1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 0-13161
First-Knox Banc Corp.
- -----------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1121049
- -----------------
(State or other jurisdiction of incorporation (IRS Identification No.)
or organization)
One South Main Street, Mount Vernon, Ohio 43050
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(614) 399-5500
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, Par Value $3.125 per share
at April 26, 1996
Authorized 6,000,000
Issued 3,650,221
Outstanding 3,563,500
Page 1 of 18
Exhibit Index at Page 16
2
FIRST-KNOX BANC CORP.
FORM 10-Q
QUARTER ENDED March 31, 1996
Part I - Financial Information
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
Page
Number
------
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheet ........................ 3
Consolidated Statement of Income .................. 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity .............. 5
Condensed Consolidated Statement of Cash Flows .... 6
Notes to the Consolidated Financial Statements .... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .. 12
Part II - Other Information
Item 1. Legal Proceedings ..................................... N/A
Item 2. Changes in Securities ................................. N/A
Item 3. Defaults Upon Senior Securities ....................... N/A
Item 4. Submission of Matters to Vote of Security Holders ..... 16
Item 5. Other Information ..................................... N/A
Item 6. Exhibits and Reports on Form 8-K ...................... 16
Signatures ............................................ 18
Page 2
3
FIRST-KNOX BANC CORP
Consolidated Balance Sheet
($ Amounts in thousands except per share data)
(Unaudited)
March 31, December 31,
1996 1995
--------- ---------
ASSETS
Cash and non interest-bearing deposits with banks $ 13,737 $ 17,012
Federal funds sold 7,600 3,400
--------- ---------
Total cash and cash equivalents 21,337 20,412
Investment securities available for sale, at fair value (Note 2) 102,498 94,694
Mortgage-backed securities available for sale, at fair value (Note 2) 35,004 37,294
--------- ---------
Total securities 137,502 131,988
Loans & lease financing (Note 3) 326,951 330,641
Allowance for loans and lease losses (Note 4) (4,146) (4,166)
--------- ---------
Net loans and leases 322,805 326,475
Premises and equipment, net 10,994 10,993
Accrued interest receivable and other assets 7,924 7,031
--------- ---------
TOTAL ASSETS $ 500,562 $ 496,899
========= =========
LIABILITIES
Deposits
Non interest-bearing demand $ 46,238 $ 54,706
Interest-bearing demand 45,197 39,882
Savings 99,666 99,133
Time 216,848 210,346
--------- ---------
Total deposits 407,949 404,067
Short-term borrowings 8,086 7,986
Long-term debt (Note 5) 33,169 33,415
Accrued interest payable and other liabilities 4,372 4,772
--------- ---------
TOTAL LIABILITIES 453,576 450,240
--------- ---------
SHAREHOLDERS' EQUITY (Note 1)
Common stock, par value $3.125 per share;
6,000,000 shares authorized; 3,650,221 issued
in 1996 and 3,650,225 shares issued in 1995 11,407 11,407
Paid-in capital 24,042 24,042
Retained earnings 12,183 11,187
Net unrealized holding gains on securities
available for sale 1,243 1,912
Common stock in treasury - 89,963 shares at cost
(89,965 shares in 1995) (1,889) (1,889)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 46,986 46,659
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 500,562 $ 496,899
========= =========
The accompanying notes are an integral part of the financial statements
Page 3
4
FIRST-KNOX BANC CORP.
Consolidated Statement of Income (Unaudited)
($ Amounts in thousands except per share data)
Three Months Ending
March 31,
1996 1995
----------- ----------
Interest income:
Loans and leases, including fees ........................ $ 7,481 $ 6,718
Investment and mortgage-backed securities
Taxable .............................................. 1,301 1,235
Non-taxable .......................................... 698 702
Federal funds sold ...................................... 123 21
----------- ----------
TOTAL INTEREST INCOME ................................ 9,603 8,676
----------- ----------
Interest expense:
Deposits ................................................ 4,029 3,393
Short-term borrowings ................................... 99 112
Long-term debt .......................................... 485 501
----------- ----------
TOTAL INTEREST EXPENSE ............................... 4,613 4,006
----------- ----------
NET INTEREST INCOME .................................. 4,990 4,670
Provision for loan &
lease losses (Note 4) ................................... 81 78
----------- ----------
NET INTEREST INCOME AFTER ............................
PROVISION FOR LOAN AND LEASE LOSSES ............... 4,909 4,592
----------- ----------
Other income:
Income from fiduciary activities ........................ 180 162
Service charges, commissions and fees ................... 655 667
Securities losses, net .................................. (74)
Other ................................................... 18 25
----------- ----------
TOTAL OTHER INCOME ................................... 853 780
----------- ----------
Other expense:
Salaries & employee benefits ............................ 1,835 1,735
Occupancy and equipment ................................. 567 533
FDIC Insurance .......................................... 1 213
Other ................................................... 1,411 1,307
----------- ----------
TOTAL OTHER EXPENSE .................................. 3,814 3,788
----------- ----------
Income before federal income taxes ......................... 1,948 1,584
Federal income tax expense ................................. 454 316
----------- ----------
NET INCOME ................................................. $ 1,494 $ 1,268
=========== ==========
Earnings per common share (Note 1): Primary ................ $ 0.41 $ 0.34
Fully diluted .......... $ 0.41 $ 0.34
=========== ==========
Weighted average common shares
outstanding (Note 1): Primary ................ 3,612,975 3,680,592
Fully diluted .......... 3,612,975 3,682,964
The accompanying notes are an integral part of the financial statements
Page 4
5
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
($ Amounts in thousands except per share data)
Three Months Ending
March 31,
1996 1995
-------- --------
Balance, beginning of period ......................... $ 46,659 $ 40,832
Net income ........................................... 1,494 1,268
Cash dividends, declared at a
per share rate of $.14 in 1996 and $.11 in 1995 ... (498) (400)
Change in unrealized holding gain (loss) on securities
available for sale ................................. (669) 1,020
-------- --------
Balance, end of period ............................... $ 46,986 $ 42,720
======== ========
The accompanying notes are an integral part of the financial statements
Page 5
6
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Cash Flows (Unaudited)
($ Amounts in thousands)
Three Months Ending
March 31,
1996 1995
-------- --------
Net cash provided by operating activities ........................ $ 1,033 $ 465
Cash flows from investing activities:
Purchases of investment securities
held to maturity ........................................... (715)
Proceeds from calls, payments and maturities of investment
securities held to maturity ................................ 500
Purchases of investment and mortgage-backed securities
available for sale ......................................... (12,337) (11,819)
Proceeds from calls, payments and maturities of investment and
mortgage-backed securities available for sale .............. 5,704 4,536
Proceeds from sales of investment and mortgage-backed
securities available for sale .............................. 9,135
Net decrease (increase) in loans and leases .................. 3,589 (960)
Expenditures for premises and equipment ...................... (266) (540)
-------- --------
Net cash provided by (applied to) investing activities ..... (3,310) 137
-------- --------
Cash flows from financing activities
Net increase in deposit accounts.............................. 3,882 9,281
Net increase (decrease) in short-term borrowings.............. 100 (6,093)
Payments on long-term debt.................................... (246) (212)
Cash dividends paid........................................... (534) (455)
-------- --------
Net cash provided by financing activities................... 3,202 2,521
-------- --------
Net increase in cash and cash equivalents ........................ 925 3,123
Cash and cash equivalents at beginning of period ............. 20,412 18,110
-------- --------
Cash and cash equivalents at end of period ....................... $ 21,337 $ 21,233
======== ========
Supplemental cash flow information:
Interest paid .................................................... $ 5,056 $ 3,852
======== ========
Income taxes paid ................................................ $ 0 $ 0
======== ========
The accompanying notes are an integral part of the financial statements
Page 6
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FIRST-KNOX BANC CORP.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1 - SUMMARY OF ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of the
First-Knox Banc Corp. (the Corporation), and its wholly-owned
subsidiaries; The First-Knox National Bank (First-Knox), and The
Farmers and Savings Bank (Farmers). All significant intercompany
transactions have been eliminated.
These interim financial statements are prepared without audit and
reflect all adjustments of a normal and recurring nature which,
in the opinion of management, are necessary to present fairly the
consolidated financial position of First-Knox Banc Corp. at March
31, 1996 and its results of operations and cash flows for the
periods presented. The accompanying consolidated financial
statements do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles
that might otherwise be necessary in the circumstances.
Accordingly, these financial statements should be read in
conjunction with the 1995 consolidated financial statements and
notes thereto of First-Knox Banc Corp. included in its Annual
Report on Form 10-K for the year ended December 31, 1995.
The provision for income taxes is based upon the effective tax
rate expected to be applicable for the entire year.
Primary earnings per share is computed based on the weighted
average shares outstanding during the year plus common equivalent
shares arising from dilutive stock options, using the treasury
stock method. Fully diluted earnings per share reflects
additional dilution related to stock options due to the use of
market price at the end of the period when higher than average
price for the period. All share and per share data has been
adjusted for a 100% stock dividend distributed in September,
1995.
During the first three months of 1996, options on 11,000 shares
were granted. There were no options or stock appreciation rights
exercised during the first three months of 1996. There was no
material compensation recognized during the first three months of
1996 or the first three months of 1995 related to stock
appreciation rights. At March 31, 1996, there were outstanding
options for 185,504 common shares and outstanding stock
appreciation rights for 39,488 common shares.
The Corporation, through its subsidiary banks, grants
residential, consumer, and commercial loans to customers in the
central Ohio counties of Knox, Morrow, Holmes, Ashland and
Richland. In addition the Corporation is in the business of
commercial and consumer leasing. Commercial loans, residential
real estate loans, consumer loans and leases were 30.1%, 47.5%,
21.8%, and 0.6% of total loans and leases respectively, at March
31, 1996.
Page 7
8
Note 1 - SUMMARY OF ACCOUNTING POLICIES (Continued):
On January 1, 1996, the Corporation adopted SFAS 122 "Accounting
for Mortgage Servicing Rights. This pronouncement requires
companies to recognize, as separate assets, rights to service
mortgage loans for others, however those loans 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. The impact of adopting this pronouncement in 1996 was not
material.
On January 1, 1996, the Corporation adopted SFAS 123 "Accounting
for Stock-Based Compensation." SFAS 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
options 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 elected not to expense
the fair value of options granted and will disclose the pro forma
effect on net income and earnings per share in the annual
financial statements.
The Corporation in its normal course of business, makes
commitments to extend credit which are not reflected in the
financial statements. At March 31, 1996, unused credit lines
amounted to approximately $52,705,000 and commitments under
outstanding letters of credit amounted to approximately $349,000.
Since many commitments to make loans expire without being used,
the amount does not necessarily represent future cash
commitments. Collateral obtained related to the commitments is
determined using management's credit evaluation of the borrower
and may include real estate, vehicles, business assets, deposits,
and other items. In management's opinion these commitments
represent normal banking transactions, and no material losses are
expected to result therefrom.
Residential real estate loans originated and intended for sale in
the secondary market are carried at the lower of cost or
estimated market in the aggregate. Net unrealized losses are
recognized in a valuation allowance by charges to income.
Certain items in the 1995 financial statements have been
reclassified to correspond with the 1996 presentation.
Page 8
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Note 2 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES:
The amortized costs and estimated fair values are as follows at
March 31, 1996 and December 31, 1995:
March 31, 1996
INVESTMENT SECURITIES AVAILABLE FOR SALE GROSS GROSS ESTIMATED
($ amounts in thousands): AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ----------- --------
U.S. Treasury securities $ 31,985 $ 41 $ 32,026
Obligations of states and
political subdivisions 57,077 1,168 58,245
Obligations of U.S. government
corporations and agencies 7,839 $ (30) 7,809
Other securities 4,103 315 4,418
-------- ---------- ----------- --------
Total investment securities 101,004 1,524 (30) 102,498
Mortgage-backed securities 34,614 445 (55) 35,004
-------- ---------- ----------- --------
TOTAL $135,618 $ 1,969 $ (85) $137,502
======== ========== =========== ========
December 31, 1995
INVESTMENT SECURITIES AVAILABLE FOR SALE GROSS GROSS ESTIMATED
($ amounts in thousands): AMORTIZED UNREALIZED UNREALIZED FAIR
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 investment securities 92,335 2,487 (128) 94,694
Mortgage-backed securities 36,756 636 (98) 37,294
-------- ---------- ----------- --------
TOTAL $129,091 $ 3,123 $ (226) $131,988
======== ========== =========== ========
At March 31, 1996, the percentages of the portfolio maturing in
various time frames had not changed significantly from December
31, 1995.
Page 9
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Note 3 - LOANS AND LEASE FINANCING:
Loans and leases are comprised of the following ($ amounts in
thousands):
March 31, 1996 December 31, 1995
-------- --------
Residential real estate loans held for sale $ 4,955 $ 5,020
Residential real estate loans ............. 150,453 147,927
Commercial real estate loans .............. 10,079 9,548
Commercial and industrial loans ........... 83,781 88,632
Consumer and credit card loans ............ 71,292 73,137
Obligations of states and
political subdivisions .................. 4,602 4,678
Lease financing, net ...................... 1,789 1,699
-------- --------
$326,951 $330,641
======== ========
Note 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES:
Activity in the allowance for possible loan and lease losses is
summarized as follows for the three months ended March 31 ($
amounts in thousands):
1996 1995
------- -------
Balance, beginning of period ................ $ 4,166 $ 3,876
Provision for loan and lease losses ......... 81 78
Losses charged to the allowance ............. (146) (157)
Recoveries .................................. 45 61
------- -------
Balance, end of period ...................... $ 4,146 $ 3,858
======= =======
Loans and leases over 90 days past due and still accruing
interest approximated $1,082,000 at March 31, 1996 and $862,000
at December 31, 1995. Loans on non-accrual status were $133,000
at March 31, 1996 and $197,000 at December 31, 1995. Impaired
loans were not material at any date or during any period
presented.
Page 10
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Note 5 - LONG-TERM DEBT:
($ amounts in thousands):
March 31, December 31,
Description 1996 1995
----------- ------------ ------------
Fixed rate Federal Home Loan Bank advances with
monthly principal and interest payments:
5.60% Advance due August 1, 2003 ....... $ 2,378 $ 2,442
6.35% Advance due August 1, 2013 ....... 2,791 2,812
5.95% Advance due March 1, 2004 ........ 633 649
5.70% Advance due May 1, 2004 .......... 5,139 5,262
5.85% Advance due January 1, 2016 ...... 4,978 5,000
Fixed rate Federal Home Loan Bank advances with
monthly interest payments:
5.35% Advance due February 1, 1999 ..... 5,000 5,000
5.60% Advance due April 1, 1999 ........ 5,000 5,000
5.70% Advance due June 1, 1999 ......... 7,000 7,000
6.35% Advance due March 1, 2004 ........ 250 250
------------ ------------
Total Long-Term Debt $ 33,169 $ 33,415
============ ============
At March 31, 1996, Federal Home Loan Bank (FHLB) advances are
collateralized by all shares of FHLB stock owned by the
Corporation (totaling $3,608,000) and by 100% of the
Corporation's qualified real estate-backed investments and
mortgage loan portfolio (totaling approximately $186,000,000).
Based on the carrying amount of FHLB stock owned by the
Corporation, total FHLB advances are limited to approximately
$40,500,000 at March 31, 1996. Future advances to be received by
the Corporation, above this limit, would require additional
purchases of FHLB stock.
The aggregate minimum future principal payments on borrowings are
$792,000 in 1996, $1,584,000 in 1997, $1,574,000 in 1998,
$18,573,000 in 1999, $1,584,000 in 2000 and $9,062,000
thereafter.
Page 11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following discussion focuses on the consolidated financial condition of
First-Knox Banc Corp. at March 31, 1996, compared to December 31, 1995, and the
results of operations for the three months ended March 31, 1996, compared to the
same period in 1995. The purpose of this discussion is to provide a better
understanding of the consolidated financial statements. This discussion should
be read in conjunction with the interim consolidated financial statements and
footnotes included in this Form 10-Q. The Registrant is not aware of any market
or institutional trends, events or uncertainties that will have or are
reasonably likely to have a material effect on liquidity, capital resources or
operations except as discussed herein. Other than as discussed herein, the
Registrant is not aware of any current recommendations by regulatory authorities
which would have such effect if implemented.
Financial Condition
- -------------------
Liquidity
- ---------
Liquidity relates to the Corporation's ability to meet cash demands of its
customers and their credit needs. Liquidity is provided by the Corporation's
ability to readily convert assets to cash and raise funds in the market place.
Traditional asset liquidity is provided by cash and readily marketable,
short-term assets such as federal funds sold and deposits in other banks.
Cash, amounts due from banks and federal funds sold totaled $21.34 million at
March 31, 1996. Investment and mortgage-backed securities available for sale
were $137.5 million at March 31, 1996. This amount increased by $5.51 million
from December 31, 1995 balances. These assets, as well as anticipated deposit
growth and scheduled loan payments and maturing investment securities, provide
the Corporation with an adequate source of funds for expected future demand for
loans and for fluctuations in deposit volume. They also provide management with
the flexibility to change the composition of interest earning assets as market
conditions change in the future.
Liability liquidity relates to the Corporation's ability to retain existing
deposits, obtain new deposits and borrow in the marketplace. Total deposits
increased $3.88 million for the three months ended March 31, 1996. While demand
deposits experienced a $3.15 million or 3.33% decline, savings and time deposits
increased $7.04 million or 2.3% during the first three months of 1996.
Management anticipates core deposits to experience moderate growth or remain
stable during the rest of the year.
Access to advances from the Federal Home Loan Bank (FHLB) described in Note 5 is
a supplemental source of cash to meet liquidity needs. The FHLB allows these
borrowings to be utilized for any purpose.
Page 12
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Capital Resources
- -----------------
Shareholders' equity totaled $46.99 million at March 31, 1996, compared to
$46.66 million at December 31, 1995. This increase was due primarily to earnings
retention, offset by a decrease in the net unrealized holding gain on securities
available for sale. The ratio of shareholders' equity to assets was 9.39% both
at March 31, 1996 and December 31, 1995.
Cash dividends declared during the three months ended March 31, 1996 were
$498,000 or $.14 per share representing 33.33% of net income and an increase of
24.50% over the first three months of 1995.
Regulatory Capital Requirements
- -------------------------------
The Corporation complies with the capital requirements established by the
Federal Reserve System, which are summarized as follows:
Capital Position
as of
Regulatory
Minimum March 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------
Tier I risk-based
capital....... 4.00% 14.84% 14.29%
Total risk-based
capital....... 8.00% 16.00% 15.45%
Tier I leverage 3.00% - 5.00% 8.98% 8.84%
Under "Prompt Corrective Action" regulations adopted in September 1992, the FDIC
has defined five categories of capitalization (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized). The Corporation meets the "well capitalized" definition,
which requires a total risk-based capital ratio of at least 10%, a leverage
ratio of at least 5%, and the absence of any written agreement, order, or
directive from a regulatory agency. "Well capitalized" status affords the
Corporation the ability to operate with the greatest flexibility under the
current laws and regulations. Under a current regulatory proposal, interest rate
risk would become an additional element in measuring risk-based capital. This
proposed change is not expected to significantly impact the Corporation's
compliance with capital guidelines.
Page 13
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Changes in Financial Condition
- ------------------------------
Consolidated total assets were $500.56 million at the end of the current period
after recording growth of $3.66 million or 0.74% during the first three months
of 1996. This growth was funded primarily by deposits which grew $3.88 million.
Federal funds sold increased by $4.20 million, loans and leases decreased by
$3.69 million, and investments and mortgage-backed securities increased by $5.51
million during the first three months of 1996. The residential real estate loan
portfolio increased by $2.46 million or 1.61%, while commercial and other loans
decreased $4.40 million or 4.27%. Management does not expect the commercial loan
balances to decline further in 1996. Consumer and credit card loans decreased by
$1.85 million or 2.52%, while lease financing balances increased by $.90 million
or 5.30%. Short-term borrowings increased by $100,000 or 1.25% during the first
quarter of 1996, primarily from higher repurchase agreement balances.
The allowance for loan and lease losses as a percentage of loans and leases was
1.27% at the end of the current period and 1.26% at the end of 1995. Net loan
and lease charge-offs were $101,000 for the first three months of 1996,
representing an annualized rate of .12% of the average loan and lease balances.
This represented an increase of $5,000 in net charge-offs compared to the first
quarter months of 1995. Commercial loans had net recoveries of $2,000 compared
to net charge-offs of $63,000 during the first three months of 1995. Net
charge-offs for consumer and credit card loans were $70,000 (67.96%) lower than
1995. Loans past due more than 90 days plus loans placed in non-accrual status
were $1.22 million or .37% of outstanding balances at March 31, 1996 compared to
$1.06 million or .32% of outstanding balances at the end of 1995.
The interest rate sensitivity of the Corporation has not changed significantly
from that of December 31, 1995 as disclosed in the Corporation's 1995 annual
report on Form 10-K.
Results of Operations-First Quarter 1996 vs. First Quarter 1995
- ---------------------------------------------------------------
Consolidated net income of $1,494,000 for the first quarter of 1996 was 17.82%
over the $1,268,000 recorded for the first quarter of 1995. Expressed as
annualized returns on average assets and average shareholders' equity, net
income for 1996 was 1.20% and 12.83% compared to 1.11% and 12.31% for 1995.
Fully diluted earnings per share increased $.07 to $.41 per share for the first
quarter 1996 compared to the same period in 1995. These per share amounts were
restated to reflect the 100% stock dividend distributed in September, 1995.
The increased level of net income for the first quarter of 1996 compared to the
first quarter of 1995, resulted primarily from higher net interest income,
reduced FDIC insurance expense, and increased non-interest income.
These items are discussed more fully below.
Increased net interest income resulted from a $31.37 million or 7.18% increase
in average earning assets. The annualized net interest margin rate (net interest
income adjusted for tax-exempt income restated to a pre-tax equivalent based on
the statutory federal tax rate [FTE] divided by average earning assets) declined
by 12 basis points to 4.60%, compared to the first quarter of 1995.
Page 14
15
The net interest spread percentage (the FTE average earning assets yield minus
the average cost of funds) declined by 19 basis points to 3.92% for the first
quarter 1996 compared to the same period of a year ago. This decline resulted
primarily from earning asset rates rising slower than interest bearing liability
costs compared to a year ago. Management expects the net interest margin rate
for 1996 to remain below the levels experienced in 1995.
The provision for loan and lease losses increased by $3,000 or 3.85% during the
first quarter of 1996 compared to the same period last year. Net loan and lease
charge-offs were up $5,000 or 5.21% compared to the same period a year ago. Net
loan and lease charge-offs for the first quarter of 1996 and 1995 were at an
annualized rate of .12% and .13%, respectively. Management anticipates loan and
lease charge-offs and the provision for loan and lease losses for 1996 to
approximate the full year levels experienced in 1995.
Non-interest income of $853,000 during the first quarter of 1996 represented an
annualized .68% of average assets compared to $780,000 or .68% of average assets
for the same period in 1995. Net security losses were lower by $74,000 compared
to the same period in 1995 which contributed significantly to the increase.
There were no loan sales in both the first quarter of 1996 or first quarter of
1995.
Non-interest expenses increased $26,000 or 0.69% over the first quarter 1995. A
reduction in FDIC insurance expense of $212,000 offset other increases. Employee
salaries and benefits increased by $100,000 or 5.76% over the same period in
1995. All other non-interest expenses including occupancy expense, advertising,
and franchise taxes were higher by $138,000 or 7.50% over 1995.
As a percentage of income before federal income taxes, federal income tax
expense was 23.31% in 1996 and 19.95% in 1995. These effective tax rates are
lower than the statutory tax rate of 34% due primarily to tax exempt income from
obligations of states and political subdivisions and non-taxable loans.
Page 15
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PART II - OTHER INFORMATION
(Items which are not applicable have been omitted)
Item 4 - Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting was held on March 26, 1996. The following was
voted on the the shareholders:
Voting
----------------------------
Negative
Affirmative or withheld
------------ ------------
1. Election of the following Directors
James J. Cullers 3,158,950 20,510
Philip H. Jordan 3,137,464 41,997
Noel C. Parrish 3,155,454 24,007
Carlos E. Watkins 3,172,455 7,006
George T. Culbertson, Jr 3,123,182 56,279
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Description Location
---------------------------------------------- ------------------------
4(a) Indenture dated June 8, 1989, Incorporated herein
between the Corporation and National by reference to Ex-
Bank of Detroit, as Trustee hibit 4(a) to the
Corporation's Amendment
No. 1 to Form S-2
Registration Statement
filed June 1, 1989
(File No. 33-28815)
4(b) First-Knox Banc Corp. Dividend Incorporated herein
Reinvestment Plan by reference to the
Corporation's Registration
Statement on Form S-3
(Registration No. 33-52590)
4(b)1 Amendment to the First-Knox Banc Corp. Incorporated herein
Dividend Reinvestment Plan by reference to exhibit
4(b)1 to the March 31, 1995
Form 10-Q
Page 16
17
10(a) Summary of Incentive Compensation Plan Incorporated herein
dated December 9, 1983 by reference to exhibit
10(a) to the 1992 Form 10-K
10(b) Employees Retirement Plan dated January 1, 1984 Incorporated herein
by reference to exhibit
10(a) to the 1986 Form 10-K
10(c) Supplemental Retirement Agreement dated Incorporated herein
August 11, 1987 by reference to exhibit
10(c) to the 1992 Form 10-K
10(d) Non-qualified Stock Option and Incorporated herein
Stock Appreciation Rights Plan by reference to exhibit 23
to the 1989 Form 10-K
10(e) First-Knox Banc Corp. Savings Retirement Incorporated herein
Plan by reference to exhibit 10(e)
to the 1993 Form 10-K
10(f) Project Services Agreement between First-Knox Incorporated herein
National Bank and Sverdrup Building Corporation by reference to exhibit 10(f)
to the 1993 Form 10-K
10(g) First-Knox Banc Corp. Stock Option and Incorporated herein
Stock Appreciation Rights Plan by reference to exhibit
10(g) to the March 31, 1995
Form 10-Q
11 Statement regarding computation of Page 7 - Note 1 to consolidated
per share earnings financial statements
23 Consent of Independent Accountants Incorporated herein
by reference to exhibit 23
to the 1995 Form 10-K
(b) No reports on Form 8-K were filed during the fiscal quarter covered by this
report.
Page 17
18
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First-Knox Banc Corp.
(Registrant)
Date May 14, 1996
------------
Carlos E. Watkins
-------------------------------------
By Carlos E. Watkins
President and Chief Executive Officer
Date May 14, 1996
------------
Gordon E. Yance
-------------------------------------
By Gordon E. Yance
Vice President & Treasurer
Page 18