<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
.......................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................... to .....................
Commission file number 0-13161
First-Knox Banc Corp.
.............................................
(Exact name of registrant as specified in its charter)
Ohio 31-1121049
............... (IR.S Employer
(State or other jurisdiction of incorporation Identification No.)
or organization)
One South Main Street, Mount Vernon, Ohio 43050
...............................................
(Address of principal executive offices)
(Zip Code)
(614) 399-5500
..............
(Registrant's telephone number including area code)
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
..... .....
Number of shares of Common Stock, Par Value $3.125 per share at May 1, 1997
Authorized 6,000,000
Issued 3,758,026
Outstanding 3,758,026
Page 1 of 21
Exhibit Index at Page 19
<PAGE> 2
FIRST-KNOX BANC CORP.
FORM 10-Q
QUARTER ENDED March 31, 1997
Part I - Financial Information
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income . . . . . . . . . . . . . 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows . . . . . . 6
Notes to the Consolidated Financial Statements . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . 13
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . N/A
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . N/A
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . N/A
Item 4. Submission of Matters to Vote of Security Holders. . . . . . . N/A
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . N/A
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
Page 2
<PAGE> 3
FIRST-KNOX BANC CORP
Consolidated Balance Sheet
($ Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Cash and non-interest bearing deposits with banks $14,066 $20,308
Interest bearing deposits with banks 495 $539
-------- --------
Total cash and cash equivalents 14,561 20,847
Securities available for sale, at fair value (Note 2) 174,585 177,426
-------- --------
Total securities 174,585 177,426
Loans (Note 3) 365,593 361,840
Allowance for loan losses (Note 4) (4,639) (4,545)
-------- --------
Net loans 360,954 357,295
Premises and equipment, net 10,581 10,791
Accrued interest receivable and other assets 8,365 7,404
-------- --------
TOTAL ASSETS $569,046 $573,763
======== ========
LIABILITIES
Deposits
Non-interest bearing demand $49,298 $55,317
Interest-bearing demand 43,338 49,386
Savings 94,218 88,258
Time 244,878 237,802
-------- --------
Total deposits 431,732 430,763
Short-term borrowings 20,626 24,887
Long-term debt (Note 5) 61,618 62,375
Accrued interest payable and other liabilities 5,157 5,763
-------- --------
TOTAL LIABILITIES 519,133 523,788
-------- --------
SHAREHOLDERS' EQUITY (Note 1)
Common Stock, par value $3.125 per share;
6,000,000 shares authorized; 3,756,976 issued
and outstanding in 1997 and 3,755,926 shares issued
and outstanding in 1996 11,740 11,737
Paid-in-capital 26,040 26,017
Retained earnings 11,622 10,830
Net unrealized holding gains on securities
available for sale 511 1,391
-------- --------
TOTAL SHAREHOLDERS' EQUITY 49,913 49,975
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $569,046 $573,763
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 3
<PAGE> 4
FIRST-KNOX BANC CORP.
Consolidated Statement of Income (Unaudited)
($ Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ending
March 31,
1997 1996
-------- --------
<S> <C> <C>
Interest income:
Loans and Leases, including fees........... $8,016 $7,481
Investment and mortgage-backed securities..
Taxable................................. 2,145 1,301
Non-taxable............................. 721 698
Federal funds sold......................... 20 123
--------- ---------
TOTAL INTEREST INCOME................... 10,902 9,603
--------- ---------
Interest expense:
Deposits................................... 4,238 4,029
Short-term borrowings...................... 258 99
Long-term debt............................. 963 485
--------- ---------
TOTAL INTEREST EXPENSE.................. 5,459 4,613
--------- ---------
NET INTEREST INCOME..................... 5,443 4,990
Provision for loan
losses (Note 4)............................ 159 81
NET INTEREST INCOME AFTER --------- ---------
PROVISION FOR LOAN AND LEASE LOSSES.. 5,284 4,909
--------- ---------
Other income:
Income from fiduciary activities........... 225 180
Service charges, commissions and fees...... 710 655
Other...................................... 16 18
--------- ---------
TOTAL OTHER INCOME...................... 951 853
--------- ---------
Other expense:
Salaries & employee benefits............... 1,946 1,835
Occupancy and equipment.................... 602 567
FDIC Insurance............................. 11 1
Other...................................... 1,410 1,411
--------- ---------
TOTAL OTHER EXPENSE..................... 3,969 3,814
--------- ---------
Income before federal income taxes............ 2,266 1,948
Federal income tax expense.................... 572 454
--------- ---------
NET INCOME.................................... $1,694 $1,494
========= =========
Earnings per common share (Note 1):
Primary......... $0.44 $0.39
Fully Diluted... $0.44 $0.39
========= =========
Weighted average common shares
outstanding (Note 1): Primary......... 3,826,856 3,791,181
Fully Diluted... 3,827,794 3,791,181
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 4
<PAGE> 5
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
($ Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ending
March 31,
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of period.......................... $49,975 $46,659
Net income............................................ 1,694 1,494
Issuance of shares in 1997
for stock options exercised........................ 26
Cash dividends, declared at a
per share rate of $.24 in 1997 and $.13 in 1996..... (902) (498)
Net unrealized holding loss on securities
available for sale.................................. (880) (669)
------- -------
Balance, end of period................................ $49,913 $46,986
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 5
<PAGE> 6
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Cash Flows (Unaudited)
($ Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ending
March 31,
1997 1996
-------- --------
<S> <C> <C>
Net cash provided by operating activities.............................. 901 1,033
Cash Flows from Investing Activities:
Purchases of investment and mortgage-backed securities
available for sale............................................... (2,616) (12,337)
Proceeds from calls, payments and maturities of investment and
mortgage-backed securities available for sale.................... 4,228 5,704
Net (increase) decrease in loans and leases ....................... (3,818) 3,589
Expenditures for premises and equipment............................ (57) (266)
------- -------
Net cash provided by (applied to) investing activities........... (2,263) (3,310)
------- -------
Cash Flows from Financing Activities:
Net increase in deposit accounts................................... 969 3,882
Net increase in short-term borrowings.............................. (4,261) 100
Payments on long-term debt......................................... (757) (246)
Cash dividends paid................................................ (901) (534)
Issuance of common stock........................................... 26
------- -------
Net cash provided by financing activities..................... (4,924) 3,202
------- -------
Net increase (decrease) in cash and cash equivalents................... (6,286) 925
Cash and cash equivalents at beginning of period................... 20,847 20,412
------- -------
Cash and cash equivalents at end of period............................. $14,561 $21,337
======= =======
Supplemental cash flow information:
Interest paid...................................................... $5,350 $5,056
======= =======
Income taxes paid.................................................. $0 $0
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 6
<PAGE> 7
FIRST-KNOX BANC CORP.
Notes to the Consolidated Financial Statements
Note 1 - SUMMARY OF ACCOUNTING POLICIES: (Unaudited)
The consolidated financial statements include the accounts of the
First-Knox Banc Corp. (the Corporation), and its wholly-owned
subsidiaries; The First-Knox National Bank (First-Knox), and The
Farmers and Savings Bank (Farmers). All significant intercompany
transactions have been eliminated.
These interim financial statements are prepared without audit and
reflect all adjustments of a normal and recurring nature which, in
the opinion of management, are necessary to present fairly the
consolidated financial position of First-Knox Banc Corp. at March 31,
1997 and its results of operations and cash flows for the periods pre-
sented. The accompanying consolidated financial statements do not
purport to contain all the necessary financial disclosures required by
generally accepted accounting principles that might otherwise be
necessary in the circumstances. Accordingly, these financial
statements should be read in conjunction with the 1996 consolidated
financial statements and notes thereto of First-Knox Banc Corp.
included in its Annual Report on Form 10-K for the year ended December
31, 1996.
The provision for income taxes is based upon the effective tax rate
expected to be applicable for the entire year.
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 stock method.
Fully diluted earnings per share reflects additional dilution related
to stock options due to the use of market price at the end of the
period when higher than average price for the period. All share and
per share data has been adjusted for a 5% stock dividend distributed
in September, 1996.
During the first three months of 1997, no options were granted.
During the first three months of 1997 options for 1,050 common shares
were exercised. There was no material compensation recognized during
the three months of 1997 or the first three months of 1996 related to
stock appreciation rights. At March 31, 1997, exercisable options and
stock appreciation rights were 124,052 and 19,784, respectively. At
March 31, 1997, there were outstanding options for 207,969 common
shares and outstanding stock appreciation rights for 44,754 common
shares.
The Corporation, through its subsidiary banks, grants residential,
consumer, and commercial loans to customers in the central Ohio
counties of Knox, Morrow, Holmes, Ashland and Richland. Commercial
loans, residential real estate loans and consumer loans were 30.1%,
47.4% and 22.5% of total loans, respectively, at March 31, 1997.
Page 7
<PAGE> 8
Note 1 - SUMMARY OF ACCOUNTING POLICIES (Continued):
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", revises accounting treatment for transfers of financial
assets, such as loans and securities, and for distinguishing between
sales and secured borrowings. SFAS No. 125 did not materially impact
the Corporation's financial statements for the first quarter of 1997.
In March 1997, the accounting requirements for calculating earnings
per share were revised. Basic earnings per share for 1997 and later
will be calculated solely on average common shares outstanding. Diluted
earnings per share will reflect the potential dilution of stock options
and other common stock equivalents. All prior calculations will be
restated to be comparable to the new methods. As the Corporation has
not had significant dilution from stock options, the new calculation
methods will not significantly affect future basic earnings per share
and diluted earnings per share.
The Corporation in its normal course of business, makes commitments to
extend credit which are not reflected in the financial statements. At
March 31, 1997, unused credit lines amounted to approximately
$60,450,000 and commitments under outstanding letters of credit
amounted to approximately $581,000. Since many commitments to make
loans expire without being used, the amount does not necessarily
represent future cash commitments. Collateral obtained related to the
commitments is determined using management's credit evaluation of the
borrower and may include real estate, vehicles, business assets,
deposits, and other items. In management's opinion these commitments
represent normal banking transactions, and no material losses are
expected to result therefrom.
Residential real estate loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market
in the aggregate. Net unrealized losses are recognized in a valuation
allowance by charges to income.
Certain items in the 1996 financial statements have been reclassified
to correspond with the 1997 presentation.
Page 8
<PAGE> 9
Note 2 - SECURITIES AVAILABLE FOR SALE:
The amortized costs and estimated fair values are as follows at March
31, 1997 and December 31, 1996:
INVESTMENT SECURITIES AVAILABLE FOR SALE
($ amounts in thousands):
<TABLE>
<CAPTION>
March 31, 1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $30,619 $104 ($102) $30,621
Obligations of states and
political subdivisions 54,755 979 (483) $55,251
Obligations of U.S. government
corporations and agencies 28,258 46 (94) 28,210
Other securities 6,983 213 7,196
--------- --------- -------- ---------
Total investment securities 120,615 1,342 (679) 121,278
Mortgage-backed securities 53,196 327 (216) 53,307
--------- --------- -------- ---------
TOTAL $173,811 $1,669 ($895) $174,585
========= ========= ======== =========
</TABLE>
INVESTMENT SECURITIES AVAILABLE FOR SALE
($ amounts in thousands):
<TABLE>
<CAPTION>
December 31, 1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $30,621 $230 ($81) $30,770
Obligations of states and
political subdivisions 56,493 $1,337 (257) 57,573
Obligations of U.S. government
corporations and agencies 28,056 258 (46) 28,268
Other securities 6,866 199 7,065
--------- --------- -------- ---------
Total investment securities 122,036 2,024 (384) 123,676
Mortgage-backed securities 53,283 608 (141) 53,750
--------- --------- -------- ---------
TOTAL $175,319 $2,632 ($525) $177,426
========= ========= ======== =========
</TABLE>
At March 31, 1997, the percentages of the portfolio maturing in
various time frames had not changed significantly from December 31,
1996.
Page 9
<PAGE> 10
Note 3 - LOANS
Loans and leases are comprised of the following ($ amounts in
thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Residential real estate loans.......... 173,282 170,449
Commercial real estate loans........... 12,098 12,349
Commercial and industrial loans........ 93,034 90,739
Consumer and credit card loans......... 82,275 83,399
Obligations of states and
political subdivisions............... 4,904 4,904
-------- --------
$365,593 $361,840
======== ========
</TABLE>
Note 4 - ALLOWANCE FOR LOAN LOSSES:
Activity in the allowance for possible loan and lease losses is
summarized as follows for the three months ended March 31 ($ amounts
in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Balance, beginning of period............ $4,545 $4,166
Provision for loan and lease losses..... 159 81
Losses charged to the allowance......... (117) (146)
Recoveries.............................. 52 45
------- -------
Balance, end of period.................. $4,639 $4,146
======= =======
</TABLE>
Loans and leases over 90 days past due and still accruing interest
approximated $1,155,000 at March 31, 1997 and $1,904,000 at December
31, 1996. Loans on non-accrual status were $899,000 at March 31, 1997
and $317,000 at December 31, 1996. Impaired loans were not material at
any date or during any period presented.
Page 10
<PAGE> 11
Note 5 - LONG-TERM DEBT:
($ amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
Description 1997 1996
----------- --------- ------------
<S> <C> <C>
Fixed rate Federal Home Loan Bank advances
with monthly principal and interest
payments:
5.60% Advance due August 1, 2003........... $2,111 $2,180
6.35% Advance due August 1, 2013........... 2,700 2,723
5.95% Advance due March 1, 2004............ 570 586
5.70% Advance due May 1, 2004.............. 4,630 4,760
5.85% Advance due January 1, 2016.......... 4,357 4,876
Fixed rate Federal Home Loan Bank
Fixed rate Federal Home Loan Bank
advances with monthly interest payments:
5.35% Advance due February 1, 1999......... 5,000 5,000
5.60% 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
6.15% Advance due July 21, 1997............ 10,000 10,000
6.60% Advance due July 21, 1999............ 10,000 10,000
6.90% Advance due July 21, 2001............ 10,000 10,000
------- -------
$61,618 $62,375
======= =======
</TABLE>
At March 31, 1997, Federal Home Loan Bank (FHLB) advances are
collateralized by all shares of FHLB stock owned by the Corporation
(totaling $6,498,000) and by 100% of the Corporation's qualified real
estate-backed investments and mortgage loan portfolio (totaling
approximately $224,000,000). Based on the carrying amount of FHLB
stock owned by the Corporation, total FHLB advances are limited to
approximately $74,000,000 at March 31, 1997. Future advances to be
received by the Corporation, above this limit, require additional
purchases of FHLB stock.
The aggregate minimum future principal payments on long-term debt are
$10,830,000 in 1997, $1,576,000 in 1998, $28,576,000 in 1999,
$1,587,000 in 2000, $11,606,000 in 2001, and $7,443,000 thereafter.
Page 11
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Note 6 - SUBSEQUENT EVENT:
On October 28, 1996, the Corporation entered into an Agreement and
Plan Merger ("Agreement") with Park National Corporation ("Park
National"), a bank holding company headquartered in Newark, Ohio,
whereby Park National will acquire First-Knox Banc Corp. Under the
terms of the Agreement, Park National will exchange 0.5914 shares of
Park National common stock for each share of First-Knox Banc Corp.
outstanding common stock in a tax free exchange. Park National expects
to issue an aggregate of 2,345,000 shares of common stock to complete
the merger which will be accounted for as a pooling-of-interests. The
exact exchange ratio will be determined pursuant to a formula that is
based upon, among other things, the market price of Park National
common stock and the number of shares of First-Knox Banc Corp. common
stock oustanding or subject to options prior to closing. The
transaction was approved by both Park National and First-Knox Banc
Corp. shareholders during April, 1997. The transaction was also
approved by regulators and closed on May 5, 1997.
Page 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion focuses on the consolidated financial condition of
First-Knox Banc Corp. at March 31, 1997, compared to December 31, 1996, and the
results of operations for the three months ended March 31, 1997, compared to
the same period in 1996. The purpose of this discussion is to provide a better
understanding of the consolidated financial statements. This discussion should
be read in conjunction with the interim consolidated financial statements and
footnotes included in this Form 10-Q. The Registrant is not aware of any market
or institutional trends, events or uncertainties that will have or are
reasonably likely to have a material effect on liquidity, capital resources or
operations except as discussed herein. Other than as discussed herein, the
Registrant is not aware of any current recommendations by regulatory
authorities which would have such effect if implemented.
Financial Condition
Liquidity
Liquidity relates to the Corporation's ability to meet cash demands of its
customers and their credit needs. Liquidity is provided by the Corporation's
ability to readily convert assets to cash and raise funds in the market place.
Traditional asset liquidity is provided by cash and readily marketable,
short-term assets such as federal funds sold and deposits in other banks.
Cash, amounts due from banks and federal funds sold totaled $14.56 million
at March 31, 1997. Securities available for sale were $174.6 million at March
31, 1997. These assets, as well as anticipated deposit growth and scheduled
loan payments and maturing investment securities, provide the Corporation
with an adequate source of funds for expected future demand for loans and
for fluctuations in deposit volume. They also provide management with the
flexibility to change the composition of interest earning assets as market
conditions change in the future.
Liability liquidity relates to the Corporation's ability to retain existing
deposits, obtain new deposits and borrow in the marketplace. Total deposits
increased $.97 million for the three months ended March 31, 1997. While demand
deposits experienced a $12.07 million or 11.53% decline, savings and time
deposits increased $13.04 million or 4.0% during the first three months of
1997. Management anticipates core deposits to experience moderate growth or
remain stable during the rest of the year.
Access to advances from the Federal Home Loan Bank (FHLB) described in Note 5
is a supplemental source of cash to meet liquidity needs. The FHLB allows these
borrowings to be utilized for any purpose.
Page 13
<PAGE> 14
Capital Resources
Shareholders' equity totaled $49.91 million at March 31, 1997, compared to
$49.98 million at December 31, 1996. This decrease was due primarily to an
increase in the cash dividend and a decrease in the net unrealized holding gain
on securities available for sale. The ratio of shareholders' equity to assets
was 8.77% at March 31, 1997 and 8.71% at December 31, 1996.
Cash dividends declared during the three months ended March 31, 1997 were
$902,000 or $.24 per share representing 53.25% of net income and an increase of
81.12% over the first three months of 1996.
Regulatory Capital Requirements
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
Minimum March 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I risk-based
capital....... 4.00% 14.71% 14.52%
Total risk-based
capital....... 8.00% 15.88% 15.69%
Tier I leverage 3.00% - 5.00% 8.68% 8.54%
</TABLE>
Under "Prompt Corrective Action" regulations adopted in September 1992, 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
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 the
current laws and regulations. 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.
Page 14
<PAGE> 15
Changes in Financial Condition
Consolidated total assets were $569.05 million at the end of the current period
after recording a decline in growth of $4.72 million or 8.22% during the first
three months of 1997. The decline was due primarily to short-term borrowings
which decline $4.26 million. Loans and leases increased by $3.75 million and
investments and mortgage-backed securities decreased by $2.84 million during
the first three months of 1997. The residential real estate loan portfolio
increased by $2.83 million or 1.66%. Commercial and other loans increased $2.04
million or 1.89%. Consumer loans and credit card loans decreased by $1.12
million or 1.35%.
The allowance for loan and lease losses as a percentage of loans and leases was
1.27% at the end of the current period and 1.26% at the end of 1996. Net loan
and lease charge-offs were $65,000 for the first three months of 1997,
representing an annualized rate of .07% of the average loan and lease balances.
This represented an decrease of $36,000 in net charge-offs compared to the
first three months of 1996. Commercial loans had net charge-offs of $20,000
compared to net recoveries of $2,000 during the first three months of 1996. Net
charge-offs for consumer and credit card loans were $58,000 (56.31%) lower than
1996. Loans past due more than 90 days plus loans placed in non-accrual status
were $2.05 million or .56% of outstanding balances at March 31, 1997 compared
to $2.22 million or .61% of outstanding balances at the end of 1996.
The interest rate sensitivity of the Corporation has not changed significantly
from that of December 31, 1996 as disclosed in the Corporation's 1996 annual
report on Form 10-K.
Results of Operations-First Quarter 1997 vs. First Quarter 1996
Consolidated net income of $1,694,000 for the first quarter of 1997 was 13.39%
over the $1,494,000 recorded for the first quarter of 1996. Expressed as
annualized returns on average assets and average shareholders' equity, net
income for 1997 was 1.21% and 13.75% compared to 1.20% and 12.83% for 1996.
Fully diluted earnings per share increased $.05 to $.44 per share for the first
quarter 1997 compared to the same period in 1996. These per share amounts were
restated to reflect the 5% stock dividend distributed in September, 1996.
The increased level of net income for the first quarter of 1997 compared to the
first quarter of 1996, resulted primarily from higher net interest income,
reduced FDIC insurance expense, and increased non-interest income. These items
are discussed more fully below.
Increased net interest income resulted from a $67.52 million or 14.41% increase
in average earning assets. The annualized net interest margin rate (net
interest income adjusted for tax-exempt income restated to a pre-tax equivalent
based on the statutory federal tax rate [FTE] divided by average earning
assets) declined by 19 basis points to 4.41%, compared to the first quarter of
1996.
Page 15
<PAGE> 16
The net interest spread percentage (the FTE average earning assets yield minus
the average cost of funds) declined by 18 basis points to 3.74% for the first
quarter 1997 compared to the same period of a year ago. This decline resulted
primarily from earning asset rates rising slower than interest bearing
liability costs compared to a year ago. Management expects the net interest
margin rate for 1997 to remain below the levels experienced in 1996.
The provision for loan and lease losses increased by $78,000 or 96.30% during
the first quarter of 1997 compared to the same period last year. Net loan and
lease charge-offs were down $36,000 or 35.64% compared to the same period a
year ago. Net loan and lease charge-offs for the first quarter of 1997 and 1996
were at an annualized rate of .07% and .12%, respectively. Management
anticipates loan and lease charge-offs and the provision for loan and lease
losses for 1996 to approximate the full year levels experienced in 1996.
Non-interest income was $951,000 during the first quarter of 1997, an increase
of $98,000 or 11.49% over the same period in 1996. The amount recognized in
1997 represented an annualized .68% of average assets compared to .69% for the
same period in 1996. Trust and service fee income contributed significantly to
the increase. There were no loan sales during the first quarter of 1997 or
first quarter of 1996.
Non-interest expenses increased $155,000 or 4.06% over the first quarter 1996.
Employee salaries and benefits increased by $111,000 or 6.05% over the same
period in 1996. All other non-interest expenses including occupancy expense,
advertising, and franchise taxes were higher by $34,000 or 1.72% over 1996.
As a percentage of income before federal income taxes, federal income tax
expense was 25.24% in 1997 and 23.31% in 1996. These effective tax rates are
lower than the statutory tax rate of 34% due primarily to tax exempt income
from obligations of states and political subdivisions and non-taxable loans.
Page 16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------------------------------------------------------------------------------------------
<S> <C> <C>
2(a) Agreement and Plan of Merger, dated Incorporated by reference
October 28, 1996, between Park to Exhibit 2(a) to Park
National Corporation and First-Knox National Corporation's
Banc Corp. Registration Statement
on Form S-4 filed January
24, 1997 (File No. 333-
20417)
2(b) Amendment to Agreement and Plan of Merger, Incorporated by reference
dated October 28, 1996, between Park to Exhibit 2(b) to Park
National Corporation and First-Knox National Corporation's
Banc Corp. Registration Statement on
Form S-4 filed January 24,
1997 (File No. 333-20417)
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")
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
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
4(b) First-Knox Banc Corp. Dividend Incorporated herein by
Reinvestment Plan reference to 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
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
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
Sverdrup Building Corporation 10(f)to the 1993 Form 10-K
10(g) First-Knox Banc Corp. Stock Option Incorporated herein by
And Stock Appreciation Rights Plan reference to exhibit 10(g) to
the March 31, 1995 Form 10-Q
10(h) Amendment to the 1990 Incorporated herein by
First-Knox Banc Corp. Stock Option reference to exhibit 10(h) to
And Stock Appreciation Rights Plan the December 31, 1996
dated May 14, 1996 Form 10-K "1996 Form 10-K"
10(i) Employment Security Agreement, Incorporated
dated July 12, 1996, between the herein by
First-Knox National Bank of Mount reference to
Vernon, Ohio and Carlos E. Watkins exhibit 10(j) to
(identical agreements were entered Park National
into with Gordon E. Yance and Ian Corporation's Registration
Watson) Statement on Form S-4 filed
January 24, 1997
(Registration No. 333-20417).
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
11 Statement regarding computation Page 7 - Note 1 to
of per share earnings. consolidated financial
statements
23 Consent of Independent Accountants Incorporated herein
by reference to exhibit
23 to the 1996 Form 10-K
27 Financial Data Schedule Page 22
99 Park National Corporation and First- Incorporated herein
Knox Banc Corp. Joint Proxy by reference to Exhibit
Statement/Prospectus dated March 20, 1997 99 of the 1996 Form 10-K
</TABLE>
(b) No reports on Form 8-K were filed during the fiscal quarter covered by this
report.
20
<PAGE> 21
Signatures
Pursuant the requirements of the Securities and 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)
Date______ May 5, 1997 By CARLOS E. WATKINS
---------------------
Carlos E. Watkins
President and Chief Executive Officer
Date______ May 5, 1997 By GORDON E. YANCE
---------------------
Gordon E. Yance
Vice-President & Treasurer
21
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000756899
<NAME> FIRST-KNOX BANC CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,066
<INT-BEARING-DEPOSITS> 495
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 174,585
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 365,593
<ALLOWANCE> 4,639
<TOTAL-ASSETS> 569,046
<DEPOSITS> 431,732
<SHORT-TERM> 20,626
<LIABILITIES-OTHER> 5,157
<LONG-TERM> 61,618
0
0
<COMMON> 11,740
<OTHER-SE> 38,173
<TOTAL-LIABILITIES-AND-EQUITY> 569,046
<INTEREST-LOAN> 8,016
<INTEREST-INVEST> 2,886
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,902
<INTEREST-DEPOSIT> 4,238
<INTEREST-EXPENSE> 5,459
<INTEREST-INCOME-NET> 5,443
<LOAN-LOSSES> 159
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,969
<INCOME-PRETAX> 2,266
<INCOME-PRE-EXTRAORDINARY> 1,694
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,694
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 4.41
<LOANS-NON> 899
<LOANS-PAST> 1,155
<LOANS-TROUBLED> 466
<LOANS-PROBLEM> 10,491
<ALLOWANCE-OPEN> 4,545
<CHARGE-OFFS> 117
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 4,639
<ALLOWANCE-DOMESTIC> 1,481
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,158
</TABLE>
