<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 1-13006
PARK NATIONAL CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-1179518
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 North Third Street, Newark, Ohio 43055
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 349-8451
----------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- --------------------------
Common Shares, without par value (9,307,060 American Stock Exchange
common shares outstanding on February
26, 1999)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Based upon the closing price reported on the American Stock Exchange on February
26, 1999, the aggregate market value of the Common Shares of the Registrant held
by non-affiliates on that date was $590,151,379.
Documents Incorporated by Reference:
(1) Portions of the Registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1998, are incorporated by
reference into Part II of this Annual Report on Form 10-K.
(2) Portions of the Registrant's definitive Proxy Statement for
its Annual Meeting of Shareholders to be held on April 19,
1999, are incorporated by reference into Part III of this
Annual Report on Form 10-K.
Exhibit Index on Page E-1
<PAGE> 2
PART I
------
ITEM 1. BUSINESS.
GENERAL
Park National Corporation ("Park") is a bank holding company under
the Bank Holding Company Act of 1956 and is subject to regulation by the Federal
Reserve Board.
Through its subsidiaries, The Park National Bank, Newark, Ohio, a
national banking association ("PNB"), The Richland Trust Company, Mansfield,
Ohio, an Ohio state-chartered bank ("Richland"), Century National Bank,
Zanesville, Ohio, a national banking association ("Century"), and The First-Knox
National Bank of Mount Vernon, a national banking association ("FKNB"), Park
engages in a general commercial banking and trust business, in fifteen counties
in central and southern Ohio. PNB operates through two banking divisions with
the Park Division headquartered in Newark, Ohio and the Fairfield National
Division headquartered in Lancaster, Ohio. FKNB also operates through two
banking divisions with the First-Knox Division headquartered in Mount Vernon,
Ohio and the Farmers and Savings Division headquartered in Loudonville, Ohio.
SERVICES PROVIDED BY PARK'S SUBSIDIARIES
PNB, Richland, Century and FKNB provide the following principal
services: the acceptance of deposits for demand, savings and time accounts and
the servicing of these accounts; commercial, industrial, consumer and real
estate lending, including installment loans, credit cards, home equity lines of
credit and commercial and auto leasing; safe deposit operations; trust services;
cash management; electronic funds transfers; and a variety of additional
banking-related services tailored to the needs of individual customers. Park
believes that the deposit mix of its subsidiaries is such that no material
portion has been obtained from a single customer and, consequently, the loss of
any one customer of any subsidiary would not have a materially adverse effect on
the business of that subsidiary or Park.
Park's subsidiaries deal with a wide cross-section of businesses and
corporations located primarily in Ashland, Athens, Coshocton, Fairfield,
Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum,
Perry and Richland Counties in Ohio. Few loans are made to borrowers outside
these counties. Each subsidiary makes lending decisions in accordance with
written loan policies designed to maintain loan quality. Each subsidiary
originates and retains for its own portfolio commercial and commercial real
estate loans, variable rate residential real estate loans, home equity lines of
credit, installment loans and credit card loans. Each subsidiary also generates
fixed rate residential real estate loans for the secondary market. The loans of
each subsidiary are spread over a broad range of industrial classifications.
Park believes that its subsidiaries have no significant concentrations of loans
to borrowers engaged in the same or similar industries and have no loans to
foreign entities.
Commercial lending entails significant additional risks as compared
with consumer lending -- i.e., single-family residential mortgage lending, home
equity lines of credit, installment lending, credit card loans and automobile
leasing. In addition, the payment experience on commercial loans typically
depends on adequate cash flow of a business and thus may be subject,
-2-
<PAGE> 3
to a greater extent, to adverse conditions in the economy generally or adverse
conditions in a specific industry.
At December 31, 1998, Park's subsidiaries had outstanding
approximately $520.8 million in commercial loans (including commercial real
estate loans) and commercial leases, representing approximately 31.7% of their
total aggregate loan portfolio as of that date. PNB's, Richland's, Century's and
FKNB's regulatory limits for loans made to one borrower were $14.4 million, $4.7
million, $4.2 million and $6.6 million, respectively, at December 31, 1998.
However, participations in loans of amounts larger than $5.0 million are
generally sold to other banks. Loan terms include amortization schedules
commensurate with the purpose of each loan, the source of each repayment and the
risk involved. Executive Committee approval is required for loans to borrowers
whose aggregate total debt, including the principal amount of the proposed loan,
exceeds $2.0 million. The primary analysis technique used in determining whether
to grant a commercial loan is the review of a schedule of cash flows to evaluate
whether anticipated future cash flows will be adequate to service both interest
and principal due.
Park has a loan review program which reevaluates annually all loans
with an outstanding amount greater than $100,000. If deterioration has occurred,
the lender subsidiary takes effective and prompt action designed to assure
payment of the loan. Upon detection of the reduced ability of a borrower to
service interest and/or principal on a loan, the subsidiary downgrades the loan
and places it on non-accrual status. The subsidiary then works with the borrower
to develop a payment schedule which they anticipate will permit service of the
principal and interest on the loan by the borrower. Loans which deteriorate and
show the inability of a borrower to repay principal and do not meet the
subsidiary's standards are charged off quarterly.
PNB also leases equipment under terms similar to its commercial
lending policies. Park Leasing Company, a division of PNB, originates and
services direct leases of equipment PNB acquires with no outside financing. In
addition, Scope Leasing, Inc., a wholly-owned subsidiary of PNB, specializes in
the direct leasing of aircraft with no outside financing.
At December 31, 1998, Park's subsidiaries had outstanding consumer
loans (including automobile leases and credit cards) in an aggregate amount of
approximately $370.5 million constituting approximately 22.6% of their aggregate
total loan portfolio. The subsidiaries make installment credit available to
customers and prospective customers in their primary market area of Ashland,
Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox,
Licking, Morgan, Morrow, Muskingum, Perry and Richland Counties, Ohio. In
addition, the subsidiaries participate in an automobile installment loan program
sponsored by a major national insurance company under which automobile
installment loans may be made to borrowers throughout the State of Ohio. Credit
approval for consumer loans requires demonstration of sufficient income to repay
principal and interest due, stability of employment, a positive credit record
and sufficient collateral for secured loans. It is the policy of Park's
subsidiaries to adhere strictly to all laws and regulations governing consumer
lending. A qualified compliance officer is responsible for monitoring each
subsidiary's performance in this area and for advising and updating loan
personnel. Park's subsidiaries make credit life insurance and health and
accident insurance available to all qualified buyers, thus reducing their risk
of loss when a borrower's income is terminated or interrupted. Each subsidiary
reviews its consumer loan portfolio monthly and charges off loans which do not
meet that subsidiary's standards. Each subsidiary also offers VISA and
MasterCard accounts
-3-
<PAGE> 4
through its consumer lending department. These accounts are administered under
the same standards as other consumer loans and leases.
Consumer loans generally involve more risk as to collectibility than
mortgage loans because of the type and nature of the collateral and, in certain
instances, the absence of collateral. As a result, consumer lending collections
depend upon the borrower's continued financial stability, and thus are more
likely to be adversely affected by job loss, divorce or personal bankruptcy and
by adverse economic conditions.
At December 31, 1998, Park's subsidiaries had outstanding
approximately $750.2 million in residential real estate, home equity lines of
credit and construction mortgages, representing approximately 45.7% of total
loans outstanding. The market area for real estate lending by the subsidiaries
is concentrated in Ashland, Athens, Coshocton, Fairfield, Franklin, Hamilton,
Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and Richland
Counties, Ohio. Each subsidiary generally requires that the residential real
estate loan amount be no more than 80% of the purchase price or the appraisal
value of the real estate securing the loan, unless private mortgage insurance is
obtained by the borrower. Loans made for each subsidiary's portfolio in this
lending category are generally one-year adjustable rate, fully amortized
mortgages. Each subsidiary also originates fixed rate real estate loans for the
secondary market. The standards applicable to these loans permit a higher loan
to value ratio and a longer loan term. These loans are generally sold
immediately after closing. All real estate loans are secured by first mortgages
with evidence of title in favor of the subsidiary in the form of an attorney's
opinion of title or a title insurance policy. Each subsidiary also requires
proof of hazard insurance with the subsidiary named as the mortgagee and as the
loss payee. Independent appraisals are required in the case of consumer real
estate loans in excess of $250,000.
Home equity lines of credit are generally made as second mortgages by
Park's subsidiaries. The maximum amount of a home equity line of credit is
generally limited to 80% of the appraised value of the property less the balance
of the first mortgage. The home equity lines of credit are written with ten-year
terms but are subject to review and reappraisal every three years. A variable
interest rate is generally charged on the home equity lines of credit.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan depends largely upon the accuracy of
the initial estimate of the property's value at completion of construction and
the estimated cost (including interest) of construction. If the estimate of
construction cost proves to be inaccurate, the subsidiary making the loan may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of value proves inaccurate, the
subsidiary may be confronted, at or prior to the maturity of the loan, with a
project having a value insufficient to assure full repayment, should the
borrower default.
COMPETITION
Park's subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
The primary factors in competing for loans are interest rates charged and
overall services provided to borrowers. The primary factors in
-4-
<PAGE> 5
competing for deposits are interest rates paid on deposits, account liquidity
and convenience of office locations.
EMPLOYEES
As of December 31, 1998, Park and its subsidiaries had 1,007
full-time equivalent employees.
SUPERVISION AND REGULATION
The following summarizes various statutes and regulations affecting
Park and its subsidiaries. This summary is qualified in its entirety by
reference to such statutes and regulations.
Park is a bank holding company under the Bank Holding Company Act,
which restricts the activities of Park and the acquisition by Park of voting
shares or assets of any bank, savings association or other company. Park is also
subject to the reporting requirements of, and examination and regulation by, the
Federal Reserve Board. Park's subsidiary banks are subject to restrictions
imposed by the Federal Reserve Act on transactions with affiliates, including
loans or extensions of credit to Park or its subsidiaries, investments in the
stock or other securities thereof and the taking of such stock or securities as
collateral for loans or extensions of credit to any borrower; the issuance of
guarantees, acceptances or letters of credit on behalf of Park and its
subsidiaries; purchases or sales of securities or other assets; and the payment
of money or furnishing of services to Park and its other subsidiaries. Park is
prohibited from acquiring direct or indirect control of more than 5% of any
class of voting stock or substantially all of the assets of any bank holding
company without the prior approval of the Federal Reserve Board. Park and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with extensions of credit and/or the provision of other property or
services to a customer by Park or its subsidiaries.
As national banks, PNB, Century and FKNB are supervised and regulated
by the Comptroller of the Currency. As an Ohio state-chartered bank, Richland is
supervised and regulated by the Ohio Division of Financial Institutions.
The FDIC insures the deposits of PNB, Richland, Century and FKNB and
those entities are subject to the applicable provisions of the Federal Deposit
Insurance Act. A subsidiary of a bank holding company can be liable to reimburse
the FDIC if the FDIC incurs or anticipates a loss because of a default of
another FDIC-insured subsidiary of the bank holding company or in connection
with FDIC assistance provided to the subsidiary in danger of default. In
addition, the holding company of any insured financial institution submitting a
capital restoration plan under the federal banking agencies' regulations on
prompt corrective action is required to guarantee a portion of the institution's
capital shortfall.
Various requirements and restrictions under the laws of the United
States and the State of Ohio affect the operations of PNB, Richland, Century and
FKNB including requirements to maintain reserves against deposits, restrictions
on the nature and amount of loans made and the interest charged thereon,
restrictions relating to investments and other activities, limitations on credit
exposure to correspondent banks, limitations on activities based on capital and
surplus, limitations on payment of dividends, and limitations on branching. PNB,
Century, FKNB and
-5-
<PAGE> 6
Richland may branch across state lines, unless the law of the other state
specifically prohibits interstate branching.
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies and state member banks. The risk-based capital
guidelines include both a definition of capital and a framework for calculating
weighted risk assets by assigning assets and off-balance sheet items to broad
risk categories. The minimum ratio of capital to weighted risk assets (including
off-balance sheet items, such as standby letters of credit) is 8%. At least 4%
must be comprised of common stockholders' equity (including retained earnings
but excluding treasury stock), qualifying noncumulative perpetual preferred
stock, a limited amount of qualifying cumulative perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and certain other intangible assets ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of mandatory convertible debt securities, a
limited amount of subordinated debt, other preferred stock and a limited amount
of allowance for loan and lease losses. The Federal Reserve Board also imposes a
minimum leverage ratio (Tier 1 capital to total assets) of 3% for bank holding
companies and state member banks that meet specified conditions, including no
operational, financial or supervisory deficiencies, and having the highest
regulatory rating. The minimum leverage ratio is 4% - 5% for other bank holding
companies and state member banks based on their particular circumstances and
risk profiles and those experiencing or anticipating significant growth.
National bank subsidiaries, such as PNB, Century and FKNB, and state non-member
bank subsidiaries, such as Richland, are subject to similar capital requirements
adopted by their regulators.
Park and its subsidiaries currently satisfy all capital requirements.
Failure to meet applicable capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal and state
regulatory authorities, including the termination of FDIC deposit insurance.
The federal banking regulators have established regulations governing
prompt corrective action to resolve capital deficient banks and savings
associations. Under these regulations, institutions which become
undercapitalized become subject to mandatory regulatory scrutiny and
limitations, which increase as capital continues to decrease.
Park's ability to obtain funds for the payment of dividends and other
cash requirements largely depends on the amount of dividends declared by its
subsidiary banks and other subsidiaries. However, the Federal Reserve Board
expects Park to serve as a source of strength to PNB, Richland, Century and
FKNB. The Federal Reserve Board may require Park to retain capital for further
investment in its subsidiaries, rather than using the funds for dividends to
shareholders. PNB, Richland, Century and FKNB may not pay dividends to Park if,
after paying such dividends, they would fail to meet the required minimum levels
under the risk-based capital guidelines and the minimum leverage ratio
requirements. PNB, Richland, Century and FKNB must have the approval of their
respective regulatory authorities if a dividend in any year would cause the
total dividends for that year to exceed the sum of the current year's earnings
and the retained earnings for the preceding two years, less required transfers
to surplus. Payment of dividends by a bank subsidiary may be restricted at any
time at the discretion of the appropriate regulator if it deems the payment to
constitute an unsafe and/or unsound banking practice or necessary to maintain
adequate capital
-6-
<PAGE> 7
for the bank. These provisions could limit Park's ability to pay dividends on
its outstanding common shares.
DEPOSIT INSURANCE ASSESSMENTS
The FDIC may establish separate annual assessment rates for deposit
insurance for members of the Bank Insurance Fund ("BIF") and members of the
Savings Association Insurance Fund ("SAIF"). PNB, Richland and FKNB are BIF
members and Century is an SAIF member. Insurance premiums for SAIF and BIF
members are determined during each semi-annual assessment period based upon the
members' respective categorization as either (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized. An institution is also assigned
by the FDIC to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned.
MONETARY POLICY AND ECONOMIC CONDITIONS
The business of commercial banks is affected not only by general
economic conditions, but also by the policies of various governmental regulatory
authorities, including the Federal Reserve Board. The Federal Reserve Board
regulates money and credit conditions and interest rates in order to influence
general economic conditions primarily through open market operations in U.S.
Government securities, changes in the discount rate on bank borrowings and
changes in reserve requirements against bank deposits. These policies and
regulations significantly affect the overall growth and distribution of bank
loans, investments and deposits and the interest rates charged on loans as well
as the interest rates paid on deposits and accounts.
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past and
are expected to have significant effects in the future. In view of the changing
conditions in the economy and the money market and the activities of monetary
and fiscal authorities, Park can make no definitive predictions as to future
changes in interest rates, credit availability or deposit levels.
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a material effect upon the capital
expenditures, earnings or competitive position of Park and its subsidiaries.
Park believes the nature of the operations of its subsidiaries has little, if
any, environmental impact. Park, therefore, anticipates no material capital
expenditures for environmental control facilities for its current fiscal year or
for the foreseeable future. Park's subsidiaries may be required to make capital
expenditures for environmental control facilities related to properties they
acquire in the future through foreclosure proceedings; however, the amount of
such capital expenditures, if any, is not currently determinable.
-7-
<PAGE> 8
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which
are not statements of historical fact constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"), including, without limitation, the statements specifically identified as
forward-looking statements within this document. In addition, certain statements
in future filings by Park with the Securities and Exchange Commission, in press
releases, and in oral and written statements made by or with the approval of
Park which are not statements of historical fact constitute forward-looking
statements within the meaning of the Act. Examples of forward-looking statements
include: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure and other
financial items; (ii) statements of plans and objectives of Park or its
management or Board of Directors, including those relating to products or
services; (iii) statements of future economic performance; and (iv) statements
of assumptions underlying such statements. Words such as "believes",
anticipates", expects", "intends", "targeted", and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements.
Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include: (i) the strength of the U.S. economy in
general and the strength of the local economies in which Park's subsidiaries
operate; (ii) the effects of and changes in trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve Board; (iii)
inflation, interest rate, market and monetary fluctuations; (iv) the timely
development and acceptance of new products and services and perceived overall
value of these products and services by customers; (v) changes in consumer
spending, borrowing and saving habits; (vi) technological changes; (vii) Park's
ability to increase market share and control expenses; (viii) Park's ability to
execute its business plan, including its plan to address the Year 2000 issue and
the ability of third parties to effectively address their Year 2000 issues; (ix)
the effect of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which Park and its
subsidiaries must comply; and (x) the success of Park at managing the risks
involved in the foregoing.
Forward-looking statements speak only as of the date on which they
are made, and Park undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the
statement is made to reflect unanticipated events.
ITEM 2. PROPERTIES.
Park's principal executive offices are located at 50 North Third
Street, Newark, Ohio 43055. Park does not lease or own any physical property,
real or personal.
The principal offices of PNB are located in its two-story main office
building at 50 North Third Street, Newark, Ohio 43055. PNB occupies all of this
building. PNB's Operations Center is located in a three-story building owned by
it at 21 South First Street, Newark, Ohio 43055. PNB occupies approximately
36,000 square feet of this building, with the remaining 4,000 square feet leased
to outside tenants. PNB, in addition to having six offices in Newark (including
the main office and the Operations Center), has offices in Granville, Heath (two
offices), Hebron, Johnstown,
-8-
<PAGE> 9
Kirkersville, Pataskala and Utica in Licking County, an office in Columbus in
Franklin County, an office in Cincinnati in Hamilton County and offices in
Baltimore, Pickerington and Lancaster (seven offices) in Fairfield County. The
offices in Fairfield County comprise the Fairfield National Division. PNB also
operates ten stand-alone automatic banking center locations. The properties
occupied by ten of PNB's Licking County offices (including the main office and
the Operations Center) and by four Fairfield County offices are owned by PNB.
The remaining three offices in Licking County, five offices in Fairfield County
and PNB's Franklin County and Hamilton County offices are leased under leases
with various expiration dates through 2006. All but one of the leases contain
renewal options. PNB owes no mortgage debt on any of its property.
The principal offices of Richland are located in its eight-story main
office building located at 3 North Main Street, Mansfield, Ohio. Richland
occupies 22,166 square feet out of the total 42,969 square feet of the building,
with the remaining portion leased to tenants not affiliated with Richland.
Richland, in addition to six offices in Mansfield (including the main office),
has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland
County. Richland also operates four stand-alone automatic banking center
locations. Richland owns the property occupied by all of these offices, with the
exception of one branch office in Mansfield which is leased through 2000.
Richland owes no mortgage debt on any of its property.
The principal offices of Century are located in a two-story building
owned by it at 14 South Fifth Street, Zanesville, Ohio. Century occupies all of
this building. Century, in addition to having four offices (including the main
office) and a mortgage lending office in Zanesville, has offices in New Concord
and Dresden in Muskingum County, Malta in Morgan County, New Lexington in Perry
County, Logan in Hocking County, Athens in Athens County and Coshocton in
Coshocton County. Century also operates three stand-alone automatic banking
center locations. All of the properties occupied by Century's offices are owned
by Century, with the exception of the office located in Coshocton which is
leased under a lease which expires in October, 2009. Century owes no mortgage
debt on any of its properties.
The principal offices of FKNB are located in its four-story main
office building located at One South Main Street, Mount Vernon, Ohio. FKNB
occupies all of this building. FKNB's Operations Center is located in a
two-story building owned by it at 105 West Vine Street, Mount Vernon, Ohio. FKNB
occupies all of this building. FKNB, in addition to having three offices
(including the main office and the Operations Center) in Mount Vernon, has
offices in Loudonville and Perrysville in Ashland County, an office in
Millersburg in Holmes County, offices in Centerburg, Danville and Fredericktown
in Knox County, two offices in Mount Gilead in Morrow County and an office in
Bellville in Richland County. The offices in Ashland County comprise the Farmers
and Savings Division. FKNB also operates four stand-alone automatic banking
center locations. FKNB owns the property occupied by all of these offices, with
the exception of the branch in Millersburg where a portion of this branch is
leased through 2000. FKNB owes no mortgage debt on any of its property.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which Park or any of its
subsidiaries is a party or to which any of their property is subject, except
routine legal proceedings to which Park's
-9-
<PAGE> 10
subsidiaries are parties incidental to their respective banking businesses. Park
considers none of such proceedings to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names and ages of the executive
officers of Park as of the date of this Annual Report on Form 10-K, the
positions presently held by each executive officer and the positions held by
each executive officer during his tenure as an executive officer of Park and its
subsidiaries. All executive officers serve at the pleasure of the Board of
Directors.
Position(s) Held with the Company
Name Age and its Principal Subsidiaries
- ---- --- ------------------------------
William T. McConnell 65 Chairman of the Board since
1994, Chief Executive Officer
and Director from 1986 to
January 1999, and President from
1986 to 1994, of Park; Chairman
of the Board since 1993, Chief
Executive Officer from 1983 to
January 1999, President from
1979 to 1993, and Director since
1977, of PNB; Director of
Century since 1990; Director of
FKNB since 1997
C. Daniel DeLawder 49 Chief Executive Officer since
January 1999, and President and
Director since 1994, of Park;
President since 1993, Executive
Vice President from 1992 to
1993, and Director since 1992,
of PNB; Chairman of Advisory
Board since 1989, and President
from 1985 to 1992, of the
Fairfield National Division of
PNB; Director of Richland since
1997
David C. Bowers 62 Secretary since 1987, Chief
Financial Officer and Chief
Accounting Officer from 1990 to
April 1998, and Director from
1989 to 1990, of Park; Executive
Vice President since January
1999; Senior Vice President from
1986 to January 1999, and
Director since 1989, of PNB
-10-
<PAGE> 11
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information called for in Item 201 of Regulation S-K is
incorporated herein by reference to page 41 of Park's Annual Report to
Shareholders for the fiscal year ended December 31, 1998.
On November 16, 1998, Park issued (a) 150 common shares to each of
the thirteen non-employee directors of Park (for an aggregate of 1,950 common
shares), (b) 50 common shares to each of 33 non-employee directors of one of
Park's subsidiaries who is not also a director of Park (for an aggregate of
1,650 common shares) and (c) 100 common shares to one individual who serves as a
non-employee director of two of Park's subsidiaries, in each case in lieu of an
annual cash retainer for serving as a director. The common shares had a market
value of $99.69 per share on the date of issuance. Park issued the common shares
in reliance upon the exemptions from registration provided by Sections 4(2) and
4(6) under the Securities Act of 1933 based upon the limited number of persons
to whom the common shares were "sold" and the status of each individual as a
director of Park or of one of its subsidiaries.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for in this Item 6 is incorporated herein by
reference to page 39 of Park's Annual Report to Shareholders for the fiscal year
ended December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The information called for in this Item 7 is incorporated herein by
reference to pages 23 through 39 of Park's Annual Report to Shareholders for the
fiscal year ended December 31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
As noted on page 30 of Park's Annual Report to Shareholders for the
fiscal year ended December 31, 1998, during 1998, 1997 and 1996, Park and its
subsidiaries had no investment in off-balance sheet derivative instruments. The
discussion of interest rate sensitivity included on pages 36 and 37 of Park's
1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors, the Consolidated Balance Sheets
of Park and its subsidiaries at December 31, 1998 and December 31, 1997, the
related Consolidated Statements of Income, of Changes in Stockholders' Equity
and of Cash Flows for each of the fiscal years in the three-year period ended
December 31, 1998, and the related Notes to the Consolidated Financial
Statements, appearing on pages 43 through 72 of Park's Annual Report to
Shareholders for the fiscal year ended December 31, 1998, are incorporated
herein by reference. Quarterly Financial Data set forth on page 40 of Park's
Annual Report to Shareholders for the fiscal year ended December 31, 1998 are
also incorporated herein by reference.
-11-
<PAGE> 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for in this Item 10 is incorporated herein by
reference to Park's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 19, 1999, under the caption "ELECTION OF
DIRECTORS." In addition, certain information concerning the executive officers
of Park is set forth in the portion of Part I of this Annual Report on Form 10-K
entitled "Executive Officers of the Registrant." No information is required to
be disclosed under Item 405 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for in this Item 11 is incorporated herein by
reference to Park's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 19, 1999, under the captions "ELECTION OF
DIRECTORS -- Compensation of Directors," "COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION" and "COMPENSATION OF EXECUTIVE OFFICERS." Neither the
report on executive compensation nor the performance graph included in Park's
definitive Proxy Statement shall be deemed to be incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for in this Item 12 is incorporated herein by
reference to Park's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 19, 1999, under the caption "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in this Item 13 is incorporated herein by
reference to Park's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 19, 1999, under the caption "TRANSACTIONS
INVOLVING MANAGEMENT."
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
For a list of all financial statements included with this Annual
Report on Form 10-K, see "Index to Financial Statements" at page 18.
-12-
<PAGE> 13
(a)(2) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) EXHIBITS.
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the Index to Exhibits
beginning at page E-1. The following table provides certain
information concerning the executive compensation plans and
arrangements required to be filed as exhibits to this Annual Report
on Form 10-K.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<TABLE>
<CAPTION>
Exhibit
No. Description Location
- ------- ----------- --------
<S> <C> <C>
10(a) Certified Copy of Resolutions Adopted by Incorporated herein by reference to Park's
Board of Directors of Park National Annual Report on Form 10-K for the fiscal
Corporation on July 17, 1995 Affecting Park year ended December 31, 1995 (File No.
National Corporation Defined Benefit Pension 1-13006) (the "1995 Form 10-K") [Exhibit
Plan and Trust 10(a)]
10(b) Park National Corporation Defined Benefit Incorporated herein by reference to Park's
Pension Plan 1995 Form 10-K [Exhibit 10(b)]
10(c) Resolution of Board of Directors and Filed herewith
Amendment to Park National Corporation
Defined Benefit Pension Plan adopted March
11, 1998
10(d) Park National Corporation Employees Voluntary Incorporated herein by reference to Park's
Salary Deferral Plan and Trust Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (File No.
0-18772) [Exhibit 10(d)]
10(e) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to Park's
National Corporation Registration Statement on Form S-4, filed on
January 24, 1997 (Registration No. 333-20417)
("Park's Form S-4") [Exhibit 10(d)]
</TABLE>
-13-
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
No. Description Location
- ------- ----------- --------
<S> <C> <C>
10(f) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: (a)
between William T. McConnell and The Park Park's Annual Report on Form 10-K for the
National Bank; and Schedule A to Exhibit fiscal year ended December 31, 1993 (File No.
10(f) identifying other identical 0-18772) [Exhibit 10(f)]; and (b) Park's
Split-Dollar Agreements between The Park Annual Report on Form 10-K for the fiscal
National Bank and executive officers of Park year ended December 31, 1994 (File No.
1-13006) [Exhibit 10(g)]
10(g) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a)
1993, between Dominic C. Fanello and The Park's Annual Report on Form 10-K for the
Richland Trust Company; and Schedule A to fiscal year ended December 31, 1993 (File No.
Exhibit 10(f) identifying other identical 0-18772 [Exhibit 10(g)]; and (b) Park's
Split-Dollar Agreements between directors of Annual Report on Form 10-K for the fiscal
Park and The Park National Bank, The Richland year ended December 31, 1997 (File No.
Trust Company or Century National Bank, as 1-13006) [Exhibit 10(f)]
identified in such Schedule A
10(h) Park National Corporation 1995 Incentive Incorporated herein by reference to Park's
Stock Option Plan (as amended through April Registration Statement on Form S-8 filed May
20, 1998) 14, 1998 (Registration No. 333-52653)
[Exhibit 10]
10(i) Form of Stock Option Agreement executed in Filed herewith
connection with the grant of options under
Park National Corporation 1995 Incentive
Stock Option Plan, as amended
10(j) Description of Park National Corporation Incorporated herein by reference to Park's
Supplemental Executive Retirement Plan Form S-4 [Exhibit 10(i)]
</TABLE>
(b) REPORTS ON FORM 8-K.
There were no Current Reports on Form 8-K filed during the fiscal
quarter ended December 31, 1998.
-14-
<PAGE> 15
(c) EXHIBITS.
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the Index to Exhibits
beginning at page E-1.
(d) FINANCIAL STATEMENT SCHEDULES.
None
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PARK NATIONAL CORPORATION
/s/ C. Daniel DeLawder
Date: March 19, 1999 By C. Daniel DeLawder,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Date Capacity
---- ---- --------
<S> <C> <C>
*William T. McConnell * Chairman of the Board and Director
*C. Daniel DeLawder * President, Chief Executive Officer and Director
*John W. Kozak * Chief Financial Officer and Chief Accounting Officer
*Maureen Buchwald * Director
*James J. Cullers * Director
*Dominic C. Fanello * Director
*R. William Geyer * Director
*Philip H. Jordan, Jr. * Director
</TABLE>
/s/ C. Daniel DeLawder
*By: C. Daniel DeLawder
Attorney-in-Fact
Date: March 19, 1999
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Name Date Capacity
---- ---- --------
<S> <C> <C>
*Howard E. LeFevre * Director
*Phillip T. Leitnaker * Director
*Tami L. Longaberger * Director
*James A. McElroy * Director
*John J. O'Neill * Director
*William A. Phillips * Director
*J. Gilbert Reese * Director
*Rick R. Taylor * Director
*John L. Warner * Director
</TABLE>
/s/ C. Daniel DeLawder
*By: C. Daniel DeLawder,
Attorney-in-Fact
Date: March 19, 1999
-17-
<PAGE> 18
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s) in
1998 Annual
Report to
Description Shareholders
- ----------- ------------
<S> <C>
Report of Independent Auditors (Ernst & Young LLP)............................................... 43
Consolidated Balance Sheets at December 31, 1998 and 1997........................................ 44-45
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996........... 46-47
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............................................. 48
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996......................................................... 49
Notes to Consolidated Financial Statements....................................................... 50-72
</TABLE>
-18-
<PAGE> 19
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3(a)(1) Articles of Incorporation of Park National Incorporated herein by reference to
Corporation as filed with the Ohio Secretary Registrant's Form 8-B, filed May 20,
of State on March 24, 1992 1992 (File No. 0-18772) ("Registrant's
Form 8-B") [Exhibit 3(a)]
3(a)(2) Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Park National Corporation as Registrant's Annual Report on Form 10-K
filed with the Ohio Secretary of State on for the fiscal year ended
May 6, 1993 December 31, 1993 (File No. 0-18772)
[Exhibit 3(b)]
3(a)(3) Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Park National Corporation as Registrant's Quarterly Report on
filed with the Ohio Secretary of State on Form 10-Q for the fiscal quarter ended
April 16, 1996 March 31, 1996 (File No. 1-13006)
("Registrant's March 1996 Form 10-Q")
[Exhibit 3(a)]
3(a)(4) Certificate of Amendment by Shareholders to Incorporated herein by reference to
the Articles of Incorporation of Park National Registrant's Quarterly Report on Form
Corporation as filed with the Ohio Secretary 10-Q for the fiscal quarter ended June
of State on April 22, 1997 30, 1997 (File No. 1-13006)
("Registrant's June 1997 Form 10-Q")
[Exhibit 3(a)(1)]
3(a)(5) Articles of Incorporation of Park National Incorporated herein by reference to
Corporation (reflecting amendments through Registrant's June 1997 Form 10-Q
April 22, 1997) (For SEC reporting compliance [Exhibit 3(a)(2)]
purposes only -- not filed with Ohio Secretary
of State)
</TABLE>
E-1
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3(b)(1) Regulations of Park National Corporation Incorporated herein by reference to
Registrant's Form 8-B [Exhibit 3(b)]
3(b)(2) Certified Resolution regarding adoption of Incorporated herein by reference to
amendment to Subsection 2.02(A) of the Registrant's June 1997 Form 10-Q
Regulations of Park National Corporation by [Exhibit 3(b)(1)]
Shareholders on April 21, 1997
3(b)(3) Regulations of Park National Corporation Incorporated herein by reference to
(reflecting amendments through April 21, 1997) Registrant's June 1997 Form 10-Q
(For SEC reporting compliance purposes only) [Exhibit 3(b)(2)]
10(a) Certified Copy of Resolutions Adopted by Board Incorporated herein by reference to
of Directors of Park National Corporation on Registrant's Annual Report on Form 10-K
July 17, 1995 Affecting Park National for the fiscal year ended December 31,
Corporation Defined Benefit Pension Plan and 1995 (File No. 1-13006) ("Registrant's
Trust 1995 Form 10-K") [Exhibit 10(a)]
10(b) Park National Corporation Defined Benefit Incorporated herein by reference to
Pension Plan Registrant's 1995 Form 10-K
[Exhibit 10(b)]
10(c) Resolution of Board of Directors and Amendment *
to Park National Corporation Defined Benefit
Pension Plan adopted March 11, 1998
10(d) Park National Corporation Employees Voluntary Incorporated herein by reference to
Salary Deferral Plan and Trust Registrant's Annual Report on Form 10-K
for the fiscal year ended December
31, 1993 (File No. 0-18772)
[Exhibit 10(d)]
10(e) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to
National Corporation Registrant's Registration Statement on
Form S-4, filed on January 24, 1997
(Registration No. 333-20417)
("Registrant's Form S-4") [Exhibit 10(d)]
</TABLE>
E-2
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10(f) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to:
between William T. McConnell and The Park (a) Registrant's Annual Report on
National Bank; and Schedule A to Exhibit 10(f) Form 10-K for the fiscal year ended
identifying other identical Split-Dollar December 31, 1993 (File No. 0-18772)
Agreements between The Park National Bank and [Exhibit 10(f)]; and (b) Registrant's
executive officers of Registrant Annual Report on Form 10-K for the
fiscal year ended December 31, 1994
(File No. 1-13006) [Exhibit 10(g)]
10(g) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a)
1993, between Dominic C. Fanello and The Registrant's Annual Report on Form 10-K
Richland Trust Company; and Schedule A to for the fiscal year ended December 31,
Exhibit 10(f) identifying other identical 1993 (File No. 0-18772) [Exhibit 10(g)];
Split-Dollar Agreements between directors of and (b) Registrant's Annual Report on
Registrant and The Park National Bank, The Form 10-K for the fiscal year ended
Richland Trust Company or Century National December 31, 1997 (File No. 1-13006)
Bank, as identified in such Schedule A [Exhibit 10(f)]
10(h) Park National Corporation 1995 Incentive Stock Incorporated herein by reference to
Option Plan (as amended through April 20, 1998) Registrant's Registration Statement on
Form S-8 filed May 14, 1998
(Registration No. 333-52653) [Exhibit 10]
10(i) Form of Stock Option Agreement executed in *
connection with the grant of options under the
Park National Corporation 1995 Incentive Stock
Option Plan, as amended
10(j) Description of Park National Corporation Incorporated herein by reference to
Supplemental Executive Retirement Plan Registrant's Form S-4 [Exhibit 10(i)]
</TABLE>
E-3
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
13 Annual Report to Stockholders of Registrant Incorporated herein by reference to the
for the fiscal year ended December 31, 1998 financial statements portion of this
(Not deemed filed except for portions thereof Annual Report on Form 10-K beginning at
which are specifically incorporated by page 18
reference into this Annual Report on Form 10-K)
21 Subsidiaries of Registrant *
23 Consent of Ernst & Young LLP *
24 Powers of Attorney *
27 Financial Data Schedule *
</TABLE>
_______________
*Filed herewith
E-4
<PAGE> 1
EXHIBIT 10(c)
------------
Resolution of Board of Directors and Amendment to Park National
Corporation Defined Benefit Pension Plan adopted March 11, 1998
<PAGE> 2
RESOLUTION OF BOARD OF DIRECTORS
AND AMENDMENT TO
PARK NATIONAL CORPORATION
DEFINED BENEFIT PENSION PLAN
WHEREAS, Park National Corporation adopted a Defined Benefit
Pension Plan effective October 1, 1960; and
WHEREAS, Park National Corporation adopted an amended and
restated Defined Benefit Pension Plan (the Plan) effective October 1, 1989; and
WHEREAS, it is desired to amend the Plan to raise the
involuntary lump-sum payment amount to $5,000, to eliminate mandatory payment of
benefits to non-5% owners until actual retirement, and to conform the Plan with
the manner in which it has been consistently administered;
NOW, THEREFORE, BE IT RESOLVED, that the Park National
Corporation Defined Benefit Pension Plan is amended as follows:
ITEM I
------
Effective October 1, 1989, Section 5.6, TERMINATION OF EMPLOYMENT BEFORE
RETIREMENT, is amended by deleting the second paragraph of subsection (a) and
substituting the following:
However, the Administrator shall direct the
earlier payment of the entire Vested portion of the Present
Value of Accrued Benefit, but only if it does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution.
ITEM II
-------
Effective October 1, 1997, Section 5.6, TERMINATION OF EMPLOYMENT BEFORE
RETIREMENT is further amended by the addition of the following subsection (i):
(i) Notwithstanding anything in this Section to the contrary,
effective October 1, 1997, an "Eligible Participant" may elect to receive his
Vested Accrued Benefit under the Plan in the form of a lump-sum payment
calculated in accordance with Section 5.7. Any such election is subject to the
restrictions discussed below. For purposes of this Section, an "Eligible
Participant" shall mean a Participant who had attained age 50 and completed 5
years of service as of his termination of employment date. In order to elect
this special optional payment form, an "Eligible Participant" must terminate
employment with the Employer during the period October 1, 1997
<PAGE> 3
through December 31, 1997. A Participant who was an "Eligible Participant" under
the terms of this Section and who does not terminate employment during the
period October 1, 1997 through December 31, 1997 shall not be an "Eligible
Participant" hereunder and shall be entitled only to his retirement benefits
payment option determined in accordance with Section 5.6 (without regard to this
paragraph) as appropriate. If an "Eligible Participant" who elects this special
optional payment dies after termination of employment but before payment of
benefits, any death benefit payable to his beneficiaries shall be determined and
paid in accordance with Section 5.5.
ITEM III
--------
Effective October 1, 1997, Section 5.7, DISTRIBUTION OF BENEFITS, is amended by
deleting the last sentence of subsection (e)(1).
FURTHER RESOLVED, effective October 1, 1997, if the Vested
portion of the Present Value of Accrued Benefits payable to any Participant in
the event of retirement, disability, death, or termination of employment does
not exceed $5,000 and has never exceeded $5,000 at the time of any prior
distribution, the Administrator shall direct the earlier payment of the entire
Vested portion of the Present Value of Accrued Benefit and the Plan shall be
amended by substituting $5,000 for $3,500 wherever such amount occurs.
I hereby certify that the foregoing is a true and correct copy of a Resolution
duly adopted by Park National Corporation on March 11, 1998
By /s/ Laura B. Lewis
--------------------------
-2-
<PAGE> 1
EXHIBIT 10(i)
-------------
Form of Stock Option Agreement executed in connection
with the grant of options under Park National
Corporation 1995 Incentive Stock Option Plan, as amended
<PAGE> 2
STOCK OPTION AGREEMENT #____
THIS STOCK OPTION AGREEMENT (the "Agreement") is made to be effective
as of ________________________, by and between Park National Corporation, an
Ohio corporation (the "COMPANY"), and _________________________________ (the
"OPTIONEE").
WITNESSETH:
WHEREAS, the Board of Directors of the COMPANY has adopted and the
shareholders of the COMPANY have approved the Park National Corporation 1995
Incentive Stock Option Plan and certain amendments thereto (collectively, the
"PLAN"); and
WHEREAS, pursuant to the provisions of the PLAN, the Board of
Directors of the COMPANY has appointed an Executive Committee (the "COMMITTEE")
to administer the PLAN and the COMMITTEE has determined that an option to
acquire common shares, without par value (the "COMMON SHARES"), of the COMPANY
should be granted to the OPTIONEE upon the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises, the parties hereto
make the following agreement, intending to be legally bound thereby:
(1) GRANT OF OPTION. The COMPANY hereby grants to the OPTIONEE an
option (the "OPTION") to purchase _______ COMMON SHARES of the COMPANY. The
OPTION is intended to qualify as an incentive stock option under Section 422 of
the Internal Revenue Code of 1986, as amended (the "CODE").
(2) TERMS AND CONDITIONS OF THE OPTION.
(A) OPTION PRICE. The purchase price (the "OPTION PRICE") to be
paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be
____________ per COMMON SHARE, being 100% of the closing sale price for the
COMMON SHARES of the COMPANY as shown on the American Stock Exchange - Composite
Transactions on ________________________ subject to adjustment as provided in
Section 3.
(B) EXERCISE OF THE OPTION. The OPTION shall be exercisable with
respect to all of the COMMON SHARES covered by the OPTION on and after the date
hereof. Any exercise of the OPTION may be made in whole or in part; however, no
single purchase of COMMON SHARES upon exercise of the OPTION shall be for less
than the LESSER OF (i) 200 COMMON SHARES OR (ii) the number of COMMON SHARES
covered by the OPTION. Subject to the other provisions of this Agreement, the
OPTION shall remain exercisable as to the COMMON SHARES covered by the OPTION
until the date of expiration of the OPTION term.
The grant of the OPTION shall not confer upon the OPTIONEE any right
to continue in the employment of the COMPANY and/or any subsidiary of the
COMPANY nor limit in any way the right of the COMPANY or any subsidiary of the
COMPANY to terminate the employment of the OPTIONEE at any time in accordance
with law or the governing corporate documents of the OPTIONEE's employer.
(C) OPTION TERM. The OPTION shall in no event be exercisable after
the fifth anniversary of the day immediately preceding the date of this
Agreement.
(D) METHOD OF EXERCISE. The OPTION may be exercised by the
OPTIONEE, or in the event of the OPTIONEE's death, such other person as is
entitled to exercise the OPTION, giving written notice of exercise to the
COMMITTEE, in care of the Secretary of the COMPANY, stating the number of COMMON
SHARES in respect of which the OPTION is being exercised. Payment for all such
<PAGE> 3
COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised
in United States dollars in cash (including check, bank draft or money order
payable to the order of the COMPANY). After payment in full for the COMMON
SHARES purchased under the OPTION has been made, the COMPANY shall take all such
action as is necessary to deliver an appropriate share certificate evidencing
the COMMON SHARES purchased upon the exercise of the OPTION as promptly
thereafter as is reasonably practicable.
(E) GRANT OF RELOAD OPTIONS. Upon the exercise by the OPTIONEE of
the OPTION in full or in part, the COMMITTEE shall automatically grant to the
OPTIONEE a new incentive stock option (a "RELOAD OPTION") covering the same
number of COMMON SHARES as were the subject of the exercise; provided, however,
that (i) the OPTIONEE may not be granted RELOAD OPTIONS in any one year of the
term of the OPTION covering, with respect to all RELOAD OPTIONS granted in such
one year, more than the number of COMMON SHARES which were subject to the OPTION
on the date of this Agreement; and (ii) the number of COMMON SHARES which would
otherwise be covered by a RELOAD OPTION granted to the OPTIONEE (whether upon
exercise of the OPTION or upon exercise of a previously-granted RELOAD OPTION)
shall be reduced to the extent necessary to ensure that the aggregate annual
limit on incentive stock options first exercisable in any one year specified in
Section 422 of the CODE is not exceeded. Notwithstanding anything in this
Section 2(E) to the contrary, neither the OPTIONEE nor any person who has
acquired the right to exercise the OPTION upon the OPTIONEE's death, who
exercises the OPTION upon or after termination of the OPTIONEE's employment by
reason of death, Disability or Normal Retirement (as those terms are defined in
Section 6(B) of this Agreement), will be granted any RELOAD OPTIONS in
connection with such exercise. In addition, no RELOAD OPTIONS shall be granted
after January 16, 2005.
(3) ADJUSTMENTS AND CHANGES IN THE COMMON SHARES.
(A) If, during the term of the OPTION, there shall be a stock
split, stock dividend, combination or exchange of shares or other similar change
in the COMPANY's capitalization, the number of COMMON SHARES subject to the
OPTION and the OPTION PRICE per COMMON SHARE of the OPTION shall be
appropriately and proportionately adjusted to reflect the same.
(B) Any and all adjustments in connection with the OPTION made
pursuant to Section 3(A) of this Agreement shall comply in all respects with
Section 422 of the CODE, and the regulations promulgated thereunder.
(C) Notice of any adjustment made pursuant to Section 3(A) of
this Agreement shall be given by the COMPANY to the OPTIONEE.
(4) ACCELERATION OF THE OPTION. In the event that the shareholders of
the COMPANY approve a definitive agreement (A) to merge or consolidate the
COMPANY with or into another corporation, in which the COMPANY is not the
continuing or surviving corporation or pursuant to which any COMMON SHARES would
be converted into cash, securities or other property of another corporation,
other than a merger of the COMPANY in which holders of COMMON SHARES immediately
prior to the merger have the same proportionate ownership of shares of the
surviving corporation immediately after the merger as immediately before, or (B)
to sell or otherwise dispose of substantially all of the assets of the COMPANY,
the OPTION shall become exercisable in full on the date of such shareholder
approval, whether or not then exercisable.
(5) NON-TRANSFERABILITY OF THE OPTION. The OPTION shall not be
assignable or transferable except, in the event of the death of the OPTIONEE, by
the OPTIONEE's will or by the laws of descent and distribution. The OPTION shall
be exercisable, during the OPTIONEE's lifetime, only by the OPTIONEE. In the
event the death of the OPTIONEE occurs, the representative or representatives of
the OPTIONEE's estate, or the person or persons who acquire (by bequest or
inheritance) the rights to
2
<PAGE> 4
exercise the OPTION, may exercise the OPTION prior to the expiration of the
applicable exercise period, as specified in Sections 2(C) and 6 of this
Agreement.
(6) EXERCISE AFTER TERMINATION OF EMPLOYMENT.
(A) If the OPTIONEE's employment with the COMPANY and its
subsidiaries terminates for any reason other than the death, Disability or
Normal Retirement of the OPTIONEE, the OPTION shall terminate effective
immediately upon termination of employment. If the termination of employment was
due to the Normal Retirement of the OPTIONEE, the OPTION may be exercised in
full, whether or not then exercisable by its terms, and the right of the
OPTIONEE to exercise the OPTION shall terminate upon the earlier to occur of the
expiration of the term of the OPTION or three months after the date of
termination of employment. If the termination of employment was due to the death
of the OPTIONEE and the OPTIONEE was an employee of the COMPANY and/or any
subsidiary of the COMPANY at the time of the OPTIONEE's death, the OPTION may be
exercised in full, whether or not then exercisable by its terms, and the right
of the representative or representatives of the OPTIONEE's estate (or the person
or persons who acquire (by bequest or inheritance) the right to exercise the
OPTION) to exercise the OPTION shall terminate upon the earlier to occur of the
expiration of the term of the OPTION or one year after the date of death. If the
termination of employment was due to the Disability of the OPTIONEE, the OPTION
may be exercised in full, whether or not then exercisable by its terms, and the
right of the OPTIONEE to exercise the OPTION shall terminate upon the earlier to
occur of the expiration of the term of the OPTION or one year after the date of
termination of employment. For purposes of this Section 6(A), the date of
termination of employment shall be the last day of employment.
(B) For purposes of this Section 6, "Disability" shall mean a
disability within the meaning of Section 22(e) (3) of the CODE and "Normal
Retirement" shall mean separation from employment with the COMPANY and each of
its subsidiaries on or after the date the OPTIONEE has attained age sixty-two
(62).
(7) RESTRICTIONS ON RESALE OR OTHER DISPOSITION OF COMMON SHARES
ACQUIRED UPON EXERCISE OF THE OPTION.
(A) The OPTIONEE hereby acknowledges and agrees that none of the
COMMON SHARES acquired upon exercise of the OPTION may be sold or otherwise
disposed of by the OPTIONEE to any person other than the COMPANY for a period of
five years after the date of exercise; provided, however, that this restriction
(i) shall not apply in the event of the exercise of the OPTION following the
death, Disability or Normal Retirement (as those terms are defined in Section
6(B) of this Agreement) of the OPTIONEE; and (ii) shall cease to apply following
the exercise of the OPTION in the event that the OPTIONEE subsequently leaves
the employment of the COMPANY and/or its subsidiary by reason of death,
Disability or Normal Retirement. In the event that the OPTIONEE leaves the
employment of the COMPANY and/or its subsidiaries following the exercise of the
OPTION for any reason other than death, Disability or Normal Retirement, and the
OPTIONEE desires to sell or otherwise dispose of the COMMON SHARES acquired upon
exercise of the OPTION prior to the termination of the five-year restriction
period, the OPTIONEE shall submit a written request to the COMPANY to purchase
the COMMON SHARES at a purchase price per COMMON SHARE equal to the lowest of
the OPTION PRICE, the closing sale price for the COMPANY's COMMON SHARES as
shown on the American Stock Exchange - Composite Transactions on the date the
OPTIONEE's employment terminated or the closing sale price of the COMPANY's
COMMON SHARES as shown on the American Stock Exchange - Composite Transactions
on the date that the OPTIONEE submitted the request to purchase to the COMPANY.
(B) The OPTIONEE acknowledges and agrees that the COMPANY shall
cause each share certificate evidencing the COMMON SHARES acquired upon exercise
of the OPTION to bear an appropriate legend reflecting the terms of this Section
7, which legend may be in the following or any other appropriate form:
3
<PAGE> 5
"Restrictions on the right to transfer the common shares evidenced by
this certificate (the "Shares") are set forth in a written Stock Option
Agreement, dated ________________, to which Park National Corporation
(the "Corporation") and ______________________________ [name of the
OPTIONEE] are parties. The Corporation will mail to the record holder
of the Shares a copy of said Stock Option Agreement, without charge,
within five (5) days after receipt of a written request therefor."
(8) RIGHTS OF OPTIONEE AS SHAREHOLDER. The OPTIONEE shall have no
rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the
COMPANY covered by the OPTION until the date of issuance of a certificate to the
OPTIONEE evidencing such COMMON SHARES.
(9) PLAN AS CONTROLLING. All terms and conditions of the PLAN
applicable to the OPTION which are not set forth in this Agreement shall be
deemed incorporated herein by reference. In the event that any term or condition
of this Agreement is inconsistent with the terms and conditions of the PLAN, the
PLAN shall be deemed controlling.
(10) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
(11) RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies of
the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative
and, except as expressly provided otherwise in this Agreement, none shall
exclude any other rights or remedies allowed by law or in equity, and each of
said rights or remedies may be exercised and enforced concurrently.
(12) CAPTIONS. The captions contained in this Agreement are
included only for convenience of reference and do not define, limit, explain or
modify this Agreement or its interpretation, construction or meaning and are in
no way to be construed as a part of this Agreement.
(13) SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or any circumstance shall be
determined to be invalid or unenforceable, then such determination shall not
affect any other provision of this Agreement or the application of said
provision to any other person or circumstance, all of which other provisions
shall remain in full force and effect, and it is the intention of each party to
this Agreement that if any provision of this Agreement is susceptible of two or
more constructions, one of which would render the provision enforceable and the
other or others of which would render the provision unenforceable, then the
provision shall have the meaning which renders it enforceable.
(14) NUMBER AND GENDER. When used in this Agreement, the number
and gender of each pronoun shall be construed to be such number and gender as
the context, circumstances or its antecedent may require.
(15) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the COMPANY and the OPTIONEE in respect of the subject matter
of this Agreement, and this Agreement supersedes all prior and contemporaneous
agreements between the parties hereto in connection with the subject matter of
this Agreement. No officer, employee or other servant or agent of the COMPANY,
and no servant or agent of the OPTIONEE, is authorized to make any
representation, warranty or other promise not contained in this Agreement. No
change, termination or attempted waiver of any of the provisions of this
Agreement shall be binding upon any party hereto unless contained in a writing
signed by the party to be charged.
4
<PAGE> 6
(16) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns (including successive,
as well as immediate, successors and assigns) of the COMPANY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the date first above written.
COMPANY:
--------
PARK NATIONAL CORPORATION
By:
---------------------------------
Its:
-------------------------------
OPTIONEE:
---------
--------------------------------------------
Printed Name of Optionee
--------------------------------------------
Signature of Optionee
--------------------------------------------
Street Address
--------------------------------------------
City State Zip Code
--------------------------------------------
Telephone Number
--------------------------------------------
Social Security Number
5
<PAGE> 1
23
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of the
financial condition and results of operations for Park National Corporation
("Park" or the "Corporation"). This discussion should be read in conjunction
with the consolidated financial statements and related footnotes and the
five-year summary of selected financial data. Management's discussion and
analysis contains forward-looking statements that are provided to assist in the
understanding of anticipated future financial performance. These forward-looking
statements involve significant risks and uncertainties including changes in
general economic and financial market conditions, the Corporation's ability to
execute its business plans, including its plan to address the Year 2000 issue
and the ability of third parties to effectively address their Year 2000 issues.
Although Park believes that the expectations reflected in such forward-looking
statements are reasonable, actual results may differ materially. Undue reliance
should not be placed on the forward- looking statements, which speak only as of
the date hereof. The Corporation does not undertake any obligation to publicly
update any forward-looking statement.
OVERVIEW
Net income for 1998 was $41.6 million, the highest in Park's eleven year history
as a bank holding company. This represents a 10.3% increase over net income of
$37.7 million for 1997. Net income per share was $4.43 for 1998, up by 10.8%
over the $4.00 net income per share for 1997. Net income has increased at an
annual compound growth rate of 11.9% over the last five years, and net income
per share has grown at an annual compound growth rate of 11.7% over the same
period.
Effective with the fourth quarter of 1998, the quarterly cash dividend on common
stock was increased to $.60 per share. The new annualized dividend of $2.40 per
share is 25.0% greater than the dividend paid in 1998. The Corporation has paid
quarterly dividends since becoming a holding company in early 1987. The annual
compound growth rate for the Corporation's per share dividend for the last five
years is 14.2%.
Park's business strategy is geared toward maximizing the return to stockholders.
The Corporation's common stock value has appreciated 24.6% annually on a
compounded, total return basis for the last five years and 27.0% annually for
the past ten years. The December 31, 1998 value of a $1,000 investment on
December 31, 1993 and a $1,000 investment on December 31, 1988 would be $2,999
and $10,903, respectively, inclusive of the reinvestment of dividends in the
Corporation's stock.
On May 5, 1997, Park merged with First-Knox Banc Corp. ("First-Knox"), a $569
million bank holding company headquartered in Mount Vernon, Ohio, in a
transaction accounted for as a pooling-of-interests. Park issued 2.3 million
shares of common stock to the stockholders of First-Knox based upon an exchange
ratio of .5914 shares of Park common stock for each outstanding share of
First-Knox common stock. The historical financial statements of Park have been
restated to show Park and First-Knox on a combined basis.
ABOUT OUR BUSINESS
Through its banking subsidiaries, Park is engaged in the commercial banking and
trust business, generally in small to medium population Ohio communities.
Management believes there is a significant number of consumers and businesses
which seek long-term relationships with community-based financial institutions
of quality and strength. While not engaging in activities such as foreign
lending, nationally syndicated loans and investment banking operations, the
Corporation attempts to meet the needs of its customers for commercial, real
estate and consumer loans, and investment and deposit services. Familiarity with
the local market, coupled with conservative loan underwriting standards, has
allowed the Corporation to achieve solid financial results even in periods where
there have been changes in economic conditions and the general level of interest
rates.
The Corporation has produced performance ratios which compare favorably to peer
bank holding companies in terms of equity and asset returns, capital adequacy
and asset quality. Continued satisfactory results are contingent upon economic
conditions in Ohio and competitive factors, among other things.
<PAGE> 2
24
The Corporation's subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
The Corporation and its subsidiaries operate fifty-seven full-service banking
offices and a network of sixty-three automatic teller machines in fifteen
central and southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1998, 1997, and
1996 is shown below. See Footnote 19 to the financial statements for additional
financial information on the Corporation's affiliates.
TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE NET Average Net Average Net
(IN THOUSANDS) ASSETS INCOME Assets Income Assets Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park National Bank:
Park National Division $ 812,688 $18,333 $ 716,356 $20,013 $ 672,374 $15,900
- ------------------------------------------------------------------------------------------------------------------------
Fairfield National Division 263,729 4,254 202,681 3,893 187,226 3,564
- ------------------------------------------------------------------------------------------------------------------------
Richland Trust Company 405,646 5,006 385,469 5,195 275,287 3,747
- ------------------------------------------------------------------------------------------------------------------------
Century National Bank 359,774 6,332 348,861 5,805 346,512 3,401
- ------------------------------------------------------------------------------------------------------------------------
First-Knox National Bank:
First-Knox
National Division 477,663 7,541 502,723 2,516 471,046 5,646
- ------------------------------------------------------------------------------------------------------------------------
Farmers & Savings
National Division 62,955 960 60,189 512 56,718 827
- ------------------------------------------------------------------------------------------------------------------------
Parent Company,
including consolidating
entries (46,972) (854) 3,303 (241) 2,632 (1,385)
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $2,335,483 $41,572 $2,219,582 $37,693 $2,011,795 $31,700
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURN ON EQUITY
The Corporation's primary financial goal is to achieve a superior, long-term
return on stockholders' equity. The Corporation measures performance in its
attempts to achieve this goal against its peers, defined as all U.S. bank
holding companies between $1 billion and $3 billion in assets. At year-end 1998,
there were 145 peer bank holding companies in this peer group. The Corporation's
net income to average equity ratio (ROE) was 18.35%, 18.21% and 16.88% in 1998,
1997, and 1996, respectively. In the past five years, the Corporation's ROE
exceeded the mean and median return of the peer group by a substantial margin.
The return on equity ratio has averaged 17.34% over the past five years.
<TABLE>
<CAPTION>
HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY
[BAR CHART]
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Park 16.72% 16.52% 16.88% 18.21% 18.35%
Peer Mean 12.27% 12.58% 13.55% 14.19% 13.97%*
</TABLE>
*as of 09/30/98
<PAGE> 3
25
BALANCE SHEET COMPOSITION
Park functions as a financial intermediary. The following section discusses the
sources of funds and the manner in which management has invested these funds.
SOURCE OF FUNDS
DEPOSITS: The Corporation's major source of funds is provided by core deposits
from individuals, businesses, and local government units. These core deposits
consist of all noninterest bearing and interest bearing deposits, excluding
certificates of deposit of $100,000 and over which were less than 12% of total
deposits for the last three years. In 1998, year-end total deposits increased by
$85 million or 4.6% compared to an increase of $92 million or 5.2% for 1997.
Approximately $49.2 million of the 1997 increase resulted from the purchase of
three bank branches in Lancaster, Ohio in December 1997. Increases in
noninterest bearing deposits were experienced in all three years, primarily from
commercial and public fund depositors.
Maturity of time certificates of deposit of $100,000 and over as of December 31,
1998 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
- --------------------------------------------------------------------------------
TIME CERTIFICATES
DECEMBER 31, 1998 (IN MILLIONS) OF DEPOSIT
- --------------------------------------------------------------------------------
3 months or less $110,494
- --------------------------------------------------------------------------------
Over 3 months through 6 months 36,162
- --------------------------------------------------------------------------------
Over 6 months through 12 months 47,779
- --------------------------------------------------------------------------------
Over 12 months 27,373
- --------------------------------------------------------------------------------
Total $221,808
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings primarily result from securities
sold under agreements to repurchase but also include Federal Home Loan Bank
advances, federal funds purchased, and other borrowings. These funds are used to
manage the Corporation's liquidity needs and interest rate sensitivity risk.
They are subject to short-term price swings as the Corporation's needs change or
the overall market rates for short-term investment funds change. In 1998,
average short-term borrowings were $190.2 million compared to $162.6 million in
1997 and $126.7 million in 1996. The increase in short-term borrowings in 1998
and 1997 has been used to help fund the increase in the investment portfolio and
to repay long-term debt. Average short-term borrowings were less than 8.2% of
average assets in all years.
LONG-TERM DEBT: Long-term debt is a result of borrowings from the Federal Home
Loan Bank. These borrowings were reduced in 1998 and late 1997 as more
attractive rates were available in short-term markets.
STOCKHOLDERS' EQUITY: Average stockholders' equity to average total assets
increased to 9.70% in 1998 compared to 9.33% in 1997 and 1996.
In accordance with Statement of Financial Accounting Standards No. 115, the
Corporation reflects any unrealized holding gain/(loss) on available-for-sale
securities, net of federal taxes as accumulated other comprehensive income which
is part of the Corporation's equity. While the effect of this accounting is not
recognized for calculation of regulatory capital adequacy ratios, it does impact
the Corporation's equity as reported in the audited financial statements. The
unrealized holding gain on available-for-sale securities, net of federal taxes,
was $7.5, $7.0, and $4.7 million at year-end 1998, 1997, and 1996, respectively.
<PAGE> 4
26
INVESTMENT OF FUNDS
LOANS: Average loans, net of unearned income, were $1,601 million in 1998
compared to $1,528 million in 1997 and $1,380 million in 1996. The average yield
on loans was reasonably stable at 9.25% in 1998 compared to 9.36% in 1997 and
9.41% in 1996. Approximately 63% of loan balances mature or reprice within one
year. This results in the interest rate yield on the loan portfolio adjusting
with changes in interest rates, but on a delayed basis.
Year-end loan balances, net of unearned income, increased by $50 million or 3.1%
in 1998 and by $120 million or 8.2% in 1997. Residential real estate loans
decreased by $30 million or 4.2% to $679 million at year-end 1998 compared to an
increase of $92 million or 14.9% for 1997. A flat yield curve during 1998
(long-term interest rates about equal to short-term interest rates) made
long-term fixed rate mortgage loans attractive to residential borrowers. The
Corporation sells fixed rate mortgage loan originations into the secondary
mortgage market and as a result experienced a decrease in residential real
estate loan totals as borrowers refinanced adjustable rate mortgage loans with
fixed rate mortgage loans. Excluding residential real estate loans, the rest of
the loan portfolio grew by 9.0% in 1998.
If the slope of the yield curve would remain flat in 1999, residential real
estate loans could decrease further. The demand for consumer loans, auto leases
and commercial real estate loans has been relatively strong principally due to
the strength of the economy in Central Ohio. As a percentage of assets, year-end
loan balances were 66.7%, 69.6%, and 67.4% in 1998, 1997, and 1996,
respectively.
Table 3 reports year-end loan balances by type of loan for the past five years.
<TABLE>
<CAPTION>
TABLE 3 - LOANS BY TYPE
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture $ 217,504 $ 212,970 $ 224,912 $ 211,535 $ 189,303
- ----------------------------------------------------------------------------------------------------------------------
Real estate - construction 70,998 65,548 70,359 52,084 42,485
- ----------------------------------------------------------------------------------------------------------------------
Real estate - residential 679,239 708,768 617,018 585,739 565,663
- ----------------------------------------------------------------------------------------------------------------------
Real estate - commercial 280,789 256,074 215,372 200,675 187,936
- ----------------------------------------------------------------------------------------------------------------------
Consumer, net 332,320 313,517 320,831 282,618 278,427
- ----------------------------------------------------------------------------------------------------------------------
Leases, net 60,662 35,050 23,532 22,717 21,494
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $1,641,512 $1,591,927 $1,472,024 $1,355,368 $1,285,308
- ----------------------------------------------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
Over One Over
One Year Through Five
DECEMBER 31, 1998 (IN THOUSANDS) or Less Five Years Years TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and
agriculture $98,601 $58,732 $60,171 $217,504
- ----------------------------------------------------------------------------------------------------------------------
Real estate - construction 38,366 4,279 28,353 70,998
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $136,967 $63,011 $88,524 $288,502
- ----------------------------------------------------------------------------------------------------------------------
Total of these selected loans due after one year with:
Fixed interest rate $ 53,927
- ----------------------------------------------------------------------------------------------------------------------
Floating interest rate $ 97,608
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
27
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to
provide liquidity and contribute to earnings. The Corporation classifies
approximately 99% of its securities as available-for-sale -- see Footnote 4 to
the financial statements. These securities are carried on the books at their
estimated fair value with the unrealized holding gain or loss, net of taxes,
accounted for as accumulated other comprehensive income which is part of the
Corporation's equity. Management classifies a large portion of the securities
portfolio as available-for-sale so that these securities will be available to be
sold in future periods in carrying out the Corporation's investment strategies.
The remaining securities are classified as held-to-maturity and are accounted
for at amortized cost.
The Corporation's investment strategy is dynamic. As conditions change over
time, the Corporation's overall interest rate risk, liquidity needs, and
potential return on the investment portfolio will change. The Corporation
regularly reevaluates the securities in its portfolio based on circumstances as
they evolve. Circumstances that may precipitate a sale of a security would be to
better manage interest rate risk, meet liquidity needs, or to improve the
overall yield from the investment portfolio. There were negligible security
gains and losses in 1998 and 1997, and a $1.3 million loss in 1996. The
Corporation's strategy has generally been to reinvest the proceeds from the sale
of securities at a loss into higher yielding securities with modest extension of
maturities. Generally lower overall interest rates in 1998 and 1997 prevented
this strategy from being executed.
The average yield on taxable investment securities was 6.91%, 7.00%, and 6.85%
for 1998, 1997, and 1996, respectively. The average maturity or repricing of the
taxable investment portfolio was approximately 2.7 years at year-end 1998
compared to 3.1 years at year-end 1997 and 3.2 years at year-end 1996.
The Corporation's tax-exempt investment securities portfolio increased as a
percent of total securities in 1998 and 1997 as more favorable tax-equivalent
yields were available for tax-exempt securities. The tax-exempt securities
portfolio was approximately 17% of the total securities portfolio at year-end
1998 compared to 16% at year-end 1997 and 12% at year-end 1996. The average
tax-equivalent yield on tax-exempt securities was 7.33%, 7.82% and 8.56% for
1998, 1997 and 1996, respectively. The average maturity of the tax-exempt
portfolio was 6.7 years at year-end 1998 compared to 7.1 years at year-end 1997
and 1996.
Total year-end investment securities increased by $112 million or 20.7% in 1998
compared to a decrease of $34 million or 5.9% in 1997. Year-end 1998 loan totals
increased by $50 million or 3.1% compared to an increase of $120 million or 8.2%
in 1997. The investment security portfolio was increased in 1998 to compensate
for the slower growth in the loan portfolio and to further leverage the balance
sheet.
The following table sets forth the book value of investment securities at year
end:
<TABLE>
<CAPTION>
TABLE 5 - INVESTMENT SECURITIES
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Treasury and other
<S> <C> <C> <C>
U.S. Government agencies $175,530 $159,248 $222,034
- ----------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 110,616 87,367 67,357
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government asset-backed securities
and other asset-backed securities 344,936 274,234 270,003
- ----------------------------------------------------------------------------------------------------------------------
Other securities 21,385 19,881 14,999
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $652,467 $540,730 $574,393
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
28
EARNING RESULTS
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income results from average balances outstanding for interest earning
assets and interest bearing liabilities in conjunction with the average rates
earned and paid on them.
Net interest income increased by $4.4 million or 4.3% to $107.7 million for 1998
compared to an increase of $9.2 million or 9.8% to $103.3 million for 1997. The
net yield on interest earning assets was relatively stable at 5.05% for 1998 and
1997 compared to 5.09% for 1996. Similarly, the net interest rate spread -- the
difference between rates received for interest earning assets and the rates paid
for interest bearing liabilities was within the narrow range of 4.36% to 4.41%
for all three years. The increase in net interest income for both 1998 and 1997
was primarily due to the growth in average interest earning assets.
The yield on average interest earning assets was 8.65% in 1998 compared to 8.75%
in 1997 and 1996. The average prime lending rate was approximately 8.35% for
1998 compared to 8.44% for 1997 and 8.27% for 1996. Market interest rates
decreased during the fourth quarter of 1998 and the prime lending rate decreased
to 7.75% at year-end 1998. About one-third of the Corporation's loan portfolio
is indexed to the prime lending rate and as a result, the average yield on
interest earning assets is expected to continue to decline in 1999. Average
interest earning assets increased by $94 million or 4.5% to $2,178.5 million in
1998 compared to an increase of $192 million or 10.2% to $2,084.1 million in
1997.
The average rate paid on average interest bearing liabilities was 4.29% in 1998
compared to 4.38% in 1997 and 4.34% in 1996. The average rate paid on deposits
was 4.22% for 1998 compared to 4.28% for 1997 and 4.27% for 1996. The
Corporation reduced deposit rates during the fourth quarter of 1998 as a result
of the decline in market interest rates. The average rate paid on deposits is
expected to continue to decline during 1999 and offset the expected decrease in
the average yield on interest earning assets. Average interest bearing
liabilities increased by $65 million or 3.7% to $1,825.4 million in 1998
compared to an increase of $166 million or 10.4% to $1,760.1 million in 1997.
Average interest bearing deposits as a percentage of average interest bearing
liabilities were 88.8% in 1998, 88.1% in 1997, and 89.1% in 1996.
<PAGE> 7
29
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996
(Dollars in thousands) DAILY AVERAGE Daily Average Daily Average
AVERAGE INTEREST RATE Average Interest Rate Average Interest Rate
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) (2) $1,600,510 $148,085 9.25% $1,527,694 $142,934 9.36% $1,379,973 $129,843 9.41%
- ------------------------------------------------------------------------------------------------------------------------
Taxable investment
securities 481,867 33,290 6.91% 474,707 33,229 7.00% 410,339 28,125 6.85%
- ------------------------------------------------------------------------------------------------------------------------
Tax-exempt investment
securities (3) 93,472 6,850 7.33% 73,613 5,757 7.82% 61,768 5,288 8.56%
- ------------------------------------------------------------------------------------------------------------------------
Federal funds sold 2,678 152 5.68% 8,132 461 5.67% 39,573 2,184 5.52%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING
ASSETS 2,178,527 188,377 8.65% 2,084,146 182,381 8.75% 1,891,653 165,440 8.75%
- ------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets:
Allowance for possible
loan losses (37,643) (34,346) (30,816)
- ------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 79,149 71,244 69,396
- ------------------------------------------------------------------------------------------------------------------------
Premises and equipment,
net 27,563 27,361 27,742
- ------------------------------------------------------------------------------------------------------------------------
Other assets 87,887 71,177 53,820
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $2,335,483 $2,219,582 $2,011,795
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Transaction accounts $ 366,890 $ 8,438 2.30% $364,776 $8,926 2.45% $354,944 $ 8,450 2.38%
- ------------------------------------------------------------------------------------------------------------------------
Savings deposits 281,106 7,557 2.69% 278,371 7,823 2.81% 269,991 7,599 2.81%
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 972,163 52,346 5.38% 907,718 49,699 5.48% 795,984 44,612 5.60%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING
DEPOSITS 1,620,159 68,341 4.22% 1,550,865 66,448 4.28% 1,420,919 60,661 4.27%
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 190,175 9,079 4.77% 162,626 7,738 4.76% 126,721 5,694 4.49%
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 15,099 875 5.80% 46,652 2,846 6.10% 46,497 2,800 6.02%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING
LIABILITIES 1,825,433 78,295 4.29% 1,760,143 77,032 4.38% 1,594,137 69,155 4.34%
- ------------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities:
Demand deposits 256,817 228,598 207,262
- ------------------------------------------------------------------------------------------------------------------------
Other 26,632 23,842 22,641
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST BEARING
LIABILITIES 283,449 252,440 229,903
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 226,601 206,999 187,755
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $2,335,483 $2,219,582 $2,011,795
- ------------------------------------------------------------------------------------------------------------------------
Net interest earnings $110,082 $105,349 $ 96,285
- ------------------------------------------------------------------------------------------------------------------------
Net interest spread 4.36% 4.37% 4.41%
- ------------------------------------------------------------------------------------------------------------------------
Net yield on interest
earning assets 5.05% 5.05% 5.09%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan income includes net fee loan income of $1,210 in 1998, $1,448 in 1997
and $1,905 in 1996. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate in 1998, 1997 and 1996. The taxable
equivalent adjustment was $453 in 1998, $434 in 1997 and $459 in 1996.
(2) For purposes of this computation, nonaccrual loans are included in the
daily average loans outstanding.
(3) Interest income on tax-exempt securities includes the effect of taxable
equivalent adjustments using a 35% rate in 1998, 1997 and 1996. The taxable
equivalent was $1,978 in 1998, $1,658 in 1997 and $1,788 in 1996.
<PAGE> 8
30
<TABLE>
<CAPTION>
TABLE 7 - VOLUME/ RATE VARIANCE ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------
CHANGE FROM 1997 TO 1998 Change from 1996 to 1997
------------------------ ------------------------
(IN THOUSANDS) Volume Rate TOTAL Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
TOTAL LOANS $6,828 $(1,677) $5,151 $13,787 $(696) $13,091
- ----------------------------------------------------------------------------------------------------------------------
Taxable investments 494 (433) 61 4,479 625 5,104
- ----------------------------------------------------------------------------------------------------------------------
Tax-exempt investments 1,472 (379) 1,093 953 (484) 469
- ----------------------------------------------------------------------------------------------------------------------
Federal funds sold (310) 1 (309) (1,781) 58 (1,723)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 8,484 (2,488) 5,996 17,438 (497) 16,941
- ----------------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts 52 (540) (488) 231 245 476
- ----------------------------------------------------------------------------------------------------------------------
Savings accounts 75 (341) (266) 224 0 224
- ----------------------------------------------------------------------------------------------------------------------
Time deposits 3,550 (903) 2,647 6,071 (984) 5,087
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,325 16 1,341 1,686 358 2,044
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt (1,837) (134) (1,971) 9 37 46
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,165 (1,902) 1,263 8,221 (344) 7,877
- ----------------------------------------------------------------------------------------------------------------------
NET VARIANCE $ 5,319 $ (586) $ 4,733 $ 9,217 $(153) $ 9,064
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
OTHER INCOME: Total other income, exclusive of security gains or losses,
increased by $3.2 million or 15.3% to $23.9 million in 1998 and increased by
$2.7 million or 15.1% to $20.7 million in 1997 compared to $18.0 million for
1996. Fee income earned from the origination and sale into the secondary market
of fixed rate mortgage loans is included with other non yield related loan fees
in the subcategory other service income. For 1998, other service income
increased by $1.55 million or 43% as a result of the large increase in fixed
rate mortgage loan volume. The subcategory of other increased by $1.2 million or
22% in 1998 and increased by $810,000 or 17% in 1997 due to increased fees from
check card and ATM products and from operating leases originated by Scope
Leasing, Inc., an aircraft leasing company. Service charges on deposit accounts
increased by $515,000 or 8.2% in 1998 and by $459,000 or 7.8% in 1997 due
primarily to increases in the number of transaction accounts. Income from
fiduciary activities increased by $1.1 million or 26.7% in 1997 due primarily to
increases in assets under management for new trust department customers.
Losses on sale of securities were $1.3 million in 1996 compared to a gain of
$97,000 in 1998 and a loss of $7,000 in 1997. The proceeds from the sales of
securities in 1996 were generally invested in higher yielding, longer maturity
securities to take advantage of an upward sloping yield curve. Lower overall
interest rates and a flat yield curve prevented sales for losses and related
reinvestments in 1998 and 1997. During 1998, 1997, and 1996, the Corporation had
no investment in off-balance sheet derivative instruments.
OTHER EXPENSE: Total other expense increased by $1.9 million or 3.0% to $64.3
million in 1998 and increased by $3.3 million or 5.6% to $62.4 million in 1997
compared to $59.1 million for 1996. Increases in total other expense of
approximately $2.0 million in 1997 and $1.4 million in 1996 were due to one-time
expenses related to the May, 1997 merger with First-Knox. These expenses were
absorbed by First-Knox in 1997 and 1996.
<PAGE> 9
31
Salaries and employee benefits decreased by $150,000 or .5% in 1998 compared to
an increase of $2.9 million or 10.1% in 1997. The increase in 1997 was primarily
due to one-time expenses related to the First-Knox merger of approximately $1.9
million for deferred employee payments, stock appreciation rights, and employee
benefits expense. Exclusive of the $1.9 million one-time expense in 1997,
salaries and employee benefits expense would have increased 5.8% in 1998 and
3.5% in 1997. Full-time equivalent employees at year-end were 1,007 in 1998, 978
in 1997 and 961 in 1996.
Data processing fees decreased by $788,000 or 14.9% in 1998 compared to a small
increase in 1997. The decrease in data processing expense in 1998 was due to
converting First-Knox to Park's data processing system at the end of 1997.
Amortization of intangibles expense increased sharply in both 1998 and 1997 due
to the increased amortization of goodwill resulting from branch purchases in
1997 and 1996 -- see Footnote 2 to the financial statements.
Furniture and equipment expense increased by $1.1 million or 30.6% in 1998
compared to a small increase in 1997. The increase in 1998 was primarily due to
increased depreciation expense on computer hardware and software as their
estimated useful lives were reduced from five years to three years. Some of the
older computer equipment was not Year 2000 compliant and accordingly was
completely written-off in 1998. Management expects that furniture and equipment
expense for 1999 will decrease by about $1.0 million due to the accelerated
depreciation in 1998.
Insurance expense decreased sharply in 1997 as Park's deposit insurance premium
was reduced. The Corporation's former thrift subsidiary -- Mutual Federal
Savings -- incurred a one-time FDIC recapitalization expense in 1996. Mutual
Federal Savings converted to a national bank charter in the second quarter of
1997 and now operates under the name of Century National Bank.
The subcategory other expense increased by $1.2 million or 25.3% in 1998 and
increased by 5.6% in 1997. The large increase in 1998 was primarily due to
increases in depreciation expense from operating leases, in supplies expense,
and Year 2000 training expense.
INCOME TAXES: Federal income tax expense as a percentage of income before taxes
was 31.3% in 1998, 30.9% in 1997 and 31.5% in 1996. A lower tax percentage rate
than the statutory rate of thirty-five percent is primarily due to tax-exempt
interest income from state and municipal investments and loans.
CREDIT EXPERIENCE
PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to
the allowance for loan losses to absorb possible future loan charge-offs. The
amount of the loan loss provision is determined by management after reviewing
the risk characteristics of the loan portfolio, historical loan loss experience
and projections of future economic conditions. In 1997, First-Knox absorbed a
significant increase in the loan loss provision charged to earnings in order to
bring its allowance for possible loan losses into alignment with other
Corporation affiliates. The impact of this was partially offset by a reduced
loan loss provision at Park National Division.
The allowance for possible loan losses at December 31, 1998 totaled $38.0
million and represented 2.31% of total loans outstanding at December 31, 1998
compared to $35.6 million or 2.24% of total loans outstanding at December 31,
1997 and $32.3 million or 2.20% of total loans outstanding at December 31, 1996.
The provision for loan losses was $6.8 million for 1998 compared to $7.0 million
for 1997 and $5.3 million for 1996. Net charge-offs were $4.4 million for 1998
compared to $3.8 million for 1997 and $2.2 million for 1996.
Management believes that the allowance for possible loan losses at year-end 1998
is adequate to absorb estimated credit losses in the loan portfolio. See
Footnote 1 to the financial statements for additional information on
management's evaluation of the adequacy of the allowance for loan losses.
<PAGE> 10
32
The following table summarizes the loan loss provision, charge-offs and
recoveries for the last five years:
<TABLE>
<CAPTION>
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS
(NET OF UNEARNED INTEREST) $1,600,510 $1,527,694 $1,379,973 $1,318,275 $1,220,333
----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning balance $ 35,595 $ 32,347 $ 29,239 $ 25,438 $ 23,775
- ----------------------------------------------------------------------------------------------------------------------
CHARGE-OFFS:
Commercial 663 1,332 868 407 1,131
- ----------------------------------------------------------------------------------------------------------------------
Real estate 1,569 1,265 185 471 60
- ----------------------------------------------------------------------------------------------------------------------
Consumer 4,976 3,530 2,971 2,019 1,777
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 184 144 414 55 103
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 7,392 6,271 4,438 2,952 3,071
----------------------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 368 400 420 175 1,035
- ----------------------------------------------------------------------------------------------------------------------
Real estate 1,008 696 365 171 164
- ----------------------------------------------------------------------------------------------------------------------
Consumer 1,521 1,198 1,404 1,074 984
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 91 226 63 85 73
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 2,988 2,520 2,252 1,505 2,256
- ----------------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 4,404 3,751 2,186 1,447 815
- ----------------------------------------------------------------------------------------------------------------------
Provision charged to earnings 6,798 6,999 5,294 5,248 2,478
- ----------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 37,989 $ 35,595 $ 32,347 $ 29,239 $ 25,438
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO
AVERAGE LOANS 0.28% 0.25% 0.16% 0.11% 0.07%
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES TO END OF YEAR LOANS,
NET OF UNEARNED INTEREST 2.31% 2.24% 2.20% 2.16% 1.98%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the allocation of allowance for possible loan
losses:
<TABLE>
<CAPTION>
TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
PERCENT OF Percent of Percent of Percent of Percent of
(Dollars in LOANS PER Loans Per Loans Per Loans Per Loans Per
thousands) ALLOWANCE CATEGORY Allowance Category Allowance Category Allowance Category Allowance Category
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $10,332 13.25% $10,116 13.38% $ 8,996 15.28% $ 8,779 15.61% $ 7,572 14.73%
- --------------------------------------------------------------------------------------------------------------------------
Real estate 11,775 62.81% 11,420 64.73% 9,902 61.32% 8,071 61.86% 7,252 61.94%
- --------------------------------------------------------------------------------------------------------------------------
Consumer 13,791 20.24% 12,541 19.69% 12,513 21.80% 11,474 20.85% 9,772 21.66%
- --------------------------------------------------------------------------------------------------------------------------
Leases 2,091 3.70% 1,518 2.20% 936 1.60% 915 1.68% 842 1.67%
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $37,989 100.00% $35,595 100.00% $32,347 100.00% $29,239 100.00% $25,438 100.00%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
33
As of December 31, 1998, the Corporation had no significant concentrations of
loans to borrowers engaged in the same or similar industries nor did the
Corporation have any loans to foreign governments.
NONPERFORMING ASSETS: Nonperforming loans include: l) loans whose interest is
accounted for on a nonaccrual basis; 2) loans whose terms have been
renegotiated; and 3) loans which are contractually past due 90 days or more as
to principal or interest payments but whose interest continues to accrue. Other
real estate owned results from taking title to property used as collateral for a
defaulted loan.
The following is a summary of the nonaccrual, past due and renegotiated loans
and other real estate owned for the last five years:
<TABLE>
<CAPTION>
TABLE 10 - NONPERFORMING ASSETS
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,155 $2,060 $2,301 $2,425 $2,677
- --------------------------------------------------------------------------------------------------------------------------
Renegotiated loans 492 1,642 2,348 2,525 1,365
- --------------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more 2,314 2,512 2,963 1,640 1,090
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING LOANS 4,961 6,214 7,612 6,590 5,132
- --------------------------------------------------------------------------------------------------------------------------
Other real estate owned 238 300 329 183 406
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $5,199 $6,514 $7,941 $6,773 $5,538
- --------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NONPERFORMING LOANS TO
LOANS, NET OF UNEARNED INTEREST 0.30% 0.39% 0.52% 0.49% 0.40%
- --------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NONPERFORMING ASSETS TO
LOANS, NET OF UNEARNED INTEREST 0.32% 0.41% 0.54% 0.50% 0.43%
- --------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NONPERFORMING ASSETS TO
TOTAL ASSETS 0.21% 0.28% 0.36% 0.34% 0.30%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax equivalent interest income from loans of $148 million for 1998 would have
increased by $264,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1998 in the
approximate amount of $121,000 is included in interest income for those loans in
accordance with original terms.
The Corporation had $36.2 million of loans included on the Corporation's watch
list of potential problem loans at December 31, 1998 compared to $17.6 million
at year-end 1997 and $19.8 million at year-end 1996. The existing conditions of
these loans do not warrant classification as nonaccrual. Management undertakes
additional surveillance regarding a borrower's ability to comply with payment
terms for watch list loans.
TECHNOLOGY RISK -- YEAR 2000 COMPLIANCE ISSUES
Park National Corporation intends this information to constitute notice under
the Year 2000 Information and Readiness Disclosure Act as a "Y2K Readiness
Disclosure". In early 1997, Park formed a Year 2000 project team made up of key
Corporation and affiliate officers to identify and remediate software systems
and computer-related devices that require modification for the Year 2000. A
project plan has been developed with goals and target dates. It has been
approved by Park's Board of Directors and is monitored by the Board on a
quarterly basis. The Corporation's project team and business units are in the
final stages of completing this plan. The plan follows a five phase approach
recommended by regulators and others: awareness, assessment, renovation,
validation, and implementation.
<PAGE> 12
34
Park's State of Readiness
With regard to information technology (IT) systems, Park uses standard hardware
and off-the-shelf, widely-used banking software packages to satisfy most
internal and customer needs. The software packages are purchased without source
programming code. As a result, Park runs the software as is, without program
modifications. All software and hardware vendors have been surveyed and have
indicated their products' Y2K readiness status. In the majority of cases, the
vendor has indicated its software or hardware is Y2K compliant. This requires
testing of all mission critical software packages -- identified as 87 software
packages by the Year 2000 project team -- to confirm their state of readiness as
indicated by the various software vendors. In the few cases where the vendor has
indicated the hardware or software package is not Y2K compliant, an upgrade or
another vendor's replacement software package will be purchased, installed and
tested for Y2K compliance. Replacement and testing of all internally used
software packages and hardware systems was substantially complete by December
31, 1998 with a targeted completion date of March 31, 1999.
The testing of mission critical outsourced software packges -- identified as 18
software packages by the Year 2000 project team used to serve Park customers is
challenging because the timetable of such tests is controlled by the service
provider. Because Park's outsourced systems are offered by service providers
that are national in scope, management believes they will be made Y2K compliant.
Replacement and testing of all outsourced software packages has a targeted
completion date of March 31, 1999. However, Park can give no guarantee that the
systems from these service providers and vendors on which Park relies will be
timely renovated.
Banking regulations require that Park develop and execute remediation
contingency plans in cases where it appears any software or hardware vendor or
outside service provider will not be able to provide a Y2K compliant solution.
No such plans have been deemed necessary at this time. Testing and replacement
of out-sourced systems is scheduled to be substantially complete by March 31,
1999 with a final completion date targeted for June 30, 1999.
For non-IT systems, primarily buildings and banking equipment, vendor inquiries
and tests have been completed. Microcontrollers or embedded chips are generally
not present in Park's buildings due to their age and complexity. Upgrades of a
small number of Automated Teller Machines (ATMs) and building security systems
have been ordered and are scheduled to be installed and tested by March 31,
1999.
Y2K readiness inquiries of Park's major borrowers and major funds providers have
been performed. The result of these inquiries indicates that in management's
judgment, the risk to the Corporation from Y2K failures from these entities is
low. There can be no guarantee but management's judgment is that loan losses
attributed to the Y2K issue are not expected to be material to the Corporation.
Costs to Address Park's Year 2000 Issues
Y2K compliance is critical to Park. It has redeployed resources from
non-critical system enhancements to address this issue. Due to the importance of
IT systems to the Corporation's business, management has not deferred critical
systems enhancements to become Y2K ready. Park does not expect its redeployments
to have a material impact on the Corporation's financial condition or results of
operations. The Corporation has incurred expenses throughout 1998 related to its
Y2K project and will continue to incur expenses over the next two years. These
expenses are not expected to materially impact operating results in any one
quarter or year, with a significant portion of these expenses represented by
existing staff that have been assigned to this project. Estimates are that
incremental expenses in each of 1999 and 2000 for remediation will be $500,000
and for redeployed staff $1,000,000. Incremental expenses through December 31,
1998 were approximately $200,000 and redeployment expenses were approximately
$1,000,000 through December 31, 1998.
Risks of the Corporation's Year 2000 Issues
Park cannot determine the consequences of Y2K problems, if any, on its results
of operations, liquidity and financial condition due to its reliance on third
parties to facilitate service delivery to the Corporation's
<PAGE> 13
35
customers. These third parties would include utility companies, the federal
government, outsource service providers and various critical vendors. Park is
engaged in discussions with these third parties and is attempting to obtain
detailed information as to their Y2K readiness state. Park does not, however,
have sufficient information at the current time to predict whether they will be
Y2K ready. While management is executing steps to assure compliance with systems
over which it has control, it cannot be assured that third parties upon which
Park relies for service delivery will not have business interruptions due to Y2K
problems.
The Corporation and its banking affiliates are regulated by both state and
federal bank regulatory agencies. These agencies have issued numerous directives
with respect to the Year 2000 issue, with which Park is acting to comply.
Additionally, these regulatory agencies have made and will continue to make
on-site examinations to determine Y2K readiness.
Park's Contingency Plan
As the testing and remediation work is completed for each of the 105 mission
critical software packages, a custom contingency plan is written in case of an
unforeseen Y2K failure. Completion of this effort will coincide with the
completion of the software testing and remediation which is scheduled for June
30, 1999.
Park currently has a business resumption contingency plan for the IT function.
The plan is being modified to address Y2K risks. Additionally, other non-IT
business functions are being included in the business resumption plan. The
modification of this plan will be completed by June 30, 1999.
CAPITAL RESOURCES
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT: The Corporation's objective
in managing its liquidity is to maintain the ability to continuously meet the
cash flow needs of customers, such as borrowings or deposit withdrawals, while
at the same time seeking higher yields from longer-term lending and investing
activities.
Cash and cash equivalents increased by $6.7 million during 1998 to $100.3
million at year end. Cash provided by operating activities was $42.8 million in
1998, $44.8 million in 1997, and $35.1 million in 1996. Net income was the
primary source of cash for operating activities during each year.
Cash used in investing activities was $166.1 million in 1998, $93.4 million in
1997, and $249.5 million in 1996. A major use of cash in investing activities is
the net increase in the loan portfolio. Cash used for the net increase in loans
was $53.2 million in 1998, $111.3 million in 1997, and $87.6 million in 1996.
Cash of $6.7 million was used in 1997 to purchase branch offices and $11.6
million was used to acquire the related loans. During 1996, $10.9 million in
cash was used to purchase branch offices and $30.8 million was invested to
acquire the related loans.
Security transactions are the other major use or source of cash in investing
activities. Proceeds from the sale or maturity of securities provide cash and
purchases of securities use cash. Net security transactions used $109.4 million
of cash in 1998, provided $38.9 million in 1997 and used $118.2 million in 1996.
Cash provided by financing activities was $130.0 million in 1998, $60.4 million
in 1997, and $183.0 million in 1996. A major source of cash for financing
activities is the net increase in deposits. Cash provided from the net increase
in deposits was $84.8 million in 1998, $42.3 million in 1997 and $54.9 million
in 1996. The purchase of deposits with the branch offices in 1997 and 1996
provided cash of $49.2 million and $97.9 million, respectively.
Changes in short-term borrowings or long-term debt is a major source or use of
cash for financing activities. The net increase in short-term borrowings
provided cash of $95.0 million in 1998, $16.5 million in 1997 and $13.1 million
in 1996. Proceeds from long-term debt provided cash of $30.0 million in 1996.
Cash was used to repay long-term debt of $22.4 million in 1998, $31.5 million in
1997 and $1.0 million in 1996.
<PAGE> 14
36
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the
capability to securitize or package loans for sale. The present funding sources
provide more than adequate liquidity for the Corporation to meet its cash flow
needs.
Liquidity is enhanced by assets maturing or repricing within one year. Assets
maturing or repricing within one year were $1,185 million or 51.7% of interest
earning assets at year-end 1998. Liquidity is also enhanced by a significant
amount of stable core deposits from a variety of customers in several Ohio
markets served by the Corporation.
An asset/liability committee monitors and forecasts rate sensitive assets and
liabilities and develops strategies and pricing policies to influence the
acquisition of certain assets and liabilities. The purpose of these efforts is
to guard the Corporation from adverse impacts of unforeseen swings in interest
rates and to enhance the net income of the Corporation by accepting a limited
amount of interest rate risk, based on interest rate projections.
The following table shows interest sensitivity data for five different time
intervals as of December 31, 1998:
<TABLE>
<CAPTION>
TABLE 11 - INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------------------------------------------------
0-3 3-12 1-3 3-5 Over 5
(DOLLARS IN THOUSANDS) Months Months Years Years Years TOTAL
- --------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVE ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1) $ 38,923 $110,788 $184,216 $154,300 $164,240 $ 652,467
- --------------------------------------------------------------------------------------------------------------------------
Loans (1) 487,372 548,067 300,572 182,053 123,448 1,641,512
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS 526,295 658,855 484,788 336,353 287,688 2,293,979
- --------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Interest bearing checking (2) 58,778 -- 176,335 -- -- 235,113
- --------------------------------------------------------------------------------------------------------------------------
Savings accounts (2) 138,273 -- 138,273 -- -- 276,546
- --------------------------------------------------------------------------------------------------------------------------
Money market checking 159,722 -- -- -- -- 159,722
- --------------------------------------------------------------------------------------------------------------------------
Time deposits 328,682 399,426 197,088 52,753 3,356 981,305
- --------------------------------------------------------------------------------------------------------------------------
Other 1,518 -- -- -- -- 1,518
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 686,973 399,426 511,696 52,753 3,356 1,654,204
- --------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 246,659 -- -- -- -- 246,659
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt -- -- -- 1,679 6,751 8,430
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING
LIABILITIES 933,632 399,426 511,696 54,432 10,107 1,909,293
- --------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP (407,337) 259,429 (26,908) 281,921 277,581 384,686
- --------------------------------------------------------------------------------------------------------------------------
CUMULATIVE RATE SENSITIVITY GAP (407,337) (147,908) (174,816) 107,105 384,686
- --------------------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP AS A PERCENTAGE
OF TOTAL INTEREST EARNING ASSETS -17.76% -6.45% -7.62% 4.67% 16.77%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Investment securities and loans that are subject to prepayment are shown in
the table by the earlier of their repricing date or their expected
repayment dates and not by their contractual maturity.
(2) Management considers interest bearing checking accounts and savings
accounts to be core deposits and therefore, not as rate sensitive as other
deposit accounts and borrowed money. Accordingly, only 25% of interest
bearing checking accounts and 50% of savings accounts are considered to
reprice within one year. If all of the interest bearing checking accounts
and savings accounts were considered to reprice within one year, the
one-year cumulative gap would change from a negative 6.45% to a negative
20.16%.
<PAGE> 15
37
The interest rate sensitivity gap analysis provides a good overall picture of
the Corporation's static interest rate risk position. The Corporation's policy
is that the twelve month cumulative gap position should not exceed fifteen
percent of interest earning assets for three consecutive quarters. At December
31, 1998, the cumulative interest bearing liabilities maturing or repricing
within twelve months were $1,333 million compared to the cumulative interest
earning assets maturing or repricing within twelve months of $1,185 million. For
the twelve months, rate sensitive liabilities exceed rate sensitive assets by
$148 million or 6.45% of earning assets. This is expressed in the table as a
negative number because cumulative rate sensitive liabilities within twelve
months exceed cumulative rate sensitive assets within twelve months.
A negative twelve month cumulative rate sensitivity gap would suggest that the
Corporation's net interest margin would modestly decrease if interest rates were
to rise. However, the usefulness of the interest sensitivity gap analysis as a
forecasting tool in projecting net interest income is limited. The gap analysis
does not consider the magnitude by which assets or liabilities will reprice
during a period and also contains assumptions as to the repricing of transaction
and savings accounts that may not prove to be correct.
The cumulative twelve month interest rate sensitivity gap position at December
31, 1997 was a positive $56 million or 2.63% of interest earning assets compared
to a negative $148 million or a negative 6.45% of interest earning assets at
December 31, 1998. This change in the cumulative twelve month interest rate
sensitivity gap of a negative $204 million was primarily due to a decrease in
loan totals maturing or repricing within twelve months of $128 million. Various
residential and commercial loan products were introduced in 1998 that reprice
within three to five years instead of the traditional one year repricing
products. The five year cumulative interest rate sensitivity gap position of
4.67% at December 31, 1998 was slightly higher than the 4.52% five year gap
position at December 31, 1997.
Management supplements the interest rate sensitivity gap analysis with periodic
simulations of balance sheet sensitivity under various interest rate and what-if
scenarios to better forecast and manage the net interest margin. The Corporation
uses an earnings simulation model to analyze net interest income sensitivity to
movements in interest rates. This model is based on actual cash flows and
repricing characteristics for balance sheet instruments and incorporates
market-based assumptions regarding the impact of changing interest rates on the
prepayment rate of certain assets and liabilities. This model also includes
management's projections for activity levels of various balance sheet
instruments and noninterest fee income and operating expense. Assumptions based
on the historical behavior of deposit rates and balances in relation to changes
in interest rates are also incorporated into this earnings simulation model.
These assumptions are inherently uncertain and as a result, the model cannot
precisely measure net interest income or precisely predict the impact of changes
in interest rates on net interest income and net income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes as well as changes in market conditions and management
strategies.
Management uses a .50% change in market interest rates per quarter for a total
of 2.00% per year in evaluating the impact of changing interest rates on net
interest income and net income over a twelve month horizon. At December 31,
1998, the earnings simulation model projected that net income would increase by
.9% using a rising interest rate scenario and decrease by .9% using a declining
interest rate scenario over the next year. At December 31, 1997, the earnings
simulation model projected that net income would increase by 2.2% using a rising
interest rate scenario and decrease by 2.2% using a declining interest rate
scenario over the next year. Even though the static one year interest
sensitivity gap position is negative at December 31, 1998, management believes
that earnings would increase slightly with rising interest rates over a one year
horizon.
CAPITAL: The Corporation's primary means of maintaining capital adequacy is
through net retained earnings. At December 31, 1998, the Corporation's equity
capital was $235.7 million, an increase of 6.1% over the equity capital at
December 31, 1997. Stockholders' equity at December 31, 1998 was 9.58% of total
assets compared to 9.71% of total assets at December 31, 1997.
<PAGE> 16
38
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts and bank holding companies. The unrealized gain or
loss on available-for-sale securities is not included in computing regulatory
capital. The capital standard of risk-based capital to risk-based assets is
8.00% at December 31, 1998. At year-end 1998, the Corporation had a risk-based
capital ratio of 14.92% or capital above the minimum required by $109.6 million.
The capital standard of tier l capital to risk-based assets is 4% at December
31, 1998. Tier l capital includes stockholders' equity net of goodwill and any
other intangible assets. At year-end 1998, the Corporation had a tier l capital
to risk-based assets ratio of 13.64% or capital above the minimum required by
$152.6 million. Bank regulators have also established a leverage capital ratio
of 4%, consisting of tier 1 capital to total assets, not risk adjusted. At
year-end 1998, the Corporation had a leverage capital ratio of 9.06% or capital
above the minimum required by $120.6 million. Regulatory guidelines also
establish capital ratio requirements for "well capitalized" bank holding
companies. The capital ratios are 10% for risk-based capital, 6% for tier 1
capital to risk-based assets and 5% for tier 1 capital to total assets. The
Corporation exceeds these higher capital standards and therefore is classified
as "well capitalized."
The financial institution subsidiaries of the Corporation each met the well
capitalized capital ratio guidelines at December 31, 1998. The table below
indicates the capital ratios for each subsidiary and the Corporation at December
31, 1998:
<TABLE>
<CAPTION>
TABLE 12 - CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------------------------
TIER 1 TOTAL
DECEMBER 31, 1998 LEVERAGE RISK-BASED RISK-BASED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park National Bank 6.09% 8.44% 10.98%
- ------------------------------------------------------------------------------------------------------------------------
Richland Trust Company 6.50% 11.91% 13.17%
- ------------------------------------------------------------------------------------------------------------------------
Century National Bank 6.01% 10.63% 11.88%
- ------------------------------------------------------------------------------------------------------------------------
First-Knox National Bank 6.24% 9.24% 11.09%
- ------------------------------------------------------------------------------------------------------------------------
Park National Corporation 9.06% 13.64% 14.92%
- ------------------------------------------------------------------------------------------------------------------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
- ------------------------------------------------------------------------------------------------------------------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
RISK-BASED CAPITAL RATIOS DECEMBER 31, 1998
[GRAPHIC]
Park
Well Capitalized
Regulatory Minimum
AVERAGE STOCKHOLDERS' EQUITY (millions)
<TABLE>
<S> <C>
1998 $226.6
1997 $207.0
1996 $187.8
1995 $168.4
1994 $150.6
</TABLE>
<PAGE> 17
39
EFFECTS OF INFLATION: Balance sheets of financial institutions typically contain
assets and liabilities that are monetary in nature and therefore, differ greatly
from most commercial and industrial companies which have significant investments
in premises, equipment and inventory. During periods of inflation, financial
institutions that are in a net positive monetary position will experience a
decline in purchasing power, which does have an impact on growth. Another
significant effect on internal equity growth is other expenses, which tend to
rise during periods of inflation.
Management believes the most significant impact on financial results is the
Company's ability to align its asset/liability management program to react to
changes in interest rates.
The following table summarizes five-year financial information:
<TABLE>
<CAPTION>
TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN THOUSANDS, 1998 1997 1996 1995 1994
EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------------
Results of Operations:
<S> <C> <C> <C> <C> <C>
Interest income $ 185,946 $ 180,288 $ 163,193 $ 150,288 $ 127,411
------------------------------------------------------------------------------------------------------------------------
Interest expense 78,295 77,032 69,155 64,347 48,791
------------------------------------------------------------------------------------------------------------------------
Net interest income 107,651 103,256 94,038 85,941 78,620
------------------------------------------------------------------------------------------------------------------------
Noninterest income 23,969 20,701 16,660 16,049 11,783
------------------------------------------------------------------------------------------------------------------------
Noninterest expense 64,309 62,408 59,112 56,501 52,512
------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,798 6,999 5,294 5,248 2,478
------------------------------------------------------------------------------------------------------------------------
Net income 41,572 37,693 31,700 27,829 25,181
------------------------------------------------------------------------------------------------------------------------
PER SHARE:
Net income - basic 4.45 4.02 3.39 2.96 2.68
------------------------------------------------------------------------------------------------------------------------
Net income - diluted 4.43 4.00 3.38 2.95 2.67
------------------------------------------------------------------------------------------------------------------------
Cash dividends declared 2.04 1.68 1.45 1.25 0.98
------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Loans $1,600,510 $1,527,694 $1,379,973 $1,318,275 $1,221,333
------------------------------------------------------------------------------------------------------------------------
Investment securities 575,339 548,320 472,107 421,089 429,572
------------------------------------------------------------------------------------------------------------------------
Money market instruments and other 2,678 8,132 39,573 17,325 8,612
------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 2,178,527 2,084,146 1,891,653 1,756,689 1,659,517
------------------------------------------------------------------------------------------------------------------------
Noninterest bearing deposits 256,817 228,598 207,262 196,406 186,508
------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits 1,620,159 1,550,865 1,420,919 1,317,325 1,264,862
------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,876,976 1,779,463 1,628,181 1,513,731 1,451,370
------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 190,175 162,626 126,721 139,035 130,831
------------------------------------------------------------------------------------------------------------------------
Long-term debt 15,099 46,652 46,497 33,413 27,246
------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 226,601 206,999 187,755 168,432 150,640
------------------------------------------------------------------------------------------------------------------------
Total assets 2,335,483 2,219,582 2,011,795 1,872,999 1,772,848
------------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average assets 1.78% 1.70% 1.58% 1.49% 1.42%
------------------------------------------------------------------------------------------------------------------------
Return on average equity 18.35% 18.21% 16.88% 16.52% 16.72%
------------------------------------------------------------------------------------------------------------------------
Net interest margin (1) 5.05% 5.05% 5.09% 5.02% 4.88%
------------------------------------------------------------------------------------------------------------------------
Noninterest expense to
net revenue (1) 48.01% 49.51% 52.34% 54.24% 56.59%
------------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 45.84% 41.93% 40.66% 38.45% 33.95%
------------------------------------------------------------------------------------------------------------------------
Average stockholders' equity to
average total assets 9.70% 9.33% 9.33% 8.99% 8.50%
------------------------------------------------------------------------------------------------------------------------
Leveraged capital 9.06% 8.91% 8.73% 9.06% 8.62%
------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 13.64% 13.46% 13.16% 14.06% 13.37%
------------------------------------------------------------------------------------------------------------------------
Risk-based capital 14.92% 14.72% 14.42% 15.30% 14.61%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed on a fully taxable equivalent basis
<PAGE> 18
40
The following table is a summary of selected quarterly results of operations for
the years ended December 31, 1998 and 1997. Certain quarterly amounts have been
reclassified to conform to the year-end financial statement presentation.
<TABLE>
<CAPTION>
TABLE 14 - QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, THREE MONTHS ENDED
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C>
Interest income $45,560 $46,450 $46,939 $46,997
- ------------------------------------------------------------------------------------------------------------------------
Interest expense 19,235 19,604 20,089 19,367
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 26,325 26,846 26,850 27,630
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,674 1,674 1,674 1,776
- ------------------------------------------------------------------------------------------------------------------------
Gain on the sale of securities 97 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,305 15,815 15,561 13,832
- ------------------------------------------------------------------------------------------------------------------------
Net income 10,583 10,949 10,766 9,274
- ------------------------------------------------------------------------------------------------------------------------
Per share data:
Net income - basic 1.13 1.17 1.15 1.00
- ------------------------------------------------------------------------------------------------------------------------
Net income - diluted 1.12 1.17 1.15 0.99
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common
stock outstanding - basic 9,386,913 9,352,684 9,316,955 9,305,664
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common
stock equivalent - diluted 9,431,895 9,397,929 9,366,363 9,349,725
- ------------------------------------------------------------------------------------------------------------------------
1997:
Interest income $43,398 $45,144 $45,665 $46,081
- ------------------------------------------------------------------------------------------------------------------------
Interest expense 18,777 19,466 19,450 19,339
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 24,621 25,678 26,215 26,742
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,194 1,454 1,521 2,830
- ------------------------------------------------------------------------------------------------------------------------
Loss on the sale of securities -- -- (7) --
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 13,016 13,849 15,040 12,645
- ------------------------------------------------------------------------------------------------------------------------
Net income 8,989 9,552 10,384 8,768
- ------------------------------------------------------------------------------------------------------------------------
Per share data:
Net income - basic 0.96 1.02 1.11 0.93
- ------------------------------------------------------------------------------------------------------------------------
Net income - diluted 0.96 1.01 1.10 0.93
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common
stock outstanding - basic 9,343,358 9,402,886 9,410,162 9,386,903
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common
stock equivalent - diluted 9,390,650 9,420,240 9,448,032 9,436,164
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
41
The Corporation's common stock (symbol: PRK) is traded on the American Stock
Exchange (AMEX). At December 31, 1998, the Corporation had 2,779 stockholders of
record. The following table sets forth the high, low and closing sale prices of,
and dividends declared on the common stock for each quarterly period for the
years ended December 31, 1998 and 1997, as reported by AMEX.
<TABLE>
<CAPTION>
TABLE 15 - MARKET AND DIVIDEND
- ------------------------------------------------------------------------------------------------------------------------
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
----------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C>
First Quarter $ 95 $ 85 $ 95 $ 0.48
- ------------------------------------------------------------------------------------------------------------------------
Second Quarter 102 15/16 89 1/4 100 15/16 0.48
- ------------------------------------------------------------------------------------------------------------------------
Third Quarter 107 1/4 94 1/2 104 0.48
- ------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 106 1/2 90 1/2 103 0.60
- ------------------------------------------------------------------------------------------------------------------------
1997:
First Quarter $ 54 5/8 $ 51 1/8 $ 54 5/8 $ 0.40
- ------------------------------------------------------------------------------------------------------------------------
Second Quarter 79 3/4 54 1/8 79 3/4 0.40
- ------------------------------------------------------------------------------------------------------------------------
Third Quarter 80 7/8 66 5/8 80 7/8 0.40
- ------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 98 80 88 1/8 0.48
</TABLE>
TEN-YEAR RETURN (December 31, 1988 - December 31, 1998)
<TABLE>
<S> <C>
88 $ 1,000
89
90
91
92
93
94
95
96
97
98 $10,903
</TABLE>
(Assumes initial investment of $1,000 with reinvestment of dividends in the
common stock of Park)
<PAGE> 20
43
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Park National Corporation
We have audited the accompanying consolidated balance sheets of Park National
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Corporation'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 audit 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Park National
Corporation and Subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
-----------------------------------
Columbus, Ohio
January 19, 1999
<PAGE> 21
44
CONSOLIDATED BALANCE SHEETS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1998 and 1997 (Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 100,291 $ 93,585
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value
(amortized cost of $634,809 and $522,179 at
December 31, 1998 and 1997, respectively) 646,403 532,922
- ------------------------------------------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized
cost (fair value approximates $6,347 and
$8,156 at December 31, 1998 and 1997, respectively) 6,064 7,808
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 652,467 540,730
- ------------------------------------------------------------------------------------------------------------------------
Loans 1,654,003 1,603,648
- ------------------------------------------------------------------------------------------------------------------------
Unearned loan interest (12,491) (11,721)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,641,512 1,591,927
- ------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (37,989) (35,595)
- ------------------------------------------------------------------------------------------------------------------------
LOANS, NET 1,603,523 1,556,332
- ------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 26,755 27,805
- ------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 14,356 13,923
- ------------------------------------------------------------------------------------------------------------------------
Other 63,387 56,008
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 104,498 97,736
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,460,779 $2,288,383
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 22
45
CONSOLIDATED BALANCE SHEETS (CONTINUED)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1998 and 1997 (Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
<S> <C> <C>
Noninterest bearing $ 285,574 $ 257,867
- ------------------------------------------------------------------------------------------------------------------------
Interest bearing 1,654,204 1,597,097
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,939,778 1,854,964
- ------------------------------------------------------------------------------------------------------------------------
BORROWINGS:
Short-Term Borrowings 246,659 151,624
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 8,430 30,868
- ------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES:
Accrued interest payable 6,938 6,548
- ------------------------------------------------------------------------------------------------------------------------
Other 23,284 22,262
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 30,222 28,810
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,225,089 2,066,266
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, no par value (20,000,000 shares authorized;
9,553,407 shares issued in 1998 and 9,551,203
issued in 1997) 68,398 68,275
- ------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive
income, net 7,536 7,019
- ------------------------------------------------------------------------------------------------------------------------
Retained earnings 177,050 154,535
- ------------------------------------------------------------------------------------------------------------------------
Less: Treasury stock (245,491 shares in 1998 and
158,864 shares in 1997) (17,294) (7,712)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 235,690 222,117
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,460,779 $2,288,383
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 23
46
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1998, 1997 and 1996 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on loans $ 147,632 $ 142,500 $ 129,384
- ------------------------------------------------------------------------------------------------------------------------
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 33,290 33,229 28,125
- ------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 4,872 4,099 3,500
- ------------------------------------------------------------------------------------------------------------------------
Other interest income 152 460 2,184
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 185,946 180,288 163,193
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
Demand and savings deposits 15,995 16,749 16,049
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 52,346 49,699 44,612
- ------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 9,079 7,738 5,694
- ------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 875 2,846 2,800
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 78,295 77,032 69,155
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 107,651 103,256 94,038
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,798 6,999 5,294
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 100,853 96,257 88,744
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 5,081 5,192 4,099
- ------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts 6,823 6,308 5,849
- ------------------------------------------------------------------------------------------------------------------------
Gain/(loss) on sales of securities 97 (7) (1,324)
- ------------------------------------------------------------------------------------------------------------------------
Other service income 5,149 3,598 3,236
- ------------------------------------------------------------------------------------------------------------------------
Other 6,819 5,610 4,800
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 23,969 $ 20,701 $ 16,660
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 24
47
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
for the years ended December 31, 1998, 1997 and 1996 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits $ 31,738 $ 31,888 $ 28,966
- ------------------------------------------------------------------------------------------------------------------------
Data processing fees 4,518 5,306 5,183
- ------------------------------------------------------------------------------------------------------------------------
Fees and service charges 3,344 3,732 4,874
- ------------------------------------------------------------------------------------------------------------------------
Net occupancy expense of bank premises 3,351 3,339 3,063
- ------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 2,787 2,019 635
- ------------------------------------------------------------------------------------------------------------------------
Furniture and equipment expense 4,807 3,680 3,589
- ------------------------------------------------------------------------------------------------------------------------
Insurance 786 774 1,785
- ------------------------------------------------------------------------------------------------------------------------
Marketing 2,247 2,182 1,925
- ------------------------------------------------------------------------------------------------------------------------
Postage and telephone 3,007 2,747 2,539
- ------------------------------------------------------------------------------------------------------------------------
State taxes 1,729 1,957 2,022
- ------------------------------------------------------------------------------------------------------------------------
Other 5,995 4,784 4,531
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 64,309 62,408 59,112
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 60,513 54,550 46,292
- ------------------------------------------------------------------------------------------------------------------------
Federal income taxes 18,941 16,857 14,592
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $41,572 $37,693 $31,700
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $4.45 $4.02 $3.39
- ------------------------------------------------------------------------------------------------------------------------
DILUTED $4.43 $4.00 $3.38
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 25
48
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED
------------ OTHER
SHARES RETAINED COMPREHENSIVE TREASURY
OUTSTANDING AMOUNT EARNINGS INCOME, NET STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 9,240,760 $ 62,268 $ 117,695 $ 7,838 $(4,718) $183,083
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (13,000) -- -- -- (640) (640)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued primarily for
stock options exercised 15,628 38 -- -- 650 688
- ------------------------------------------------------------------------------------------------------------------------
Shares issued for dividend reinvestment
plan and stock options 5,540 171 -- -- -- 171
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- 31,700 -- -- 31,700
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income,
net of tax:
Unrealized net holding loss on
securities available-for-sale net
of income taxes of $1,697 (3,151) (3,151)
- ------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (3,151)
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income 28,549
Cash dividends:
Corporation at $1.45 per share -- -- (10,354) (10,354)
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends declared First-Knox,
prior to merger -- -- (2,536) -- -- (2,536)
- ------------------------------------------------------------------------------------------------------------------------
5% stock dividend at First-Knox,
prior to merger 105,510 2,134 (3,857) -- 1,723 --
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 9,354,438 64,611 132,648 4,687 (2,985) 198,961
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (96,721) -- -- -- (6,249) (6,249)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued primarily for
stock options exercised 27,283 -- -- -- 1,522 1,522
- ------------------------------------------------------------------------------------------------------------------------
Shares issued for dividend reinvestment
plan and stock options 107,939 2,325 -- -- -- 2,325
- ------------------------------------------------------------------------------------------------------------------------
Cash payment for fractional shares
in merger (600) (40) -- -- -- (40)
- ------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options -- 1,379 -- -- -- 1,379
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- 37,693 -- -- 37,693
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized net holding gain on
securities available-for-sale net
of income taxes of $1,256 2,332 2,332
- ------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income 2,332
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income 40,025
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at $1.68 per share -- -- (14,905) -- -- (14,905)
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends declared at First-Knox,
prior to merger -- -- (901) -- -- (901)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9,392,339 68,275 154,535 7,019 (7,712) 222,117
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (124,228) -- -- -- (11,829) (11,829)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued primarily for
stock options exercised 37,601 -- -- -- 2,247 2,247
- ------------------------------------------------------------------------------------------------------------------------
Shares issued for stock options 2,204 81 -- -- -- 81
- ------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options -- 42 -- -- -- 42
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- 41,572 -- -- 41,572
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized net holding gain on
securities available-for-sale net
of income taxes of $278 517 517
- ------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income 517
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income 42,089
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at $2.04 per share -- -- (19,057) -- -- (19,057)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 9,307,916 $68,398 $177,050 $7,536 $(17,294) $235,690
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 26
49
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996 (Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $41,572 $ 37,693 $ 31,700
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,798 6,999 5,294
- ------------------------------------------------------------------------------------------------------------------------
Amortization of loan costs and fees, net (796) (788) (475)
- ------------------------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 4,491 3,273 3,005
- ------------------------------------------------------------------------------------------------------------------------
Market loss on loans held-for-sale -- -- 59
- ------------------------------------------------------------------------------------------------------------------------
Amortization of the excess of cost over net assets
of banks purchased 2,787 2,019 380
- ------------------------------------------------------------------------------------------------------------------------
Accretion of investment security discounts, net (1,357) (1,726) (1,658)
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 829 139 (213)
- ------------------------------------------------------------------------------------------------------------------------
Realized investment security (gains) losses (97) 7 1,324
- ------------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities:
Increase in other assets (11,762) (5,781) (4,521)
- ------------------------------------------------------------------------------------------------------------------------
Increase in other liabilities 338 2,949 223
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,803 44,784 35,118
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available-for-sale 51,839 45,083 85,717
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from maturities of securities:
Held-to-maturity 1,727 2,973 2,110
- ------------------------------------------------------------------------------------------------------------------------
Available-for-sale 133,674 141,765 86,150
- ------------------------------------------------------------------------------------------------------------------------
Purchases of securities:
Held-to-maturity -- -- (1,575)
- ------------------------------------------------------------------------------------------------------------------------
Available-for-sale (296,672) (150,873) (290,580)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in loans (53,192) (111,284) (87,612)
- ------------------------------------------------------------------------------------------------------------------------
Purchase of loans -- (11,582) (30,755)
- ------------------------------------------------------------------------------------------------------------------------
Cash paid for branches -- (6,748) (10,857)
- ------------------------------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (3,442) (2,740) (2,072)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (166,066) (93,406) (249,474)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchase of deposits -- 49,192 97,928
- ------------------------------------------------------------------------------------------------------------------------
Net increase in deposits 84,814 42,354 54,883
- ------------------------------------------------------------------------------------------------------------------------
Net increase in short-term borrowings 95,035 16,513 13,133
- ------------------------------------------------------------------------------------------------------------------------
Issuance of common stock -- -- 337
- ------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 123 3,664 --
- ------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (9,582) (4,727) (118)
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from long-term debt -- -- 30,000
- ------------------------------------------------------------------------------------------------------------------------
Repayment of long-term debt (22,438) (31,507) (1,040)
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (17,983) (15,047) (12,166)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 129,969 60,442 182,957
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,706 11,820 (31,399)
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 93,585 81,765 113,164
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $100,291 $ 93,585 $ 81,765
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 27
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Park National
Corporation (the Corporation or Park) and all of its subsidiaries. Material
intercompany accounts and transactions have been eliminated.
Organization
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
Through its banking subsidiaries, The Park National Bank (PNB), The Richland
Trust Company (RTC), Century National Bank (CNB), and The First-Knox National
Bank of Mount Vernon (FKNB), the Corporation is engaged in a general commercial
banking and trust business, primarily in Central Ohio. PNB operates through two
banking divisions with the Park National Division (PND) headquartered in Newark,
Ohio and the Fairfield National Division (FND) headquartered in Lancaster, Ohio.
FKNB also operates through two banking divisions with the First-Knox National
Division (FKND) headquartered in Mount Vernon, Ohio and the Farmers and Savings
Division (FSD) headquartered in Loudonville, Ohio. All of the banking
subsidiaries and their respective divisions provide the following principal
services: the acceptance of deposits for demand, savings, and time accounts;
commercial, industrial, consumer and real estate lending, including installment
loans, credit cards, home equity lines of credit and commercial and auto
leasing; trust services; cash management; safe deposit operations; electronic
funds transfers; and a variety of additional banking-related services. See Note
19 for financial information on the Corporation's banking subsidiaries.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year
presentation.
Investment Securities
Investment securities are classified upon acquisition into one of three
categories: Held-to-maturity, available-for-sale, or trading (see Note 4).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available
to be sold in the future in response to the Corporation's liquidity needs,
changes in market interest rates, and asset-liability management strategies,
among others. Available-for-sale securities are reported at fair value, with
unrealized holding gains and losses excluded from earnings and included in other
comprehensive income, net of applicable taxes. At December 31, 1998 and 1997,
the Corporation did not hold any trading securities.
Gains and losses realized on the sale of investment securities have been
accounted for on the completed transaction method in the year of sale on an
"identified certificate" basis.
<PAGE> 28
51
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is generally provided on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lives of the respective leases or the estimated useful lives
of the improvements, whichever are the shorter periods. Upon the sale or other
disposal of the assets, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred while renewals and
improvements are capitalized.
Other Real Estate Owned
Other real estate owned is recorded at the lower of cost or fair market value
(which is not in excess of estimated net realizable value) and consists of
property acquired through foreclosure, loans in judgment and subject to
redemption, and real estate held for sale. Subsequent to acquisition, allowances
for losses are established if carrying values exceed fair value less estimated
costs to sell. Costs relating to development and improvement of such properties
are capitalized (not in excess of fair value less estimated costs to sell),
whereas costs relating to holding the properties are charged to expense.
Income Recognition
Income earned by the Corporation and its subsidiaries is recognized principally
on the accrual basis of accounting. Loan origination fees are amortized over the
life of the loans using the interest method on a loan by loan basis, and
origination costs are deferred and amortized if material. Certain fees,
principally service, are recognized as income when billed or collected.
The Corporation's subsidiaries suspend the accrual of interest when, in
management's opinion, the collection of all or a portion of interest has become
doubtful. Generally, when a loan is placed on non-accrual, the Corporation's
subsidiaries charge all previously accrued and unpaid interest against income.
In future periods, interest will be included in income to the extent received
only if complete principal recovery is reasonably assured.
Allowance for Possible Loan Losses
The allowance for possible loan losses is that amount believed adequate to
absorb estimated credit losses in the loan portfolio based on management's
evaluation of various factors including overall growth in the loan portfolio, an
analysis of individual loans, prior and current loss experience, and current and
anticipated economic conditions. A provision for loan losses is charged to
operations based on management's periodic evaluation of these and other
pertinent factors.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosure." These standards require an allowance
to be established as a component of the allowance for loan losses for certain
loans when it is probable that all amounts due pursuant to the contractual terms
of the loan will not be collected, and the recorded investment in the loan
exceeds the fair value. Fair value is measured using either the present value of
expected future cash flows based upon the initial effective interest rate on the
loan, the observable market price of the loan or the fair value of the
collateral if the loan is collateral dependent. The adoption of these standards
did not have a material impact on the overall allowance for loan losses and did
not affect the Corporation's charge-off or income recognition policies.
<PAGE> 29
52
Lease Financing
Leases of equipment, automobiles, and aircraft to customers generally are direct
leases in which the Corporation's subsidiaries have acquired the equipment,
automobiles, or aircraft with no outside financing.
Such leases are accounted for as direct financing leases for financial reporting
purposes. Under the direct financing method, a receivable is recorded for the
total amount of the lease payments to be received.
Unearned lease income, representing the excess of the sum of the aggregate
rentals of the equipment, automobiles or aircraft over its cost is included in
income over the term of the lease under the interest method.
Excess of Cost Over Net Assets of Banks Purchased
The excess of cost over net assets of the banks purchased is being amortized,
principally on the straight-line method, over periods ranging from seven to
fifteen years.
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from banks
and federal funds sold. Generally federal funds are purchased and sold for one
day periods.
Net cash provided by operating activities reflects cash payments as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid on deposits and other borrowings $77,905 $77,105 $68,541
- ------------------------------------------------------------------------------------------------------------------------
Income taxes paid 19,550 14,104 15,808
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income Taxes
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Accounting Changes
As of January 1, 1998, the Corporation adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes reporting and display standards for comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances arising from
nonowner sources. The new statement requires the Corporation's unrealized gains
or losses on securities available-for-sale, which prior to adoption were
reported as a separate component of stockholders' equity, to be included in
other comprehensive income. Since SFAS No. 130 only requires additional
information, it had no impact on the Corporation's financial position or results
of operations. Prior year financial statements have been reclassified to conform
with the new requirements. Comprehensive income is presented in the Statements
of Changes in Stockholders' Equity.
<PAGE> 30
53
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The provisions
of this statement require that derivative instruments be carried at fair value
on the balance sheet. The statement continues to allow derivative instruments to
be used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings. The provisions of this
statement become effective for quarterly and annual reporting beginning January
1, 2000. Although the statement allows for early adoption in any quarterly
period after June 1998, the Corporation has no plans to adopt the provisions of
SFAS No. 133 prior to the effective date. The Corporation did not use any
derivative instruments in 1998 and 1997 and as a result does not expect that
adoption of this statement will have any impact of the Corporation's financial
position, results of operations and cash flows.
2. ACQUISITIONS
On May 5, 1997, the Corporation merged with First-Knox Banc Corp. (First-Knox),
a $569 million bank holding company headquartered in Mount Vernon, Ohio, in a
transaction accounted for as a pooling-of-interests. Park issued approximately
2.3 million shares of common stock to the stockholders of First-Knox based upon
an exchange ratio of .5914 shares of Park common stock for each outstanding
share of First-Knox common stock. The historical financial statements of the
Corporation have been restated to show Park and First-Knox on a combined basis.
On December 8, 1997, Fairfield National Division acquired three branch offices
in Lancaster, Ohio from KeyBank National Association. In addition to the fixed
assets, the purchase included $49 million of deposits and $12 million of loans.
The excess of the cost over net assets purchased was $6 million and is being
amortized using the straight-line method over seven years.
On December 6, 1996, Richland Trust Company acquired five branch offices in
Richland County from Peoples National Bank. In addition to the fixed assets, the
purchase included $98 million of deposits and $31 million of loans. The banking
business of the five branches was consolidated into Richland Trust Company's
operations. The excess of the cost over net assets purchased was $10 million and
is being amortized using the straight-line method over seven years.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average required reserve balance was
approximately $16,851,000 and $19,493,000 at December 31, 1998 and 1997,
respectively. No other compensating balance arrangements were in existence at
year end.
<PAGE> 31
54
<TABLE>
<CAPTION>
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31 are as follows:
- -------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
(IN THOUSANDS) AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 172,150 $ 3,380 $ -- $ 175,530
- ------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions 100,790 4,159 45 104,904
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities and
other asset-backed securities 341,247 3,574 237 344,584
- ------------------------------------------------------------------------------------------------------------------------
Other equity securities 20,622 763 -- 21,385
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE-FOR-SALE $ 634,809 $ 11,876 $ 282 $ 646,403
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 5,712 $ 283 $ 3 $ 5,992
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 352 3 -- 355
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD-TO-MATURITY $ 6,064 $ 286 $ 3 $ 6,347
- ------------------------------------------------------------------------------------------------------------------------
1997:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 155,780 $ 3,468 $ -- $ 159,248
- ------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions 76,803 3,192 62 79,933
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities and
other asset-backed securities 270,708 3,628 102 274,234
- ------------------------------------------------------------------------------------------------------------------------
Other equity securities 18,888 619 -- 19,507
- ------------------------------------------------------------------------------------------------------------------------
Total Securities Available-for-Sale $ 522,179 $ 10,907 $ 164 $ 532,922
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 7,434 $ 349 $ 5 $ 7,778
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 374 4 -- 378
- ------------------------------------------------------------------------------------------------------------------------
Total Securities Held-to-Maturity $ 7,808 $ 353 $ 5 $ 8,156
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
55
The amortized cost and estimated fair value of investments in debt securities at
December 31, 1998 are shown below by contractual maturity except for
asset-backed securities which are shown based on expected maturities. The
average yield is computed on a tax equivalent basis using a 35 percent tax rate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) COST FAIR VALUE MATURITY YIELD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and agencies' notes:
Due within one year $ 71,418 $ 72,173 0.4 years 7.45%
- ------------------------------------------------------------------------------------------------------------------------
Due one through five years 100,732 103,357 2.4 years 6.74%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 172,150 $175,530 1.6 years 7.03%
- ------------------------------------------------------------------------------------------------------------------------
Obligations of state and political subdivisions:
Due within one year $ 7,290 $ 7,376 0.5 years 7.75%
- ------------------------------------------------------------------------------------------------------------------------
Due one through five years 23,912 24,864 3.5 years 7.62%
- ------------------------------------------------------------------------------------------------------------------------
Due five through ten years 59,296 62,085 7.9 years 7.26%
- ------------------------------------------------------------------------------------------------------------------------
Due over ten years 10,292 10,579 12.5 years 6.90%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 100,790 $ 104,904 6.8 years 7.34%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies' asset-backed
securities and other asset-backed securities:
Due within one year $ 9,102 $ 9,139 0.4 years 6.91%
- ------------------------------------------------------------------------------------------------------------------------
Due one through five years 318,549 321,842 3.2 years 6.47%
- ------------------------------------------------------------------------------------------------------------------------
Due five through ten years 13,596 13,603 6.3 years 6.26%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 341,247 $ 344,584 3.2 years 6.47%
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of state and political subdivisions:
Due within one year $ 1,514 $ 1,541 0.8 years 7.90%
- ------------------------------------------------------------------------------------------------------------------------
Due one through five years 9,106 3,359 2.6 years 11.00%
- ------------------------------------------------------------------------------------------------------------------------
Due five through ten years 807 807 7.4 years 8.00%
- ------------------------------------------------------------------------------------------------------------------------
Due over ten years 285 285 11.4 years 7.63%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 5,712 $ 5,992 3.2 years 9.59%
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities:
Due one through five years $ 45 $ 48 3.5 years 8.69%
- ------------------------------------------------------------------------------------------------------------------------
Due over ten years 307 307 13.0 years 6.07%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 352 $ 355 11.8 years 6.40%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $432,489,000 and $378,469,000 at
December 31, 1998 and 1997, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
In 1998, 1997, and 1996, gross gains of $159,000, $64,000, and $234,000 and
gross losses of $62,000, $71,000, and $1,558,000 were realized, respectively.
Tax benefits related to net securities losses were $2,000 in 1997, and $463,000
in 1996. Tax expense related to net securities gains in 1998 was $34,000.
<PAGE> 33
56
<TABLE>
<CAPTION>
5. LOANS
The composition of the loan portfolio is as follows:
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 217,504 $ 212,970
- ------------------------------------------------------------------------------------------------------------------------
Real estate - construction 70,998 65,548
- ------------------------------------------------------------------------------------------------------------------------
Real estate - residential 679,239 708,768
- ------------------------------------------------------------------------------------------------------------------------
Real estate - commercial 280,789 256,074
- ------------------------------------------------------------------------------------------------------------------------
Consumer, net 332,320 313,517
- ------------------------------------------------------------------------------------------------------------------------
Leases, net 60,662 35,050
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $1,641,512 $1,591,927
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, financial, agricultural, construction and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114 and
118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer
loans, residential real estate loans and lease financing classified as
nonaccrual. The majority of the loans deemed impaired were evaluated using the
fair value of the collateral as the measurement method.
Nonaccrual and restructured loans are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Impaired loans:
<S> <C> <C>
Nonaccrual $ 2,150 $ 1,070
- ------------------------------------------------------------------------------------------------------------------------
Restructured 492 1,642
- ------------------------------------------------------------------------------------------------------------------------
Total impaired loans 2,642 2,712
- ------------------------------------------------------------------------------------------------------------------------
Other nonaccrual loans 5 990
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONACCRUAL AND RESTRUCTURED LOANS $ 2,647 $ 3,702
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The allowance for credit losses related to impaired loans at December 31, 1998
and 1997 was $436,000 and $406,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,457,000, $3,599,000 and $3,663,000
for 1998, 1997 and 1996, respectively.
Interest income on impaired loans is recognized after all past due and current
principal payments have been made, and collectibility is no longer doubtful. For
the years ended December 31, 1998, 1997, and 1996, the Corporation recognized
$149,000, $283,000, and $353,000, respectively, of interest income on impaired
loans, which included $121,000, $270,000, and $344,000, respectively, of
interest income recognized using the cash basis method of income recognition.
Certain of the Corporation's executive officers, directors and their affiliates
are loan customers of the Corporation's banking subsidiaries. As of December 31,
1998 and 1997, loans aggregating approximately $45,079,000 and $43,555,000,
respectively, were outstanding to such parties.
<PAGE> 34
57
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is
summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $35,595 $32,347 $29,239
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,798 6,999 5,294
- ------------------------------------------------------------------------------------------------------------------------
Losses charged to the reserve (7,392) (6,271) (4,438)
- ------------------------------------------------------------------------------------------------------------------------
Recoveries 2,988 2,520 2,252
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $37,989 $35,595 $32,347
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's
affiliates' net investment in direct financing leases:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total minimum payments to be received $50,118 $26,294
- ------------------------------------------------------------------------------------------------------------------------
Estimated unguaranteed residual value of leased property 19,230 14,712
- ------------------------------------------------------------------------------------------------------------------------
Less: unearned income (8,686) (5,956)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $60,662 $35,050
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Minimum lease payments, to be received as of December 31, 1998 are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $13,337
- ------------------------------------------------------------------------------------------------------------------------
2000 13,012
- ------------------------------------------------------------------------------------------------------------------------
2001 10,914
- ------------------------------------------------------------------------------------------------------------------------
2002 8,100
- ------------------------------------------------------------------------------------------------------------------------
2003 4,244
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $50,118
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
58
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 6,392 $ 6,524
- ------------------------------------------------------------------------------------------------------------------------
Buildings 26,203 25,851
- ------------------------------------------------------------------------------------------------------------------------
Equipment, furniture and fixtures 27,514 24,720
- ------------------------------------------------------------------------------------------------------------------------
Leasehold improvements 1,144 1,144
- ------------------------------------------------------------------------------------------------------------------------
TOTAL 61,253 58,239
- ------------------------------------------------------------------------------------------------------------------------
Less: accumulated depreciation and amortization (34,498) (30,434)
- ------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 26,755 $ 27,805
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense amounted to $4,491,000, $3,273,000, and
$3,005,000 for the three years ended December 31, 1998, 1997 and 1996,
respectively.
The Corporation and its subsidiaries lease certain premises and equipment
accounted for as operating leases. The following is a schedule of the future
minimum rental payments required for the next five years under such leases with
initial terms in excess of one year:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $ 462
- ------------------------------------------------------------------------------------------------------------------------
2000 388
- ------------------------------------------------------------------------------------------------------------------------
2001 319
- ------------------------------------------------------------------------------------------------------------------------
2002 258
- ------------------------------------------------------------------------------------------------------------------------
2003 229
- ------------------------------------------------------------------------------------------------------------------------
Thereafter 421
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $2,077
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rent expense amounted to $659,000, $639,000 and $609,000, for the three years
ended December 31, 1998, 1997 and 1996, respectively.
9. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to
<S> <C> <C>
repurchase and federal funds purchased $160,616 $127,587
- ------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advances 80,000 18,900
- ------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings 6,043 5,137
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $246,659 $151,624
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
59
The outstanding balances for all short-term borrowings as of December 31, 1998,
1997 and 1996 and the weighted-average interest rates as of and paid during each
of the years then ended are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE DEMAND
AGREEMENTS FEDERAL NOTES
AND FEDERAL HOME LOAN DUE U.S.
FUNDS BANK TREASURY
(DOLLARS IN THOUSANDS) PURCHASED ADVANCES AND OTHER
- ------------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C>
ENDING BALANCE $160,616 $80,000 $6,043
- ------------------------------------------------------------------------------------------------------------------------
HIGHEST MONTH-END BALANCE 182,957 104,300 6,043
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE DAILY BALANCE 157,951 29,356 2,868
- ------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE INTEREST RATE:
AS OF YEAR-END 4.21% 6.00% 4.06%
- ------------------------------------------------------------------------------------------------------------------------
PAID DURING THE YEAR 4.58% 5.83% 4.87%
- ------------------------------------------------------------------------------------------------------------------------
1997:
Ending balance $127,587 $18,900 $5,137
- ------------------------------------------------------------------------------------------------------------------------
Highest month-end balance 161,172 86,000 5,137
- ------------------------------------------------------------------------------------------------------------------------
Average daily balance 132,976 26,741 2,909
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 4.61% 6.25% 5.75%
- ------------------------------------------------------------------------------------------------------------------------
Paid during the year 4.60% 5.49% 5.25%
- ------------------------------------------------------------------------------------------------------------------------
1996:
Ending balance $119,959 $10,000 $5,152
- ------------------------------------------------------------------------------------------------------------------------
Highest month-end balance 137,843 10,000 5,895
- ------------------------------------------------------------------------------------------------------------------------
Average daily balance 118,592 4,420 3,709
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 4.53% 5.85% 5.32%
- ------------------------------------------------------------------------------------------------------------------------
Paid during the year 4.40% 6.06% 5.75%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 37
60
10. LONG-TERM DEBT
Long-term debt is listed below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY PRINCIPAL AND
INTEREST PAYMENTS:
<S> <C> <C>
5.60% Advance due August 1, 2003 $1,443 $ 1,902
- ------------------------------------------------------------------------------------------------------------------------
6.35% Advance due August 1, 2013 -- 2,628
- ------------------------------------------------------------------------------------------------------------------------
5.95% Advance due March 1, 2004 -- 519
- ------------------------------------------------------------------------------------------------------------------------
5.70% Advance due May 1, 2004 3,199 4,230
- ------------------------------------------------------------------------------------------------------------------------
5.85% Advance due January 1, 2016 3,710 4,259
- ------------------------------------------------------------------------------------------------------------------------
2.00% Advance due November 1, 2027 39 40
- ------------------------------------------------------------------------------------------------------------------------
2.00% Advance due January 1, 2028 39 40
- ------------------------------------------------------------------------------------------------------------------------
FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY INTEREST PAYMENTS:
5.35% Advance due February 1, 1999 -- 5,000
- ------------------------------------------------------------------------------------------------------------------------
5.60% Advance due April 1, 1999 -- 5,000
- ------------------------------------------------------------------------------------------------------------------------
5.70% Advance due June 1, 1999 -- 7,000
- ------------------------------------------------------------------------------------------------------------------------
6.35% Advance due March 1, 2004 -- 250
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $8,430 $30,868
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, Federal Home Loan Bank (FHLB) advances were collaterized
by the FHLB stock owned by the Corporation's affiliate banks and by residential
mortgage loans pledged under a blanket agreement by the Corporation's affiliate
banks.
11. STOCK OPTION PLAN
The Park National Corporation 1995 Incentive Stock Option Plan ("the Park Plan")
was adopted April 17, 1995 and amended April 20, 1998. The Park Plan is intended
as an incentive to encourage stock ownership by the key employees of the
Corporation. The maximum number of common shares with respect to which incentive
stock options may be granted under the Park Plan is 700,000. At December 31,
1998, 464,297 options were available for future grants under this plan.
Incentive stock options may be granted at a price not less than the fair market
value at the date of the grant, and for an option term of up to five years. No
incentive stock options may be granted under the Park Plan after January 16,
2005.
In conjunction with the First-Knox Merger in 1997, the Corporation assumed the
1995 First-Knox Director's Stock Option and Stock Appreciation Rights Plan and
the 1990 First-Knox Stock Option and Stock Appreciation Rights Plan.
Additionally, in conjunction with the merger in 1997, all former First-Knox
Plans were terminated with respect to the granting of any additional options and
stock appreciation rights.
<PAGE> 38
61
The Corporation's stock option activity and related information is summarized as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS STOCK APPRECIATION RIGHTS
- ------------------------------------------------------------------------------------------------------------------------
OUTSTANDING OUTSTANDING
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
AVAILABLE PRICE PER AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE FOR GRANT NUMBER SHARE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 258,288 148,355 $28.89 37,258 24,522 $23.23
- ------------------------------------------------------------------------------------------------------------------------
Granted (49,605) 49,605 43.62 (2,602) 2,602 37.01
- ------------------------------------------------------------------------------------------------------------------------
Exercised -- (15,766) 39.56 -- (656) 18.45
- ------------------------------------------------------------------------------------------------------------------------
Forfeited/Expired 400 (400) 47.28 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1996 209,083 181,794 31.95 34,656 26,468 24.70
- ------------------------------------------------------------------------------------------------------------------------
Granted (87,405) 87,405 62.16 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Exercised -- (137,049) 28.06 -- (26,445) 24.70
- ------------------------------------------------------------------------------------------------------------------------
Forfeited/Expired (76,536) (4,317) 59.07 (34,656) (23) 24.04
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1997 45,142 127,833 55.88 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Authorized 500,000 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Granted (87,352) 87,352 93.03 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Exercised -- (36,105) 54.15 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Forfeited/Expired 6,507 (6,507) 61.54 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 464,297 172,573 74.80 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Range of exercise prices: $34.70 - $93.00
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average remaining contractual life: 3.9 years
- ------------------------------------------------------------------------------------------------------------------------
Exerciseable at year-end: 164,373
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average exercise price of exerciseable options: $73.89
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation expense related to stock appreciation rights was $0, $339,000 and
$212,000 in 1998, 1997 and 1996, respectively.
The Corporation has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock Based Compensation," requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The fair value of these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted-average
assumptions for 1998, 1997, and 1996 respectively: risk-free interest rates of
5.25%, 6.25%, and 6.48%; a dividend yield of 2.50%, 2.50%, and 2.61%; a
volatility factor of the expected market price of the Corporation's common stock
of .237, .219, and .206 and a weighted-average expected option life of 4.0, 4.0,
and 4.2 years. The weighted-average fair value of options granted were $19.45,
$13.94, and $8.30 for 1998, 1997, and 1996, respectively.
<PAGE> 39
62
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, options valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Corporation's pro-forma information follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $41,572 $37,693 $31,700
- ------------------------------------------------------------------------------------------------------------------------
Proforma net income 39,814 36,620 31,360
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share as reported $4.45 $4.02 $3.39
- ------------------------------------------------------------------------------------------------------------------------
Proforma basic earnings per share 4.26 3.90 3.36
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share as reported 4.43 4.00 3.38
- ------------------------------------------------------------------------------------------------------------------------
Proforma diluted earnings per share 4.24 3.89 3.34
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
12. BENEFIT PLANS
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 purposes.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $16,498 $14,259
- ------------------------------------------------------------------------------------------------------------------------
Service cost 1,055 942
- ------------------------------------------------------------------------------------------------------------------------
Interest cost 1,189 1,098
- ------------------------------------------------------------------------------------------------------------------------
Actuarial 2,096 1,369
- ------------------------------------------------------------------------------------------------------------------------
Benefits paid (3,341) (1,170)
- ------------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR 17,497 16,498
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 19,578 16,376
- ------------------------------------------------------------------------------------------------------------------------
Actual return on plan assets 662 3,934
- ------------------------------------------------------------------------------------------------------------------------
Company contributions 236 438
- ------------------------------------------------------------------------------------------------------------------------
Benefits paid (3,341) (1,170)
- ------------------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR 17,135 19,578
- ------------------------------------------------------------------------------------------------------------------------
Funded status of the plan (underfunded) (362) 3,080
- ------------------------------------------------------------------------------------------------------------------------
Unrecognized net actuarial loss (gain) 314 (2,731)
- ------------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost 3 (3)
- ------------------------------------------------------------------------------------------------------------------------
Unrecognized net transaction asset (157) (221)
- ------------------------------------------------------------------------------------------------------------------------
(ACCRUED) PREPAID BENEFIT COST $ (202) $ 125
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
63
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS:
<S> <C> <C>
Discount rate 6.52% 7.27%
- ----------------------------------------------------------------------------------------------------
Expected return on plan assets 8.00% 8.00%
- ----------------------------------------------------------------------------------------------------
Rate of compensation increase 5.00% 5.00%
- ----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
<S> <C> <C> <C>
Service cost $ 1,055 $ 942 $ 911
- ------------------------------------------------------------------------------------------------------------------------
Interest cost 1,189 1,098 1,025
- ------------------------------------------------------------------------------------------------------------------------
Expected return on plan assets (1,555) (1,375) (1,268)
- ------------------------------------------------------------------------------------------------------------------------
Amortization of prior service cost (64) (6) (6)
- ------------------------------------------------------------------------------------------------------------------------
Recognized net actuarial loss (62) (60) (64)
- ------------------------------------------------------------------------------------------------------------------------
BENEFIT COST $ 563 $ 599 $ 598
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation contributed approximately $236,000, $438,000, and $125,000 to
the plan in 1998, 1997 and 1996, respectively.
The Corporation has a voluntary salary deferral plan covering substantially all
of its employees. Eligible employees may contribute a portion of their
compensation subject to a maximum statutory limitation. The Corporation provides
a matching contribution established annually by the Corporation. Contribution
expense for the Corporation was $724,000, $586,000 and $475,000 for 1998, 1997
and 1996, respectively.
13. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses $13,352 $12,514
- ------------------------------------------------------------------------------------------------------------------------
Deferred loan fees 461 457
- ------------------------------------------------------------------------------------------------------------------------
Deferred compensation 474 522
- ------------------------------------------------------------------------------------------------------------------------
Other 3,259 2,626
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $17,546 $16,119
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Lease revenue reporting $ 6,951 $ 4,488
- ------------------------------------------------------------------------------------------------------------------------
Unrealized holding gain on securities 4,058 3,760
- ------------------------------------------------------------------------------------------------------------------------
Fixed assets, principally due to depreciation 506 870
- ------------------------------------------------------------------------------------------------------------------------
Other 5,541 5,384
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $17,056 $14,502
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS, NET $ 490 $ 1,617
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 41
64
The components of the provision for federal income taxes are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable $18,112 $16,718 $14,805
- ------------------------------------------------------------------------------------------------------------------------
Deferred 829 139 (213)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $18,941 $16,857 $14,592
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconcilement of federal income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31, 1998 and
1997 and the weighted average statutory rate of 34.8% for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory corporate tax rate 35.0% 35.0% 34.8%
- ------------------------------------------------------------------------------------------------------------------------
Changes in rate resulting from:
Tax-exempt interest income -3.0% -2.9% -1.5%
- ------------------------------------------------------------------------------------------------------------------------
Other -0.7% -1.2% -1.8%
- ------------------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE 31.3% 30.9% 31.5%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of the income tax effect allocated to other
comprehensive income.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 31, 1998 AMOUNT EXPENSE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains on available-for-sale securities $ 892 $ 312 $ 580
- ------------------------------------------------------------------------------------------------------------------------
Less: reclassification adjustment for gains
realized in net income (97) (34) (63)
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 795 $ 278 $517
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gains on available-for-sale securities $3,581 $1,254 $2,327
- ------------------------------------------------------------------------------------------------------------------------
Less: reclassification adjustment for losses
realized in net income 7 2 5
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $3,588 $1,256 $2,332
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
Unrealized losses on available-for-sale securities $(6,172) $(2,160) $(4,012)
- ------------------------------------------------------------------------------------------------------------------------
Less: reclassification adjustment for losses
realized in net income 1,324 463 861
- ------------------------------------------------------------------------------------------------------------------------
Other comprehensive income $(4,848) $(1,697) $(3,151)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
65
14. EARNING PER SHARE
In 1997, SFAS No. 128, "Earnings Per Share" replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS No. 128
requirements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 41,572 $ 37,693 $ 31,700
- ------------------------------------------------------------------------------------------------------------------------
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 9,340,554 9,385,827 9,351,902
- ------------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities - stock options 45,924 37,944 34,317
- ------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 9,386,478 9,423,771 9,386,219
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic earnings per share $4.45 $4.02 $3.39
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $4.43 $4.00 $3.38
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
15. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare in
any calendar year without obtaining prior approval. At December 31, 1998,
approximately $14,505,000 of the total stockholders' equity of the bank
subsidiaries is available for the payment of dividends to the Corporation,
without approval by the applicable regulatory authorities.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers.
<PAGE> 43
66
The total amounts of off-balance sheet financial instruments with credit risk
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loan commitments $267,602 $215,638
- ------------------------------------------------------------------------------------------------------------------------
Unused credit card limits 96,710 92,993
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit 3,953 6,362
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans to
customers primarily located in Central Ohio. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the borrowers' ability to honor their contracts is dependent upon the
economic conditions in each borrower's geographic location.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counter parties' credit standing.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). The carrying amounts for variable-rate, fixed-term
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
<PAGE> 44
67
The fair value of financial instruments at December 31, 1998 and 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and federal funds sold $ 100,291 $ 100,291 $ 93,585 $ 93,585
- ------------------------------------------------------------------------------------------------------------------------
Investment securities 652,467 652,750 540,730 541,078
- ------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial, financial and agricultural 217,504 217,504 212,970 212,970
- ------------------------------------------------------------------------------------------------------------------------
Real estate - construction 70,998 70,998 65,548 65,548
- ------------------------------------------------------------------------------------------------------------------------
Real estate - residential 679,239 688,497 708,768 722,794
- ------------------------------------------------------------------------------------------------------------------------
Real estate - commercial 280,789 281,162 256,074 256,183
- ------------------------------------------------------------------------------------------------------------------------
Consumer, net 332,320 334,138 313,517 314,757
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,580,850 1,592,299 1,556,877 1,572,252
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (37,989) -- (35,595) --
- ------------------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE, NET $ 1,542,861 $ 1,592,299 $ 1,521,282 $ 1,572,252
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Noninterest bearing checking $ 285,574 $ 285,574 $ 257,867 $ 257,867
- ------------------------------------------------------------------------------------------------------------------------
Interest bearing checking 235,113 235,113 199,277 199,277
- ------------------------------------------------------------------------------------------------------------------------
Savings accounts 276,546 276,546 274,025 274,025
- ------------------------------------------------------------------------------------------------------------------------
Money market accounts 159,722 159,722 167,664 167,664
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 981,305 988,152 954,564 959,077
- ------------------------------------------------------------------------------------------------------------------------
Other 1,518 1,518 1,567 1,567
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $ 1,939,778 $ 1,946,625 $ 1,854,964 $ 1,859,477
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 246,659 246,659 151,624 151,624
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 8,430 8,526 30,868 30,344
- ------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Loan commitments -- $ (268) -- $ (216)
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit -- (20) -- (32)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
18. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1998
and December 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) AMOUNT RATIO Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total equity (1) $235,690 9.58% $222,117 9.71%
- ------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (2) 215,990 13.64% 198,949 13.46%
- ------------------------------------------------------------------------------------------------------------------------
Total risk-based capital (3) 236,356 14.92% 217,636 14.72%
- ------------------------------------------------------------------------------------------------------------------------
Leverage (4) 215,990 9.06% 198,949 8.91%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 45
68
(1) Computed in accordance with generally accepted accounting principles,
including accumulated other comprehensive income.
(2) Stockholders' equity less certain intangibles and accumulated other
comprehensive income; computed as a ratio to risk-adjusted assets as
defined.
(3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital computed as a ratio to average total assets less certain
intangibles.
The Corporation's Tier 1, total risk-based capital and leverage ratios are well
above both the required minimum levels of 4.00%, 8.00% and 4.00%, respectively,
and the well-capitalized levels of 6.00%, 10.00% and 5.00%, respectively.
At December 31, 1998, and 1997, all of the Corporation's subsidiary financial
institutions met the well capitalized levels under the capital definitions
prescribed in the FDIC Improvement Act of 1991.
19. SEGMENT INFORMATION
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments. The statement defines an
operating segment as a component of an enterprise that engages in business
activities that generate revenue and incur expense, whose operating results are
reviewed by the chief operating decision maker in the determination of resource
allocation and performance. The operating segments for the Corporation are its
banking subsidiaries and their respective divisions. The operating results of
the banking subsidiaries and their respective divisions are monitored closely by
senior management and each president of the subsidiary or division is held
accountable for their results. Information about reportable segments follows:
- --------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1998 (In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
All PND FND RTC CNB FKND FSD Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income $ 39,877 $ 11,586 $ 16,018 $ 15,510 $ 20,910 $ 2,827 $ 923 $ 107,651
- -----------------------------------------------------------------------------------------------------------------------
Provision for
loan losses 2,880 600 1,602 480 1,116 120 -- 6,798
- -----------------------------------------------------------------------------------------------------------------------
Other income 11,468 2,349 2,972 3,079 3,833 268 -- 23,969
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 1,119 354 558 648 1,513 149 150 4,491
- -----------------------------------------------------------------------------------------------------------------------
Other expense 20,483 6,689 9,283 8,168 11,646 1,490 2,059 59,818
- -----------------------------------------------------------------------------------------------------------------------
Income before
income taxes 26,863 6,292 7,547 9,293 10,468 1,336 (1,286) 60,513
- -----------------------------------------------------------------------------------------------------------------------
Federal
income taxes 8,530 2,038 2,541 2,961 2,927 376 (432) 18,941
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 18,333 $ 4,254 $ 5,006 $ 6,332 $ 7,541 $ 960 $ (854) $ 41,572
- -----------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 1998:
Assets $865,974 $277,482 $413,590 $385,150 $484,965 $62,303 $(28,685) $2,460,779
- -----------------------------------------------------------------------------------------------------------------------
Loans 636,189 149,487 213,360 239,032 351,695 51,749 -- 1,641,512
- -----------------------------------------------------------------------------------------------------------------------
Deposits 641,618 219,907 337,964 310,769 394,470 55,789 (20,739) 1,939,778
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 46
69
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All
PND FND RTC CNB FKND FSD Other Total
- -----------------------------------------------------------------------------------------------------------------------
Net interest
income $ 39,106 $ 9,676 $ 16,018 $ 14,590 $ 20,507 $ 2,569 $ 790 $ 103,256
- -----------------------------------------------------------------------------------------------------------------------
Provision for
loan losses 220 450 650 330 4,870 479 -- 6,999
- -----------------------------------------------------------------------------------------------------------------------
Other income 10,648 1,740 2,383 2,571 3,148 211 -- 20,701
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 824 219 505 494 1,000 82 149 3,273
- -----------------------------------------------------------------------------------------------------------------------
Other expense 19,138 5,046 9,531 7,928 15,144 1,579 769 59,135
- -----------------------------------------------------------------------------------------------------------------------
Income before
income taxes 29,572 5,701 7,715 8,409 2,641 640 (128) 54,550
- -----------------------------------------------------------------------------------------------------------------------
Federal
income taxes 9,559 1,808 2,520 2,604 125 128 113 16,857
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 20,013 $ 3,893 $ 5,195 $ 5,805 $ 2,516 $ 512 $ (241) $ 37,693
- -----------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 1997:
Assets $777,707 $250,324 $401,683 $353,816 $492,315 $63,322 $(50,784) $2,288,383
- -----------------------------------------------------------------------------------------------------------------------
Loans 589,044 137,567 229,658 247,663 340,888 47,107 -- 1,591,927
- -----------------------------------------------------------------------------------------------------------------------
Deposits 578,050 211,004 330,922 301,967 384,278 56,946 (8,203) 1,854,964
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income $ 36,716 $ 9,127 $ 13,066 $ 12,919 $ 19,005 $ 2,395 $ 810 $ 94,038
- -----------------------------------------------------------------------------------------------------------------------
Provision for
loan losses 2,210 360 1,590 360 690 84 -- 5,294
- -----------------------------------------------------------------------------------------------------------------------
Other income 9,133 1,345 1,955 1,396 2,612 219 -- 16,660
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 758 247 418 454 883 95 150 3,005
- -----------------------------------------------------------------------------------------------------------------------
Other expense 19,064 4,446 7,366 8,619 12,746 1,372 2,494 56,107
- -----------------------------------------------------------------------------------------------------------------------
Income before
income taxes 23,817 5,419 5,647 4,882 7,298 1,063 (1,834) 46,292
- -----------------------------------------------------------------------------------------------------------------------
Federal
income taxes 7,917 1,855 1,900 1,481 1,652 236 (449) 14,592
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 15,900 $ 3,564 $ 3,747 $ 3,401 $ 5,646 $ 827 $ (1,385) $ 31,700
- -----------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 1996:
- -----------------------------------------------------------------------------------------------------------------------
Assets $735,784 $192,583 $382,977 $345,475 $513,553 $60,956 $(46,358) $2,184,970
- -----------------------------------------------------------------------------------------------------------------------
Loans 525,670 125,502 224,744 236,687 315,959 43,462 -- 1,472,024
- -----------------------------------------------------------------------------------------------------------------------
Deposits 553,982 156,497 325,711 301,901 376,039 54,668 (5,380) 1,763,418
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 47
70
Reconciliation of financial information for the reportable segments to the
Corporation's consolidated totals.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Interest Depreciation Other Income
Income Expense Expense Taxes Assets Deposits
- -----------------------------------------------------------------------------------------------------------------------
1998:
Totals for reportable
<S> <C> <C> <C> <C> <C> <C>
segments $106,728 $4,341 $57,759 $19,373 $2,489,464 $1,960,517
- -----------------------------------------------------------------------------------------------------------------------
Elimination of
intersegment items -- -- -- -- (35,764) (20,739)
- -----------------------------------------------------------------------------------------------------------------------
Parent Co. totals -
not eliminated 923 -- 2,059 (432) 7,079 --
- -----------------------------------------------------------------------------------------------------------------------
Other items -- 150 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Totals $107,651 $4,491 $59,818 $18,941 $2,460,779 $1,939,778
- -----------------------------------------------------------------------------------------------------------------------
1997:
Totals for reportable
segments $102,466 $3,124 $58,366 $16,744 $2,339,167 $1,863,167
- -----------------------------------------------------------------------------------------------------------------------
Elimination of
intersegment items -- -- -- -- (57,181) (8,203)
- -----------------------------------------------------------------------------------------------------------------------
Parent Co. totals -
not eliminated 790 -- 769 113 6,397 --
- -----------------------------------------------------------------------------------------------------------------------
Other items -- 149 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Totals $103,256 $3,273 $59,135 $16,857 $2,288,383 $1,854,964
- -----------------------------------------------------------------------------------------------------------------------
1996:
Totals for reportable
segments $ 93,228 $2,855 $53,613 $15,041 $2,231,328 $1,768,798
- -----------------------------------------------------------------------------------------------------------------------
Elimination of
intersegment items -- -- -- -- (51,833) (5,380)
- -----------------------------------------------------------------------------------------------------------------------
Parent Co. totals -
not eliminated 810 -- 2,438 (449) 5,475 --
- -----------------------------------------------------------------------------------------------------------------------
Other items -- 150 56 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Totals $ 94,038 $3,005 $56,107 $14,592 $2,184,970 $1,763,418
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
20. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method of
accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents noninterest bearing deposits with a bank subsidiary.
Net cash provided by operating activities reflects cash payments for income
taxes of $18,000, $1,040,000 and $663,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, stockholders' equity reflected in the Parent
Company balance sheet includes $82.4 million and $80.6 million, respectively, of
undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
<PAGE> 48
71
20. PARENT COMPANY STATEMENTS
Balance Sheets
at December 31, 1998 and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ 29,770 $ 15,714
- ----------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 170,927 161,591
- ----------------------------------------------------------------------------------------------------------------------
Debentures receivable from subsidiary banks 12,000 12,000
- ----------------------------------------------------------------------------------------------------------------------
Other investments 507 84
- ----------------------------------------------------------------------------------------------------------------------
Dividends receivable from subsidiaries 21,375 31,700
- ----------------------------------------------------------------------------------------------------------------------
Other assets 7,115 6,432
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $241,694 $227,521
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Dividends payable $ 5,586 $ 4,512
- ----------------------------------------------------------------------------------------------------------------------
Other liabilities 418 892
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,004 5,404
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
TOTAL STOCKHOLDERS' EQUITY 235,690 222,117
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $241,694 $227,521
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
for the years ended December 31, 1998, 1997 and 1996
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries $33,500 $45,097 $26,965
- ----------------------------------------------------------------------------------------------------------------------
Interest and dividends 923 790 629
- ----------------------------------------------------------------------------------------------------------------------
Gain of sale of securities -- -- 181
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 34,423 45,887 27,775
- ----------------------------------------------------------------------------------------------------------------------
EXPENSE:
Amortization of intangibles 295 304 259
- ----------------------------------------------------------------------------------------------------------------------
Other, net 1,764 465 2,179
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,059 769 2,438
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 32,364 45,118 25,337
- ----------------------------------------------------------------------------------------------------------------------
Federal income tax benefit (expense) 432 (113) 449
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 32,796 45,005 25,786
- ----------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings
of subsidiaries 8,776 (7,312) 5,914
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $41,572 $37,693 $31,700
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 49
72
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 41,572 $ 37,693 $ 31,700
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization 295 304 259
- ---------------------------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries (8,776) 7,312 (5,914)
- ---------------------------------------------------------------------------------------------------------------------
Gain on sale of securities available-for-sale -- -- (181)
- ---------------------------------------------------------------------------------------------------------------------
Decrease (increase) in dividends
receivable from subsidiaries 10,325 (23,000) (1,200)
- ---------------------------------------------------------------------------------------------------------------------
Increase in other assets (979) (1,345) (3,236)
- ---------------------------------------------------------------------------------------------------------------------
(Decrease) increase in other liabilities (474) (259) 705
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 41,963 20,705 22,133
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of debenture from subsidiary bank -- (10,000) --
- ---------------------------------------------------------------------------------------------------------------------
Capital contribution to subsidiary -- -- (8,000)
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from sale of securities available-for-sale -- -- 431
- ---------------------------------------------------------------------------------------------------------------------
Purchase of investment securities (423) -- (54)
- ---------------------------------------------------------------------------------------------------------------------
Other, net (42) (1,379) --
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (465) (11,379) (7,623)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (17,983) (15,047) (12,166)
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock 123 3,664 337
- ---------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (9,582) (4,727) (118)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (27,442) (16,110) (11,947)
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 14,056 (6,784) 2,563
- ---------------------------------------------------------------------------------------------------------------------
Cash at beginning of year 15,714 22,498 19,935
- ---------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 29,770 $ 15,714 $ 22,498
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
----------
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name Incorporation or Organization
---- -----------------------------
<S> <C>
The Park National Bank ("PNB") United States (federally-chartered national
banking association)
Park Investments, Inc. (NOTE: is a wholly-owned subsidiary Delaware
of PNB)
Scope Leasing, Inc. (NOTE: is a wholly-owned subsidiary of Ohio
PNB)
The Richland Trust Company ("Richland") Ohio
Richland Investments, Inc. (NOTE: is a wholly-owned Delaware
subsidiary of Richland)
Century National Bank ("Century") United States (federally-chartered national
banking association)
Zane-Fed Services, Incorporated (NOTE: is a wholly-owned Ohio
subsidiary of Century)
MFS Investments, Inc. (NOTE: is a wholly-owned subsidiary Delaware
of Century)
The First-Knox National Bank of Mount Vernon ("FKNB") United States (federally-chartered national
banking association)
First-Knox, Inc. (NOTE: is a wholly-owned subsidiary of Ohio
FKNB)
Guardian Financial Services Company (as of February 16, Ohio
1999)
</TABLE>
<PAGE> 1
EXHIBIT 23
----------
Consent of Ernst & Young LLP
<PAGE> 2
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in Registration Statement No.
333-20417 on Form S-4, Registration Statement No. 33-92060 and Registration
Statement No. 333-52653, both on Form S-8, of our report dated January 19, 1999,
with respect to the consolidated financial statements of Park National
Corporation incorporated by reference in this Annual Report on Form 10-K for the
year ended December 31, 1998 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Columbus, Ohio
March 19, 1999
<PAGE> 1
EXHIBIT 24
----------
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ William T. Mcconnell
--------------------------
William T. McConnell
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ C. Daniel Delawder
-------------------------
C. Daniel DeLawder
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ John W. Kozak
----------------------
John W. Kozak
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for his and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Maureen Buchwald
-------------------------
Maureen Buchwald
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ James J. Cullers
-------------------------
James J. Cullers
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Dominic C. Fanello
------------------------
Dominic C. Fanello
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ R. William Geyer
-------------------------
R. William Geyer
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Philip H. Jordan, Jr.
--------------------------
Philip H. Jordan, Jr.
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Howard E. Lefevre
------------------------
Howard E. LeFevre
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Phillip T. Leitnaker
--------------------------
Phillip T. Leitnaker
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Tami L. Longaberger
-------------------------
Tami L. Longaberger
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ James A. McElroy
--------------------------
James A. McElroy
<PAGE> 14
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ John J. O'Neill
------------------------
John J. O'Neill
<PAGE> 15
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ William A. Phillips
-------------------------
William A. Phillips
<PAGE> 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ J. Gilbert Reese
--------------------------
J. Gilbert Reese
<PAGE> 17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ Rick R. Taylor
-------------------------
Rick R. Taylor
<PAGE> 18
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation, an Ohio corporation, (the
"Company"), which is about to file with the Securities and Exchange Commission,
Washington, D.C., under the provisions of the Securities Exchange Act of 1934,
as amended, the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, hereby constitutes and appoints William T. McConnell, C. Daniel
DeLawder and David C. Bowers as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign both the Annual Report
on Form 10-K and any and all amendments and documents related thereto, and to
file the same, and any and all exhibits, financial statements and schedules
related thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the American Stock Exchange, and grants
unto each of said attorneys-in-fact and agents, and substitute or substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all things that each of said attorneys-in-fact and agents, or any of
them or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 19th day of January, 1999.
/s/ John L. Warner
-------------------------
John L. Warner
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 100,291
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 646,403
<INVESTMENTS-CARRYING> 6,064
<INVESTMENTS-MARKET> 6,347
<LOANS> 1,641,512
<ALLOWANCE> 37,989
<TOTAL-ASSETS> 2,460,779
<DEPOSITS> 1,939,778
<SHORT-TERM> 246,659
<LIABILITIES-OTHER> 30,222
<LONG-TERM> 8,430
0
0
<COMMON> 68,398
<OTHER-SE> 167,292
<TOTAL-LIABILITIES-AND-EQUITY> 2,460,779
<INTEREST-LOAN> 147,632
<INTEREST-INVEST> 38,162
<INTEREST-OTHER> 152
<INTEREST-TOTAL> 185,946
<INTEREST-DEPOSIT> 68,341
<INTEREST-EXPENSE> 78,295
<INTEREST-INCOME-NET> 107,651
<LOAN-LOSSES> 6,798
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 64,309
<INCOME-PRETAX> 60,513
<INCOME-PRE-EXTRAORDINARY> 41,572
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,572
<EPS-PRIMARY> 4.45
<EPS-DILUTED> 4.43
<YIELD-ACTUAL> 5.05
<LOANS-NON> 2,155
<LOANS-PAST> 2,314
<LOANS-TROUBLED> 492
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 35,595
<CHARGE-OFFS> 7,392
<RECOVERIES> 2,988
<ALLOWANCE-CLOSE> 37,989
<ALLOWANCE-DOMESTIC> 37,989
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
