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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, 1999
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
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(Exact name of Registrant as specified in its charter)
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Ohio 31-1179518
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 North Third Street, P.O. Box 3500, Newark, Ohio 43058-3500
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 349-8451
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares, without par value American Stock Exchange
(9,719,637 common shares outstanding on February 25, 2000)
Securities registered pursuant to Section 12(g) of the Act: None
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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
25, 2000 ($94.25), the aggregate market value of the Common Shares of the
Registrant held by non-affiliates on that date was $617,077,276.
Documents Incorporated by Reference:
(1) Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1999, 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 17, 2000, are
incorporated by reference into Part III of this Annual Report on Form
10-K.
Exhibit Index on Page E-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Park National Corporation is a bank holding company under the Bank
Holding Company Act of 1956 and is subject to regulation by the Federal Reserve
Board. Park National was incorporated under Ohio law in 1992.
Through its subsidiaries, The Park National Bank, Newark, Ohio, a
national banking association, The Richland Trust Company, Mansfield, Ohio, an
Ohio state-chartered bank, Century National Bank, Zanesville, Ohio, a national
banking association, and The First-Knox National Bank of Mount Vernon, a
national banking association, Park National engages in a general commercial
banking and trust business in small and medium population Ohio communities. Park
National Bank operates through two banking divisions with the Park National
Division headquartered in Newark, Ohio and the Fairfield National Division
headquartered in Lancaster, Ohio. First-Knox National Bank also operates through
two banking divisions with the First-Knox National Division headquartered in
Mount Vernon, Ohio and the Farmers and Savings Division headquartered in
Loudonville, Ohio.
In early 1999, Park National organized Guardian Financial Services
Company, an Ohio consumer finance company based in Hilliard, Ohio. Guardian
Financial provides consumer finance services in the central Ohio area.
On September 24, 1999, the Park National Division acquired a branch
office in Utica, Ohio from National City Bank. In addition to the fixed assets,
the purchase included approximately $15 million of deposits. The excess of the
cost over net assets purchased was approximately $2 million.
On December 14, 1999, Park National entered into an agreement and plan
of merger with U.B. Bancshares, Inc., an Ohio corporation which is a bank
holding company under the Bank Holding Company Act, under which U.B. Bancshares
will merge with and into Park National. Under the terms of the U.B. Bancshares
merger agreement, as amended on February 14, 2000, the shareholders of U.B.
Bancshares on the effective date of the U.B. Bancshares merger will receive an
aggregate of 325,500 Park National common shares in exchange for their U.B.
Bancshares common shares. The U.B. Bancshares shareholders are expected to
receive .554 Park National common shares for each outstanding U.B. Bancshares
common share. Completion of the U.B. Bancshares merger is subject to certain
conditions, including the approval of bank regulators and other governmental
agencies, the adoption of the U.B. Bancshares merger agreement by the U.B.
Bancshares shareholders and other specific conditions to closing customary of a
transaction of this type. The principal regulatory approval required to be
obtained is from the Federal Reserve Board. A bank holding company merger
application was filed with the Federal Reserve Board on February 2, 2000. On
March 6, 2000, that application was approved. Under the terms of that approval,
the U.B. Bancshares merger could not be consummated before March 21, 2000 and
must be consummated before June 6, 2000, unless the time period is extended by
the Federal Reserve Board. The U.B. Bancshares special meeting of shareholders,
at which adoption of the U.B.
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Bancshares merger agreement is to be considered, has been scheduled for April
19, 2000. The U.B. Bancshares merger is expected to be completed during the
second quarter of 2000.
On December 17, 1999, Park National entered into an agreement and plan
of merger with SNB Corp., an Ohio corporation which is a bank holding company
under the Bank Holding Company Act, under which SNB will merge with and into
Park National. Under the terms of the SNB merger agreement, as amended on March
3, 2000, the shareholders of SNB on the effective date of the SNB merger will
receive an aggregate of 835,500 Park National common shares in exchange for
their SNB common shares. The SNB shareholders are expected to receive 5.37 Park
National common shares for each outstanding SNB common share. Completion of the
SNB merger is subject to certain conditions, including the approval of bank
regulators and other governmental agencies, the adoption of the SNB merger
agreement by the SNB shareholders and other specific conditions to closing
customary of a transaction of this type. The principal regulatory approval
required to be obtained is from the Federal Reserve Board. A bank holding
company merger application was filed with the Federal Reserve Board on February
2, 2000. On March 6, 2000, that application was approved. Under the terms of
that approval, the SNB merger could not be consummated before March 21, 2000 and
must be consummated before June 6, 2000, unless the time period is extended by
the Federal Reserve Board. The SNB special meeting of shareholders, at which
adoption of the SNB merger agreement is to be considered, has been scheduled for
April 25, 2000. The SNB merger is expected to be completed during the second
quarter of 2000.
SERVICES PROVIDED BY PARK NATIONAL'S SUBSIDIARIES
Park National Bank, Richland Trust, Century National Bank and
First-Knox National Bank provide the following principal services:
o the acceptance of deposits for demand, savings and time
accounts and the servicing of those accounts;
o commercial, industrial, consumer and real estate lending,
including installment loans and automobile leasing, credit
cards and personal lines of credit;
o safe deposit operations;
o trust services;
o cash management;
o electronic funds transfers; and
o a variety of additional banking-related services tailored to
the needs of individual customers.
Park National believes that the deposit mix of its banking subsidiaries
is such that no material portion has been obtained from a single customer and,
consequently, the loss of any one
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customer of any banking subsidiary would not have a materially adverse effect on
the business of that banking subsidiary or Park National.
Park National's banking 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 banking subsidiary makes lending decisions in
accordance with written loan policies designed to maintain loan quality. Each
banking 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 banking
subsidiary also generates fixed rate residential real estate loans for the
secondary market. The loans of each banking subsidiary are spread over a broad
range of industrial classifications. Park National believes that its banking
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, to a
greater extent, to adverse conditions in the economy generally or adverse
conditions in a specific industry.
At December 31, 1999, Park's banking subsidiaries had outstanding
approximately $580.4 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. The regulatory limits for loans
made to one borrower by Park National Bank, Richland Trust, Century National
Bank and First-Knox National Bank were $15.8 million, $4.7 million, $4.5 million
and $8.3 million, respectively, at December 31, 1999. 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 National 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.
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Park National Bank also leases equipment under terms similar to its
commercial lending policies. Park Leasing Company, a division of Park National
Bank, originates and services direct leases of equipment which Park National
Bank acquires with no outside financing. In addition, Scope Leasing, Inc., a
wholly-owned subsidiary of Park National Bank, specializes in aircraft
financing.
At December 31, 1999, Park National's subsidiaries had outstanding
consumer loans (including automobile leases and credit cards) in an aggregate
amount of approximately $486.7 million constituting approximately 26.5% 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 banking 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 National'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 National'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 banking subsidiary also
offers VISA and MasterCard accounts 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, 1999, Park National's banking subsidiaries had
outstanding approximately $766.9 million in residential real estate, home equity
lines of credit and construction mortgages, representing approximately 41.8% of
total loans outstanding. The market area for real estate lending by the banking
subsidiaries is concentrated in Ashland, Athens, Coshocton, Fairfield, Franklin,
Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and
Richland Counties, Ohio. Each banking subsidiary generally requires that the
residential real estate loan amount be no more than 80% of the purchase price or
the appraised value of the real estate securing the loan, unless private
mortgage insurance is obtained by the borrower. Loans made for each banking
subsidiary's portfolio in this lending category are generally one-year
adjustable rate, fully amortized mortgages. Each banking 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
banking subsidiary in the
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form of an attorney's opinion of title or a title insurance policy. Each banking
subsidiary also requires proof of hazard insurance with the banking 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 National's banking 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 banking 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 banking 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 National's subsidiaries compete for deposits and loans with
other banks, savings associations, credit unions and other types of financial
institutions and operate 59 full-service offices and a network of 65 automatic
teller machines in 15 central and southern Ohio counties. Competitors now
include securities dealers, brokers, mortgage bankers, investment advisors,
finance companies, insurance companies and financial services subsidiaries of
commercial and manufacturing companies. Many of these competitors enjoy the
benefits of advanced technology, fewer regulatory constraints, and lower cost
structures. Many of the newer competitors offer one-stop financial services to
their customers that may include services that banks may not have been able or
legally permitted to offer their customers in the past. The primary factors in
competing for loans are interest rates charged and overall services provided to
borrowers. The primary factors in competing for deposits are interest rates paid
on deposits, account liquidity and convenience of office locations.
EMPLOYEES
As of December 31, 1999, Park National and its subsidiaries had 1,023
full-time equivalent employees.
SUPERVISION AND REGULATION
Park National, as a bank holding company, is regulated extensively
under federal law. Park National Bank, Century National Bank and First-Knox
National Bank, as national banks, and Richland Trust, as an Ohio state-chartered
bank, are regulated extensively under federal and state
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law. Guardian Financial, as an Ohio state-chartered consumer finance company, is
regulated under state law. Park National is subject to regulation, supervision
and examination by the Federal Reserve Board. Park National Bank, Century
National Bank and First-Knox National Bank are subject to regulation by the
Office of the Comptroller of Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC). Richland Trust is subject to regulation, supervision and
examination by the Ohio Division of Financial Institutions and the FDIC and
Guardian Financial is subject to regulation, supervision and examination by the
Ohio Division of Financial Institutions.
The following information describes selected federal and Ohio statutory
and regulatory provisions and is qualified in its entirety by reference to the
full text of the particular statutory or regulatory provisions. These statutes
and regulations are continually under review by Congress and state legislatures
and federal and state regulatory agencies. A change in statutes, regulations or
regulatory policies applicable to Park National and its subsidiaries could have
a material effect on their respective businesses.
REGULATION OF BANK HOLDING COMPANIES
Park National is registered with the Federal Reserve Board as a bank
holding company under the Bank Holding Company Act. Bank holding companies and
their activities are subject to extensive regulation by the Federal Reserve
Board. Bank holding companies are required to file reports with the Federal
Reserve Board and such additional information as the Federal Reserve Board may
require, and are subject to regular examinations by the Federal Reserve Board.
The Federal Reserve Board also has extensive enforcement authority over bank
holding companies, including, among other things, the ability to:
o assess civil money penalties,
o issue cease and desist or removal orders, and
o require that a bank holding company divest subsidiaries
(including its bank subsidiaries).
In general, the Federal Reserve Board may initiate enforcement actions for
violations of law and regulations and unsafe or unsound practices.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support those subsidiary banks. Under this policy, the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The Bank Holding Company Act requires the prior approval of the Federal
Reserve Board in any case where a bank holding company proposes to:
o acquire direct or indirect ownership or control of more than
5% of the voting shares of any bank that is not already
majority-owned by it,
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o acquire all or substantially all of the assets of another bank
or bank holding company, or
o merge or consolidate with any other bank holding company.
Section 4 of the Bank Holding Company Act also prohibits a bank holding
company, with certain exceptions, from acquiring more than 5% of the voting
shares of any company that is not a bank and from engaging in any business other
than banking or managing or controlling banks. The primary exception allows the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks that ownership of shares of that
company is appropriate. The Federal Reserve Board has by regulation determined
that certain activities are closely related to banking within the meaning of the
Bank Holding Company Act. These activities include:
o operating a savings association, mortgage company, finance
company, credit card company or factoring company;
o performing certain data processing operations;
o providing investment and financial advice; and
o acting as an insurance agent for certain types of
credit-related insurance.
Effective March 11, 2000, subject to certain conditions, bank holding
companies that elect to become financial holding companies may affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. Also effective March 11, 2000, no regulatory approval is
required for a financial holding company to acquire a company, other than a bank
or savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the
Federal Reserve Board.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, investments in the stock or other securities of the bank holding
company or its subsidiaries and the taking of such stock or securities as
collateral for loans to any borrower. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of any services. Various consumer laws and regulations also affect the
operations of these subsidiaries.
TRANSACTIONS WITH AFFILIATES
Sections 23A and 23B of the Federal Reserve Act restrict transactions
by banks and their subsidiaries with their affiliates. An affiliate of a bank is
any company or entity which controls, is controlled by or is under common
control with the bank. Generally, Sections 23A and 23B:
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o limit the extent to which a bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an
amount equal to 10% of that bank's capital stock and surplus
(i.e., tangible capital) and
o require that all such transactions be on terms substantially
the same, or at least as favorable to the bank or subsidiary,
as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and other similar types of transactions.
A bank's authority to extend credit to executive officers, directors
and greater than 10% shareholders, as well as entities such persons control, is
subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated thereunder by the Federal Reserve Board. Among other things, these
loans must be made on terms substantially the same as those offered to
unaffiliated individuals, the amount of loans a bank may make to these persons
is based, in part, on the bank's capital position, and specified approval
procedures must be followed in making loans which exceed specified amounts.
REGULATION OF NATIONALLY-CHARTERED BANKS
As national banking associations, Park National Bank, Century National
Bank and First-Knox National Bank are subject to regulation under the National
Banking Act and are periodically examined by the OCC. They are subject, as
member banks, to the rules and regulations of the Federal Reserve Board. Each is
an insured institution. Park National Bank and First-Knox National Bank are
members of the Bank Insurance Fund, and Century National Bank is a member of the
Savings Association Insurance Fund. As a result, they are subject to regulation
by the FDIC. The establishment of branches of each of Park National Bank,
Century National Bank and First-Knox National Bank is subject to prior approval
of the OCC.
REGULATION OF OHIO STATE-CHARTERED BANKS AND CONSUMER FINANCE COMPANIES
The FDIC is the primary federal regulator of Richland Trust. The FDIC
issues regulations governing the operations of Richland Trust and examines
Richland Trust. The FDIC may initiate enforcement actions against insured
depository institutions and persons affiliated with them for violations of laws
and regulations or for engaging in unsafe or unsound practices. If the grounds
provided by law exist, the FDIC may appoint a conservator or a receiver for a
nonmember bank.
As a bank incorporated under Ohio law, Richland Trust is subject to
regulation and supervision by the Ohio Division of Financial Institutions.
Division regulation and supervision affects the internal organization of
Richland Trust, as well as its savings, mortgage lending and other investment
activities. The Division of Financial Institutions may initiate supervisory
measures or formal enforcement actions against Ohio commercial banks.
Ultimately, if the grounds provided by law exist, the Division of Financial
Institutions may place an Ohio bank in conservatorship or receivership. Whenever
the Superintendent of Financial Institutions considers it necessary or
appropriate, the Superintendent may also examine the affairs of any holding
company or any affiliate or subsidiary of an Ohio bank.
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As a consumer finance company incorporated under Ohio law, Guardian
Financial is also subject to regulation and supervision by the Division of
Financial Institutions. Division regulation and supervision affect the lending
activities of Guardian Financial. If grounds provided by law exist, the Division
of Financial Institutions may suspend or revoke an Ohio consumer finance
company's ability to make loans.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits,
up to prescribed statutory limits, of federally-insured banks and savings
associations and safeguards the safety and soundness of the financial
institution industry. Two separate insurance funds are maintained and
administered by the FDIC. In general, banking institutions are members of the
"BIF" and savings associations are "SAIF" members. The insurance fund conversion
provisions do not prohibit a SAIF member from either converting to a bank
charter, as long as the resulting bank remains a SAIF member (as Century
National Bank did when it converted to a national bank charter in April 1998),
or merging with a bank, as long as the bank continues to pay the SAIF insurance
assessments on the deposits acquired. Exit and entrance fees must be paid to the
FDIC in full conversions.
Insurance Premiums. Insurance premiums for SAIF and BIF members are
determined during each semi-annual assessment period based upon the members'
respective categorization as well capitalized, adequately capitalized or
undercapitalized. The FDIC assigns banks to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which a bank is assigned
is based on a supervisory evaluation provided to the FDIC by the bank's primary
federal regulator and information which the FDIC determines to be relevant to
the bank's financial condition and the risk posed to the deposit insurance funds
(which may include, if applicable, information provided by the bank's state
supervisor). A bank's assessment rate depends on the capital category and
supervisory category to which it is assigned.
Effective January 1, 2000, the BIF assessment rate and the SAIF
assessment rate became the same. This assessment (which includes the FICO
assessment) currently ranges from 2.12 to 29.12 cents per $100 of domestic
deposits. An increase in this assessment rate could have a material adverse
effect on the earnings of the affected banks, depending on the amount of the
increase.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition enacted or imposed by the bank's regulatory
agency.
Depositor Preference. The Federal Deposit Insurance Act provides that,
in the event of the "liquidation or other resolution" of a bank, the claims of
depositors of the bank, including the claims of the FDIC as subrogee of insured
depositors, and certain claims for administrative expenses of the FDIC as a
receiver will have priority over other general unsecured claims against the
bank. If a bank fails, insured and uninsured depositors, along with the FDIC,
will have priority in payment ahead of unsecured, nondeposit creditors.
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Liability of Commonly Controlled Banks. Under the Federal Deposit
Insurance Act, a bank is generally liable for any loss incurred, or reasonably
expected to be incurred, by the FDIC in connection with (a) the default of a
commonly controlled bank or (b) any assistance provided by the FDIC to a
commonly controlled bank in danger of default. "Default" means generally the
appointment of a conservator or receiver. "In danger of default" means generally
the existence of conditions indicating that a default is likely to occur in the
absence of regulatory assistance.
REGULATORY CAPITAL
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies and state member banks. The OCC and the FDIC have adopted
risk-based capital guidelines for national banks and state non-member banks,
respectively. The guidelines provide a systematic analytical framework which
makes regulatory capital requirements sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures expressly into
account in evaluating capital adequacy, and minimizes disincentives to holding
liquid, low-risk assets. Capital levels as measured by these standards also are
used to categorize financial institutions for purposes of certain prompt
corrective action regulatory provisions.
The minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance sheet items such as standby letters of
credit) is 8%. This total risk-based capital ratio must be at least 10% for a
bank holding company to be considered well capitalized. At least half of the
minimum total risk-based capital ratio (4%) must be composed of common
shareholders' equity, minority interests in the equity accounts of consolidated
subsidiaries, a limited amount of qualifying preferred stock, less goodwill and
certain other deductions, including the unrealized net gains and losses, after
applicable taxes, on available-for-sale securities carried at fair value
(commonly known as "Tier 1" risk-based capital). To be considered well
capitalized, the Tier 1 risk-based capital ratio must be at least 6%. The
remainder of total risk-based capital (commonly known as "Tier 2" risk-based
capital) may consist of mandatory convertible debt, subordinated debt, preferred
stock not qualifying as Tier 1 capital, a limited amount of the loan and lease
loss allowance and net unrealized gains, after applicable taxes, on
available-for-sale equity securities with readily determinable fair values,
subject to limitations established by the guidelines.
Under the guidelines, capital is compared to the relative risk related
to the balance sheet. To derive the risk included in the balance sheet, one of
four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet
and off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, claims guaranteed by the U.S. government or one of
its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan
commitments and derivative financial instruments, are also assigned one of the
above risk weights after calculating balance sheet equivalent amounts. For
example, certain loan commitments are converted at 50% and then risk-weighted at
100%. Derivative financial instruments are converted to balance sheet
equivalents based on notional values, replacement costs and remaining
contractual terms. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
The Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. The Federal Reserve Board guidelines
provide for a minimum ratio of Tier 1
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risk-based capital to average assets (excluding the loan and lease loss
allowance, goodwill and certain other intangibles), or "leverage ratio," of 3%
for bank holding companies that meet certain criteria, including having the
highest regulatory rating. To be considered well capitalized, the leverage ratio
for a bank holding company must be at least 5%. The guidelines further provide
that bank holding companies making acquisitions will be expected to maintain
strong capital positions substantially above the minimum levels. The OCC and the
FDIC have each also adopted minimum leverage ratio guidelines for national banks
and for state non-member banks, respectively.
Park National is in compliance with the current applicable capital
guideline ratios. As of December 31, 1999, Park National had a total risk-based
capital ratio of 14.4%, Tier 1 risk-based capital ratio of 13.2% and a leverage
ratio of 9.1%. Park National anticipates that it will continue to meet current
capital guideline ratios after the consummation of the U.B. Bancshares and SNB
mergers. Park National's management believes that each of its subsidiary banks
is "well capitalized" according to the guidelines described above.
FISCAL AND MONETARY POLICIES
The business and earnings of Park National are affected significantly
by the fiscal and monetary policies of the federal government and its agencies.
Park National is particularly affected by the policies of the Federal Reserve
Board, which regulates the supply of money and credit in the United States.
Among the instruments of monetary policy available to the Federal Reserve Board
are
o conducting open market operations in United States government
securities;
o changing the discount rates of borrowings of depository
institutions;
o imposing or changing reserve requirements against depository
institutions' deposits; and
o imposing or changing reserve requirements against certain
borrowing by banks and their affiliates.
These methods are used in varying degrees and combinations to directly affect
the availability of bank loans and deposits, as well as the interest rates
charged on loans and paid on deposits. For that reason alone, the policies of
the Federal Reserve Board have a material effect on the earnings of Park
National.
PROMPT CORRECTIVE REGULATORY ACTION
The federal banking agencies have established a system of prompt
corrective action to resolve certain of the problems of undercapitalized
institutions. This system is based on five capital level categories for insured
depository institutions: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized."
The federal banking agencies may (or in some cases must) take certain
supervisory actions depending upon a bank's capital level. For example, the
banking agencies must appoint a receiver
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<PAGE> 13
or conservator for a bank within 90 days after it becomes "critically
undercapitalized" unless the bank's primary regulator determines, with the
concurrence of the FDIC, that other action would better achieve regulatory
purposes. Banking operations otherwise may be significantly affected depending
on a bank's capital category. For example, a bank that is not "well capitalized"
generally is prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market, and the holding
company of any undercapitalized depository institution must guarantee, in part,
specific aspects of the bank's capital plan for the plan to be acceptable.
Under the final rules implementing the prompt corrective action
provisions:
o a bank that has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater
and a leverage ratio of 5% or greater is deemed to be "well
capitalized";
o a bank with a total risk-based capital ratio of 8% or greater,
a Tier 1 risk-based capital ratio of 4% or greater and a
leverage ratio of 4% or greater (or a leverage ratio of 3% or
greater and a capital adequacy, asset quality, management
administration, earnings and liquidity (or CAMEL) 1 rating),
is considered to be "adequately capitalized";
o a bank that has a total risk-based capital of less than 8%, a
Tier 1 risk-based capital ratio of less than 4%, and a
leverage ratio that is less than 4% (or a leverage ratio of
less than 3% and a CAMEL 1 rating), is considered
"undercapitalized";
o a bank that has a total risk-based capital ratio of less than
6%, a Tier 1 risk-based capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be
"significantly undercapitalized"; and
o a bank that has tangible equity (Tier 1 capital minus
intangible assets other than purchased mortgage servicing
rights) to total assets ratio equal to or less than 2% is
deemed to be "critically undercapitalized".
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
There are various legal limitations on the extent to which subsidiary
banks may finance or otherwise supply funds to their parent holding companies.
Under federal and Ohio law, subsidiary banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, their bank holding companies. Subsidiary banks are also subject
to collateral security requirements for any loans or extension of credit
permitted by such exceptions.
None of the Park National banking subsidiaries may pay dividends out of
its surplus if, after paying these dividends, it would fail to meet the required
minimum levels under the risk-based capital guidelines and minimum leverage
ratio requirements established by the OCC and the FDIC. In addition, each bank
must have the approval of its regulatory authority if a dividend in any year
would cause the total dividends for that year to exceed the sum of the bank's
current year's "net
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<PAGE> 14
profits" (or net income, less dividends declared during the period based on
regulatory accounting principles) and the retained net profits for the preceding
two years, less required transfers to surplus. Payment of dividends by any of
the Park National banking subsidiaries may be restricted at any time at the
discretion of its regulatory authorities, if such regulatory authorities deem
such dividends to constitute unsafe and/or unsound banking practices or if
necessary to maintain adequate capital.
The ability of Park National to obtain funds for the payment of
dividends and for other cash requirements is largely dependent on the amount of
dividends which may be declared by its subsidiary banks. However, the Federal
Reserve Board expects Park National to serve as a source of strength to its
subsidiary banks, which may require Park National to retain capital for further
investment in its subsidiary banks, rather than pay dividends to the Park
National shareholders. Payment of dividends by one of Park National's banking
subsidiaries may be restricted at any time at the discretion of its applicable
regulatory authorities, if they deem such dividends to constitute an unsafe
and/or unsound banking practice. These provisions could have the effect of
limiting Park National's ability to pay dividends on its common shares.
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act
of 1999) which, effective March 11, 2000, permits bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each of
its subsidiary banks is well capitalized under the Federal Deposit Insurance
Corporation Act of 1991 prompt corrective action provisions, is well managed,
and has at least a satisfactory rating under the Community Reinvestment Act, by
filing a declaration that the bank holding company wishes to become a financial
holding company. No regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in nature"
to include:
o securities underwriting, dealing and market making;
o sponsoring mutual funds and investment companies;
o insurance underwriting and agency;
o merchant banking activities;
o and activities that the Federal Reserve Board has determined
to be closely related to banking.
A national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real
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<PAGE> 15
estate development and real estate investment, through a financial subsidiary of
the bank, if the bank is well capitalized, well managed and has at least a
satisfactory Community Reinvestment Act rating. Subsidiary banks of a financial
holding company or national banks with financial subsidiaries must continue to
be well capitalized and well managed in order to continue to engage in
activities that are financial in nature without regulatory actions or
restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a financial holding company or a bank
may not acquire a company that is engaged in activities that are financial in
nature unless each of the subsidiary banks of the financial holding company or
the bank has a Community Reinvestment Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services
Modernization Act on the banking industry in general and on Park National in
particular have yet to be determined due to the fact that the Financial Services
Modernization Act was only recently adopted.
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 National and its
subsidiaries. Park National believes the nature of the operations of its
subsidiaries has little, if any, environmental impact. Park National, therefore,
anticipates no material capital expenditures for environmental control
facilities for its current fiscal year or for the foreseeable future.
Park National believes its primary exposure to environmental risk is
through the lending activities of its subsidiaries. In cases where management
believes environmental risk potentially exists, Park National's subsidiaries
mitigate their environmental risk exposures by requiring environmental site
assessments at the time of loan origination to confirm collateral quality as to
commercial real estate parcels posing higher than normal potential for
environmental impact, as determined by reference to present and past uses of the
subject property and adjacent sites. Environmental assessments are typically
required prior to any foreclosure activity involving non-residential real estate
collateral.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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 National with the Securities and Exchange Commission,
in press releases, and in oral and written statements made by or with the
approval of Park National 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 National or its management or board of directors, including those relating
to products or services; (iii) statements relating to the benefits, revenues and
earnings estimated to result from the U.B. Bancshares and
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<PAGE> 16
SNB mergers and the estimated costs of combining those corporations with Park
National; (iv) statements of future economic performance; and (v) 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 those statements.
Forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including the
following:
o income (interest and non-interest) following the U.B.
Bancshares and SNB mergers, is lower than expected;
o the costs of providing compensation and benefits to Park
National employees increase;
o competition increases in the banking industry or the markets
served by Park National's subsidiaries;
o costs or difficulties related to the integration of the U.B.
Bancshares and SNB businesses or other acquired businesses are
greater than expected;
o there are adverse changes in general economic conditions or in
competitive forces;
o technological changes are more difficult or expensive to
implement than anticipated;
o there are adverse changes in the securities markets; and
o Park National suffers the loss of key personnel.
There is also the risk that we incorrectly analyze these risks and
forces, or that the strategies we develop to address them are unsuccessful.
Forward-looking statements speak only as of the date on which they are
made, and Park National 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. All subsequent written and
oral forward-looking statements attributable to Park National or any person
acting on our behalf are qualified by the cautionary statements in this section.
ITEM 2. PROPERTIES.
Park National's principal executive offices are located at 50 North
Third Street, Newark, Ohio 43055. Park National does not lease or own any
physical property, real or personal.
Park National Bank, in addition to having seven offices in Newark
(including the main office and operations center) has offices in Granville,
Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala and Utica in
Licking County, an office in Columbus in Franklin County, an
-16-
<PAGE> 17
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. Park National Bank also
operates nine stand-alone automatic banking center locations.
Richland Trust, 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 Trust also operates three stand-alone automatic
banking center locations.
Century National Bank, 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 National Bank also operates seven stand-alone
automatic banking center locations.
First-Knox National Bank, in addition to having three offices
(including the main office and 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. First-Knox National Bank also operates four stand-alone automatic
banking center locations.
Guardian Financial has its main office in Hilliard in Franklin County
and an office in Mansfield where it leases space from Richland Trust.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which Park National or any
of its subsidiaries is a party or to which any of their property is subject,
except routine legal proceedings to which Park National's banking subsidiaries
are parties incidental to their respective banking businesses. Park National
considers none of those 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 National as of February 25, 2000, the positions presently held by those
officers and their individual business experience during the past five years.
The board of directors may remove any of the executive officers at any time.
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Positions Held with Park National and its
Name Age Principal Subsidiaries and Principal Occupation
- ---- --- -----------------------------------------------
<S> <C> <C>
William T. McConnell 66 Chairman of the Board since 1994, Chief Executive Officer from 1986 to
January 1999, President from 1986 to 1994 and Director of Park National;
Chairman of the Board since 1993, Chief Executive Officer from 1983 to
January 1999, President from 1979 to 1993, and Director of Park National
Bank; Director of Century National Bank; Director of First-Knox National
Bank
C. Daniel DeLawder 50 Chief Executive Officer since January, 1999, President since 1994 and
Director of Park National; Chief Executive Officer since January 1999,
President since 1993, Executive Vice President from 1992 to 1993, and
Director of Park National Bank; Chairman of Advisory Board since 1989 and
President from 1985 to 1992 of the Fairfield National Division of Park
National Bank; Director of Richland Trust; Chairman of the Board of
Guardian Financial since February 1999
David C. Bowers 63 Secretary since 1987, Chief Financial Officer and Chief Accounting Officer
from 1990 to 1998, and Director from 1989 to 1990, of Park National;
Executive Vice President since January 1999, Senior Vice President from
1986 to January 1999, and Director of Park National Bank; Director of
Guardian Financial
</TABLE>
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 29 of Park National's Annual Report to
Shareholders for the fiscal year ended December 31, 1999.
On November 15, 1999, Park National issued (a) 150 common shares to
each of the thirteen non-employee directors of Park National (for an aggregate
of 1,950 common shares), (b) 50 common shares to each of 33 non-employee
directors of one of Park National's banking subsidiaries who is not also a
director of Park National (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 National'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 per share
on the date of issuance. Park National 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
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<PAGE> 19
common shares were "sold" and the status of each individual as a director of
Park National 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 29 of Park National's Annual Report to Shareholders for the
fiscal year ended December 31, 1999.
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 21 through 29 of Park National's Annual Report to
Shareholders for the fiscal year ended December 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
As noted on page 25 of Park National's Annual Report to Shareholders
for the fiscal year ended December 31, 1999, during 1999, 1998 and 1997, Park
National and its subsidiaries had no investment in off-balance sheet derivative
instruments. The discussion of interest rate sensitivity included on pages 27
and 28 of Park National's 1999 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 National and its subsidiaries at December 31, 1999 and 1998, 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, 1999, and the related Notes to the Consolidated Financial Statements,
appearing on pages 31 through 48 of Park National's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, are incorporated
herein by reference. Quarterly Financial Data set forth on page 29 of Park
National's 1999 Annual Report to Shareholders are also incorporated herein by
reference.
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 National's definitive proxy statement relating to the annual
meeting of shareholders to be held on April 17, 2000, under the caption
"ELECTION OF DIRECTORS." In addition, certain information
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<PAGE> 20
concerning the executive officers of Park National 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 National's definitive proxy statement relating to the annual
meeting of shareholders to be held on April 17, 2000, 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 National'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 National's definitive proxy statement relating to the annual
meeting of shareholders to be held on April 17, 2000, under the caption
"PRINCIPAL SHAREHOLDERS OF PARK."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in this Item 13 is incorporated herein by
reference to Park National's definitive proxy statement relating to the annual
meeting of shareholders to be held on April 17, 2000, under the captions
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "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 23.
(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
have been omitted.
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<PAGE> 21
(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.
(b) Reports on Form 8-K.
There were no Current Reports on Form 8-K filed during the fiscal
quarter ended December 31, 1999.
(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
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<PAGE> 22
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
Date: March 24, 2000 By /s/ C. Daniel DeLawder
-------------------------------------
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 Principal Accounting Officer
*Maureen Buchwald * Director
*James J. Cullers * Director
*Dominic C. Fanello * Director
*R. William Geyer * Director
*Philip H. Jordan, Jr. * Director
*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
*By: /s/ C. Daniel DeLawder
-----------------------
C. Daniel DeLawder,
Attorney-in-Fact
Date: March 24, 2000
</TABLE>
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<PAGE> 23
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S) IN
1999 ANNUAL
REPORT TO
DESCRIPTION SHAREHOLDERS
- ----------- ------------
<S> <C>
Report of Independent Auditors (Ernst & Young LLP)............................................... 31
Consolidated Balance Sheets at December 31, 1999 and 1998........................................ 32-33
Consolidated Statements of Income for the years ended December 31, 1999, 1998
and 1997................................................................................ 34-35
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................................................ 36
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997........................................................................... 37
Notes to Consolidated Financial Statements....................................................... 38-48
</TABLE>
-23-
<PAGE> 24
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger (excluding exhibits and
schedules) dated as of December 17, 1999 by and between Park
National Corporation ("Park National") and SNB Corp.
(incorporated herein by reference to Exhibit 2.1 to Park
National's Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 filed March 20, 2000 (Registration No.
333-31810))
2.2 Amendment to Agreement and Plan of Merger dated as of March 3,
2000 by and between Park National and SNB Corp. (incorporated
herein by reference to Exhibit 2.2 to Park National's
Pre-Effective Amendment No. 1 to Registration Statement on
Form S-4 filed March 20, 2000 (Registration No.
333-31810))
2.3 Agreement and Plan of Merger (excluding exhibits and
schedules) dated as of December 14, 1999 by and between Park
National and U.B. Bancshares, Inc. (incorporated herein by
reference to Exhibit 2.1 to Park National's Pre-Effective
Amendment No. 1 to Registration Statement on Form S-4 filed
March 13, 2000 (Registration No. 333-30858))
2.4 Amendment to Agreement and Plan of Merger dated as of February
14, 2000 by and between Park National and U.B. Bancshares,
Inc. (incorporated herein by reference to Exhibit 2.2 to Park
National's Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 filed March 13, 2000 (Registration No.
333-30858))
3.1 Articles of Incorporation of Park National as filed with the
Ohio Secretary of State on March 24, 1992 (incorporated herein
by reference to Exhibit 3(a) to Park National's Form 8-B,
filed on May 20, 1992 (File No. 0-18772) ("Park National's
Form 8-B"))
3.2 Certificate of Amendment to the Articles of Incorporation of
Park National as filed with the Ohio Secretary of State on May
6, 1993 (incorporated herein by reference to Exhibit 3(b) to
Park National's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (File No. 0-18772))
</TABLE>
E-1
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C>
3.3 Certificate of Amendment to the Articles of Incorporation of
Park National as filed with the Ohio Secretary of State on
April 16, 1996 (incorporated herein by reference to Exhibit
3(a) to Park National's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996 (File No. 1-13006))
3.4 Certificate of Amendment by Shareholders to the Articles of
Incorporation of Park National as filed with the Ohio
Secretary of State on April 22, 1997 (incorporated herein by
reference to Exhibit 3(a)(1) to Park National's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1997
(File No. 1-13006)("Park National's June 1997 Form 10-Q"))
3.5 Articles of Incorporation of Park National (reflecting
amendments through April 22, 1997) (for SEC reporting
compliance purposes only - not filed with Ohio Secretary of
State (incorporated herein by reference to Exhibit 3(a)(2) to
Park National's June 1997 Form 10-Q)
3.6 Regulations of Park National (incorporated herein by reference
to Exhibit 3(b) to Park National's Form 8-B)
3.7 Certified Resolution regarding adoption of amendment to
Subsection 2.02(A) of the Regulations of Park National by
Shareholders on April 22, 1997 (incorporated herein by
reference to Exhibit 3(b)(1) to Park National's June 1997 Form
10-Q)
3.8 Regulations of Park National (reflecting amendments through
April 22, 1997) (for SEC reporting compliance purposes only)
(incorporated herein by reference to Exhibit 3(b)(2) to Park
National's June 1997 Form 10-Q)
*10.1 Summary of Incentive Bonus Plan of Park National (incorporated
herein by reference to Exhibit 10.1 to Park National's
Registration Statement on Form S-4 filed February 22, 2000
(Registration No. 333-30858) ("Park National's February 2000
Form S-4"))
*10.2 Split-Dollar Agreement, dated May 17, 1993, between William T.
McConnell and The Park National Bank (incorporated herein by
reference to Exhibit 10(f) to Park National's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (File
No. 0-18772)); and Schedule A identifying other identical
Split-Dollar Agreements between subsidiaries of Park National
and executive officers of such subsidiaries who are directors
or executive officers of Park National (incorporated herein by
reference to Exhibit 10.2 to Park National's February 2000
Form S-4)
</TABLE>
E-2
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C>
*10.3 Split-Dollar Agreement dated September 29, 1993, between
Dominic C. Fanello and The Richland Trust Company
(incorporated herein by reference to Exhibit 10(g) to Park
National's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (File No. 0-18772)); and Schedule A
identifying other identical Split-Dollar Agreements between
directors of Park National and The Park National Bank, The
Richland Trust Company, Century National Bank or The
First-Knox National Bank of Mount Vernon as identified in such
Schedule A (incorporated herein by reference to Exhibit 10.3
to Park National's February 2000 Form S-4)
*10.4 Park National Corporation 1995 Incentive Stock Option Plan (as
amended through April 20, 1998) (incorporated herein by
reference to Exhibit 10 to Park National's Registration
Statement on Form S-8 filed May 14, 1998 (Registration No.
333-52653))
*10.5 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 (incorporated herein
by reference to Exhibit 10(i) to Park National's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (File
No. 1-13006))
*10.6 Description of Park National Corporation Supplemental
Executive Retirement Plan (incorporated herein by reference to
Exhibit 10(i) to Park National's Registration Statement on
Form S-4, filed on January 24, 1997 (Registration No.
333-20417))
**13 Annual Report to Shareholders for the fiscal year ended
December 31, 1999 (not deemed filed except for portions
thereof which are specifically incorporated by reference in
this Annual Report on Form 10-K) (incorporated by reference to
the financial statements portion of this Annual Report on Form
10-K beginning at page 23)
21 Subsidiaries of Park National (incorporated herein by
reference to Exhibit 21 to Park National's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File
No. 1-13006))
**23 Consent of Ernst & Young LLP
**24 Powers of Attorney of Directors and Executive Officers of Park
National
**27 Financial Data Schedule (1999 fiscal year)
</TABLE>
- --------------
* Management contract or compensatory plan or arrangement
** Filed herewith
E-3
<PAGE> 1
Exhibit 13
Annual Report to Shareholders for
Fiscal Year Ended December 31,1999
It's getting harder to read stockholders' letters these days. To read and make
sense of them, that is. It used to be that if the letter opened by saying, "Last
year was a year of rebuilding..." or, "Your management team spent this past year
aggressively re-engineering your company to position it to meet the challenges
of the future..." or something like that, then you knew immediately that
earnings were down. But, if the letter began: "This was a year of record
earnings..." then you might safely assume that something good had happened. Not
so any more. Nowadays, you have to read further; and then be on your guard. The
more gobbledygook you run into, the more likely it is that things didn't go well
last year.
For instance, a letter might begin something like this:
We just had a record year -- even though the figures the accountants prepare
for this report don't show it. It's true that the figure reported as "net
income" is down, but that doesn't give a fair picture of the progress we've
made. There were a number of NON-RECURRING items that distorted the real
results -- the results from CONTINUING OPERATIONS (or ONGOING OPERATIONS).
Although we had to charge off a bunch of bad loans, that's certainly not
going to happen every year. Another ONE-TIME EVENT was the visit from the
tax folks when they insisted that we pay some back taxes that got overlooked
inadvertently. And, of course, we took a RESTRUCTURING CHARGE against income
to account for the overpayment for several of last year's acquisitions.
Except for these and a few other minor reporting problems, last year was a
record year.
This, of course, is an exaggeration. Perhaps not as much of an exaggeration as
you might imagine. A stockholders' letter should enlighten, not confuse. It
should do more than just reiterate the numbers. They all appear elsewhere in the
report. Rather, the letter should help the reader who is not trained in
accounting and finance to understand what happened to the company and what that
means.
Well, with all that as a preamble, what we want to report to you is that 1999
was a good year for Park National Corporation. And what that means in financial
terms is that earnings (any way you care to measure them) were up and that, when
compared with our peers, Park National looked very good indeed. Specifically,
net income totaled $45.7 million last year versus $41.6 million the year before,
an increase of 10.0 percent. On a per share basis the increase was somewhat
greater, 10.7 percent. The reason for the difference is that we (the
corporation) purchased some of our own shares last year so that there were fewer
outstanding at the end of the year than at the beginning. An incidental result
of these purchases is that each of us who did not sell now has a larger
proportionate ownership of the place -- not much larger, but a little.
Now, before leaving off talking about earnings, we must, with apologies,
introduce some gobbledygook. You will notice several places in this report that
per share net income is reported as $4.67 in 1999 and $4.22 in 1998. If by
chance you should look back at last year's report, you would see that we told
you then that we had earned $4.43 (not $4.22). What gives? This year's earnings,
indeed all this year's per share data have been adjusted for the 5 percent stock
dividend paid in December.
Cash dividends paid in 1999 were up sharply. They increased 25 percent.
In terms of total resources, the corporation grew by 7 percent last year.
However, this growth was not balanced. In its simplest terms, our business can
be described as receiving deposits and making loans. In other words, the
deposits entrusted to us fund the loans we make in our communities. For some
years now our loans have been growing faster than our deposits. Last year while
deposits grew less than 4 percent, loans increased almost 12 percent. Our
situation is not unique. Most banks face the same challenge. Regardless, we have
to figure out how to resolve this situation for ourselves. It doesn't do much
good to excuse ourselves by saying that many other banks are in the same boat,
if the boat is taking on water. During this current year we are making a
particular effort to balance our growth by placing more attention on attracting
deposits. We probably won't achieve parity this year but we intend to move in
that direction.
There are three ratios that we follow closely in trying to measure our
performance:
- - The first is Return on Equity. Equity represents the stockholders' ownership,
and return is the earnings we produce. Therefore, when the earnings are
expressed as a percentage of the ownership, or your investment in the company,
the resulting ratio provides an indication of how effectively your investment
is being managed. Our return on equity has consistently been in the top 10
percent of banks our size across the country. It increased in 1999 to 19.43
percent.
- - Another measure of the efficiency of management in profitably employing
resources is Return on Assets. Here the denominator is the total assets of the
institution and the numerator the earnings. The best banks earn in excess of
1.5 percent on assets. In 1999 the return on assets of Park National
Corporation was 1.82 percent, up slightly from 1.78 percent the year before.
This ratio will not increase each year. We will be very satisfied if we can
maintain it near this level.
- - Finally, we look carefully at our Efficiency Ratio. This is a measure of
expense control and, as you might therefore imagine, less is better. For the
industry, the efficiency ratio ranges all over the place -- from perhaps 40 to
70 percent. Ours was 46.39 percent in 1999, down from 48.01 percent in 1998.
That's pretty good, but we would like it to be better.
1
<PAGE> 2
A number of significant things happened last year, and while it isn't practical
to describe each of them, we want to mention a few. Certainly the most
newsworthy were the announcements in December of our agreements to acquire the
United Bank in Bucyrus and the Second National Bank in Greenville. We should
have known that, after spending a good bit of space in last year's letter
explaining why we were not active in the mergers and acquisition arena, we would
land two this year.
The Bucyrus bank is easily understood. It fits the profile of our other
affiliates as a first-rate county seat bank located adjacent to a county where
we are already doing business. The Greenville bank, on the other hand, is
located in the far western part of Ohio, well away from any market we now serve.
Aside from the geography, however, the Second National Bank has everything we
are looking for. The bank is well run by a management team whose banking
philosophy closely parallels our own.
Both of these new affiliates present us with significant and exciting new
opportunities. For business relationships to be successful in the long run, it
is necessary for all parties to benefit. The opportunities we envision fit this
pattern. Our experience has been that we can learn a great deal from the banks
with which we affiliate and they in turn can learn from us. We already have in
place, transition teams with members from the new banks working with people from
our other affiliates. Theirs is a major job, but we believe it is time well
spent in order to achieve a smooth merger that is transparent to the customers
of our new banks and relatively stress free for our new associates.
We anticipate that both the United Bank and the Second National Bank will be
able to offer new products and services to their customers as a result of their
affiliation with Park National Corporation. For example, neither bank has a
trust department. We will develop trust services in these new markets. Trust
business is important to all our banks; we surpassed $1.7 billion in trust
assets managed at year-end.
We hope to complete these two mergers early in the second quarter of 2000.
There are two things left to be said about Y2K. The first is that it came off
without a hitch, thanks to the dedication and hard work of lots of people from
all of our affiliate banks as well as our data processing unit, Consolidated
Computer Center, all led by Dave Bowers. The second is that we may never mention
it again.
Several new initiatives have been launched in recent years, and by and large
they are doing very well. The folks at Scope Leasing, our aircraft leasing and
finance subsidiary, have done an extraordinary job. Scope's receivables passed
$55 million in 1999.
In 1998 we entered the municipal finance business and this year founded a
consumer finance company. Both are off to a good start.
To remain competitive we continue to invest significantly in technology. Last
year we spent a lot to upgrade over 200 personal computers and 40 file servers
plus for updates to our mainframe and its software. In addition, we invested an
untold number of hours of staff time over several years in the development of a
tool that provides commercial customers with complete access to their accounts
from computers in their offices. Currently we are preparing to introduce
Internet banking. It should be ready in a few months.
Last year we talked about the transfer of leadership throughout the company.
Another step in this process occurred in 1999. Tim Lehman moved from the
management of the audit function for the corporation to replace Bill Jilek as
CEO of the Richland Bank. Bill was responsible for the management of the
Richland Bank for 22 years during which time it was owned by three different
bank holding companies. Bill served several masters with loyalty and grace. He
provided leadership not only to the bank but also to the entire Richland County
community.
Looking forward, we see great opportunities. We intend to focus this year on the
fundamentals of our business, on blocking and tackling as it were. As stated
above, we are anxious to expand our deposit base. We want to continue to grow
our portfolio of good loans, and to search out new opportunities in each of the
markets we serve. Delivering the highest level of quality service to our
customers will continue to distinguish each of our banks. While such a goal is
not easily achieved, and never achieved completely, we intend to help our
associates understand how we are different and why that difference is so
important to our continuing success.
We thank you all for your support. As we have said often in the past, there is
no better way to lend support to the bank you own than to do business (as much
as possible) with it.
/s/ William T. McConnell
WILLIAM T. MCCONNELL
Chairman
/s/ C. Daniel DeLawder
C. DANIEL DELAWDER
President
2
<PAGE> 3
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, and the Corporation's ability
to execute its business plans. Although Park believes that the expectations
reflected in the 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 1999 was $45.7 million, the highest in Park's thirteen year
history as a bank holding company. This represents a 10.0% increase over net
income of $41.6 million for 1998. Net income per share was $4.67 for 1999, up by
10.7% over the $4.22 net income per share for 1998. Net income has increased at
an annual compound growth rate of 12.7% over the last five years, and net income
per share has grown at an annual compound growth rate of 13.0% over the same
period.
The Corporation's Board of Directors approved a 5% stock dividend in November
1999. The additional common shares resulting from the dividend were distributed
on December 15, 1999 to stockholders of record as of December 3, 1999. The
consolidated financial statements, notes and other references to share and per
share data have been retroactively restated for the stock dividend.
Effective with the fourth quarter of 1999, the quarterly cash dividend on common
stock was increased to $.65 per share. The new annualized cash dividend of $2.60
per share is 13.8% greater than the cash dividend paid in 1999. 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 20.4%.
Park's business strategy is geared toward maximizing the return to stockholders.
The Corporation's common stock value has appreciated 21.6% annually on a
compounded, total return basis for the last five years and 24.8% annually for
the past ten years. The December 31, 1999 value of a $1,000 investment on
December 31, 1994 and a $1,000 investment on December 31, 1989 would be $2,663
and $9,164, 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.
PENDING ACQUISITIONS
On December 14, 1999, Park entered into an Agreement and Plan of Merger with
U.B. Bancshares, Inc. (UB), a $180 million bank holding company headquartered in
Bucyrus, Ohio, providing for a merger of UB into the Corporation. Under terms of
the UB Merger Agreement, the stockholders of UB are expected to receive .554
shares of Park common stock for each outstanding share of UB in a tax free
exchange. The Corporation expects to issue an aggregate of 325,500 shares of
common stock to complete the merger which will be accounted for as a
pooling-of-interests. Completion of the merger is subject to various conditions,
including the approval of bank regulators and other governmental agencies, the
approval of stockholders of UB, and other conditions to closing, customary of a
transaction of this type. The merger is expected to be completed during the
second quarter of 2000.
On December 17, 1999, Park entered into an Agreement and Plan of Merger with SNB
Corp. (SNB), a $300 million bank holding company headquartered in Greenville,
Ohio, providing for a merger of SNB into the Corporation. Under terms of the SNB
Merger Agreement, the stockholders of SNB are expected to receive 5.37 shares of
Park common stock for each outstanding share of SNB in a tax free exchange. The
Corporation expects to issue an aggregate of 835,500 shares of common stock to
complete the merger which will be accounted for as a pooling-of-interests.
Completion of the merger is subject to various conditions, including the
approval of bank regulators and other governmental agencies, the approval of
stockholders of SNB, and other conditions to closing, customary of a transaction
of this type. The merger is expected to be completed during the second quarter
of 2000.
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, consumer and commercial leases, 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 weak economic
conditions.
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 strong results are contingent upon economic
conditions in Ohio and competitive factors, among other things.
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-nine full- service offices
and a network of sixty-five automatic teller machines in fifteen central and
southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1999, 1998, and
1997 is shown below. See Footnote 19 to the financial statements for additional
financial information on the Corporation's affiliates.
3
<PAGE> 4
TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998 1997
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 $ 883,680 $20,411 $ 812,688 $18,333 $ 716,356 $20,013
Fairfield National
Division 281,893 4,209 263,729 4,254 202,681 3,893
Richland Trust Company 415,528 5,085 405,646 5,006 385,469 5,195
Century National Bank 388,616 5,688 359,774 6,332 348,861 5,805
First-Knox National Bank:
First-Knox National
Division 509,143 8,765 477,663 7,541 502,723 2,516
Farmers and Savings
National Division 63,160 903 62,955 960 60,189 512
Parent Company,
including consolidating
entries (24,530) 686 (46,972) (854) 3,303 (241)
- ------------------------------------------------------------------------------------------------
Consolidated
Totals $2,517,490 $45,747 $2,335,483 $41,572 $2,219,582 $37,693
- ------------------------------------------------------------------------------------------------
</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 1999,
there were approximately 155 bank holding companies in this peer group. The
Corporation's net income to average equity ratio (ROE) was 19.43%, 18.35% and
18.21% in 1999, 1998, and 1997, respectively. In the past five years, the
Corporation's ROE exceeded the mean and median return of the peer group by a
substantial margin. Park's return on equity ratio has averaged 17.88% over the
past five years.
[GRAPH]
HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY
1995 1996 1997 1998 1999
Park 16.52% 16.88% 18.21% 18.35% 19.43%
Peer Mean 12.58% 13.55% 14.19% 13.63% 13.84%*
*as of 09/30/99
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 have been less than 16% of
total deposits for each of the last three years. In 1999, year-end total
deposits increased by $75 million or 3.9% compared to an increase of $85 million
or 4.6% for 1998. Approximately $15 million of the 1999 increase resulted from
the purchase of a bank branch office in Utica, Ohio in September 1999.
Increases in noninterest bearing deposits were experienced in all three years,
primarily from commercial and public fund depositors.
Maturity of time certificates of deposit and other time deposits of $100,000 and
over as of December 31, 1999 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
- -----------------------------------------------------------
DECEMBER 31, 1999 TIME CERTIFICATES
(IN THOUSANDS) OF DEPOSIT
- -----------------------------------------------------------
3 months or less $171,423
Over 3 months through 6 months 52,872
Over 6 months through 12 months 53,431
Over 12 months 35,485
- ------------------------------------------------------------
Total $313,211
- ------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings consist of securities sold under
agreements to repurchase, 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. The average
rate paid on short-term borrowings generally moves closely with changes in
market interest rates for short-term investments. The average rate paid on
short-term borrowings was 4.61%, 4.77% and 4.76% for 1999, 1998 and 1997,
respectively. By comparison, the average federal funds rate was 4.97%, 5.35% and
5.46% for 1999, 1998 and 1997, respectively. In 1999, average short-term
borrowings were $295 million compared to $190 million in 1998 and $163 million
in 1997. The increase in average short-term borrowings in 1999 and 1998 was
needed to help fund the increase in the average balance of loans and investments
and to repay long-term debt. Average short-term borrowings were less than 12% 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 1999, 1998 and late 1997 as more
attractive rates were available in short-term markets.
STOCKHOLDERS' EQUITY: The ratio of average stockholders' equity to average total
assets was 9.35% in 1999, 9.70% in 1998 and 9.33% in 1997.
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 income which is part of
the Corporation's equity. While the effects 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/(loss) on available-for-sale securities, net of federal
taxes, was $(7.5), $7.5, and $7.0 million at year-end 1999, 1998 and 1997,
respectively.
INVESTMENT OF FUNDS
LOANS: Average loans, net of unearned income, were $1,715 million in 1999
compared to $1,601 million in 1998 and $1,528 million in 1997. The average yield
on loans was 8.85% in 1999 compared to 9.25% in 1998 and 9.36% in 1997. The
average prime lending rate in 1999 was 7.99% compared to 8.35% in 1998 and 8.44%
in 1997. Approximately 66% 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 $192 million or
11.7% in 1999 and by $50 million or 3.1% in 1998. Consumer loans increased by
$76 million or 22.7% to $408 million at year-end 1999 compared to an increase of
$19 million or 6.0% for 1998. Total lease outstandings increased by $57 million
or 93.4% to $117 million at year-end 1999 compared to an increase of $26 million
or 73.1% for 1998. These large
4
<PAGE> 5
increases in 1999 were primarily due to strong demand for automobile loans and
leases. As a percentage of assets, year-end loan balances were 69.6%, 66.7% and
69.6% in 1999, 1998 and 1997, respectively.
Table 3 reports year-end loan balances by type of loan for the past five years.
TABLE 3 - LOANS BY TYPE
- --------------------------------------------------------------------------------
DECEMBER 31,
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Commercial,
financial and
agriculture $ 236,718 $ 217,504 $ 212,970 $ 224,912 $ 211,535
Real estate -
construction 72,968 70,998 65,548 70,359 52,084
Real estate -
residential 693,930 679,239 708,768 617,018 585,739
Real estate -
commercial 305,193 280,789 256,074 215,372 200,675
Consumer, net 407,849 332,320 313,517 320,831 282,618
Leases, net 117,290 60,662 35,050 23,532 22,717
- --------------------------------------------------------------------------------
Total Loans $1,833,948 $1,641,512 $1,591,927 $1,472,024 $1,355,368
- --------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
- ----------------------------------------------------------------------------
OVER ONE OVER
DECEMBER 31, 1999 ONE YEAR THROUGH FIVE
(IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL
- ----------------------------------------------------------------------------
Commercial, financial and
agriculture $95,142 $65,996 $ 75,580 $236,718
Real estate - construction 34,010 4,597 34,361 72,968
- ----------------------------------------------------------------------------
Total $129,152 $70,593 $109,941 $309,686
- ----------------------------------------------------------------------------
Total of these selected loans
due after one year with:
Fixed interest rate $ 52,972
Floating interest rate $127,562
- ----------------------------------------------------------------------------
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 the
estimated fair value with the unrealized holding gain or loss, net of taxes,
accounted for as comprehensive other 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. Park realized security losses of
$3.6 million in 1999 compared to a gain of $97,000 in 1998 and a loss of $7,000
in 1997. Interest rates on U.S. Treasury securities with a five year maturity
increased to 6.36% at December 31, 1999 compared to 4.56% at December 31, 1998.
This increase in interest rates provided the Corporation with an opportunity to
realize security losses and reinvest at higher interest rates. 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.
The average yield on taxable investment securities was 6.61%, 6.91%, and 7.00%
for 1999, 1998, and 1997, respectively. The average maturity or repricing of the
taxable investment portfolio was approximately 5.1 years at year-end 1999
compared to 2.7 years at year-end 1998 and 3.1 years at year-end 1997. The
extension of the average maturity of the investment portfolio in 1999 was
primarily due to callable U.S. Agency securities of approximately $200 million
being priced to their maturity of 7.5 years compared to their first call date in
2.5 years. If interest rates were to decline in 2000, the average maturity of
the taxable portfolio could shorten by two years.
The Corporation's tax-exempt securities portfolio was approximately 16% of the
total securities portfolio at year-end 1999 compared to 17% at year-end 1998 and
16% at year-end 1997. The average tax-equivalent yield on tax-exempt securities
was 7.25%, 7.33% and 7.82% for 1999, 1998 and 1997, respectively. The average
maturity of the tax-exempt portfolio was 7.9 years at year-end 1999 compared to
6.7 years at year-end 1998 and 7.1 years at year-end 1997.
Total year-end investment securities decreased by $29 million or 4.5% in 1999
compared to an increase of $112 million or 20.7% in 1998. Year-end 1999 loan
totals increased by $192 million or 11.7% compared to an increase of $50 million
or 3.1% in 1998. The investment security portfolio was reduced in 1999 to help
fund the faster growth in the loan portfolio.
The following table sets forth the book value of investment securities at year
end:
TABLE 5 - INVESTMENT SECURITIES
- -------------------------------------------------------------------------------
DECEMBER 31,
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Obligations of U.S. Treasury and other
U.S. Government agencies $201,527 $175,530 $159,248
Obligations of states and political subdivisions 102,333 110,616 87,367
U.S. Government asset-backed securities
and other asset-backed securities 295,279 344,936 274,234
Other securities 24,191 21,385 19,881
- --------------------------------------------------------------------------------
Total $623,330 $652,467 $540,730
- --------------------------------------------------------------------------------
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 $8.2 million or 7.6% to $115.9 million for 1999
compared to an increase of $4.4 million or 4.3% to $107.7 million for 1998. The
net yield on interest earning assets was stable at 5.04% for 1999 compared to
5.05% for 1998 and 1997. 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 4.42%
for all three years. The increase in net interest income for both 1999 and 1998
was primarily due to the growth in average interest earning assets.
The yield on average interest earning assets was 8.26% in 1999 compared to 8.65%
in 1998 and 8.75% in 1997. The average prime lending rate was approximately
7.99% for 1999 compared to 8.35% for 1998 and 8.44% for 1997. Market interest
rates increased during the fourth quarter of 1999 and the prime lending rate
increased to 8.50% at year-end 1999. About one-third of the Corporation's loan
portfolio is indexed to the prime lending rate and as
5
<PAGE> 6
a result, the average yield on interest earning assets is expected to increase
in 2000. Average interest earning assets increased by $181 million or 8.3% to
$2,359 million in 1999 compared to an increase of $94 million or 4.5% to $2,179
million in 1998.
The average rate paid on average interest bearing liabilities was 3.84% in 1999
compared to 4.29% in 1998 and 4.38% in 1997. The average rate paid on deposits
was 3.70% for 1999 compared to 4.22% for 1998 and 4.28% for 1997. The
Corporation increased certain deposit rates during the fourth quarter of 1999 as
a result of the increase in market interest rates. The average rate paid on
deposits is expected to increase in 2000 and offset the expected increase in the
average yield on interest earning assets. Average interest bearing liabilities
increased by $155 million or 8.5% to $1,981 million in 1999 compared to an
increase of $65 million or 3.7% to $1,825 million in 1998. Average interest
bearing deposits as a percentage of average interest bearing liabilities were
85.0% in 1999, 88.8% in 1998, and 88.1% in 1997.
<TABLE>
<CAPTION>
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
(DOLLARS IN THOUSANDS) DAILY AVERAGE DAILY AVERAGE DAILY AVERAGE
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $1,715,050 $151,718 8.85% $1,600,510 $148,085 9.25% $1,527,694 $142,934 9.36%
Taxable investment securities 539,722 35,675 6.61% 481,867 33,290 6.91% 474,707 33,229 7.00%
Tax-exempt investment securities (3) 103,927 7,536 7.25% 93,472 6,850 7.33% 73,613 5,757 7.82%
Federal funds sold 490 30 6.12% 2,678 152 5.68% 8,132 460 5.66%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS 2,359,189 194,959 8.26% 2,178,527 188,377 8.65% 2,084,146 182,380 8.75%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EARNING ASSETS:
Allowance for possible loan losses (40,081) (37,643) (34,346)
Cash and due from banks 86,899 79,149 71,244
Premises and equipment, net 26,534 27,563 27,361
Other assets 84,950 87,887 71,177
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,517,491 $2,335,483 $2,219,582
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Transaction accounts $ 391,994 $ 7,196 1.84% $ 366,890 $ 8,438 2.30% $ 364,776 $ 8,926 2.45%
Savings deposits 284,295 5,685 2.00% 281,106 7,557 2.69% 278,371 7,823 2.81%
Time deposits 1,007,730 49,503 4.91% 972,163 52,346 5.38% 907,718 49,699 5.48%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING DEPOSITS 1,684,019 62,384 3.70% 1,620,159 68,341 4.22% 1,550,865 66,448 4.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 295,309 13,601 4.61% 190,175 9,079 4.77% 162,626 7,738 4.76%
Long-term debt 1,254 78 6.22% 15,099 875 5.80% 46,652 2,846 6.10%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 1,980,582 76,063 3.84% 1,825,433 78,295 4.29% 1,760,143 77,032 4.38%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 277,452 256,817 228,598
Other 23,989 26,632 23,842
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST BEARING LIABILITIES 301,441 283,449 252,440
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 235,466 226,601 206,999
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,517,489 $2,335,483 $2,219,582
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest earnings $118,896 $110,082 $105,348
Net interest spread 4.42% 4.36% 4.37%
Net yield on interest earning assets 5.04% 5.05% 5.05%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan income includes net fee loan income/(expense) of $(53) in 1999, $1,210
in 1998 and $1,448 in 1997. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate in 1999, 1998 and 1997. The taxable
equivalent adjustment was $826 in 1999, $453 in 1998 and $434 in 1997.
(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 1999, 1998 and 1997. The taxable
equivalent adjustment was $2,213 in 1999, $1,978 in 1998 and $1,658 in 1997.
6
<PAGE> 7
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.
TABLE 7 - VOLUME/RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Change from 1998 to 1999 Change from 1997 to 1998
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
- ------------------------------------------------------------------------------------------------------
TOTAL LOANS $ 10,246 $ (6,613) $ 3,633 $ 6,828 $ (1,677) $ 5,151
- ------------------------------------------------------------------------------------------------------
Taxable investments 3,875 (1,490) 2,385 494 (433) 61
Tax-exempt investments 761 (75) 686 1,472 (379) 1,093
Federal funds sold (133) 11 (122) (309) 1 (308)
- ------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 14,749 (8,167) 6,582 8,485 (2,488) 5,997
- ------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts 544 (1,786) (1,242) 52 (540) (488)
Savings accounts 85 (1,957) (1,872) 75 (341) (266)
Time deposits 1,858 (4,701) (2,843) 3,550 (903) 2,647
Short-term borrowings 4,837 (315) 4,522 1,325 16 1,341
Long-term debt (855) 58 (797) (1,837) (134) (1,971)
- ------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 6,469 (8,701) (2,232) 3,165 (1,902) 1,263
- ------------------------------------------------------------------------------------------------------
NET VARIANCE $ 8,280 $ 534 $ 8,814 $ 5,320 $ (586) $ 4,734
- ------------------------------------------------------------------------------------------------------
</TABLE>
OTHER INCOME: Total other income, exclusive of security gains or losses,
increased by $2.8 million or 11.8% to $26.7 million in 1999 and increased by
$3.2 million or 15.3% to $23.9 million in 1998 compared to $20.7 million for
1997. Service charges on deposit accounts increased by $850,000 or 12.5% in 1999
and by $515,000 or 8.2% in 1998 due primarily to increases in the number of
transaction accounts. Additionally, in 1999 there was a fee increase on
transaction accounts which was implemented during the middle of the year.
The subcategory of "other" increased by $2.0 million or 29.4% in 1999 and
increased by $1.2 million or 21.6% in 1998 due primarily to increased fees from
check card and ATM products. The increased fee income is primarily due to an
increase in the usage of these electronic cards and to a lesser extent fee
increases.
Fee income earned from the origination and sale into the secondary market
of fixed rate mortgage loans is included with other nonyield related loan fees
in the subcategory other service income. For 1999, other service income
decreased by $614,000 or 11.9% due primarily to the decrease in fixed rate
mortgage loan volume compared to an increase of $1.6 million or 43.1% in 1998
due to a large increase in fixed rate mortgage loan production. Fixed rate
mortgage loan volume is greatly dependent on the level of interest rates and the
slope of the yield curve.
Income from fiduciary activities increased by $581,000 or 11.4% in 1999 due
primarily to increases in assets under management for new trust department
customers.
Losses on sale of securities were $3.6 million in 1999 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 1999 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 1999, 1998, and 1997, the Corporation had
no investment in off-balance sheet derivative instruments.
OTHER EXPENSE: Total other expense increased by $3.2 million or 5.0%
to $67.5 million in 1999 and increased by $1.9 million or 3.0% to $64.3 million
in 1998 compared to $62.4 million for 1997. An increase in total other expense
of approximately $2.0 million in 1997 was due to one-time expenses related to
the May 1997 merger with First-Knox. These expenses were absorbed by First-Knox
in 1997.
Salaries and employee benefits increased by $3.2 million or 10.0% in 1999
compared to a decrease of $150,000 or .5% in 1998. Included in 1997, are
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. Full-time
equivalent employees at year-end were 1,023 in 1999, 1,007 in 1998 and 978 in
1997.
Data processing fees increased by $642,000 or 14.2% in 1999 compared to
a decrease of $788,000 or 14.9% in 1998. The decrease in data processing expense
in 1998 was due to efficiencies achieved from converting First-Knox to Park's
data processing system at the end of 1997. The increase in data processing
expense in 1999 was due to an upgrade in the mainframe equipment and to
additional expenses related to Year 2000 compliance.
Furniture and equipment expense decreased by $805,000 or 16.7% in 1999 compared
to a large increase of $1.1 million or 30.6% in 1998. The increase in 1998 was
primarily due to $1.0 million in increased depreciation expense on computer
hardware and software as their estimated useful lives were shortened 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. Exclusive of the
$1.0 million one time expense in 1998, furniture and equipment expense would
have increased 5.1% in 1999.
The subcategory "other expense" increased by $1.2 million or 25.3%
in 1998. The large increase in 1998 was primarily due to an increase in
depreciation expense from operating leases, in supplies expense, and Year 2000
compliance expense.
INCOME TAXES: Federal income tax expense as a percentage of income
before taxes was 29.0% in 1999, 31.3% in 1998 and 30.9% in 1997. 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 an
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, 1999 totaled $41.3
million and represented 2.25% of total loans outstanding at December 31, 1999
compared to $38.0 million or 2.31% of total loans outstanding at December 31,
1998 and $35.6 million or 2.24% of total loans outstanding at December 31, 1997.
The provision for loan losses was $7.0 million for 1999 compared to $6.8 million
for 1998 and $7.0 million for 1997. Net charge-offs were $3.7 million for 1999
compared to $4.4 million for 1998 and $3.8 million for 1997.
Management believes that the allowance for possible loan losses at year-end 1999
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.
7
<PAGE> 8
The following table summarizes the loan loss provision, charge-offs and
recoveries for the last five years:
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS
(NET OF UNEARNED
INTEREST) $1,715,050 $1,600,510 $1,527,694 $1,379,973 $1,318,275
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning Balance $ 37,989 $ 35,595 $ 32,347 $ 29,239 $ 25,438
CHARGE-OFFS:
Commercial 1,014 663 1,332 868 407
Real estate 1,827 1,569 1,265 185 471
Consumer 4,210 4,976 3,530 2,971 2,019
Leases 263 184 144 414 55
- --------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 7,314 7,392 6,271 4,438 2,952
- --------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 331 368 400 420 175
Real estate 1,471 1,008 696 365 171
Consumer 1,708 1,521 1,198 1,404 1,074
Leases 112 91 226 63 85
- --------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 3,622 2,988 2,520 2,252 1,505
- --------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 3,692 4,404 3,751 2,186 1,447
- --------------------------------------------------------------------------------------------------------
Provision charged
to earnings 6,969 6,798 6,999 5,294 5,248
- --------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 41,266 $ 37,989 $ 35,595 $ 32,347 $ 29,239
- --------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS
TO AVERAGE LOANS 0.22% 0.28% 0.25% 0.16% 0.11%
RATIO OF ALLOWANCE FOR
POSSIBLE LOAN LOSSES TO
END OF YEAR LOANS, NET
OF UNEARNED INTEREST 2.25% 2.31% 2.24% 2.20% 2.16%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes Park's allocation of the allowance for possible
loan losses. However, the total allowance for possible loan losses is available
to absorb losses from any segment of the loan portfolio.
TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
DECEMBER 31, 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 $10,379 12.91% $10,332 13.25% $10,116 13.38% $ 8,996 15.28% $ 8,779 15.61%
Real estate 11,950 58.46% 11,775 62.81% 11,420 64.73% 9,902 61.32% 8,071 61.86%
Consumer 15,127 22.24% 13,791 20.24% 12,541 19.69% 12,513 21.80% 11,474 20.85%
Leases 3,810 6.39% 2,091 3.70% 1,518 2.20% 936 1.60% 915 1.68%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $41,266 100.00% $37,989 100.00% $35,595 100.00% $32,347 100.00% $29,239 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, 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.
NON-PERFORMING ASSETS: Non-performing loans include: l) loans whose interest is
accounted for on a non-accrual 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 10 - NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
DECEMBER 31,
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Nonaccrual loans $2,638 $2,155 $2,060 $2,301 $2,425
Renegotiated loans 429 492 1,642 2,348 2,525
Loans past due 90 days
or more 2,035 2,314 2,512 2,963 1,640
- --------------------------------------------------------------------------------
TOTAL NONPERFORMING
LOANS 5,102 4,961 6,214 7,612 6,590
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED 558 238 300 329 183
- --------------------------------------------------------------------------------
TOTAL NONPERFORMING
ASSETS $5,660 $5,199 $6,514 $7,941 $6,773
- --------------------------------------------------------------------------------
PERCENTAGE OF
NONPERFORMING LOANS
TO LOANS, NET OF
UNEARNED INTEREST 0.28% 0.30% 0.39% 0.52% 0.49%
PERCENTAGE OF
NONPERFORMING ASSETS
TO LOANS, NET
UNEARNED INTEREST 0.31% 0.32% 0.41% 0.54% 0.50%
PERCENTAGE OF
NONPERFORMING ASSETS
TO TOTAL ASSETS 0.22% 0.21% 0.28% 0.36% 0.34%
- --------------------------------------------------------------------------------
Tax equivalent interest income from loans of $151.7 million for 1999 would have
increased by $136,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1999 in the
approximate amount of $307,000 is included in interest income for those loans in
accordance with original terms.
The Corporation had $42.6 million of loans included on the Corporation's watch
list of potential problem loans at December 31, 1999 compared to $36.2 million
at year-end 1998 and $17.6 million at year-end 1997. 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 and conditions for those loans identified for inclusion on the watch list.
YEAR 2000 UPDATE
The Corporation's operations achieved a successful transition to year
2000 (Y2K). No disruptions in services have been detected. All customer
and internal systems including ATMs, audio response systems and other
computer-dependent services are operating in a normal manner.
The costs incurred to address the Y2K issue in implementing the Corporation's
year 2000 plan in 1997, 1998 and 1999 are not material to the Corporation's
financial statements and do not impact the comparability of information.
Management believes the risk of continued exposure to date-related computer
problems is low. During the testing process for Y2K all sensitive dates beyond
December 31, 1999 were tested and it was determined that the systems are
compliant.
The Corporation will continue to monitor its performance throughout year 2000
with regard to date-related computer problems.
8
<PAGE> 9
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 $3.9 million during 1999 to $104.2
million at year end. Cash provided by operating activities was $59.3 million in
1999, $42.8 million in 1998, and $44.8 million in 1997. Net income was the
primary source of cash for operating activities during each year. Cash used in
investing activities was $197.9 million in 1999, $166.1 million in 1998, and
$93.4 million in 1997. 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
$195.1 million in 1999, $53.2 million in 1998, and $111.3 million in 1997. Cash
of $2.6 million and $6.7 million was used in 1999 and 1997, respectively, to
purchase branch offices and $11.6 million was used to acquire the related loans
in 1997.
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 provided $2.7
million of cash in 1999, used $109.4 million of cash in 1998 and provided $38.9
million in 1997. Cash provided by financing activities was $142.5 million in
1999, $130.0 million in 1998, and $60.4 million in 1997. A major source of cash
for financing activities is the net increase in deposits. Cash provided from the
net increase in deposits was $60.5 million in 1999, $84.8 million in 1998 and
$42.4 million in 1997. The purchase of deposits with the branch offices in 1999
and 1997 provided cash of $14.9 million and $49.2 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 $101.5 million in 1999 and $95.0 million in 1998 and $16.5
million in 1997. Cash was used to repay long-term debt of $8.4 million in 1999,
$22.4 million in 1998 and $31.5 million in 1997.
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 $1,300 million or 52.9% of interest
earning assets at year-end 1999. 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 rate sensitivity data for five different time
intervals as of December 31, 1999:
TABLE 11 - INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(DOLLARS 0-3 3-12 1-3 3-5 OVER 5
IN THOUSANDS) MONTHS MONTHS YEARS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE
SENSITIVE ASSETS:
Investment
securities(1) $ 26,424 $ 55,397 $ 192,649 $102,343 $246,517 $ 623,330
Loans(1) 524,926 693,096 343,496 179,938 92,492 1,833,948
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST
EARNING
ASSETS 551,350 748,493 536,145 282,281 339,009 2,457,278
- ------------------------------------------------------------------------------------------------
INTEREST BEARING
LIABILITIES:
Interest Bearing
Checking(2) 60,559 -- 181,676 -- -- 242,235
Savings
accounts(2) 137,687 -- 137,687 -- -- 275,374
Money market
checking 150,226 -- -- -- -- 150,226
Time deposits 372,437 408,659 224,546 48,384 2,568 1,056,594
Other 1,427 -- -- -- -- 1,427
- ------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 722,336 408,659 543,909 48,384 2,568 1,725,856
- ------------------------------------------------------------------------------------------------
Short-term
borrowings 348,199 -- -- -- -- 348,199
Long-term debt -- 2 4 5 65 76
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST
BEARING
LIABILITIES 1,070,535 408,661 543,913 48,389 2,633 2,074,131
- ------------------------------------------------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP (519,185) 339,832 (7,768) 233,892 336,376 383,147
CUMULATIVE RATE
SENSITIVITY GAP (519,185) (179,353) (187,121) 46,771 383,147
CUMULATIVE GAP AS
A PERCENTAGE OF
TOTAL INTEREST
EARNING ASSETS -21.13% -7.30% -7.61% 1.90% 15.59%
- ------------------------------------------------------------------------------------------------
</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 7.30% to a negative 20.30%.
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, 1999, the cumulative interest bearing liabilities maturing or repricing
within twelve months were $1,479 million compared to the cumulative interest
earning assets maturing or repricing within twelve months of $1,300 million. For
the twelve months, rate sensitive liabilities exceed rate sensitive assets by
$179 million or 7.3% 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.
9
<PAGE> 10
The cumulative twelve month interest rate sensitivity gap position at December
31, 1998 was a negative $148 million or 6.5% of interest earning assets compared
to a negative $179 million or a negative 7.3% of interest earning assets at
December 31, 1999. This change in the cumulative twelve month interest rate
sensitivity gap of a negative $31 million was primarily due to an increase in
short-term borrowings. The cumulative interest bearing liabilities maturing or
repricing within one year as a percentage of total interest earning assets was
60.2% at December 31, 1999 compared to 58.1% at December 31, 1998.
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, 1999, the earnings simulation model projected that net income would decrease
by 1.6% using a rising interest rate scenario and increase by 1.1% using a
declining interest rate scenario over the next year. 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 and 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. During the past two years, Park's balance sheet has
become more liability sensitive with the result that rising interest rates are
projected to slightly reduce net income.
CAPITAL: The Corporation's primary means of maintaining capital adequacy
is through net retained earnings. At December 31, 1999, the Corporation's equity
capital was $239.6 million, an increase of 1.7% over the equity capital at
December 31, 1998. Stockholders' equity at December 31, 1999 was 9.09% of total
assets compared to 9.58% of total assets at December 31, 1998.
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, 1999. At year-end 1999, the Corporation had a risk-based
capital ratio of 14.41% or capital above the minimum required by $114.7 million.
The capital standard of tier l capital to risk-based assets is 4% at December
31, 1999. Tier l capital includes stockholders' equity net of goodwill and any
other intangible assets. At year-end 1999, the Corporation had a tier l capital
to risk-based assets ratio of 13.15% or capital above the minimum required by
$163.6 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 1999, the Corporation had a leverage capital ratio of 9.05% or capital
above the minimum required by $131.2 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, 1999. The table below
indicates the capital ratios for each subsidiary and the Corporation at December
31, 1999:
TABLE 12 - CAPITAL RATIOS
- --------------------------------------------------------------------------------
TIER 1 TOTAL
DECEMBER 31, 1999 LEVERAGE RISK-BASED RISK-BASED
- --------------------------------------------------------------------------------
Park National Bank 6.30% 8.54% 10.93%
Richland Trust Company 6.01% 10.44% 11.70%
Century National Bank 5.97% 10.28% 11.54%
First-Knox National Bank 5.83% 8.28% 11.92%
Park National Corporation 9.05% 13.15% 14.41%
Minimum Capital Ratio 4.00% 4.00% 8.00%
Well Capitalized Ratio 5.00% 6.00% 10.00%
- --------------------------------------------------------------------------------
[GRAPH]
RISK-BASED CAPITAL RATIOS (December 31, 1999)
- --------------------------------------------------------------------------------
LEVERAGE TIER 1 TOTAL
- --------------------------------------------------------------------------------
Park 9.05% 13.15% 14.41%
Well-Capitalized 5.00% 6.00% 10.00%
Regulatory Minimum 4.00% 4.00% 8.00%
[GRAPH]
AVERAGE STOCKHOLDERS' EQUITY (millions)
1999 1998 1997 1996 1995
$235.5 $226.6 $207.0 $187.8 $168.4
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
10
<PAGE> 11
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 Park's
ability to align its asset/liability management program to react to changes in
interest rates.
The following table summarizes five-year financial information. All per share
data have been retroactively restated for the 5% stock dividend paid on December
15, 1999.
TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN THOUSANDS, 1999 1998 1997 1996 1995
EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 191,920 $ 185,946 $ 180,288 $ 163,193 $ 150,288
Interest expense 76,063 78,295 77,032 69,155 64,347
Net interest income 115,857 107,651 103,256 94,038 85,941
Gain/(loss) on sale
of securities (3,608) 97 (7) (1,324) (634)
Noninterest income 26,696 23,872 20,708 17,984 16,683
Noninterest expense 67,540 64,309 62,408 59,112 56,501
Provision for loan losses 6,969 6,798 6,999 5,294 5,248
Net income 45,747 41,572 37,693 31,700 27,829
PER SHARE:
Net income - basic 4.69 4.24 3.82 3.23 2.82
Net income - diluted 4.67 4.22 3.81 3.22 2.81
Cash dividends declared 2.36 1.94 1.60 1.38 1.19
AVERAGE BALANCES:
Loans $ 1,715,050 $1,600,510 $ 1,527,694 $ 1,379,973 $ 1,318,275
Investment securities 643,649 575,339 548,320 472,107 421,089
Money market instruments
and other 490 2,678 8,132 39,573 17,325
- ---------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 2,359,189 2,178,527 2,084,146 1,891,653 1,756,689
- ---------------------------------------------------------------------------------------------------------
Noninterest bearing deposits 277,452 256,817 228,598 207,262 196,406
Interest bearing deposits 1,684,019 1,620,159 1,550,865 1,420,919 1,317,325
- ---------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,961,471 1,876,976 1,779,463 1,628,181 1,513,731
- ---------------------------------------------------------------------------------------------------------
Short-term borrowings 295,309 190,175 162,626 126,721 139,035
Long-term debt 1,254 15,099 46,652 46,497 33,413
Stockholders' equity 235,466 226,601 206,999 187,755 168,432
Total assets 2,517,489 2,335,483 2,219,582 2,011,795 1,872,999
RATIOS:
Return on average assets 1.82% 1.78% 1.70% 1.58% 1.49%
Return on average equity 19.43% 18.35% 18.21% 16.88% 16.52%
Net interest margin(1) 5.04% 5.05% 5.05% 5.09% 5.02%
Noninterest expense to
net revenue(1) 46.39% 48.01% 49.51% 52.34% 54.24%
Dividend payout ratio 50.41% 45.84% 41.93% 40.66% 38.45%
Average stockholders' equity
to average total assets 9.35% 9.70% 9.33% 9.33% 8.99%
Leveraged capital 9.05% 9.06% 8.91% 8.73% 9.06%
Tier 1 capital 13.15% 13.64% 13.46% 13.16% 14.06%
Risk-based capital 14.41% 14.92% 14.72% 14.42% 15.30%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1)Computed on a fully taxable equivalent basis
The following table is a summary of selected quarterly results of operations
for the years ended December 31, 1999 and 1998. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation
and share and per share data have been retroactively restated for the 5% stock
dividend paid on December 15, 1999.
TABLE 14 - QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
THREE MONTHS ENDED
(DOLLARS IN THOUSANDS, -------------------------------------------------------
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Interest income $ 46,241 $ 46,884 $ 48,329 $ 50,466
Interest expense 18,343 18,145 19,226 20,349
Net interest income 27,898 28,739 29,103 30,117
Provision for loan losses 1,545 2,009 1,555 1,860
Loss on sale of securities -- (255) (707) (2,646)
Income before income taxes 16,524 16,872 16,687 14,353
Net income 11,598 12,003 11,800 10,346
Per share data:
Net income - basic 1.19 1.23 1.21 1.06
Net income - diluted 1.18 1.22 1.21 1.06
Weighted-average common
stock outstanding - basic 9,771,925 9,762,958 9,743,255 9,736,488
Weighted-average common
stock equivalent - diluted 9,810,600 9,796,100 9,780,011 9,786,099
- -----------------------------------------------------------------------------------------
1998:
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 1.07 1.12 1.10 0.95
Net income - diluted 1.07 1.11 1.10 0.94
Weighted-average common
stock outstanding - basic 9,856,259 9,820,318 9,782,803 9,770,947
Weighted-average common
stock equivalent - diluted 9,903,490 9,867,825 9,834,681 9,817,211
- -----------------------------------------------------------------------------------------
</TABLE>
Park's common stock (symbol:PRK) is traded on the American Stock Exchange
(AMEX). At December 31, 1999, the Corporation had 2,780 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, 1999 and 1998, as reported by AMEX. The sales prices and
dividends per share have been retroactively restated for the 5% stock dividend
paid on December 15, 1999.
TABLE 15 - MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
- --------------------------------------------------------------------------------
1999:
First Quarter $ 99.05 $ 87.33 $ 91.42 $ 0.57
Second Quarter 95.23 87.38 95.23 0.57
Third Quarter 96.19 90.72 96.19 0.57
Fourth Quarter 116.00 91.19 96.00 0.65
- --------------------------------------------------------------------------------
1998:
First Quarter $ 90.47 $ 80.95 $ 90.47 $ 0.46
Second Quarter 98.03 85.00 96.13 0.46
Third Quarter 102.14 90.00 99.05 0.46
Fourth Quarter 101.42 86.19 98.09 0.57
- --------------------------------------------------------------------------------
11
<PAGE> 12
STOCKHOLDERS INFORMATION
- --------------------------------------------------------------------------------
STOCK LISTING:
AMEX Symbol - PRK
CUSIP #700658107
GENERAL STOCKHOLDER INQUIRIES:
Park National Corporation
David C. Bowers, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740/349-3708
DIVIDEND REINVESTMENT PLAN:
The Corporation offers a plan whereby participating stockholders can
purchase additional shares of Park National Corporation common stock
through automatic reinvestment of their regular quarterly cash dividends.
All commissions and fees connected with the purchase and safekeeping of
the shares are paid by the Corporation. Details of the Plan and an
enrollment card can be obtained by contacting the Secretary as indicated
above.
DIRECT DEPOSIT OF DIVIDENDS:
The Corporation's stockholders may have their dividend payments directly
deposited into their checking, savings or money market account. This
direct deposit of dividends is free for all stockholders. If you have any
questions or need an enrollment form, please contact the Corporation's
Stock Transfer Agent and Registrar indicated below.
STOCK TRANSFER AGENT AND REGISTRAR:
First-Knox National Bank
P.O. Box 871
One South Main Street
Mount Vernon, Ohio 43050-0871
800/837-5266
FORM 10-K:
Copies of Park National Corporation's Form 10-K for 1999, including
financial statements, may be obtained, without charge, by contacting the
Secretary as indicated above.
INTERNET ADDRESS:
www.parknationalcorp.com
E-MAIL:
[email protected]
12
<PAGE> 13
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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
January 18, 2000
13
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1999 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 104,222 $100,291
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value (amortized cost of $630,586 and
$634,809 at December 31, 1999 and 1998, respectively) 619,009 646,403
Securities held-to-maturity, at amortized cost (fair value of $4,451 and
$6,347 at December 31, 1999 and 1998, respectively) 4,321 6,064
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 623,330 652,467
- ---------------------------------------------------------------------------------------------------------------
Loans 1,850,710 1,654,003
Unearned loan interest (16,762) (12,491)
- ---------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,833,948 1,641,512
- ---------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (41,266) (37,989)
- ---------------------------------------------------------------------------------------------------------------
NET LOANS 1,792,682 1,603,523
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 26,542 26,755
Accrued interest receivable 14,226 14,356
Other 73,335 63,387
- ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 114,103 104,498
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,634,337 $2,460,779
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
CONSOLIDATED BALANCE SHEETS (continued)
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1999 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
DEPOSITS:
Noninterest bearing $ 289,291 $ 285,574
Interest bearing 1,725,856 1,654,204
- ---------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 2,015,147 1,939,778
- ---------------------------------------------------------------------------------------------------
BORROWINGS:
Short-term borrowings 348,199 246,659
Long-term debt 76 8,430
OTHER LIABILITIES:
Accrued interest payable 7,447 6,938
Other 23,888 23,284
- ---------------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 31,335 30,222
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,394,757 2,225,089
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, no par value (20,000,000 shares authorized;
10,031,135 shares issued in 1999 and 10,031,077 issued in 1998) 68,383 68,398
Accumulated other comprehensive income, net (7,525) 7,536
Retained earnings 199,736 177,050
Less: Treasury stock (291,301 shares in 1999 and
257,765 shares in 1998) (21,014) (17,294)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 239,580 235,690
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,634,337 $ 2,460,779
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in
thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $150,892 $147,632 $142,500
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 35,675 33,290 33,229
Obligations of states and political subdivisions 5,323 4,872 4,099
Other interest income 30 152 460
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 191,920 185,946 180,288
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand and savings deposits 12,881 15,995 16,749
Time deposits 49,503 52,346 49,699
Interest on short-term borrowings 13,601 9,079 7,738
Interest on long-term debt 78 875 2,846
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 76,063 78,295 77,032
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 115,857 107,651 103,256
- -------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,969 6,798 6,999
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 108,888 100,853 96,257
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 5,662 5,081 5,192
Service charges on deposit accounts 7,673 6,823 6,308
Gain/(loss) on sales of securities (3,608) 97 (7)
Other service income 4,535 5,149 3,598
Other 8,826 6,819 5,610
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 23,088 $ 23,969 $ 20,701
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME (continued)
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and
1997 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits $34,909 $31,738 $31,888
Data processing fees 5,160 4,518 5,306
Fees and service charges 3,666 3,344 3,732
Net occupancy expense of bank premises 3,643 3,351 3,339
Amortization of intangibles 2,379 2,787 2,019
Furniture and equipment expense 4,002 4,807 3,680
Insurance 747 786 774
Marketing 2,306 2,247 2,182
Postage and telephone 3,183 3,007 2,747
State taxes 1,747 1,729 1,957
Other 5,798 5,995 4,784
- -------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 67,540 64,309 62,408
- -------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 64,436 60,513 54,550
Federal income taxes 18,689 18,941 16,857
- -------------------------------------------------------------------------------
NET INCOME $45,747 $41,572 $37,693
- -------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $ 4.69 $ 4.24 $ 3.82
DILUTED $ 4.67 $ 4.22 $ 3.81
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED
-------------------- OTHER
SHARES RETAINED COMPREHENSIVE TREASURY
OUTSTANDING AMOUNT EARNINGS INCOME, NETSTOCK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 9,822,159 $ 64,611 $ 132,648 $ 4,687 $ (2,985) $ 198,961
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (101,557) -- -- -- (6,249) (6,249)
Treasury stock reissued primarily for
stock options exercised 28,647 -- -- -- 1,522 1,522
Shares issued for dividend reinvestment plan
and stock options 113,337 2,325 -- -- -- 2,325
Cash payment for fractional shares in merger (630) (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 $1.60 per share -- -- (14,905) -- -- (14,905)
Cash dividends declared at First-Knox, prior to merger -- -- (901) -- -- (901)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9,861,956 68,275 154,535 7,019 (7,712) 222,117
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (130,439) -- -- -- (11,829) (11,829)
Treasury stock reissued primarily for
stock options exercised 39,481 -- -- -- 2,247 2,247
Shares issued for stock options 2,314 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 $1.94 per share -- -- (19,057) -- -- (19,057)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 9,773,312 $ 68,398 $ 177,050 $ 7,536 $(17,294) $ 235,690
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (55,888) -- -- -- (5,147) (5,147)
Treasury stock reissued primarily for
stock options exercised 22,352 -- -- -- 1,427 1,427
Shares issued for stock options 652 22 -- -- -- 22
Tax benefit from exercise of stock options -- 14 -- -- -- 14
Cash payment for fractional shares in 5% stock dividend (594) (51) (51)
Net income -- -- 45,747 -- -- 45,747
Other comprehensive income, net of tax:
Unrealized net holding loss on securities
available-for-sale, net of income taxes of $(8,110) (15,061) (15,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (15,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 30,686
Cash dividends:
Corporation at $2.36 per share -- -- (23,061) -- -- (23,061)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 9,739,834 $ 68,383 $ 199,736 $ (7,525) $(21,014) $ 239,580
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in
thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 45,747 $ 41,572 $ 37,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,969 6,798 6,999
Amortization of loan costs and fees, net (1,069) (796) (788)
Provision for depreciation and amortization 3,541 4,491 3,273
Amortization of the excess of cost over net assets
of banks purchased 2,379 2,787 2,019
Accretion of investment security discounts, net (369) (1,357) (1,726)
Deferred income taxes 4,806 829 139
Realized investment security losses (gains) 3,608 (97) 7
Changes in assets and liabilities:
Increase in other assets (6,695) (11,762) (5,781)
Increase in other liabilities 367 338 2,949
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,284 42,803 44,784
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale securities 141,607 51,839 45,083
Proceeds from maturities of securities:
Held-to-maturity 1,743 1,727 2,973
Available-for-sale 170,829 133,674 141,765
Purchases of securities:
Available-for-sale (311,453) (296,672) (150,873)
Net increase in loans (195,059) (53,192) (111,284)
Purchase of loans -- -- (11,582)
Cash paid for branches (2,587) -- (6,748)
Purchases of premises and equipment, net (2,938) (3,442) (2,740)
- --------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (197,858) (166,066) (93,406)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchase of deposits 14,887 -- 49,192
Net increase in deposits 60,482 84,814 42,354
Net increase in short-term borrowings 101,540 95,035 16,513
Cash payment for fractional shares of common stock (51) -- (40)
Exercise of stock options 36 123 3,704
Purchase of treasury stock, net (3,720) (9,582) (4,727)
Repayment of long-term debt (8,354) (22,438) (31,507)
Cash dividends paid (22,315) (17,983) (15,047)
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 142,505 129,969 60,442
- --------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 3,931 6,706 11,820
Cash and cash equivalents at beginning of year 100,291 93,585 81,765
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 104,222 $ 100,291 $ 93,585
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
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. A new wholly owned
subsidiary of the Corporation, Guardian Finance Company (GFC), began operating
in May 1999. GFC is a consumer finance company located 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 are included in
other comprehensive income, net of applicable taxes. At December 31, 1999 and
1998, 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.
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.
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"
requires 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.
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.
20
<PAGE> 21
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:
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
Interest paid on deposits and other borrowings $75,554 $77,905 $77,105
- --------------------------------------------------------------------------------
Income taxes paid $17,947 $19,550 $14,104
- --------------------------------------------------------------------------------
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.
STOCK DIVIDEND
The Corporation's Board of Directors approved a 5% stock dividend in November
1999. The additional shares resulting from the dividend were distributed on
December 15, 1999 to stockholders of record as of December 3, 1999. The
consolidated financial statements, notes and other references to share and per
share data have been retroactively restated for the stock dividend.
ACCOUNTING CHANGES
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income", 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 statement requires the
Corporation's unrealized gains or losses on securities available-for-sale, 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.
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 provided 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, 2001. Although the statement allows for early adoption in any quarterly
period that began 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 1999 and 1998 and as a result does not expect
that adoption of this statement will have any impact on 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 September 24, 1999, Park National Division acquired a branch office
in Utica, Ohio from National City Bank. In addition to the fixed assets, the
purchase included $15 million of deposits. The excess of the cost over net
assets purchased was $2 million and is being amortized using the straight-line
method over seven years.
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 14, 1999, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with U.B. Bancshares, Inc. (UB), a $180 million
bank holding company headquartered in Bucyrus, Ohio, providing for a merger of
UB into the Corporation. Under terms of the UB Merger Agreement, the
stockholders of UB are expected to receive .554 shares of Park common stock for
each outstanding share of UB in a tax free exchange. The Corporation expects to
issue an aggregate of 325,500 shares of common stock to complete the merger
which will be accounted for as a pooling-of-interests. Completion of the merger
is subject to certain conditions, including the approval of bank regulators and
other governmental agencies, the approval of stockholders of UB, and other
conditions to closing customary of a transaction of this type. The UB merger is
expected to be completed during the second quarter of 2000.
On December 17, 1999, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with SNB Corp. (SNB), a $300 million bank
holding company headquartered in Greenville, Ohio, providing for a merger of SNB
into the Corporation. Under terms of the SNB Merger Agreement, the stockholders
of SNB are expected to receive 5.37 shares of Park common stock for each
outstanding share of SNB in a tax free exchange. The Corporation expects to
issue an aggregate of 835,500 shares of common stock to complete the merger
which will be accounted for as a pooling-of-interests. Completion of the merger
is subject to certain conditions, including the approval of bank regulators and
other governmental agencies, the approval of stockholders of SNB, and other
conditions to closing customary of a transaction of this type. The SNB merger is
expected to be completed during the second quarter of 2000.
21
<PAGE> 22
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 $20,487,000 and $16,851,000 at December 31, 1999 and 1998,
respectively. No other compensating balance arrangements were in existence at
year end.
4. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at December 31 are
as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING ESTIMATED
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
SECURITIES AVAILABLE-FOR-SALE
Obligations of U.S. Treasury and
other U.S. Government agencies $208,896 $ 98 $ 7,467 $201,527
Obligations of states and
political subdivisions 99,209 626 1,792 98,043
U.S. Government agencies'
asset-backed securities and
other asset-backed securities 298,433 246 3,431 295,248
Other equity securities 24,048 377 234 24,191
- ----------------------------------------------------------------------------------------
TOTAL $630,586 $ 1,347 $ 12,924 $619,009
- ----------------------------------------------------------------------------------------
1999:
SECURITIES HELD-TO-MATURITY
Obligations of states and
political subdivisions $ 4,290 $ 131 $ 2 $ 4,419
Other asset-backed securities 31 1 0 32
- ----------------------------------------------------------------------------------------
TOTAL $ 4,321 $ 132 $ 2 $ 4,451
- ----------------------------------------------------------------------------------------
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 $634,809 $ 11,876 $ 282 $646,403
- ----------------------------------------------------------------------------------------
1998:
SECURITIES HELD-TO-MATURITY
Obligations of states and
political subdivisions $ 5,712 $ 283 $ 3 $ 5,992
Other asset-backed securities 352 3 -- 355
- ----------------------------------------------------------------------------------------
TOTAL $ 6,064 $ 286 $ 3 $ 6,347
- ----------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1999 are shown below (in thousands) 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>
- -----------------------------------------------------------------------------------------
UNREALIZED 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 $ 10,576 $ 10,674 .9 years 7.38%
Due five through ten years 198,320 190,853 7.8 years 6.59%
- -----------------------------------------------------------------------------------------
TOTAL $208,896 $201,527 7.5 years 6.63%
- -----------------------------------------------------------------------------------------
Obligations of states and
political subdivisions:
Due within one year $ 3,328 $ 3,354 .6 years 8.16%
Due one through five years 22,116 22,384 3.1 years 7.64%
Due five through ten years 40,351 40,381 7.8 years 7.42%
Due over ten years 33,414 31,924 12.5 years 6.98%
- -----------------------------------------------------------------------------------------
TOTAL $ 99,209 $ 98,043 8.1 years 7.35%
- -----------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities and
other asset-backed securities:
Due within one year $ 14,975 $ 15,003 .7 years 6.68%
Due one through five years 270,317 267,517 3.6 years 6.77%
Due five through ten years 13,141 12,728 5.4 years 6.31%
- -----------------------------------------------------------------------------------------
TOTAL $298,433 $295,248 3.5 years 6.75%
- -----------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY
Obligations of state and
political subdivisions:
Due within one year $ 1,387 $ 1,430 .9 years 11.26%
Due one through five years 2,128 2,214 2.5 years 10.44%
Due five through ten years 630 630 8.0 years 7.63%
Due over ten years 145 145 10.9 years 7.63%
- -----------------------------------------------------------------------------------------
TOTAL $ 4,290 $ 4,419 3.1 years 10.20%
- -----------------------------------------------------------------------------------------
OTHER ASSET-BACKED SECURITIES:
Due one through five years $ 31 $ 32 3.6 years 8.70%
- -----------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $474,877,000 and $432,489,000 at
December 31, 1999 and 1998, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
In 1999, 1998 and 1997, gross gains of $335,000, $159,000, and $64,000 and gross
losses of $3,943,000, $62,000 and $71,000 were realized, respectively. Tax
benefits related to net securities losses were $1,263,000 in 1999, and $2,000 in
1997. Tax expense related to net securities gains in 1998 was $34,000.
5. LOANS
The composition of the loan portfolio is as follows:
- ---------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------
Commercial, financial and agricultural $ 236,718 $ 217,504
REAL ESTATE:
Construction 72,968 70,998
Residential 693,930 679,239
Commercial 305,193 280,789
Consumer, net 407,849 332,320
LEASES, NET 117,290 60,662
- ---------------------------------------------------------------------
TOTAL LOANS $1,833,948 $1,641,512
- ---------------------------------------------------------------------
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
non-accrual. The majority of the loans deemed impaired were evaluated using the
fair value of the collateral as the measurement method.
22
<PAGE> 23
Non-accrual and restructured loans are summarized as follows:
- ------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
Impaired loans:
Non-accrual $2,638 $2,150
Restructured 429 492
Total impaired loans 3,067 2,642
Other non-accrual loans -- 5
- ------------------------------------------------------------------
TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,067 $2,647
- ------------------------------------------------------------------
The allowance for credit losses related to impaired loans at December 31, 1999
and 1998 was $607,000 and $436,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,576,000, $2,457,000 and $3,599,000
for 1999, 1998 and 1997, 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, 1999, 1998, and 1997, the Corporation recognized
$321,000, $149,000 and $283,000, respectively, of interest income on impaired
loans, which included $307,000, $121,000 and $270,000, 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,
1999 and 1998, loans aggregating approximately $52,738,000 and $45,079,000,
respectively, were outstanding to such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Balance, January 1 $ 37,989 $ 35,595 $ 32,347
Provision for loan losses 6,969 6,798 6,999
Losses charged to the reserve (7,314) (7,392) (6,271)
Recoveries 3,622 2,988 2,520
- -------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 41,266 $ 37,989 $ 35,595
- -------------------------------------------------------------------------------
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's affiliates'
net investment in direct financing leases:
- -------------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
Total minimum payments to be received $ 86,991 $ 50,118
Estimated unguaranteed residual value of leased property 43,211 19,230
Less unearned income (12,912) (8,686)
- -------------------------------------------------------------------------------
TOTAL $ 117,290 $ 60,662
- -------------------------------------------------------------------------------
Minimum lease payments, in thousands, to be received as of December 31, 1999
are:
- -----------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------
2000 $31,836
2001 21,393
2002 15,884
2003 11,731
2004 5,219
Thereafter 928
- -----------------------------------------------
TOTAL $86,991
- -----------------------------------------------
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
- --------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------
Land $ 6,550 $ 6,392
Buildings 27,019 26,203
Equipment, furniture and fixtures 29,491 27,514
Leasehold improvements 1,204 1,144
- --------------------------------------------------------------------------
TOTAL 64,264 61,253
- --------------------------------------------------------------------------
Less accumulated depreciation and amortization (37,722) (34,498)
- --------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 26,542 $ 26,755
- --------------------------------------------------------------------------
Depreciation and amortization expense amounted to $3,541,000, $4,491,000 and
$3,273,000 for the three years ended December 31, 1999, 1998 and 1997,
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 (in thousands):
- --------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------
2000 $ 451,644
2001 372,236
2002 284,994
2003 262,183
2004 240,270
Thereafter 212,500
- --------------------------------------------------
TOTAL $1,823,827
- --------------------------------------------------
Rent expense amounted to $704,000, $659,000 and $639,000, for the three years
ended December 31, 1999, 1998 and 1997, respectively.
23
<PAGE> 24
9. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
- -------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------
Securities sold under agreements to repurchase
and federal funds purchased $149,679 $160,616
Federal Home Loan Bank advances 190,100 80,000
Other short-term borrowings 8,420 6,043
- -------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $348,199 $246,659
- -------------------------------------------------------------------------
The outstanding balances for all short-term borrowings as of December 31, 1999,
1998 and 1997 (in thousands) and the weighted-average interest rates as of and
paid during each of the years then ended are as follows:
- -------------------------------------------------------------------------
REPURCHASE DEMAND
AGREEMENTS FEDERAL NOTES
AND FEDERAL HOME LOAN DUE U.S.
FUNDS BANK TREASURY
(Dollars in thousands) PURCHASED ADVANCES AND OTHER
- -------------------------------------------------------------------------
1999:
ENDING BALANCE $149,679 $190,100 $ 8,420
HIGHEST MONTH-END BALANCE 188,269 197,600 10,044
AVERAGE DAILY BALANCE 157,993 133,418 3,898
WEIGHTED-AVERAGE INTEREST RATE:
AS OF YEAR-END 4.20% 5.82% 4.47%
PAID DURING THE YEAR 4.11% 5.18% 5.07%
- -------------------------------------------------------------------------
1998:
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%
- -------------------------------------------------------------------------
At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized
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.
10. LONG-TERM DEBT
Long-term debt is listed below:
- -----------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------
FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH
MONTHLY PRINCIPAL AND INTEREST PAYMENTS:
2.00% Advance due November 1, 2027 $ 38 $ 39
2.00% Advance due January 1, 2028 38 39
5.60% Advance due August 1, 2003 -- 1,443
5.70% Advance due May 1, 2004 -- 3,199
5.85% Advance due January 1, 2016 -- 3,710
- -----------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 76 $8,430
- -----------------------------------------------------------------------
At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized
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 735,000. At December 31,
1999, 420,214 common shares 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.
The Corporation's stock option activity and related information is summarized
below. All data has been restated, as applicable, for subsequent stock
dividends.
<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, 1997 219,537 190,883 $ 30.43 36,388 27,791 $ 23.52
Granted (91,775) 91,775 59.20 -- -- --
Exercised -- (143,901) 26.72 -- (27,767) 23.52
Forfeited/Expired (80,511) (4,449) 56.26 (36,388) (24) 22.90
- --------------------------------------------------------------------------------------------------------------
December 31, 1997 47,251 134,308 $ 53.22 -- -- --
Authorized 525,000 -- -- -- -- --
Granted (91,719) 91,719 88.60 -- -- --
Exercised -- (37,910) 51.57 -- -- --
Forfeited/Expired 6,832 (6,832) 58.61 -- -- --
- --------------------------------------------------------------------------------------------------------------
December 31, 1998 487,364 181,285 $ 71.23 -- -- --
Granted (71,407) 71,407 91.36 -- -- --
Exercised -- (19,137) 56.60 -- -- --
Forfeited/Expired 4,257 (4,257) 84.91 -- -- --
- --------------------------------------------------------------------------------------------------------------
December 31, 1999 420,214 229,298 $ 78.47 -- -- --
- --------------------------------------------------------------------------------------------------------------
Range of exercise prices: $33.04 - $110.75
Weighted-average remaining contractual life: 3.4 Years
Exerciseable at year end: 222,333
Weighted-average exercise price of exerciseable options: $78.09
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation expense related to stock appreciation rights was $0, $0 and
$339,000 in 1999, 1998 and 1997, 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.
24
<PAGE> 25
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 1999, 1998 and 1997 respectively: risk-free interest rates of
5.50%, 5.25% and 6.25%; a dividend yield of 2.50%, a volatility factor of the
expected market price of the Corporation's common stock of .213, .237 and .219
and a weighted-average expected option life of 4.0 years. The weighted-average
fair value of options granted were $18.04, $18.52 and $13.28 for 1999, 1998 and
1997, respectively.
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>
- ------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, 1999 1998 1997
EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 45,747 $ 41,572 $ 37,693
Pro-forma net income 44,358 39,814 36,620
Basic earnings per share as reported 4.69 4.24 3.82
Pro-forma basic earnings per share 4.55 4.06 3.72
Diluted earnings per share as reported 4.67 4.22 3.81
Pro-forma diluted earnings per share 4.53 4.04 3.70
- ------------------------------------------------------------------------------------------
</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.
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 17,497 $ 16,498
Service cost 1,197 1,055
Interest cost 1,120 1,189
Actuarial (1,535) 2,096
Benefits paid (1,071) (3,341)
BENEFIT OBLIGATION AT END OF YEAR 17,208 17,497
- -------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 17,135 19,578
Actual return on plan assets 2,951 662
Company contributions 602 236
Benefits paid (1,071) (3,341)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR 19,617 17,135
Funded status of the plan (underfunded) 2,409 (362)
Unrecognized net actuarial loss (gain) (2,803) 314
Unrecognized prior service cost 9 3
Unrecognized net transaction asset (93) (157)
Accrued benefit cost $ (478) $ (202)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.64% 6.52%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
- ----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 1,197 $ 1,055 $ 942
Interest cost 1,120 1,189 1,098
Expected return on plan assets (1,369) (1,555) (1,375)
Amortization of prior service cost (6) (64) (6)
Recognized net actuarial loss (64) (62) (60)
Benefit cost $ 878 $ 563 $ 599
- ----------------------------------------------------------------------------------------
</TABLE>
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 $717,000, $724,000 and $586,000 for 1999, 1998
and 1997, respectively.
The Corporation has a Supplemental Executive Retirement Plan (SERP) covering
certain key officers of the Corporation and its subsidiaries with defined
pension benefits in excess of limits imposed by federal tax law. At December 31,
1999 and 1998, the accrued benefit cost for this plan totaled $520,000 and
$32,000, respectively. The expense for the Corporation was $480,000, $30,000,
and $14,000 for 1999, 1998, and 1997, 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:
- ----------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Allowance for loan losses $14,443 $13,352
Unrealized holding loss on securities 4,052 --
Deferred loan fees 695 461
Deferred compensation 413 474
Other 3,697 3,259
- ----------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 23,300 17,546
- ----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Lease revenue reporting 12,816 6,951
Unrealized holding gain on securities -- 4,058
Fixed assets, principally due to depreciation 542 506
Other 6,148 5,541
- ----------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 19,506 17,056
- ----------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 3,794 $ 490
- ----------------------------------------------------------------------------
The components of the provision for federal income taxes are shown below:
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------
Currently payable $13,883 $18,112 $16,718
Deferred 4,806 829 139
- -----------------------------------------------------------------------------
TOTAL $18,689 $18,941 $16,857
- -----------------------------------------------------------------------------
25
<PAGE> 26
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, 1999,
1998, and 1997.
- --------------------------------------------------------------------------
DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------
Statutory corporate tax rate 35.0% 35.0% 35.0%
Changes in rates resulting from:
Tax-exempt interest income (3.4%) (3.0%) (2.9%)
Tax credits (low income housing) (1.7%) (1.0%) (.9%)
Other (.9%) .3% (.3%)
- --------------------------------------------------------------------------
EFFECTIVE TAX RATE 29.0% 31.3% 30.9%
- --------------------------------------------------------------------------
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, 1999 AMOUNT EXPENSE AMOUNT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on
available-for-sale securities $(26,779) $ (9,373) $(17,406)
Less: reclassification adjustment for
losses realized in net income 3,608 1,263 2,345
- -------------------------------------------------------------------------------------
Other comprehensive income $(23,171) $ (8,110) $(15,061)
- -------------------------------------------------------------------------------------
Year ended December 31, 1998
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
- -------------------------------------------------------------------------------------
</TABLE>
14. EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share" requires the reporting of basic and diluted
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.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 45,747 $ 41,572 $ 37,693
DENOMINATOR:
Basic earnings per share:
Weighted-average shares 9,753,656 9,807,582 9,855,119
Effect of dilutive securities - stock options 39,546 48,220 39,841
Diluted earnings per share:
Adjusted weighted-average shares
and assumed conversions 9,793,202 9,855,802 9,894,960
EARNINGS PER SHARE:
Basic earnings per share $ 4.69 $ 4.24 $ 3.82
Diluted earnings per share $ 4.67 $ 4.22 $ 3.81
- --------------------------------------------------------------------------------------------------
</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, 1999,
approximately $20,798,000 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.
26
<PAGE> 27
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.
The total amounts of off-balance sheet financial instruments with credit risk
are as follows:
- ------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
Loan commitments $289,448 $267,602
Unused credit card limits 96,193 96,710
Standby letters of credit 6,585 3,953
- ------------------------------------------------------------------
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.
27
<PAGE> 28
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.
The fair value of financial instruments at December 31, 1999 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
(IN THOUSANDS) CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and federal funds
sold $ 104,222 $ 104,222 $ 100,291 $ 100,291
Investment securities 623,330 623,460 652,467 652,750
Loans:
Commercial, financial
and agricultural 236,718 236,718 217,504 217,504
Real estate:
Construction 72,968 72,968 70,998 70,998
Residential 693,930 699,671 679,239 688,497
Commercial 305,193 303,724 280,789 281,162
Consumer, net 407,849 406,373 332,320 334,138
- ------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,716,658 1,719,454 1,580,850 1,592,299
- ------------------------------------------------------------------------------------------------------
Allowance for
loan losses (41,266) -- (37,989) --
- ------------------------------------------------------------------------------------------------------
LOANS
RECEIVABLE, NET $ 1,675,392 $ 1,719,454 $ 1,542,861 $ 1,592,299
- ------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Noninterest bearing
checking $ 289,291 $ 289,291 $ 285,574 $ 285,574
Interest bearing checking 242,235 242,235 235,113 235,113
Savings 275,374 275,374 276,546 276,546
Money market accounts 150,226 150,226 159,722 159,722
Time deposits 1,056,594 1,057,518 981,305 988,152
Other 1,427 1,427 1,518 1,518
- ------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $ 2,015,147 $ 2,016,071 $ 1,939,778 $ 1,946,625
- ------------------------------------------------------------------------------------------------------
Short-term borrowings 348,199 348,199 246,659 246,659
Long-term debt 76 40 8,430 8,526
UNRECOGNIZED FINANCIAL
INSTRUMENTS:
Loan commitments -- (289) -- (268)
Standby letters of credit -- (33) -- (20)
- ------------------------------------------------------------------------------------------------------
</TABLE>
18. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1999
and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total equity (1) $239,580 9.09% $235,690 9.58%
Tier 1 capital (2) 235,124 13.15% 215,990 13.64%
Total risk-based capital (3) 257,708 14.41% 236,356 14.92%
Leverage (4) 235,124 9.05% 215,990 9.06%
- ----------------------------------------------------------------------------------------
</TABLE>
(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.
28
<PAGE> 29
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, 1999, and 1998, 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
The Corporation's segments 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 is listed below (in thousands). See Note 1
for a detailed description of individual banking subsidiaries and their
respective divisions
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
ALL
PND FND RTC CNB FKND FSD OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 41,448 $ 12,734 $ 17,739 $ 16,520 $ 23,095 $ 3,211 $ 1,110 $ 115,857
Provision for loan losses 710 755 1,039 1,410 2,353 646 56 6,969
Other income 12,290 2,081 1,261 2,280 4,213 343 620 23,088
Depreciation and amortization 1,092 406 483 489 814 103 154 3,541
Other expense 22,649 7,461 9,822 8,727 11,828 1,576 1,936 63,999
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,287 6,193 7,656 8,174 12,313 1,229 (416) 64,436
- -----------------------------------------------------------------------------------------------------------------------------------
Federal income taxes 8,876 1,984 2,571 2,486 3,548 326 (1,102) 18,689
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 20,411 $ 4,209 $ 5,085 $ 5,688 $ 8,765 $ 903 $ 686 $ 45,747
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999:
Assets $ 949,212 $ 280,451 $ 435,220 $ 393,733 $ 541,724 $ 62,474 $ (28,477) $2,634,337
Loans 693,579 168,078 243,037 269,897 396,412 62,374 571 1,833,948
Deposits 691,356 219,598 354,521 316,702 394,084 57,598 (18,712) 2,015,147
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1998
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
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1997
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>
29
<PAGE> 30
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
- --------------------------------------------------------------------------------------------------------------------------
1999:
<S> <C> <C> <C> <C> <C> <C>
Totals for reportable
segments $ 114,747 $ 3,387 $ 62,063 $ 19,791 $ 2,662,814 $ 2,033,859
Elimination of
intersegment items -- -- -- -- (40,904) (18,712)
Parent Co. and GFC totals
- not eliminated 1,110 4 1,936 (1,102) 12,427 --
Other items -- 150 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS $ 115,857 $ 3,541 $ 63,999 $ 18,689 $ 2,634,337 $ 2,015,147
- -----------------------------------------------------------------------------------------------------------------------------
1998:
Totals for reportable
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
- -----------------------------------------------------------------------------------------------------------------------------
</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 $652,000, $18,000 and $1,040,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, stockholders' equity reflected in the Parent
Company balance sheet includes $86.7 million and $82.4 million, respectively, of
undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
BALANCE SHEETS
AT DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------
ASSETS:
Cash $ 25,148 $ 29,770
Investment in subsidiaries 166,692 170,927
Debentures receivable from subsidiary banks 20,000 12,000
Other investments 1,408 507
Dividends receivable from subsidiaries 25,500 21,375
Other assets 8,397 7,115
- -------------------------------------------------------------------------
TOTAL ASSETS $247,145 $241,694
- -------------------------------------------------------------------------
LIABILITIES:
Dividends payable $ 6,331 $ 5,586
Other liabilities 1,234 418
- -------------------------------------------------------------------------
TOTAL LIABILITIES 7,565 6,004
TOTAL STOCKHOLDERS' EQUITY 239,580 235,690
- -------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $247,145 $241,694
- -------------------------------------------------------------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
INCOME:
Dividends from subsidiaries $ 34,500 $ 33,500 $ 45,097
Interest and dividends 960 923 790
Other 619 -- --
- --------------------------------------------------------------------------------
TOTAL INCOME 36,079 34,423 45,887
- --------------------------------------------------------------------------------
EXPENSE:
Amortization of intangibles -- 295 304
Other, net 1,767 1,764 465
- --------------------------------------------------------------------------------
TOTAL EXPENSES 1,767 2,059 769
- --------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES AND EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 34,312 32,364 45,118
Federal income tax benefit (expense) 1,074 432 (113)
- --------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 35,386 32,796 45,005
Equity in undistributed earnings
of subsidiaries 10,361 8,776 (7,312)
- --------------------------------------------------------------------------------
NET INCOME $ 45,747 $ 41,572 $ 37,693
- --------------------------------------------------------------------------------
30
<PAGE> 31
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 45,747 $ 41,572 $ 37,693
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization -- 295 304
Undistributed earnings of subsidiaries (10,361) (8,776) 7,312
(Increase) decrease in dividends
receivable from subsidiaries (4,125) 10,325 (23,000)
Increase in other assets (1,214) (979) (1,345)
Increase (decrease) increase in
other liabilities 816 (474) (259)
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 30,863 41,963 20,705
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of debenture from
subsidiary bank (10,000) -- (10,000)
Capital contribution to subsidiary (300) -- --
Purchase of investment securities (1,135) (423) --
Other, net 2,000 (42) (1,379)
- ------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (9,435) (465) (11,379)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (22,315) (17,983) (15,047)
Proceeds from issuance of
common stock 36 123 3,664
Purchase of treasury stock, net (3,771) (9,582) (4,727)
- ------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (26,050) (27,442) (16,110)
- ------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH (4,622) 14,056 (6,784)
Cash at beginning of year 29,770 15,714 22,498
- ------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 25,148 $ 29,770 $ 15,714
- ------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
333-20417, Registration Statement No. 333-31810, and Registration Statement No.
333-30858, all on Form S-4, and Registration Statement No. 33-92060 and
Registration Statement No. 333-52653, both on Form S-8, of our report dated
January 18, 2000, 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, 1999 filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Columbus, Ohio
March 24, 2000
<PAGE> 1
Exhibit 24
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, 1999,
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 18th
day of January 2000.
/s/ William T. McConnell
--------------------------
William T. McConnell
<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, 1999,
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 18th
day of January 2000.
/s/ C. Daniel DeLawder
------------------------
C. Daniel DeLawder
<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, 1999,
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 18th
day of January 2000.
/s/ John W. Kozak
---------------------
John W. Kozak
<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, 1999,
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 18th
day of January 2000.
/s/ Maureen Buchwald
-----------------------
Maureen Buchwald
<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, 1999,
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 18th
day of January 2000.
/s/ James J. Cullers
-----------------------
James J. Cullers
<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, 1999,
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 18th
day of January 2000.
/s/ Dominic C. Fanello
-------------------------
Dominic C. Fanello
<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, 1999,
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 18th
day of January 2000.
/s/ R. William Geyer
-----------------------
R. William Geyer
<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, 1999,
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 18th
day of January 2000.
/s/ Philip H. Jordan, Jr.
--------------------------
Philip H. Jordan, Jr.
<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, 1999,
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 18th
day of January 2000.
/s/ Howard E. LeFevre
------------------------
Howard E. LeFevre
<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, 1999,
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 18th
day of January 2000.
/s/ Phillip T. Leitnaker
-------------------------
Phillip T. Leitnaker
<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, 1999,
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 18th
day of January 2000.
/s/ Tami L. Longaberger
-------------------------
Tami L. Longaberger
<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, 1999,
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 18th
day of January 2000.
/s/ James A. McElroy
-----------------------
James A. McElroy
<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, 1999,
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 18th
day of January 2000.
/s/ John J. O'Neill
-----------------------
John J. O'Neill
<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, 1999,
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 18th
day of January 2000.
/s/ William A. Phillips
-------------------------
William A. Phillips
<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, 1999,
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 18th
day of January 2000.
/s/ J. Gilbert Reese
------------------------
J. Gilbert Reese
<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, 1999,
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 18th
day of January 2000.
/s/ Rick R. Taylor
-----------------------
Rick R. Taylor
<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, 1999,
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 18th
day of January 2000.
/s/ John L. Warner
------------------------
John L. Warner
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