-3(No. 33-52590) and Form S-8(No. 33-72414) of First-Knox Banc Corp. Of
our report dated January 18, 1996 on the 1995 consolidated financial
statements of First-Knox Banc Corp., which report is incorporated by reference
in this Form 10-K.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 26, 1996
Page 95
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000756899
<NAME> FIRST-KNOX BANC CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,012
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,988
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 330,641
<ALLOWANCE> 4,166
<TOTAL-ASSETS> 496,899
<DEPOSITS> 404,067
<SHORT-TERM> 7,986
<LIABILITIES-OTHER> 4,772
<LONG-TERM> 33,415
<COMMON> 11,407
0
0
<OTHER-SE> 35,252
<TOTAL-LIABILITIES-AND-EQUITY> 496,899
<INTEREST-LOAN> 28,854
<INTEREST-INVEST> 8,234
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 37,088
<INTEREST-DEPOSIT> 15,158
<INTEREST-EXPENSE> 17,499
<INTEREST-INCOME-NET> 19,589
<LOAN-LOSSES> 584
<SECURITIES-GAINS> (20)
<EXPENSE-OTHER> 14,858
<INCOME-PRETAX> 7,274
<INCOME-PRE-EXTRAORDINARY> 5,709
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,709
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
<YIELD-ACTUAL> 4.71
<LOANS-NON> 197
<LOANS-PAST> 862
<LOANS-TROUBLED> 1,122
<LOANS-PROBLEM> 7,840
<ALLOWANCE-OPEN> 3,876
<CHARGE-OFFS> 539
<RECOVERIES> 245
<ALLOWANCE-CLOSE> 4,166
<ALLOWANCE-DOMESTIC> 1,135
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,031
</TABLE>
<PAGE> 1
Exhibit 99
FIRST-KNOX BANC CORP.
ONE SOUTH MAIN STREET
MOUNT VERNON, OHIO 43050
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MARCH 26, 1996
TO THE HOLDERS OF COMMON SHARES:
Notice is hereby given that, pursuant to call of its Directors, the regular
Annual Meeting of Shareholders of First-Knox Banc Corp. (the "Corporation")
will be held at Mount Vernon Nazarene College, 800 Martinsburg Road, Mount
Vernon, Ohio 43050, Tuesday, March 26, 1996, at 3:00 p.m., for the purpose of
considering and voting upon the following matters:
1. To elect to the Board of Directors five (5) persons, four (4) of
whom shall serve for a three-year term until the Annual Meeting of
Shareholders in 1999 and one (1) who will serve a two-year term
until the Annual Meeting of Shareholders in 1998, all five (5)
Directors to serve until his respective successor is elected and
qualified.
2. Whatever other business may properly be brought before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on February 16, 1996,
shall be entitled to notice of the meeting and to vote at the meeting or at any
adjournment thereof.
By Order of the Board of Directors,
/s/ Ian Watson
Ian Watson
Secretary
WE URGE YOU TO MARK, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
March 1, 1996
Page 77
<PAGE> 2
FIRST-KNOX BANC CORP.
ONE SOUTH MAIN STREET
BOX 871
MOUNT VERNON, OHIO 43050
MARCH 1, 1996
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of First-Knox Banc Corp. ("the Corporation") of Proxies in
the accompanying form to be voted at the Annual Meeting of Shareholders (the
"Annual Meeting") of the Corporation to be held on March 26, 1996, at 3:00
p.m., at Mount Vernon Nazarene College, 800 Martinsburg Road, Mount Vernon,
Ohio 43050, and at any adjournments thereof. Only those shareholders of record
at the close of business on February 16, 1996, will be entitled to vote at the
Annual Meeting. This Proxy Statement and Proxy are first being sent to
shareholders on or about March 1, 1996.
All costs of solicitation of the Proxies will be borne by the Corporation.
Solicitation will be made by mail. Proxies may be further solicited by
officers, directors, or employees of the Corporation by telephone, written
communication or in person. Any such officers, directors, or employees of the
Corporation soliciting proxies shall receive no compensation beyond their
normal compensation for performing such services. The Corporation will
reimburse banks, brokerage firms, and other custodians, nominees, and
fiduciaries for expenses reasonably incurred by them in sending proxy materials
to the beneficial owners of common shares of the Corporation ("Common Shares").
No solicitation is to be made by specially engaged employees or other paid
solicitors.
VOTING
The holder of each Common Share is entitled to one vote on all matters
including the election of Directors. A shareholder, without affecting any vote
previously taken, may revoke the shareholder's Proxy by giving notice to the
Corporation in writing or in open meeting. Presence at the Annual Meeting does
not in and of itself revoke a Proxy.
In the election of Directors each shareholder may cumulate the shareholder's
votes if notice in writing has been given by any shareholder to the Corporation
before 3:00 p.m. on March 24, 1996, of the shareholder's desire that the
election shall be by cumulative voting and if an announcement of such notice is
made upon the convening of the meeting. If cumulative voting is demanded, each
shareholder will be entitled to multiply the shareholder's total number of
shares held by the number of Directors being elected and then allocate these
votes among the nominees as the shareholder sees fit. Also, if cumulative
voting is involved, the enclosed Proxy would grant discretionary authority to
the proxies named therein to cumulate votes and to distribute such votes to any
one or more candidates as they see fit. In the case of either cumulative or
non-cumulative voting, the persons receiving the largest number of votes in
each class of Directors being elected will be elected.
Common Shares as to which the authority to vote is withheld and broker
non-votes would not be counted toward the election of the individual nominees
specified in the Proxy.
1
Page 78
<PAGE> 3
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of January 1, 1996, certain information with
respect to the only persons known to the Corporation to be the beneficial
owners of more than five percent (5%) of the outstanding Common Shares of the
Corporation.
<TABLE>
<CAPTION>
Percent of
Name and Address of Number of Shares Common
Beneficial Owner Beneficially Owned (1) Shares (2)
- --------------------- ---------------------- ----------
<S> <C> <C>
Russell E. Ramser, Jr. 227,371 (3) 6.38
20718 Danville-Amity Road
Mount Vernon, Ohio 43050
The First-Knox National Bank 190,023 (4) 5.33
(the "Bank")
Trust Department, Trustee
One South Main Street
Mount Vernon, Ohio 43050
<FN>
(1) Unless otherwise noted, represents sole voting and investment power.
(2) The percent of Common Shares is based upon the sum of (i) 3,560,260 Common
Shares outstanding as of January 1, 1996 and (ii) the number of Common
Shares as to which the named person has the right to acquire beneficial
ownership upon exercise of presently-exercisable stock options.
(3) Includes 11,854 Common Shares owned by Mr. Ramser's wife and 1,000 Common
Shares which Mr. Ramser has the right to acquire beneficial ownership upon
exercise of presently-exercisable stock options.
(4) Includes 71,601 Common Shares, 94,809 Common Shares, 16,438 Common Shares,
and 7,175 Common Shares as to which the trust department has sole voting
and investment power, sole voting and shared investment power, sole voting
and no investment power, and shared voting and investment power,
respectively.
</TABLE>
2
Page 79
<PAGE> 4
ELECTION OF DIRECTORS
The Board of Directors consists of twelve (12) directors divided into three (3)
classes. The terms of office of five (5) directors of one class expire at the
Annual Meeting. The Code of Regulations of the Corporation (the "Regulations")
provides that the Board of Directors shall be divided into three (3) classes
and that each class consist of an equal number of directors. In order to
equalize the number of directors in each class, Mr. George T. Culbertson, Jr.
has been nominated to stand for election for a two (2) year term until the
Annual Meeting of Shareholders in 1998, and until his successor is elected and
qualified. The other four (4) Directors whose terms expire at the Annual
Meeting have been nominated to serve three (3) year terms until the Annual
Meeting of Shareholders in 1999, and until their respective successors are
elected and qualified.
It is the intention of the persons named in the Proxy to vote for the election
of the five (5) nominees named below unless the Proxy otherwise directs. All
nominees are presently members of the Board of Directors. All of the nominees
have stated their willingness to serve and no reason is presently known why any
of the nominees would be unable to serve as a Director.
There are no family relationships among the executive officers and/or Directors
of the Corporation. Each of the nominees and Directors listed below has
furnished to the Corporation the information set forth with respect to his
principal occupation or employment and his beneficial ownership of securities.
<TABLE>
<CAPTION>
Common
Shares
Beneficially Percent of
Principal Occupation Owned Common Director
Name and Age Since 1991 1/1/96 (1) Shares (2) Since
- ------------ -------------------- ------------ ---------- --------
NOMINEE FOR ELECTION FOR TERM EXPIRING IN 1998
<S> <C> <C> <C> <C>
George T. Culbertson, Jr. Retired. Until 12/92, 9,337 (3) * 1985
Age 71 Chairman of the Board,
Progressive Communica-
tions Corp. (publisher of
Mount Vernon News)
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 1999
James J. Cullers Senior Partner, Zelkowitz, 40,033 (4) 1.12 1985
Age 65 Barry & Cullers (attorneys
& general legal counsel for
the Bank)
Philip H. Jordan, Jr. Chairman of the Board of 3,446 * 1985
Age 64 the Bank. Retired. Prior
to 6/95, President,
Kenyon College
</TABLE>
3
Page 80
<PAGE> 5
<TABLE>
<CAPTION>
Common
Shares
Beneficially Percent of
Principal Occupation Owned Common Director
Name and Age Since 1991 1/1/96 (1) Shares (2) Since
- ------------ -------------------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Noel C. Parrish President, NOE, Inc. 27,274 (5) * 1985
Age 58 (aircraft insurance
financing). Until 1991,
President, Parrish-O'Neill
& Assoc., Inc.
Carlos E. Watkins President and CEO of the 60,341 (6) 1.69 1987
Age 59 Corporation and Bank
DIRECTORS WHOSE TERMS EXPIRE IN 1998
John B. Minor Retired. Pesident Coca- 60,179 (7) 1.69 1985
Age 72 Cola bottling Company of
Mount Vernon prior to
1986
Russell E. Ramser, Jr. Vice Chairman of the 227,371 (8) 6.38 1992
Age 67 Board of the Corporation,
President, Maram Energy
(oil/gas exploration and
production)
Alan E. Riedel Retired. Prior to 3/94, 7,699 (9) * 1994
Age 65 Vice Chairman, Cooper
Industries. Prior to 1992, a
Director and Senior Vice
President, Administration,
Cooper Industries
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Robert S. Gregg President, Phoenix 31,441 (10) * 1985
Age 72 Holding Company. Prior
to 1995, President, Gregg
Manufacturing Co.
(manufacturer of lighting
fixtures)
James A. McElroy Chairman of the Board, 52,289 (11) 1.47 1985
Age 63 AMG Industries. Until
1991, President, AMG
Industries
</TABLE>
4
Page 81
<PAGE> 6
<TABLE>
<CAPTION>
Common
Shares
Beneficially Percent of
Principal Occupation Owned Common Director
Name and Age Since 1991 1/1/96 (1) Shares (2) Since
- ------------ -------------------- ------------ ---------- --------
<S> <C> <C> <C> <C>
William A. Stroud Chairman of the Board 69,400 (12) 1.95 1985
Age 75 of the Corporation. CEO
of the Corporation until
3/21/89
Stephen P. Upham, Jr. Entrepreneur (real 39,936 (13) 1.12 1985
Age 74 estate development and
management of Essup
Park, an industrial park)
Executive Officers and
Directors As a Group
(14 persons) 684,086 (14) 19.04
<FN>
* Represents less than 1% of class.
(1) Represents sole voting and investment power except as otherwise indicated.
For each Director except Mr. Watkins, includes 1,000 Common Shares which
each Director has the right to acquire beneficial ownership upon exercise
of presently-exercisable stock options.
(2) The percent of Common Shares is based upon the sum of (i) 3,560,260 Common
Shares outstanding as of January 1, 1996 and (ii) the number of Common
Shares as to which the named person has the right to acquire beneficial
ownership upon conversion of presently-exercisable stock options.
(3) Includes 478 Common Shares owned by Mr. Culbertson's wife and 6,000
Common Shares held in a trust of which Mr. Culbertson is the beneficiary.
(4) Includes 824 Common Shares owned by Mr. Cullers' wife and 6,290 Common
Shares held in a trust of which Mr. Cullers is the beneficiary. Includes
29,635 Common Shares held in trusts in which Mr. Cullers has voting and
investment power.
(5) Includes 14,233 Common Shares owned by Mr. Parrish's wife.
(6) Includes 3,385 Common Shares owned by Mr. Watkins' wife. Includes 19,418
Common Shares which Mr. Watkins has the right to acquire beneficial
ownership upon exercise of presently-exercisable stock options and 850
Common Shares held in an account for Mr. Watkins' benefit under the
Corporation's Savings Retirement Plan.
(7) Includes 13,309 Common Shares held in a trust of which Mr. Minor is the
beneficiary.
(8) Includes 11,854 Common Shares owned by Mr. Ramser's wife.
(9) Includes 413 Common Shares owned by Mr. Riedel's wife as to which
Mr. Riedel disclaims beneficial ownership.
(10) Includes 7,716 Common Shares owned by Mr. Gregg's wife and 939
Common Shares held by Mr. Gregg as custodian for his children.
(11) Includes 30,389 Common Shares held in a trust of which Mr. McElroy is the
beneficiary and 17,177 Common Shares owned by AMG Industries, Inc., a
corporation controlled by Mr. McElroy, and 907 Common Shares owned by Mr.
McElroy's wife.
(12) Includes 30,580 Common Shares owned by Mr. Stroud's wife.
(13) Includes 33,776 Common Shares held in a trust of which Mr. Upham is the
beneficiary, and 5,160 Common Shares owned by Mr. Upham's wife.
(14) See notes (1) through (13). Includes 33,034 Common Shares which the
executive officers of the Corporation as a group have the right to acquire
upon exercise of presently-exercisable stock options.
</TABLE>
5
Page 82
<PAGE> 7
NOMINATION OF DIRECTORS
Article III of the Regulations prescribes the method for a shareholder to
nominate a candidate for election to the Board of Directors. Nominations, other
than those made by or on behalf of the existing Board of Directors of the
Corporation, must be made in writing and must be delivered or mailed to the
President of the Corporation and to the Chairman, Federal Reserve Board,
Washington, D. C., not less than 14 days, nor more than 50 days, prior to any
meeting of shareholders called for the election of Directors. Such notification
must contain the following information:
a. Name and address of each proposed nominee.
b. Principal occupation of each proposed nominee.
c. Total number of shares of capital stock of the Corporation
that will be voted for each proposed nominee.
d. Name and residence address of the notifying shareholder.
e. Number of shares of capital stock of the Corporation owned by the
notifying shareholder.
As of the date of this Proxy Statement, no persons have been so nominated for
election at this Annual Meeting.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors meets quarterly and on other occasions when required by
special circumstances. The Board of Directors of the Corporation held eight (8)
meetings during the fiscal year ended December 31, 1995. Each director attended
at least 75% of the aggregate of the number of Board of Directors meetings and
the number of meetings of all committees on which he served during the year,
except for Messrs. Culbertson, Gregg and McElroy.
Messrs. Ramser, Culbertson, Gregg and Upham serve on the Audit Committee of the
Corporation, which met three (3) times in 1995. The Audit Committee makes
recommendations to the Board of Directors concerning the selection and
engagement of the Corporation's independent auditors. It meets with the
independent auditors to discuss and review the annual audit. It also reviews
reports by the internal auditor to the Audit Committees of subsidiaries on
departmental and branch operations.
The Corporation also has a Planning and Budget Committee, a Stock Option
Committee, and a Personnel Committee. The Personnel Committee and Stock Option
Committee each play a role in reviewing and recommending compensation policies
and plans for the Corporation and its affiliates. The Stock Option Committee,
comprised of Messrs. Cullers, Stroud, Ramser and Riedel, met two (2) times
during 1995. The Personnel Committee, the members of which are Messrs. Cullers,
Ramser, Stroud and Jordan, met eleven (11) times during 1995. The Corporation
does not have a standing nominating committee.
6
Page 83
<PAGE> 8
REMUNERATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth, for the three (3) fiscal years ended December
31, 1995, cash and non-cash compensation paid by the Bank to Carlos E. Watkins,
President and CEO of the Corporation and the Bank and the only executive
officer of the Corporation to earn salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
- --------------------------------------------------------------------------------------------
Awards
Name and ------- All Other
Principal Position Year Salary Bonus (1) Options/SARs (#) Compensation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carlos E. Watkins, 1995 $156,465 $39,000 -- $2,772 (2)
President and CEO 1994 149,264 7,500 7,778 (3) 2,772 (2)
of the Corporation 1993 144,264 36,041 -- 3,033 (4)
and Bank
<FN>
(1) All bonuses reported were earned by Mr. Watkins pursuant to the incentive
compensation plan of the Corporation and its affiliate banks (the
"Incentive Compensation Plan"). Bonus amounts are determined and paid in
the year following the year in which they are earned. Such bonus amounts
are reported in the Summary Compensation Table in the year in which they
were earned.
(2) Includes contributions of $2,772 to the Company's Savings Retirement Plan
(the "Savings Retirement Plan") made on behalf of Mr.Watkins to match
pre-tax elective deferral contributions in 1995 and 1994, respectively.
(3) The award was originally granted in regard to 3,704 Common Shares. That
number subsequently was adjusted to reflect a distribution in the nature of
a five percent (5%) stock dividend paid to all shareholders of the
Corporation on October 24, 1994 and a one hundred percent (100%) stock
dividend paid to all shareholders of the Corporation on September 1, 1995.
(4) Includes contributions of $2,698 to the Savings Retirement Plan made on
behalf of Mr. Watkins to match 1993 pre-tax elective deferral contributions
and a contribution of $335 to the Savings Retirement Plan made on behalf of
Mr. Watkins pursuant to a one-time discretionary contribution of 10 Common
Shares to each participant of the Savings Retirement Plan.
</TABLE>
7
Page 84
<PAGE> 9
GRANT OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
During 1995, no stock options or stock appreciation rights were granted to Mr.
Watkins.
STOCK OPTION AND STOCK APPRECIATION RIGHTS AND EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the value at
December 31, 1995 of unexercised options and SARs held by Mr. Watkins pursuant
to the First-Knox Banc Corp. 1990 Non-Qualified Stock Option and Stock
Appreciation Rights Plan. Mr. Watkins did not exercise any options or SARs
during 1995.
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
FY-End Value $25.00
Number of Value of
Shares Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
At FY-End (#) at FY-End ($)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlos E.
Watkins - 0 - - 0 - 23,301 17,041 $330,748 $153,498
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of the Corporation or its subsidiaries receive
a fee of $3,000 per year plus $300 for each Board meeting and each Board
committee meeting attended. Directors traveling from out of state to attend
Board meetings and each Board committee meeting are reimbursed for reasonable
travel expenses incurred.
Under the First Knox Banc Corp. 1995 Stock Option and Stock Appreciation Rights
Plan, Directors, other than those employed by the Corporation (the
"Non-Employee Directors"), are entitled to receive an annual grant on the first
business day following the date of each annual meeting of shareholders of an
option (the "Company Director Option") to purchase 1,000 Common Shares at an
exercise price equal to the fair market value of the underlying Common Shares
on the date of grant. Company Director Options granted to Non-Employee
Directors become exercisable immediately upon grant and remain exercisable
until the earlier to occur of the following two (2) dates (i) the tenth
anniversary of the date of grant of such Company Director Option or (ii) three
(3) months (twelve months in the case of a Non-Employee Director who becomes
disabled, as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), or who dies) after the date the Non-Employee Director
ceases to be a member of the Board, except that if the Non-Employee Director
ceases to be a member of the Board after having been convicted of, or pled
guilty or nolo contendere to, a felony, his Company Director Option would be
canceled on the date he ceases to be a member of the Board.
8
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<PAGE> 10
EMPLOYEES' RETIREMENT PLAN
The following table shows the estimated annual benefits payable under The
First-Knox National Bank Employees Retirement Plan (the "Pension Plan") upon
retirement for specified periods of service and levels of remuneration. The
calculations assume that the person elects the annuity basis providing the
maximum monthly payments without benefits to a surviving spouse.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Remuneration Years of Service
- ---------------------------------------------------------------------------------------------
15 20 25 30 35 or More
--- -- --- --- ----------
<S> <C> <C> <C> <C> <C>
$250,000 $45,683 $60,431 $63,929 $67,427 $70,925
225,000 45,683 60,431 63,929 67,427 70,925
200,000 45,683 60,431 63,929 67,427 70,925
175,000 45,683 60,431 63,929 67,427 70,925
150,000 45,683 60,431 63,929 67,427 70,925
125,000 37,916 50,074 52,858 55,641 58,425
100,000 30,148 39,717 41,786 43,856 45,925
</TABLE>
The Pension Plan provides for defined benefits upon retirement based on years
of service, attaining the age of 65 and salary level. The Pension Plan also
provides early retirement benefits and surviving spouses' benefits after
satisfying certain requirements. No reduction in benefits is made as a result
of Social Security benefits received.
The monthly retirement benefit is equal to 30% of average monthly compensation
reduced proportionately, if the employee has less than 20 years of service at
normal retirement, plus 20% of average monthly compensation greater than the
Social Security covered compensation level. The monthly retirement benefit is
further reduced proportionately if the employee has less than 35 years of
service at normal retirement. Certain limitations are imposed on the maximum
benefit payable under the Pension Plan pursuant to Section 415 of the Code. The
benefit is payable as a 5 year certain or life annuity. Average monthly
compensation is defined as the average of the highest five consecutive years of
compensation out of the last ten years worked. Mr. Watkins has eight (8) years
of service credited to him under the Pension Plan. He will be eligible to
retire and receive benefits under the Pension Plan when he attains age 65.
Compensation utilized for pension formula purposes includes only the salary and
annual bonus reported in the Salary and Bonus columns of the Summary
Compensation Table.
The Bank has purchased a life insurance policy on the life of Mr. Watkins.
Under such policy, and a related agreement, Mr. Watkins or his beneficiary
will receive an annual payment of $25,000 for ten years beginning the month
following Mr. Watkins' 65th birthday if he is employed by the Bank at such
time. If Mr. Watkins dies prior to age 65 or he is no longer an employee of
the Bank on his 65th birthday, the Bank is entitled to the proceeds of the
policy. The insurance policy is maintained as a supplemental retirement
benefit to Mr. Watkins. The total cash surrender value of the policy is an
asset of the Corporation to which Mr. Watkins has no right or interest.
9
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<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation does not have a Compensation Committee, but does have a
Personnel Committee. The members of the Personnel Committee are Messrs.
Cullers, Ramser, Stroud and Jordan, each of whom is an outside Director. The
function of the Personnel Committee is to review officer compensation and
corporate benefit plans, and to forecast future personnel needs of the
Corporation and its affiliates. The Corporation also has a Stock Option
Committee, which administers the First-Knox Banc Corp. 1990 Non-Qualified Stock
Option and Stock Appreciation Rights Plan (this plan expired on March 27, 1995)
and the First-Knox Banc Corp. 1995 Stock Option and Stock Appreciation Rights
Plan (collectively, the "Stock Option Plans"). The members of the Stock Option
Committee are Messrs. Cullers, Ramser, Stroud and Riedel, each of whom is an
outside Director.
Mr. Cullers is a senior partner in the law firm of Zelkowitz, Barry & Cullers
which serves as general legal counsel for the Bank. The Bank paid $47,415 to
Zelkowitz, Barry & Cullers for its legal services in fiscal year 1995.
Zelkowitz, Barry & Cullers has served as legal counsel for the Bank for the
past several years and will be retained in that capacity in the future.
Mr. Stroud is a former officer of the Corporation and the Bank.
REPORT OF STOCK OPTION COMMITTEE AND PERSONNEL
COMMITTEE ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Corporation's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, this Report and
the graph set forth on page 13 shall not be incorporated by reference into any
such filings.
DECISION-MAKING PROCESS. The executive officers of the Corporation receive no
compensation from the Corporation. Instead, they are paid by the Bank for
services rendered in their capacity as executive officers of the Corporation
and the Bank. The Board of Directors of the Corporation has a four-member
Personnel Committee, all of whom are outside Directors, which reviews and
recommends officer compensation and corporate benefit plans and forecasts
future personnel needs of the Corporation and its affiliates. The Board of the
Corporation also has a Stock Option Committee, all of the members of which are
outside Directors, which administers the Stock Option Plans. The Board of
Directors of the Bank has a Personnel Committee, two of the four members of
which are members of the Personnel Committee of the Corporation and all of the
members of which are outside Directors of the Bank.
Executive officer compensation levels, including that of the CEO, are compared
annually with independent surveys of the banking industry. The surveys utilized
include banks of comparable size, market and geographic characteristics to the
Corporation and the Bank. The surveys do not include the banks included in the
KBW 50 Index referenced at page 13 hereof inasmuch as the banks in the KBW 50
Index are larger than the Corporation and the Bank. Based upon the median
values indicated by these surveys, as well as the particular executive
officer's individual contribution to the Corporation and the Bank, the skills
and experiences required by the job, and the potential of the executive
officer, recommenda-
10
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<PAGE> 12
tions are made by the Personnel Committees of the Corporation and the Bank,
which recommendations are reviewed and approved by the Board of Directors of the
Bank. During 1995, no decisions of the Committees were modified in any material
way or rejected by the Bank Board.
PHILOSOPHY AND CEO COMPENSATION. The compensation philosophy of the Corporation
and its affiliate banks reflects a commitment to reward executive officers for
performance through cash compensation and stock options. The cash compensation
program for executive officers consists of two elements, a base salary
component and an incentive component payable under the Incentive Compensation
Plan. The combination of base salary and incentive compensation is designed to
relate total compensation levels to the performance of the Corporation, its
affiliates and the individual executive officer. The stock option program is
designed to encourage and create ownership and retention of the Corporation's
stock by key employees, thereby aligning the long-range interests of key
employees with those of the Corporation's shareholders.
The objectives of the Incentive Compensation Plan are to motivate officers and
reward the accomplishment of annual objectives of the Corporation and its
affiliates; reinforce a strong performance orientation with differentiation and
variability in individual awards based on contribution to annual and long-range
business results; and provide a fully competitive compensation package which
will attract, reward, and retain individuals of the highest quality. For
executive officers of the Corporation, including the CEO, incentive awards are
determined as a percentage of annual base salary, which percentage ranges from
zero to fifty percent and are calculated utilizing a corporate goals factor and
a performance factor. The corporate goals factor is based one-third upon the
achievement of increased earnings and two-thirds upon return on beginning
equity of the Corporation and the Bank. The components of this factor must
exceed predetermined threshold levels before any executive incentive
compensation is considered. The determination of the performance factor entails
both an objective and subjective analysis of the executive officer's
performance during the year. Once the threshold for the corporate goals factor
has been attained, the corporate goals factor and the performance factor are
equally weighted. The Incentive Compensation Plan awards for 1995 were paid in
1996.
The decision-making process and compensation philosophy of the Corporation and
the Bank were applied by the Personnel and Stock Option Committees when
determining 1995 compensation for Mr. Watkins. The Committees believe that the
base salary earned by Mr. Watkins in 1995 was fair and reasonable based upon
the performance of the Corporation and the Bank (for example, increased
profitability over the previous fiscal year and strong return on equity, return
on assets and loan quality as compared to comparable banks and bank holding
companies) and when compared with executive compensation levels in the banking
industry as reported by the independent surveys referenced above. Mr. Watkins'
base salary for 1995 approximated the median of the base salaries reported in
those surveys. The base salary earned by Mr. Watkins in 1995 also reflects the
significant management and leadership responsibilities required of Mr. Watkins
in his position as CEO and the effective manner in which Mr. Watkins fulfilled
such responsibilities.
11
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<PAGE> 13
Mr. Watkins is rewarded through the Incentive Compensation Plan for his
contribution to the Corporation's and the Bank's performance and operating
results in the same manner as other executive officers. (See discussion above.)
Incentive compensation earned by Mr. Watkins in 1995 was determined as a
percentage of his annual base salary based upon the amount by which the
corporate goals factor criteria were exceeded and the achievement of the
performance factor criteria established for Mr. Watkins. In determining Mr.
Watkins' 1995 incentive compensation, the Committees took into consideration
the following factors: (1) the Corporation's and the Bank's threshold corporate
goals factor criteria for increased earnings and return on equity were
surpassed; (2) the market price of the Common Shares increased during 1995; and
(3) a positive evaluation by the Committees of Mr. Watkins' performance with
respect to performance factors during 1995. The combination of these factors
enabled the Committees to award Mr. Watkins with incentive compensation of
approximately one-half of the total amount of maximum compensation available to
the CEO under the Incentive Compensation Plan. The Incentive Compensation Plan
award earned by Mr. Watkins in 1995 was paid in 1996.
THE STOCK OPTION COMMITTEE THE PERSONNEL COMMITTEE
OF THE CORPORATION OF THE CORPORATION
James J. Cullers James J. Cullers
Russell E. Ramser, Jr. Philip H. Jordan, Jr.
Alan E. Riedel Russell E. Ramser, Jr.
William A. Stroud William A. Stroud
12
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<PAGE> 14
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST-KNOX BANC CORP., S&P 500 INDEX AND KBW 50 INDEX
The following graph sets forth a comparison of five year cumulative total
return among the Common Shares, the S&P 500 Index and the Keefe, Bruyette &
Woods, Inc. KBW 50 Index (the "KBW 50 Index") for the fiscal years indicated.
Information reflected on the graph assumes an investment of $100 on December
31, 1990 in each of the Common Shares, the S&P 500 Index and KBW 50 Index.
Cumulative total return assumes reinvestment of dividends. The KBW 50 Index
represents stock price performance of fifty of the nation's large banks, as
selected by Keefe, Bruyette & Woods, Inc. The Corporation is not among the
fifty banking companies included in the KBW 50. The Corporation has not
identified any published index of stock performance which includes the
Corporation or banking companies comparable to it.
<TABLE>
<CAPTION>
FIRST-KNOX PERFORMANCE CALCULATION
DATE INDEX VALUE KBW INDEX VALUE S & P IN
1995 1995 1995
<S> <C> <C> <C>
12/31/90 100.00 100.00 100.00
06/30/91 101.42 134.26 114.28
12/31/91 109.34 158.27 130.48
06/30/92 116.19 179.45 129.60
12/31/92 128.58 201.68 140.41
06/30/93 136.10 216.35 147.26
12/31/93 161.09 212.85 154.56
06/30/94 222.81 224.77 149.88
12/31/94 223.47 201.99 158.80
06/30/95 231.15 261.79 186.26
12/31/95 277.19 323.52 215.45
</TABLE>
13
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<PAGE> 15
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT
During 1995 and up to the present date, some of the directors and officers of
the Corporation and its subsidiaries were customers of and had banking
transactions with the Bank and The Farmers and Savings Bank, both of which are
subsidiaries of the Corporation. All of these transactions were in the ordinary
course of each bank's business. All loans and commitments to loan included in
such transactions were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and, in the opinion of
the management of the Corporation, do not involve more than a normal risk of
collectibility or present other unfavorable features.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Corporation's officers and directors, and persons who own
more than ten percent (10%) of the Common Shares to file reports of ownership
and changes in ownership on Forms with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent (10%) shareholders
are required by SEC regulation to furnish the Corporation with copies of all
such Forms. Based on the Corporation's review of the copies of such Forms, the
Corporation believes that all its officers, directors and greater than ten
percent (10%) shareholders complied with all filing requirements applicable to
them with respect to transactions during 1995 and through the present date.
AUDITING MATTERS
Pursuant to the recommendation of its Audit Committee, the Board of Directors
of the Corporation has retained Crowe, Chizek and Company, LLP, as independent
auditors for the Corporation and its subsidiaries for the year ending December
31, 1996.
In addition to services rendered in connection with their audit function,
Crowe, Chizek and Company reviews and assists with the filing of the
Corporation's federal income tax returns. It is anticipated that a
representative of Crowe, Chizek and Company will be present at the Annual
Meeting and have the opportunity to make a statement if desired and will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come before
the Annual Meeting. However, if any other matters requiring a vote of
shareholders are properly presented to the meeting, it is intended that proxies
in the accompanying form will be voted on such other matters in accordance with
the recommendations of the Board of Directors or in accordance with the best
judgment of the proxy holders on such matters.
14
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<PAGE> 16
ANNUAL REPORT
The 1995 Annual Report, including the required audited financial statements of
the Corporation and related financial information, is enclosed with this proxy
soliciting material.
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K INCLUDING FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST BY A
SHAREHOLDER. PLEASE ADDRESS YOUR REQUEST TO IAN WATSON, SECRETARY, FIRST-KNOX
BANC CORP., BOX 871, MOUNT VERNON, OHIO 43050, TELEPHONE 614/399-5500 OR
800/837-5266.
PROPOSALS BY SHAREHOLDERS FOR 1997 MEETING
If any shareholder of the Corporation wishes to submit a proposal to be
included in next year's Proxy Statement and acted upon at the annual meeting of
the Corporation to be held in 1997, the proposal must be received by the
Corporation prior to the close of business on November 4, 1996.
MISCELLANEOUS
You are urged to mark, date, sign, and return your proxy promptly. For your
convenience, a self-addressed envelope is enclosed on which no postage is
required if mailed in the United States.
By Order of the Board of Directors,
/s/ Ian Watson
Ian Watson
Secretary
March 1, 1996
15
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<PAGE> 17
PLEASE MARK, DATE, SIGN, AND RETURN IMMEDIATELY
FIRST-KNOX BANC CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - MARCH 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Know all men by these presents, that I, the undersigned shareholder of
First-Knox Banc Corp. (the "Corporation") do hereby nominate, constitute, and
appoint L. Bruce Levering, Wendell W. McCoy, and Richard B. Murray, and each
of them (with full power to act alone) my true and lawful proxy with full
power of substitution, for me and in my name, place and stead to vote all
the common shares of the Corporation standing in my name on its books on
February 16, 1996, at the Annual Meeting of its Shareholders to be held at
Mount Vernon Nazarene College, 800 Martinsburg Road, Mount Vernon, Ohio, on
March 26, 1996, at 3:00 p.m. or any adjournment thereof, with all powers the
undersigned would possess if personally present, as follows:
1A. To elect four (4) directors, each to hold office for a term of three
(3) years until the Annual Meeting of Shareholders in 1999, and until
their respective successors are elected and qualified.
[ ] FOR ALL NOMINEES LISTED BELOW (except as indicated below)*
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
James J. Cullers, Philip H. Jordan, Jr., Noel C. Parrish, Carlos E. Watkins
*(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
1B. To elect one (1) director to hold office for a term or two (2) years until
the 1998 Annual Meeting of Shareholders in 1998, and until his respective
successor is elected and qualified.
[ ] FOR THE NOMINEE LISTED BELOW
[ ] WITHHOLD AUTHORITY to vote for the nominee listed below
George T. Culbertson, Jr.
(Continued, and to be signed on reverse side)
<PAGE> 18
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly be brought before the meeting or any
adjournment thereof. The Board of Directors at present knows of no other
business to be presented by or on behalf of the Corporation or its Board of
Directors at the meeting.
This proxy will be voted as specified. UNLESS SPECIFIED, THE PROXY WILL BE
VOTED FOR ALL NOMINEES NAMED IN PROPOSAL NUMBER 1A AND 1B, IF ANY OTHER
BUSINESS IS PRESENTED AT SAID MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE
WITH THE DIRECTIONS OF THE BOARD OF DIRECTORS. The Board of Dirctors recommends
a vote "FOR" each of the nominees listed. THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS and may be revoked prior to its exercise. All previous
proxies given by the undersigned are hereby revoked.
DATE__________________
______________________________
Signature
______________________________
Signature
All joint owners must sign.
When signing as attorney,
executor, administrator,
trustee, or guardian, please
give full title. If more than
one trustee, all should sign.
Please sign, date, and return
your Proxy promptly in the
enclosed envelope.
[ ] I PLAN TO ATTEND THE ANNUAL MEETING.
Page 93
