<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 21, 2000
-----------------
PARK NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-13006 31-1179518
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
50 North Third Street, Newark, Ohio 43055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 349-8451
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Not Applicable
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(Former name or former address, if changed since last report.)
<PAGE> 2
Item 5. Other Events and Regulation FD Disclosure
This Current Report on Form 8-K is being filed for the purpose of
including supplemental consolidated financial statements which give retroactive
effect to the mergers of U.B. Bancshares, Inc. and SNB Corp. into Park National
Corporation, effective April 30, 2000. Each merger was accounted for as a
pooling-of-interests as described in Note 1 of the Notes to Supplemental
Consolidated Financial Statements included in "Item 7 - Financial Statements and
Exhibits." Considered together, U.B. Bancshares, Inc. and SNB Corp. are not
significant pursuant to Rule 11-01(b) of Regulation S-X promulgated by the
Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits
(a.) Financial Statements of Businesses Acquired
The following supplemental consolidated financial statements
and accompanying notes of Park National Corporation have been
restated to include the accounts and operations of U.B.
Bancshares, Inc. and SNB Corp. for all periods presented.
Report of Ernst & Young, LLP Independent Auditors . . . . . . . . 3
Supplemental Financial Statements:
Park National Corporation and Subsidiaries
Supplemental Consolidated Balance Sheets . . . . . . . . 4,5
Supplemental Consolidated Statements of Income . . . . . . . . 6,7
Supplemental Consolidated Statements of
Changes in Shareholders' Equity . . . . . . . . 8
Supplemental Consolidated Statements of
Cash Flows . . . . . . . . 9
Notes to Supplemental Consolidated
Financial Statements . . . . . . . . 10
(c.) Exhibits Filed: Exhibit 23.1 Consent of Independent Auditors
Exhibit 27.1 Restated Financial Data Schedule for Dec. 31,
1999
Exhibit 27.2 Restated Financial Data Schedule for Dec. 31,
1998
Exhibit 27.3 Restated Financial Data Schedule for Dec. 31,
1997
2
<PAGE> 3
Report of Independent Auditors
To the Board of Directors and Stockholders
Park National Corporation
We have audited the accompanying supplemental consolidated balance sheets of
Park National Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related supplemental consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. The supplemental consolidated financial statements give
retroactive effect to the mergers of Park National Corporation with SNB Corp.
and U.B. Bancshares, Inc., both on April 30, 2000, which have been accounted for
using the pooling of interests method of accounting as described in Note 1.
These supplemental consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these supplemental 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.
Generally accepted accounting principles proscribe giving effect to consummated
business combinations accounted for using the pooling of interests method in
financial statements that do not include the date of consummation. These
supplemental consolidated financial statements do not extend through the dates
of consummation; however, they will become the historical consolidated financial
statements of Park National Corporation and Subsidiaries after financial
statements covering the dates of consummation of the business combination are
issued.
In our opinion, the supplemental consolidated 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, after giving
retroactive effect to the mergers with SNB Corp. and U.B. Bancshares, Inc. as
described in Note 1, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young, LLP
Columbus, Ohio
December 20, 2000
3
<PAGE> 4
Park National Corporation and Subsidiaries
Supplemental Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 123,975 $ 119,620
Federal funds sold 1,550 7,085
Investment securities:
Securities available-for-sale, at fair value (amortized
cost of $792,626 and $786,235 at December 31, 1999
and 1998, respectively) 778,570 799,432
Securities held-to-maturity, at amortized cost (fair
value of $4,451 and $35,281 at
December 31, 1999 and 1998, respectively) 4,321 34,373
----------------------------------
Total investment securities 782,891 833,805
Loans 2,144,187 1,913,697
Unearned loan interest (16,762) (12,491)
----------------------------------
Total loans 2,127,425 1,901,206
Allowance for possible loan losses (45,176) (41,215)
----------------------------------
Net loans 2,082,249 1,859,991
Other assets:
Premises and equipment, net 32,468 32,889
Accrued interest receivable 18,798 18,647
Other 91,432 72,842
----------------------------------
Total other assets 142,698 124,378
----------------------------------
Total assets $3,133,363 $2,944,879
==================================
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------------
(Dollars in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 342,680 $ 338,939
Interest bearing 2,065,382 1,993,439
---------------------------------
Total deposits 2,408,062 2,332,378
Short-term borrowings 364,258 269,208
Long-term debt 16,993 23,402
Other liabilities:
Accrued interest payable 9,797 9,305
Other 44,192 24,849
---------------------------------
Total other liabilities 53,989 34,154
---------------------------------
Total liabilities 2,843,302 2,659,142
Stockholders' equity:
Common stock, no par value (20,000,000 shares
authorized; 11,251,598 shares issued in 1999 79,108 75,754
and 11,203,445 issued in 1998)
Accumulated other comprehensive income, net (9,161) 8,594
Retained earnings 243,488 221,597
Less: Treasury stock (359,190 shares in 1999
and 341,089 shares in 1998) (23,374) (20,208)
---------------------------------
Total stockholders' equity 290,061 285,737
---------------------------------
Total liabilities and stockholders' equity $3,133,363 $2,944,879
=================================
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
5
<PAGE> 6
Park National Corporation and Subsidiaries
Supplemental Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 173,722 $ 169,943 $ 164,315
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 42,449 39,349 38,096
Obligations of states and political subdivisions 7,777 7,188 5,973
Other interest income 368 966 833
----------------------------------------------
Total interest income 224,316 217,446 209,217
Interest expense:
Interest on deposits:
Demand and savings deposits 17,056 19,900 19,834
Time deposits 59,238 62,570 59,361
Interest on short-term borrowings 14,225 9,938 8,422
Interest on long-term debt 1,035 1,460 3,162
----------------------------------------------
Total interest expense 91,554 93,868 90,779
----------------------------------------------
Net interest income 132,762 123,578 118,438
Provision for loan losses 11,269 6,978 7,284
----------------------------------------------
Net interest income after provision for loan losses 121,493 116,600 111,154
Other income:
Income from fiduciary activities 5,662 5,081 5,192
Service charges on deposit accounts 8,355 7,500 6,936
Gain /(loss) on sale of securities (4,809)
97 (10)
Other service income 4,836 6,013 3,974
Other 9,520 7,764 6,443
----------------------------------------------
Total other income 23,564 26,455 22,535
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
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(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Other expense:
Salaries and employee benefits $ 40,550 $ 37,182 $ 36,697
Data processing fees 5,484 4,588 5,377
Fees and service charges 5,620 3,663 3,944
Net occupancy expense of bank premises 4,233 3,978 3,883
Amortization of intangibles 3,073 3,462 2,305
Furniture and equipment expense 4,972 5,668 4,511
Insurance 927 988 945
Marketing 2,598 2,461 2,405
Postage and telephone 3,674 3,417 3,071
State taxes 2,288 2,241 2,452
Other 6,493 7,675 6,320
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Total other expense 79,912 75,323 71,910
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Income before federal income taxes 65,145 67,732 61,779
Federal income taxes 18,358 20,724 18,738
----------------------------------------------
Net income $ 46,787 $ 47,008 $ 43,041
==============================================
Earnings per share:
Basic $ 4.30 $ 4.31 $ 3.93
Diluted $ 4.28 $ 4.28 $ 3.91
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
7
<PAGE> 8
Park National Corporation and Subsidiaries
Supplemental Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
COMMON STOCK
SHARES RETAINED
OUTSTANDING AMOUNT EARNINGS
---------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 1997 10,941,463 $ 71,595 $ 169,178
Treasury stock purchased (120,697) - -
Treasury stock reissued primarily for stock options exercised 28,783 - -
Shares issued for dividend reinvestment plan and stock options 113,683 2,335 -
Cash payment for fractional shares in merger (630) (40) -
Tax benefit from exercise of stock options - 1,379 -
Net income - - 43,041
Other comprehensive income, net of tax:
Unrealized net holding gain on securities available-for-sale, net
of income taxes of $1,451
Total other comprehensive income
Comprehensive income
Cash Dividends:
Corporation at $1.60 per share - - (14,905)
Cash dividends declared at First-Knox, SNB Corp., and U.B.
Bancshares prior to merger - (2,184)
---------------------------------------------------
Balance, December 31, 1997 10,962,602 75,269 195,130
Treasury stock purchased (144,754) - -
Treasury stock reissued primarily for stock options exercised 39,495 - -
Shares issued for stock options 2,314 81 -
Tax benefit from exercise of stock options - 42 -
Issuance of stock by U.B. Bancshares prior to merger 2,699 362
Net income - - 47,008
Other comprehensive income, net of tax:
Unrealized net holding gain on securities available-for-sale, net
of income taxes of $536
Total other comprehensive income
Comprehensive income
Cash dividends:
Corporation at $1.94 per share - - (19,057)
Cash dividends declared at SNB Corp. and U.B. Bancshares prior to merger (1,484)
---------------------------------------------------
Balance, December 31, 1998 10,862,356 75,754 221,597
Treasury stock purchased (57,825) - -
Treasury stock reissued primarily for stock options exercised 39,723 (39) -
Shares issued for stock options 652 29 -
Tax benefit from exercise of stock options - 14 -
Issuance of stock by U.B. Bancshares prior to merger 48,096 3,401 -
Cash payment for fractional shares in 5% stock dividend (594) (51)
Net income - - 46,787
Other comprehensive income, net of tax:
Unrealized net holding loss on securities available-for-sale, net
of income taxes of ($(9,498)
Total other comprehensive income
Comprehensive income
Cash dividends:
Corporation at $2.36 per share - - (23,061)
Cash dividends declared at SNB Corp. and U.B. Bancshares prior to merger (1,835)
---------------------------------------------------
Balance, December 31, 1999 10,892,408 $ 79,108 $ 243,488
===================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME STOCK TOTAL
-----------------------------------------------
<S> <C> <C> <C>
Balance, January 1 1997 $ 4,861 $ (4,239) $ 241,395
Treasury stock purchased - (7,165) (7,165)
Treasury stock reissued primarily for stock options exercised - 1,530 1,530
Shares issued for dividend reinvestment plan and stock options - - 2,335
Cash payment for fractional shares in merger - - (40)
Tax benefit from exercise of stock options - - 1,379
Net income - - 43,041
Other comprehensive income, net of tax:
Unrealized net holding gain on securities available-for-sale, net
of income taxes of $1,451 2,713 2,713
---------------
Total other comprehensive income 2,713
---------------
Comprehensive income 45,754
Cash Dividends:
Corporation at $1.60 per share - - (14,905)
Cash dividends declared at First-Knox, SNB Corp., and U.B.
Bancshares prior to merger - - (2,184)
-----------------------------------------------
Balance, December 31, 1997 7,574 (9,874) 268,099
Treasury stock purchased - (12,581) (12,581)
Treasury stock reissued primarily for stock options exercised - 2,247 2,247
Shares issued for stock options - - 81
Tax benefit from exercise of stock options - - 42
Issuance of stock by U.B. Bancshares prior to merger 362
Net income - - 47,008
Other comprehensive income, net of tax:
Unrealized net holding gain on securities available-for-sale, net
of income taxes of $536 1,020 1,020
---------------
Total other comprehensive income 1,020
---------------
Comprehensive income 48,028
Cash dividends:
Corporation at $1.94 per share - - (19,057)
Cash dividends declared at SNB Corp. and U.B. Bancshares prior to merger (1,484)
-----------------------------------------------
Balance, December 31, 1998 8,594 (20,208) 285,737
Treasury stock purchased - (5,285) (5,285)
Treasury stock reissued primarily for stock options exercised - 2,119 2,080
Shares issued for stock options - - 29
Tax benefit from exercise of stock options - - 14
Issuance of stock by U.B. Bancshares prior to merger - - 3,401
Cash payment for fractional shares in 5% stock dividend (51)
Net income - - 46,787
Other comprehensive income, net of tax:
Unrealized net holding loss on securities available-for-sale, net
of income taxes of ($(9,498) (17,755) (17,755)
---------------
Total other comprehensive income (17,755)
---------------
Comprehensive income 29,032
Cash dividends:
Corporation at $2.36 per share - - (23,061)
Cash dividends declared at SNB Corp. and U.B. Bancshares prior to merger (1,835)
-----------------------------------------------
Balance, December 31, 1999 $ (9,161) $ (23,374) $ 290,061
===============================================
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
8
<PAGE> 9
Park National Corporation and Subsidiaries
Supplemental Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $46,787 $47,008 $43,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 11,269 6,978 7,284
Amortization of loan costs and fees, net (1,069) (796) (788)
Provision for depreciation and amortization 4,302 5,182 3,927
Amortization of the excess of cost over
net assets of banks purchased 3,103 3,462 2,305
Amortization (accretion) of investment securities 176 (931) (1,119)
Deferred income taxes 3,968 755 115
Realized investment security losses (gains) 4,809 (97) 10
Changes in assets and liabilities:
Increase in other assets (8,460) (13,170) (6,190)
Increase in other liabilities 1,212 715 3,080
--------------------------------------------
Net cash provided by operating activities 66,097 49,106 51,665
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 162,013 51,839 46,569
Proceeds from maturities of securities:
Held-to-maturity 31,017 11,821 7,581
Available-for-sale 193,905 168,251 164,637
Purchase of securities:
Held-to-maturity (965) (21,654) (5,702)
Available-for-sale (355,202) (380,481) (185,605)
Net increase in loans (232,458) (53,531) (121,580)
Purchase of loans - (2,991) (11,582)
Cash paid for branches (2,587) (5,354) (6,748)
Purchases of premises and equipment, net (3,490) (4,560) (3,849)
--------------------------------------------
Net cash used in investing activities (207,767) (236,660) (116,279)
FINANCING ACTIVITIES
Purchase of deposits 14,887 45,524 49,192
Net increase in deposits 60,797 97,639 48,766
Net increase in short-term borrowings 95,050 100,156 17,790
Cash payment for fractional shares of common stock (51) - (40)
Exercise of stock options 4 123 3,714
Purchase of treasury stock, net (3,166) (10,334) (5,635)
Proceeds from issuance of common stock 3,401 362 -
Proceeds from long-term debt 2,300 14,796 14,000
Repayment of long-term debt (8,709) (30,534) (37,600)
Cash dividends paid (24,023) (19,359) (15,942)
--------------------------------------------
Net cash provided by financing activities 140,490 198,373 74,245
--------------------------------------------
(Decrease) increase in cash and cash equivalents (1,180) 10,819 9,631
Cash and cash equivalents at beginning of year 126,705 115,886 106,255
--------------------------------------------
Cash and cash equivalents at end of year $125,525 $126,705 $115,886
============================================
</TABLE>
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
9
<PAGE> 10
Park National Corporation and Subsidiaries
Notes to Supplemental Consolidated Financial Statements
December 31, 1999
1. ORGANIZATION AND ACQUISITIONS
Park National Corporation (Park or 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). Park is
engaged in a general commercial banking and trust business, primarily in Central
Ohio. A new wholly subsidiary of Park, 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.
On November 20, 2000, Park entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Security Banc Corporation (Security), a bank holding
company headquartered in Springfield, Ohio providing for a merger of Security
into Park. Under the terms of the Merger Agreement, the stockholders of Security
are expected to receive .2844 shares of Park's common stock per share of
Security common stock in a tax free exchange. Park expects to issue an aggregate
of 3,350,000 shares 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 Security and Park, and other conditions to closing
customary of a transaction of this type. The merger is expected to be completed
during the second quarter of 2001.
Effective April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million
one bank holding company headquartered in Bucyrus, Ohio. Park issued
approximately 325,000 shares of common stock to the stockholders of U.B.
Bancshares, Inc. based upon an exchange ratio of .577209 shares of Park common
stock for each outstanding share of U.B. Bancshares, Inc. common stock. United
Bank, N.A. (UB), the wholly owned subsidiary of U.B. Bancshares, Inc. is being
operated as a separate banking subsidiary by Park.
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<PAGE> 11
1. ORGANIZATION AND ACQUISITIONS (CONTINUED)
Park also merged with SNB Corp., a $300 million one bank holding company
headquartered in Greenville, Ohio, effective April 30, 2000. Park issued
approximately 835,000 shares of common stock to the stockholders of SNB Corp.
based upon an exchange ratio of 5.367537 shares of Park common stock for each
outstanding share of SNB Corp. common stock. Second National Bank (SNB), the
wholly owned subsidiary of SNB Corp., is being operated as a separate banking
subsidiary by Park.
The mergers with U.B. Bancshares, Inc. and SNB Corp. were both accounted for as
pooling-of-interests. The supplemental consolidated financial statements and
accompanying notes have been restated to include the accounts and operations of
U.B. Bancshares, Inc. and SNB Corp. for all periods presented. The supplemental
consolidated financial statements will become the historical consolidated
financial statements of Park after financial statements covering the date of
consummation of the transaction are issued.
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-interest. 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 April 17, 1998, United Bank acquired two branch offices located in Galion and
Caledonia, Ohio. In addition to the fixed assets, the purchase included $46
million of deposits and $3 million of loans. The excess of the cost over net
assets purchased was $5 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the supplemental consolidated financial statements:
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<PAGE> 12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the accounts of Park
and all of its subsidiaries. Material intercompany accounts and transactions
have been eliminated.
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.
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<PAGE> 13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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<PAGE> 14
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASE FINANCING
Leases of equipment, automobiles, and aircraft to customers generally are direct
leases in which the Corporation's subsidiaries have acquired the equipment,
automobiles, or aircraft with no outside financing.
Such leases are accounted for as direct financing leases for financial reporting
purposes. Under the direct financing method, a receivable is recorded for the
total amount of the lease payments to be received.
Unearned lease income, representing the excess of the sum of the aggregate
rentals of the equipment, automobiles or aircraft over its cost is included in
income over the term of the lease under the interest method.
EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED
The excess of cost over net assets of the banks purchased is being amortized,
principally on the straight-line method, over periods ranging from seven to
fifteen years.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash and cash equivalents include cash and cash items, amounts due from banks
and federal funds sold. Generally federal funds are purchased and sold for one
day periods.
Net cash provided by operating activities reflects cash payments as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest paid on deposits and other borrowings $91,148 $93,539 $90,654
=================================================
Income taxes paid $19,326 $21,297 $16,076
=================================================
</TABLE>
INCOME TAXES
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
14
<PAGE> 15
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 of the Corporation's
financial position, results of operations and cash flows.
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 $24,418,000 and $20,028,000 at December 31, 1999 and 1998,
respectively. No other compensating balance arrangements were in existence at
year end.
15
<PAGE> 16
4. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at December 31 are
as follows (in thousands):
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING ESTIMATED FAIR
SECURITIES AVAILABLE-FOR-SALE COST HOLDING GAINS LOSSES VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies $293,235 $ 158 $ 8,813 $284,580
Obligations of states and political
subdivisions 151,810 804 2,941 149,673
U.S. Government agencies' asset-backed
securities and other asset-
backed securities 321,602 270 3,673 318,199
Other equity securities 25,979 377 238 26,118
----------------------------------------------------------------------
Total $792,626 $1,609 $15,665 $778,570
======================================================================
1999
----------------------------------------------------------------------
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING ESTIMATED FAIR
SECURITIES HELD-TO-MATURITY COST HOLDING GAINS LOSSES VALUE
----------------------------------------------------------------------
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
----------------------------------------------------------------------
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING ESTIMATED FAIR
SECURITIES AVAILABLE-FOR-SALE COST HOLDING GAINS LOSSES VALUE
----------------------------------------------------------------------
Obligations of U.S. Treasury and other
U.S. Government agencies $257,856 $ 4,411 $ 58 $262,209
Obligations of states and political
subdivisions 142,662 4,688 92 147,258
U.S. Government agencies' asset-backed
securities and other asset-
backed securities 363,166 3,730 246 366,650
Other equity securities 22,551 764 -- 23,315
----------------------------------------------------------------------
Total $786,235 $13,593 $396 $799,432
======================================================================
</TABLE>
16
<PAGE> 17
4. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING ESTIMATED FAIR
SECURITIES HELD-TO-MATURITY COST HOLDING GAINS LOSSES VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies $ 4 $ -- $-- $ 4
Obligations of states and political
subdivisions 24,796 844 18 25,622
Other asset-backed securities 9,573 87 5 9,655
----------------------------------------------------------------------
Total $34,373 $931 $23 $35,281
======================================================================
</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>
WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
SECURITIES AVAILABLE-FOR-SALE COST FAIR VALUE MATURITY YIELD
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agencies' notes:
Due within one year $28,515 $28,613 .9 YEARS 6.70%
Due one through five years 37,280 36,721 3.1 YEARS 6.40%
Due five through ten years 207,670 199,617 7.8 YEARS 6.58%
Due over ten years 19,770 19,629 10.5 YEARS 6.85%
----------------------------------------------------------------------
Total $293,235 $284,580 6.7 YEARS 6.59%
----------------------------------------------------------------------
Obligations of states and political
subdivisions:
Due within one year $15,055 $15,094 .8 YEARS 7.50%
Due one through five years 38,600 38,770 3.1 YEARS 7.35%
Due five through ten years 62,289 61,465 7.8 YEARS 7.30%
Due over ten years 35,866 34,344 12.5 YEARS 6.90%
----------------------------------------------------------------------
Total $151,810 $149,673 7.0 YEARS 7.24%
----------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
4. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. Government agencies' asset-backed
securities and other asset-backed
securities:
Due within one year $ 17,575 $ 17,603 .7 YEARS 6.68%
Due one through five years 284,010 281,607 3.6 YEARS 6.77%
Due five through ten years 20,017 18,989 5.5 YEARS 6.31%
----------------------------------------------------------------------
Total $321,602 $318,199 3.6 YEARS 6.74%
======================================================================
WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
SECURITIES HELD-TO-MATURITY COST FAIR VALUE MATURITY YIELD
----------------------------------------------------------------------
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 $533,337,000 and $475,109,000 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 $343,000, $159,000, and $64,000 and gross
losses of $5,152,000, $62,000 and $74,000 were realized, respectively. Tax
benefits related to net securities losses were $1,674,000 in 1999, and $3,000 in
1997. Tax expense related to net securities gains in 1998 was $34,000.
18
<PAGE> 19
5. LOANS
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 291,746 $ 265,937
Real estate:
Construction 78,969 84,389
Residential 812,542 780,202
Commercial 375,485 338,477
Consumer, net 448,478 368,886
Leases, net 120,205 63,315
-----------------------------------
Total loans $2,127,425 $1,901,206
===================================
</TABLE>
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, financial, agricultural, construction and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114 and
118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer
loans, residential real estate loans and lease financing classified as
non-accrual. The majority of the loans deemed impaired were evaluated using the
fair value of the collateral as the measurement method.
Non-accrual and restructured loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Impaired loans:
Non-accrual $4,284 $3,447
Restructured 429 492
-----------------------------------
Total impaired loans 4,713 3,939
Other non-accrual loans -- 5
-----------------------------------
Total non-accrual and restructured loans $4,713 $3,944
===================================
</TABLE>
The allowance for credit losses related to impaired loans at December 31, 1999
and 1998 was $942,000 and $789,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $3,671,000, $3,665,000 and $5,010,000
for 1999, 1998 and 1997, respectively.
19
<PAGE> 20
5. LOANS (CONTINUED)
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
$427,000, $253,000 and $436,000, respectively, of interest income on impaired
loans, which included $413,000, $225,000 and $423,000, 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 $54,043,000 and $48,457,000,
respectively, were outstanding to such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, January 1 $41,215 $38,764 $35,525
Provision for loan losses 11,269 6,978 7,284
Losses charged to the reserve (11,084) (7,658) (6,723)
Recoveries 3,776 3,131 2,678
-----------------------------------------------------
Balance, December 31 $45,176 $41,215 $38,764
=====================================================
</TABLE>
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's affiliates'
net investment in direct financing leases:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Total minimum payments to be received $ 88,600 $51,698
Estimated unguaranteed residual value of leased property 44,843 20,642
Less unearned income (13,238) (9,025)
-----------------------------------
$120,205 $63,315
===================================
</TABLE>
Minimum lease payments, in thousands, to be received as of December 31, 1999
are:
<TABLE>
<CAPTION>
<S> <C>
2000 $32,472
2001 21,920
2002 16,187
2003 11,840
2004 5,253
Thereafter 928
-----------------
$88,600
=================
</TABLE>
20
<PAGE> 21
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Land $ 7,279 $ 7,118
Buildings 32,789 31,918
Equipment, furniture and fixtures 35,658 33,625
Leasehold improvements 1,204 1,144
-----------------------------------
76,930 73,805
Less accumulated depreciation and amortization (44,462) (40,916)
-----------------------------------
$ 32,468 $ 32,889
===================================
</TABLE>
Depreciation and amortization expense amounted to $4,302,000, $5,182,000 and
$3,927,000 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):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 491,644
2001 405,236
2002 314,994
2003 269,183
2004 244,270
Thereafter 213,500
----------------
$1,938,827
================
</TABLE>
Rent expense amounted to $745,000, $693,000 and $666,000, for the three years
ended December 31, 1999, 1998 and 1997, respectively.
9. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Securities sold under agreements to repurchase
and federal funds purchased $165,738 $179,665
Federal Home Loan Bank advances 190,100 80,000
Other short-term borrowings 8,420 9,543
-----------------------------------
Total short-term borrowings $364,258 $269,208
===================================
</TABLE>
21
<PAGE> 22
9. SHORT-TERM BORROWINGS (CONTINUED)
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:
<TABLE>
<CAPTION>
REPURCHASE DEMAND NOTES
AGREEMENTS AND FEDERAL HOME DUE U.S.
FEDERAL FUNDS LOAN BANK TREASURY
PURCHASED ADVANCES AND OTHER
-----------------------------------------------------
<S> <C> <C> <C>
1999:
Ending balance $165,738 $190,100 $ 8,420
Highest month-end balance 207,025 197,600 10,044
Average daily balance 172,625 133,418 3,898
Weighted-average interest rate:
As of year-end 4.18% 5.82% 4.47%
Paid during the year 4.09% 5.18% 5.07%
1998:
Ending balance $179,665 $80,000 $ 9,543
Highest month-end balance 203,483 104,300 9,543
Average daily balance 173,959 29,356 6,020
Weighted-average interest rate:
As of year-end 4.19% 6.00% 4.68%
Paid during the year 4.54% 5.83% 5.13%
1997:
Ending balance $145,015 $18,900 $ 5,137
Highest month-end balance 180,562 86,000 5,137
Average daily balance 147,965 26,741 2,909
Weighted-average interest rate:
As of year-end 4.62% 6.25% 5.75%
Paid during the year 4.60% 5.49% 5.25%
</TABLE>
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.
22
<PAGE> 23
10. LONG-TERM DEBT
Long-term debt is listed below:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Fixed rate Federal Home Loan Bank advances with
monthly principal and interest payments:
6.02% Advance due February 2005 $ 3,273 $ 3,286
5.40% Advance due February 2006 95 135
5.56% Advance due December 2008 3,359 3,500
5.45% Advance due November 2013 1,896 1,986
6.00% Advance due April 2014 878 ----
6.00% Advance due April 2014 1,366 ----
6.25% Advance due April 2016 50 65
2.00% Advance due November 2027 38 39
2.00% Advance due January 2028 38 39
5.60% Advance due August 2003 ---- 1,443
5.70% Advance due May 2004 ---- 3,199
5.85% Advance due January 2016 ---- 3,710
Fixed rate Federal Home Loan Bank advances with
monthly interest payments
5.91% Advance due April 2003 1,000 1,000
5.96% Advance due June 2005 2,000 2,000
5.85% Advance due September 2005 3,000 3,000
------------- ------------
Total long-term debt $16,993 $23,402
------------- ------------
</TABLE>
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 shares were available for future grants of options 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
23
<PAGE> 24
11. STOCK OPTION PLAN (CONTINUED)
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 stock option plans of SNB Corp. and U.B. Bancshares, Inc. are included in
Park's stock option activity and related information 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
EXERCISE EXERCISE
PRICE PER PRICE PER
NUMBER SHARE NUMBER SHARE
-------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
January 1, 1997 224,782 29.79 27,791 23.52
Granted 92,006 59.23 - -
Exercised (144,247) 26.72 (27,767) 23.52
Forfeited/Expired (4,449) 56.26 (24) 22.90
-------------- ------------- ------------- -------------
December 31, 1997 168,092 47.88 - -
Authorized - - - -
Granted 95,759 87.79 - -
Exercised (37,910) 51.57 - -
Forfeited/Expired (6,832) 58.61 - -
-------------- ------------- ------------- -------------
December 31, 1998 219,109 64.32 - -
Granted 71,407 91.36 - -
Exercised (36,442) 41.03 - -
Forfeited/Expired (4,257) 84.91 - -
-------------- ------------- ------------- -------------
December 31, 1999 249,817 75.10 - -
</TABLE>
Range of exercise prices: $28.67 - $110.75
Weighted-average remaining contractual life: 3.4 Years
Exerciseable at year end: 239,026
Weighted-average exercise price of exerciseable options: $75.25
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
24
<PAGE> 25
11. STOCK OPTION PLAN (CONTINUED)
SFAS No. 123, "Accounting for Stock Based Compensation," requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Corporation's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The fair value of these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted-average
assumptions for 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>
1999 1998 1997
-----------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Net income as reported $46,787 $47,008 $43,041
Pro-forma net income 45,398 45,175 41,965
Basic earnings per share as reported 4.30 4.31 3.93
Pro-forma basic earnings per share 4.17 4.14 3.83
Diluted earnings per share as reported 4.28 4.28 3.91
Pro-forma diluted earnings per share 4.15 4.12 3.81
</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. The employees of SNB Corp. and U.B.
Bancshares, Inc. joined the pension plan as new employees during 2000.
25
<PAGE> 26
12. BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-----------------------------
(Dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
<S> <C> <C> <C>
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)
=============================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 1999 1998
-----------------------------
Discount rate 7.64% 6.52%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1997
-----------------------------------------
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 $949,000, $906,000 and $787,000 for 1999, 1998
and 1997, respectively.
26
<PAGE> 27
12. BENEFIT PLANS (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
<S> <C> <C>
Deferred tax assets: (Dollars in thousands)
Allowance for loan losses $15,752 $14,147
Unrealized holding loss on securities 4,894 -
Deferred loan fees 695 461
Deferred compensation 413 474
Other 4,195 3,481
-----------------------------------
Total deferred tax assets 25,949 18,563
Deferred tax liabilities:
Lease revenue reporting 13,011 7,115
Unrealized holding gain on securities - 4,603
Fixed assets, principally due to depreciation 542 506
Other 6,979 5,913
-----------------------------------
Total deferred tax liabilities 20,532 18,137
-----------------------------------
Net deferred tax assets $ 5,417 $ 426
===================================
</TABLE>
The components of the provision for federal income taxes are shown below:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Currently payable $13,871 $19,969 $18,623
Deferred 4,487 755 115
-----------------------------------------------------
Total $18,358 $20,724 $18,738
=====================================================
</TABLE>
The following is a reconcilement of federal income tax expense to the amount
computed at the statutory rate of 35% for the year ended December 31, 1999 and
the weighted average statutory rate of 34.9% for the years ended December 31,
1998 and 1997.
27
<PAGE> 28
13. FEDERAL INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Statutory corporate tax rate 35.0% 34.9% 34.9%
Changes in rates resulting from:
Tax-exempt interest income (4.5%) (3.7%) (3.5%)
Tax credits (low income housing) (1.8%) (.9%) (.8%)
Other (.5%) .3% (.3%)
-----------------------------------------------------
Effective tax rate 28.2% 30.6% 30.3%
=====================================================
</TABLE>
The following is a summary of the income tax effect allocated to other
comprehensive income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
AMOUNT EXPENSE AMOUNT
------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on available-for -sale securities ($32,062) ($11,172) ($20,890)
Less: reclassification adjustment for losses realized in net
income 4,809 1,674 3,135
------------------------------------------------
Other comprehensive income $(27,253) $(9,498) $(17,755)
=================================================
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------
Before - Tax Tax Expense Net-of-Tax
Amount Amount
------------------------------------------------
Unrealized gains on available-for -sale securities $1,653 $570 $1,083
Less: reclassification adjustment for gains realized in net
income (97) (34) (63)
------------------------------------------------
Other comprehensive income $1,556 $536 $1,020
=================================================
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------
Before - Tax Tax Expense Net-of-Tax
Amount Amount
------------------------------------------------
Unrealized gains on available-for-sale securities $4,154 $1,448 $2,706
Less: reclassification adjustment for losses realized in net
income 10 3 7
------------------------------------------------
Other comprehensive income $4,164 $1,451 $2,713
=================================================
</TABLE>
28
<PAGE> 29
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 $46,787 $47,008 $43,041
Denominator:
Basic earnings per share:
Weighted-average shares 10,878,045 10,902,374 10,964,198
Effect of dilutive securities - stock options 56,158 68,539 57,688
Diluted earnings per share:
Adjusted weighted-average shares and assumed
conversions 10,934,203 10,970,913 11,021,886
Earnings per share:
Basic earnings per share $4.30 $4.31 $3.93
Diluted earnings per share $4.28 $4.28 $3.91
</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 $23,291,000 of the total stockholders' equity of the bank
subsidiaries is available for the payment of dividends to the Corporation,
without approval by the applicable regulatory authorities.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS
WITH CONCENTRATIONS OF CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
29
<PAGE> 30
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS
WITH CONCENTRATIONS OF CREDIT RISK (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
Loan commitments $333,273 $312,249
Unused credit card limits 102,518 103,041
Standby letters of credit 9,538 6,267
</TABLE>
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans to
customers primarily located in Central Ohio. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the borrowers' ability to honor their contracts is dependent upon the
economic conditions in each borrower's geographic location.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
30
<PAGE> 31
17. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
31
<PAGE> 32
17. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of financial instruments at December 31, 1999 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and federal funds sold $ 125,525 $ 125,525 $ 126,705 $ 126,705
Investment securities 782,891 783,054 833,805 834,167
Loans:
Commercial, financial and agricultural 291,746 291,746 265,937 265,937
Real estate:
Construction 78,969 78,969 84,389 84,389
Residential 812,542 819,264 780,202 780,836
Commercial 375,485 373,678 338,477 338,927
Consumer, net 448,478 446,855 368,886 370,904
------------------------------- ------------------------------
Total loans 2,007,220 2,010,512 1,837,891 1,840,993
Allowance for loan losses (45,176) - (41,215) -
------------------------------- ------------------------------
Loans receivable, net 1,962,044 2,010,512 1,796,676 1,840,993
Financial liabilities:
Noninterest bearing checking 342,680 342,680 338,939 338,939
Interest bearing checking 304,491 304,491 295,387 295,387
Savings 365,921 365,921 365,683 365,683
Money market accounts 161,245 161,245 171,429 171,429
Time deposits 1,232,116 1,233,193 1,159,240 1,167,329
Other 1,609 1,609 1,700 1,700
------------------------------- ------------------------------
Total deposits 2,408,062 2,409,139 2,332,378 2,340,467
Short-term borrowings 364,258 364,258 269,208 269,208
Long-term debt 16,993 17,665 23,402 23,668
Unrecognized financial instruments:
Loan commitments - (333) - (312)
Standby letters of credit - (48) - (31)
</TABLE>
32
<PAGE> 33
18. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1999
and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
AMOUNT RATIO AMOUNT RATIO
---------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Total equity (1) $290,061 9.26% $285,737 9.70%
Tier 1 capital (2) 282,466 13.44% 259,454 13.95%
Total risk-based capital (3) 308,988 14.70% 283,042 15.22%
Leverage (4) 282,466 9.17% 259,454 9.10%
</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.
The Corporation's Tier 1 capital, 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.
33
<PAGE> 34
19. SEGMENT INFORMATION
The Corporation segment is operations by 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 follows (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
--------------------------------------------------------------------------------------------------------------------
PND FND RTC CNB FKND FSD SNB UB ALL TOTAL
OTHER
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Int. Income $41,448 $12,734 $17,739 $16,520 $23,095 $3,211 $10,474 $6,455 $1,086 $132,762
--------------------------------------------------------------------------------------------------------------------
Provision for
Loan Losses 710 755 1,039 1,410 2,353 646 3,200 1,100 56 11,269
--------------------------------------------------------------------------------------------------------------------
Other Income 12,290 2,081 1,261 2,280 4,213 343 61 455 580 23,564
---------------- --------- --------- --------- -------- --------- -------- ---------- --------- --------- ----------
Depreciation &
Amortization 1,092 406 483 489 814 103 457 304 154 4,302
--------------------------------------------------------------------------------------------------------------------
Other Expense 22,649 7,461 9,822 8,727 11,828 1,576 5,693 4,990 2,864 75,610
--------------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes 29,287 6,193 7,656 8,174 12,313 1,229 1,185 516 (1,408) 65,145
--------------------------------------------------------------------------------------------------------------------
Income Taxes 8,876 1,984 2,571 2,486 3,548 326 (215) (105) (1,113) 18,358
--------------------------------------------------------------------------------------------------------------------
Net Income $20,411 $4,209 $5,085 $5,688 $8,765 $903 $1,400 $621 $(295) $46,787
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Balances at December 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $949,212 $280,451 $435,220 $393,733 $541,724 $62,474 $308,067 $180,216 $(17,734) $3,133,363
Loans 693,579 168,078 243,037 269,897 396,412 62,374 204,606 88,871 571 2,127,425
Deposits 691,356 219,598 354,521 316,702 394,084 57,598 233,873 159,042 (18,712) 2,408,062
</TABLE>
<TABLE>
<CAPTION>
Operating Results for the year ended December 31, 1998
ALL
PND FND RTC CNB FKND FSD SNB UB OTHER TOTAL
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest
Income $39,877 $11,586 $16,018 $15,510 $20,910 $2,827 $10,343 $5,584 $ 923 $123,578
Provision for
Loan Losses 2,880 600 1,602 480 1,116 120 130 50 - 6,978
Other Income 11,468 2,349 2,972 3,079 3,833 268 1,086 1,336 64 26,455
Depreciation &
Amortization 1,119 354 558 648 1,513 149 418 273 150 5,182
Other Expense 20,483 6,689 9,283 8,168 11,646 1,490 5,466 4,684 2,232 70,141
-------------------------------------------------------------------------------------------------
Income Before
Income Taxes 26,863 6,292 7,547 9,293 10,468 1,336 5,415 1,913 (1,395) 67,732
-------------------------------------------------------------------------------------------------
Income Taxes 8,530 2,038 2,541 2,961 2,927 376 1,441 379 (469) 20,724
-------------------------------------------------------------------------------------------------
Net Income $18,333 $ 4,254 $ 5,006 $ 6,332 $ 7,541 $ 960 $ 3,974 $1,534 $ (926) $ 47,008
=================================================================================================
</TABLE>
34
<PAGE> 35
19. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
BALANCES AT DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $865,974 $277,482 $413,590 $385,150 $484,965 $62,303 $302,320 $181,780 $(28,685) $2,944,879
Loans 636,189 149,487 213,360 239,032 351,695 51,749 181,374 78,320 - 1,901,206
Deposits 641,618 219,907 337,964 310,769 394,470 55,789 233,402 159,198 (20,739) 2,332,378
</TABLE>
<TABLE>
<CAPTION>
Operating Results for the year ended December 31, 1997
ALL
PND FND RTC CNB FKND FSD SNB UB OTHER TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest
Income $39,106 $9,676 $16,018 $14,590 $20,507 $2,569 $10,186 $4,996 $ 790 $118,438
Provision for
Loan Losses 220 450 650 330 4,870 479 180 105 - 7,284
Other Income 10,648 1,740 2,383 2,571 3,148 211 932 902 - 22,535
Depreciation &
Amortization 824 219 505 494 1,000 82 439 215 149 3,927
Other Expense 19,138 5,046 9,531 7,928 15,144 1,579 5,182 3,644 791 67,983
-------------------------------------------------------------------------------------------------------------
Income Before
Income Taxes 29,572 5,701 7,715 8,409 2,641 640 5,317 1,934 (150) 61,779
-------------------------------------------------------------------------------------------------------------
Income Taxes 9,559 1,808 2,520 2,604 125 128 1,436 452 106 18,738
Net Income $20,013 $3,893 $ 5,195 $ 5,805 $ 2,516 $ 512 $ 3,881 $1,482 $(256) $ 43,041
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Balances at December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $777,707 $250,324 $401,683 $353,816 $492,315 $63,322 $276,315 $133,065 $(50,784) $2,697,763
Loans 589,044 137,567 229,658 247,663 340,88 47,107 184,777 71,711 -- 1,848,415
Deposits 578,050 211,004 330,922 301,967 384,278 56,946 218,487 115,764 (8,203) 2,189,215
</TABLE>
Reconciliation of financial information for the reportable segments to the
Corporation's consolidated totals.
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------------
INTEREST DEPRECIATION OTHER INCOME
INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Totals for reportable
segments $131,676 $4,148 $72,746 $19,471 $3,151,097 $2,426,774
Elimination of
intersegment items -- -- -- -- (40,904) (18,712)
Parent Co. and GFC
totals -not eliminated 1,086 4 2,864 (1,113) 23,170 --
Other items -- 150 -- -- -- --
------------------------------------------------------------------------------------
Totals $132,762 $4,302 $75,610 $18,358 $3,133,363 $2,408,062
====================================================================================
</TABLE>
35
<PAGE> 36
19. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------------------
INTEREST DEPRECIATION OTHER INCOME
INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Totals for reportable
segments $122,655 $5,032 $67,909 $21,193 $2,973,564 $2,353,117
Elimination of
intersegment items - - - - (35,764) (20,739)
Parent Co. totals -not
eliminated 923 - - - 7,079 -
Other items - 150 2,232 (469) - -
------------------------------------------------------------------------------------
Totals $123,578 $5,182 $70,141 $20,724 $2,944,879 $2,332,378
====================================================================================
1997
------------------------------------------------------------------------------------
INTEREST DEPRECIATION OTHER INCOME
INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS
------------------------------------------------------------------------------------
Totals for reportable
segments $117,648 $3,778 $67,192 $18,632 $2,748,547 $2,197,418
Elimination of
intersegment items - - - - (57,181) (8,203)
Parent Co. totals -not
eliminated 790 - 791 106 6,397 -
Other items - 149 - - - -
------------------------------------------------------------------------------------
Totals $118,438 $3,927 $67,983 $18,738 $2,697,763 $2,189,215
====================================================================================
</TABLE>
20. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
supplemental 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 $657,000, $53,000, and $1,045,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, stockholders' equity reflected in the Parent
Company balance sheet includes $112.3 million and $108.9 million, respectively,
of undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
36
<PAGE> 37
20. PARENT COMPANY STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Supplemental Balance Sheets
DECEMBER 31
1999 1998
-----------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash $ 37,822 $ 42,403
Investment in subsidiaries 204,903 211,613
Debentures receivable from subsidiary banks 20,000 12,000
Other investments 1,298 507
Dividends receivable from subsidiaries 25,500 21,375
Other assets 9,426 7,869
-----------------------------------
Total assets $298,949 $295,767
===================================
LIABILITIES
Dividends payable $ 6,954 $ 6,081
Note payable -- 3,500
-----------------------------------
Other liabilities 1,934 449
-----------------------------------
Total liabilities 8,888 10,030
Total stockholders' equity 290,061 285,737
-----------------------------------
Total liabilities and stockholders' equity $298,949 $295,767
===================================
</TABLE>
37
<PAGE> 38
20. PARENT COMPANY STATEMENTS (CONTINUED)
Supplemental Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $36,544 $37,697 $49,371
Interest and dividends 960 923 790
Other 579 64 -
----------------------------------------------
Total income 38,083 38,684 50,161
EXPENSE
Interest Expense 24 -- --
Amortization of intangibles -- 295 304
Other, net 2,695 1,937 487
----------------------------------------------
Total expenses 2,719 2,232 791
----------------------------------------------
Income before federal taxes and equity in undistributed
earnings of subsidiaries 35,364 36,452 49,370
Federal income tax benefit (expense) 1,085 469 (106)
----------------------------------------------
Income before equity in undistributed earnings
of subsidiaries 36,449 36,921 49,264
Equity in undistributed earnings of subsidiaries 10,338 10,087 (6,223)
----------------------------------------------
Net income $46,787 $47,008 $43,041
==============================================
</TABLE>
38
<PAGE> 39
20. PARENT COMPANY STATEMENTS (CONTINUED)
Supplemental Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 46,787 $ 47,008 $ 43,041
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization - 295 304
Undistributed earnings of subsidiaries (10,338) (10,087) 6,223
(Increase) decrease in dividends
receivable from subsidiaries (4,125) 10,325 (23,000)
Increase in other assets (1,489) (1,224) (1,736)
Increase (decrease) increase in other liabilities 1,244 (500) (259)
----------------------------------------------
Net cash provided by operating activities 32,079 45,817 24,573
INVESTING ACTIVITIES
(Purchase) repayment of debenture from subsidiary bank
(10,000) 10,500 (20,500)
Repayment of note payable (3,500) -- --
Proceeds from note payable -- 3,500 --
Capital contribution to subsidiary (300) (3,631) -
Purchase of investment securities (1,025) (423) -
Other, net 2,000 (42) (1,379)
----------------------------------------------
Net cash used in investing activities (12,825) 9,904 (21,879)
FINANCING ACTIVITIES
Cash dividends paid (24,023) (19,359) (15,942)
Proceeds from issuance of common stock 3,354 485 3,674
Purchase of treasury stock, net (3,166) (10,334) (5,635)
----------------------------------------------
Net cash used in financing activities (23,835) (29,208) (17,903)
----------------------------------------------
(Decrease) increase in cash (4,581) 26,513 (15,209)
Cash at beginning of year 42,403 15,890 31,099
----------------------------------------------
Cash at end of year $ 37,822 $ 42,403 $ 15,890
==============================================
</TABLE>
The following exhibits are being filed with this Current Report on Form 8-K:
Exhibit 23.1 Consent of Independent Auditors
Exhibit 27.1 Restated Financial Data Schedule for Dec. 31, 1999
Exhibit 27.2 Restated Financial Data Schedule for Dec. 31, 1998
Exhibit 27.3 Restated Financial Data Schedule for Dec. 31, 1997
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARK NATIONAL CORPORATION
-------------------------
(Registrant)
Dated: December 21, 2000 By: /s/ C. Daniel DeLawder
------------------------ ---------------------------------------
C. Daniel DeLawder
President and Chief Executive Officer
Dated: December 21, 2000 By: /s/ John W. Kozak
------------------------ ---------------------------------------
John W. Kozak
Chief Financial Officer
