1
Exhibit 13
1995 ANNUAL REPORT
[LOGO] FIRST-KNOX BANC CORP.
Page 23
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[PICTURE 1]
Table of Contents
============================================================
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
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First-Knox Banc Corp. 1995 Annual Report
FINANCIAL HIGHLIGHTS
COMPARATIVE BALANCES
Percent
(in thousands of dollars) 1995 1994 Change
- ----------------------------------------------------------------------------------------
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
COMPARATIVE STOCK DATA
Per Share Data
------------------------------------------------------------------
1995 1994
---------------------------- -------------------------------
Market Price Cash Market Price Cash
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
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
Percent
1995 1994 Change
- ----------------------------------------------------------------------------------------
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%
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.
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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
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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.
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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
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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
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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.
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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.
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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.
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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.
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In thousands of dollars except per share data) 1995 1994
- -------------------------------------------------------------------------------------
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
========= =========
The accompanying notes are an integral part of these financial statements.
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
For the three years ended December 31, 1995
(In thousands of dollars except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------
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
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
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
- ------------------------------------------------------------------------------------------------------------------------------
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
========= ======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the three years ended December 31, 1995
(In thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
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
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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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)
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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)
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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:
Goodwill $ 416,000
Core deposit intangibles 653,000
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)
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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.
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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:
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
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
======= ====== ======= =======
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
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
======= ======= ====== =======
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:
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
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
======= ===== ======= =======
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
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
======= ======== ======== =======
(Continued)
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First-Knox Banc Corp. 1995 Annual Report
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS ...... $54,750 $555 $(3,458) $51,847
======= ==== ======= =======
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.
AMORTIZED ESTIMATED
(IN THOUSANDS OF DOLLARS) COST FAIR VALUE
- ------------------------------------------------------------------------------------
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
======== ========
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.
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First-Knox Banc Corp. 1995 Annual Report
NOTE 3 - LOANS AND LEASE FINANCING
Loans and leases are comprised of the following at December 31:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
======== ========
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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
======= =======
Future minimum annual rentals under the direct-financing leases are as
follows in thousands of dollars:
1996................... $ 421
1997................... 534
1998................... 411
1999................... 452
2000................... 194
------
$2,012
======
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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:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
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
======= ======= =======
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
======= =======
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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
======== ========
Time deposits of $100,000 or more included above were $36,417,000 in 1995
and $32,658,000 in 1994.
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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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
====== =======
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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
======= =======
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.
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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.
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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:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
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
===== ===== =====
The funded status of the plan and the prepaid pension cost recognized at
December 31, are as follows:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------------------------
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%
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.
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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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
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
===== =====
Postretirement benefit cost includes the following components:
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
Interest cost on accumulated postretirement benefit obligation ... $ 63 $ 56
Amortization of transition obligation over 20 years .............. 37 48
---- ----
POSTRETIREMENT BENEFIT COST ...................................... $100 $104
==== ====
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
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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.
STOCK OPTIONS
-------------------------
OUTSTANDING
----------------------------
RANGES OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
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
======= =======
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First-Knox Banc Corp. 1995 Annual Report
STOCK APPRECIATION RIGHTS
-------------------------------
OUTSTANDING
---------------------------
RANGE OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
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
====== ======
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:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ------------------------------------------------------------------------
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
====== ====== ======
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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:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------
Current tax expense .................. $1,560 $1,267 $1,603
Deferred tax expense (benefit) ........ 5 (160)
------ ------- ------
TOTAL INCOME TAXES .............. $1,565 $ 1,267 $1,443
====== ======= ======
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:
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------
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
======= ======= =======
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:
(IN THOUSANDS OF DOLLARS) 1995 1994
- -------------------------------------------------------------------------------
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
======= =======
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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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:
CAPITAL POSITION
AS OF
REGULATORY DECEMBER 31,
MINIMUM 1995 1994
- --------------------------------------------------------------------------------
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%
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:
(IN THOUSANDS OF DOLLARS) 1995
- ----------------------------------------------------------------------------
Balance at January 1, 1995 $10,657
New loans and advances 2,686
Repayment (1,972)
-------
BALANCE AT DECEMBER 31, 1995 $11,371
=======
Total loans to executive officers included above were $1,359,000 and
$1,262,000 at December 31, 1995 and 1994, respectively.
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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.
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS OF DOLLARS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------------
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)
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.
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First-Knox Banc Corp. 1995 Annual Report
NOTE 17 - PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994
- ------------------------------------------------------------------------------------
ASSETS
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
======== ========
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ----------------------------------------------------------------------------
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
======= ======= =======
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First-Knox Banc Corp. 1995 Annual Report
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- -------------------------------------------------------------------------------------
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
======= ======= =======
NOTE 18 - QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of consolidated quarterly financial data:
QUARTER ENDED:
(IN THOUSANDS OF ------------------------------------------------------
DOLLARS EXCEPT PER SHARE DATA) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ---------------------------------------------------------------------------------------------------
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
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.
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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
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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
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
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
(1) Restated for stock dividends and stock splits.
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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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First-Knox Banc Corp. 1995 Annual Report
TABLE II AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
(In thousands of dollars)
1995 1994 1993
------------------------------- ----------------------------- ------------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------- ----------------------------- ------------------------------
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%
===== ===== =====
(1) Income is computed on a fully-taxable equivalent basis utilizing
a 34% tax rate. The amount of such adjustment was:
1995 1994 1993
---- ---- ----
Non-taxable securities.. $1,496 $1,442 $ 969
Commercial loans ....... 123 174 155
$1,619 $1,616 $1,124
(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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First-Knox Banc Corp. 1995 Annual Report
TABLE III RATE AND VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
1995-1994 1994-1993
------------------------------ ---------------------------------
Change In Change In
Income/ Rate Volume Income/ Rate Volume
(In thousands of dollars) Expense Effect Effect Expense Effect Effect
- --------------------------------------------------------------------------------------------------
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
======= ====== ======= ======= ======= =======
(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.
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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
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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.
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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.
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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
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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.
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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.
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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.
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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.
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First-Knox Banc Corp. 1995 Annual Report
TABLE IV INVESTMENT AND MORTGAGE-BACKED SECURITIES
(In thousands of dollars)
State Tax
U.S. Federal and Mortgage- Equivalent
Treasury Agencies Political Backed (2) Other Total Yield (1)
- ------------------------------------------------------------------------------------------------------------------
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
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
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
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
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
(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.
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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.
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
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%
========= ======== ======== ======== ========= ========= ========
(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
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------
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
CONSOLIDATED BALANCE SHEET SUMMARY
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
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
CONSOLIDATED STATEMENT OF INCOME SUMMARY
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
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
49 Page 72
51
First-Knox Banc Corp. 1995 Annual Report
FIRST-KNOX DIRECTORS
[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
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
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
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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
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[LOGO] First-Knox Banc Corp.
P.O. - One South Main Street - Mount Vernon, Ohio 43050
An Equal Opportunity Employer
Page 76