-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DAstUaVqUyt58jmLE4cQf/aZ/HxyespLmRhu4qhdB29KE31ExbPtQdXtILrVjqLK FxuB3AQHoDzx0I4w/7bZLw== 0000950152-98-002145.txt : 19980323 0000950152-98-002145.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950152-98-002145 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK NATIONAL CORP /OH/ CENTRAL INDEX KEY: 0000805676 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311179518 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13006 FILM NUMBER: 98569135 BUSINESS ADDRESS: STREET 1: 50 NORTH THIRD ST CITY: NEWARK STATE: OH ZIP: 43055 BUSINESS PHONE: 6143498451 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: NEWARK STATE: OH ZIP: 43058-3500 10-K 1 PARK NATIONAL CORPORATION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ------------ Commission File Number 1-13006 PARK NATIONAL CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter)
Ohio 31-1179518 - -------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 50 North Third Street, Newark, Ohio 43055 ---------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (740) 349-8451 ----------------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Shares, without par value (9,391,648 common shares American Stock Exchange outstanding on February 27, 1998) Securities registered pursuant to Section 12(g) of the Act: None --------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based upon the closing price reported on the American Stock Exchange on February 27, 1998, the aggregate market value of the Common Shares of the Registrant held by non-affiliates on that date was $576,589,375. ----------- Documents Incorporated by Reference: (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1997, 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 20, 1998, are incorporated by reference into Part III of this Annual Report on Form 10-K. Exhibit Index on Page 92 --- 2 PART I Item 1. Business. General Park National Corporation, an Ohio corporation (the "Company"), is a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The executive offices of the Company are located in Newark, Ohio. Through its subsidiaries, The Park National Bank, Newark, Ohio, a national banking association ("PNB"), The Richland Trust Company, Mansfield, Ohio, an Ohio state-chartered bank ("Richland"), Century National Bank, Zanesville, Ohio, a national banking association ("Century"), and The First-Knox National Bank of Mount Vernon, a national banking association ("FKNB"), the Company is engaged in a general commercial banking and trust business, in fifteen counties in central and southern Ohio. PNB operates through two banking divisions with the Park Division headquartered in Newark, Ohio and the Fairfield National Division headquartered in Lancaster, Ohio. FKNB also operates through two banking divisions with the First-Knox Division headquartered in Mount Vernon, Ohio and the Farmers and Savings Bank Division headquartered in Loudonville, Ohio (formerly The Farmers and Savings Bank). Effective April 7, 1997, Mutual Federal Savings Bank converted from a federal savings association charter to a national bank charter and, in connection therewith, changed its name to "Century National Bank." On May 5, 1997, the Company merged with First-Knox Banc Corp., a $569 million bank holding company headquartered in Mount Vernon, Ohio ("First-Knox"), in a transaction accounted for as a pooling of interests (the "Merger"). Upon effectiveness of the Merger, pursuant to the terms of an Agreement and Plan of Merger, dated as of October 28, 1996, as amended by an Amendment to Agreement and Plan of Merger, dated as of January 10, 1997 (collectively, the "Merger Agreement"), each of the outstanding common shares of First-Knox was converted into the right to receive .5914 common shares of the Company (the "Exchange Ratio"). As a result of the Merger, approximately 2.3 million common shares of the Company were issued to the former First-Knox shareholders. On December 8, 1997, the Fairfield National Division of PNB acquired three branch offices in Lancaster, Ohio from KeyBank National Association pursuant to a Branch Purchase and Assumption Agreement, dated as of May 23, 1997, as amended by an Amendment No. 1 to Branch Purchase and Assumption Agreement, dated as of September 24, 1997. In addition to the fixed assets of such branches, the purchase included approximately $49 million of deposits and approximately $12 million of loans. The banking business of these three branches has been consolidated into the operations of the Fairfield National Division. Effective December 30, 1997, The Farmers and Savings Bank, an Ohio state-charted bank which had been a subsidiary of First-Knox and became a subsidiary of the Company as a result of the Merger, merged into FKNB, a former subsidiary of First-Knox which also became a subsidiary of the -2- 3 Company as a result of the Merger. The operations of The Farmers and Savings Bank are now conducted through the Farmers and Savings Bank Division of FKNB. Services Provided by the Company's Subsidiaries PNB, Richland, Century and FKNB provide the following principal services: the acceptance of deposits for demand, savings and time accounts and the servicing of such accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards, home equity lines of credit and commercial and auto leasing; safe deposit operations; trust services; cash management; electronic funds transfers; and a variety of additional banking-related services tailored to the needs of individual customers. The Company believes that the deposit mix of its subsidiaries is such that no material portion thereof has been obtained from a single customer and, consequently, the loss of any one customer of any subsidiary of the Company would not have a materially adverse effect on the business of that subsidiary or the Company. The Company's subsidiaries deal with a wide cross-section of businesses and corporations which are 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. Lending decisions at each of the Company's subsidiaries are made in accordance with written loan policies designed to maintain loan quality. Each of the Company's subsidiaries 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. Fixed rate residential real estate loans are also generated for the secondary market. The loans of each of the Company's subsidiaries are spread over a broad range of industrial classifications. The Company believes that its subsidiaries have no significant concentrations of loans to borrowers engaged in the same or similar industries and such subsidiaries do not have any 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 is typically dependent 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, 1997, the Company's subsidiaries had outstanding approximately $481.3 million in commercial loans (including commercial real estate loans) and commercial leases, representing approximately 30.2% of their total aggregate loan portfolio as of that date. PNB's, Richland's, Century's and FKNB's regulatory limits for loans made to one borrower were $13.1 million, $4.3 million, $4.0 million and $6.5 million, respectively, at December 31, 1997. 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 in order to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. -3- 4 The Company has a loan review program which reevaluates annually all loans with an outstanding amount greater than $100,000. If it is determined that deterioration has occurred, effective and prompt action is taken by the responsible subsidiary. Upon detection of a reduced ability of a borrower to service interest and/or principal on a loan, the loan is downgraded and placed on non-accrual status. The subsidiary then works with the borrower to develop a payment schedule which they anticipate will permit the principal and interest on the loan to be serviced by the borrower. Loans which deteriorate and show an inability of a borrower to repay principal and do not meet the subsidiary's standards are charged off quarterly. PNB also leases equipment under terms similar to its commercial lending policies. Park Leasing Company, a division of PNB, originates and services direct leases of equipment which PNB acquires with no outside financing. In addition, Scope Leasing, Inc., a wholly-owned subsidiary of PNB, specializes in the direct leasing of aircraft with no outside financing. At December 31, 1997, the Company's subsidiaries had outstanding consumer loans (including automobile leases and credit cards) in an aggregate amount of approximately $336.3 million constituting approximately 21.1% of their aggregate total loan portfolio. The Company's 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 Company's subsidiaries are participants in an automobile installment loan program sponsored by an insurance company as a result of which automobile installment loans may be made to borrowers in other counties located in the State of Ohio. Credit approval for consumer loans requires demonstration of sufficiency of 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 the Company'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. The Company'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. It is the policy of each of the Company's subsidiaries to review its consumer loan portfolio monthly and to charge off loans which do not meet that subsidiary's standards. Each subsidiary also offers VISA and MasterCard accounts through their consumer lending departments. These accounts are administered in accordance with the same standards as applied to 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 are dependent 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, 1997, there were approximately $774.3 million in residential real estate, home equity lines of credit and construction mortgages outstanding, representing approximately 48.6% of total loans outstanding. The market area for real estate lending by the Company's subsidiaries is concentrated in Ashland, Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and Richland Counties, Ohio. The Company's subsidiaries generally require that the loan amount with respect to residential real estate loans be no -4- 5 more than 80% of the purchase price or the appraisal value of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower with respect to the percentage exceeding such 80%. Loans made for each subsidiary's portfolio in this lending category are generally one year adjustable rate, fully amortized mortgages. Each subsidiary also originates fixed rate real estate loans for the secondary market. The standards applicable to these loans permit a higher loan to value ratio and a longer loan term. These loans are generally sold immediately after closing. All real estate loans are secured by first mortgages with evidence of title in favor of the subsidiary in the form of an attorney's opinion of title or a title insurance policy. The Company's subsidiaries also require proof of hazard insurance with the appropriate subsidiary named as the mortgagee and as the loss payee. Independent appraisals are required in the case of loans in excess of $250,000. Home equity lines of credit are generally made as second mortgages by the Company's subsidiaries. The maximum amount of a home equity line of credit is generally limited to 80% of the appraised value of the property less the balance of the first mortgage. The home equity lines of credit are written with ten year terms but are subject to review and reappraisal every three years. A variable interest rate is generally charged on the home equity lines of credit. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent 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 Company's subsidiary making the loan may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the subsidiary may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment, should the borrower default. Competition The Company's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. The primary factors in competing for loans are interest rates charged and overall services provided to borrowers. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and the convenience of office locations. Employees As of December 31, 1997, the Company and its subsidiaries had 978 full-time equivalent employees. Supervision and Regulation The following is a summary of certain statutes and regulations affecting the Company and its subsidiaries. The summary is qualified in its entirety by reference to such statutes and regulations. The Company is a bank holding company under the Bank Holding Company Act of 1956, as amended, which restricts the activities of the Company and the acquisition by the Company of voting shares or assets of any bank, savings association or other company. The Company is also subject to -5- 6 the reporting requirements of, and examination and regulation by, the Federal Reserve Board. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof and the taking of such stock or securities as collateral for loans or extensions of credit to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the bank holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the bank holding company and other subsidiaries. Bank holding companies are prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve Board. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries. In addition, any savings association acquired by a bank holding company must conform its activities to those permissible for a bank holding company under the Bank Holding Company Act. As national banks, PNB, Century and FKNB are supervised and regulated by the Comptroller of the Currency (the "Comptroller"). As an Ohio state-chartered bank, Richland is supervised and regulated by the Ohio Division of Financial Institutions (the "ODFI"). The deposits of PNB, Richland, Century and FKNB are insured by the Federal Deposit Insurance Corporation (the "FDIC") and those entities are subject to the applicable provisions of the Federal Deposit Insurance Act. See "Deposit Insurance Assessments and Recent Legislation" below. A subsidiary of a bank holding company can be liable to reimburse the FDIC if the FDIC incurs or anticipates a loss because of a default of another FDIC-insured subsidiary of the bank holding company or in connection with FDIC assistance provided to such subsidiary in danger of default. In addition, the holding company of any insured financial institution that submits a capital plan under the federal banking agencies' regulations on prompt corrective action guarantees a portion of the institution's capital shortfall, as discussed below. Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of PNB, Richland, Century and FKNB including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching. Since June 1997, pursuant to federal legislation, PNB, Century and FKNB have been authorized to branch across state lines, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The minimum ratio of capital to weighted risk assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least 4.0 percentage points is to be comprised of common stockholders' equity (including retained earnings but excluding treasury stock), noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, -6- 7 and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist, among other things, of mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of allowance for loan and lease losses. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 3% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 100-200 basis points higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. National bank subsidiaries, such as PNB, Century and FKNB, are subject to similar capital requirements adopted by the Comptroller and state non-member bank subsidiaries, such as Richland, are subject to similar capital requirements adopted by the FDIC. The Company and its subsidiaries currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC. The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks and savings associations. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized. The ability of a bank holding company 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 and other subsidiaries. However, the Federal Reserve Board expects the Company to serve as a source of strength to PNB, Richland, Century and FKNB which may require it to retain capital for further investment in the subsidiaries, rather than use such funds for dividends for shareholders of the Company. PNB, Richland, Century and FKNB may not pay dividends to the Company if, after paying such dividends, they would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. PNB, Richland, Century and FKNB must have the approval of their respective regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of the current year's net profits and the retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by the bank subsidiaries may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for the bank. These provisions could have the effect of limiting the Company's ability to pay dividends on its outstanding common shares. Deposit Insurance Assessments and Recent Legislation The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the Bank Insurance Fund ("BIF") and members of the Savings Association Insurance Fund ("SAIF"). PNB, Richland and FKNB are members of the BIF and Century is a member of the -7- 8 SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Monetary Policy and Economic Conditions The business of commercial banks is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly affect the overall growth and distribution of bank loans, investments and deposits and the interest rates charged on loans as well as the interest rates paid on deposits and accounts. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels. Effect of Environmental Regulation Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Company and its subsidiaries. The Company believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. The Company, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. The Company's subsidiaries may be required to make capital expenditures for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable. FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings -8- 9 or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of the Company or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", anticipates", expects", "intends", "targeted", and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of the U.S. economy in general and the strength of the local economies in which operations of the Company's subsidiaries are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; (iii) inflation, interest rate, market and monetary fluctuations; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by customers; (v) changes in consumer spending, borrowing and saving habits; (vi) technological changes; (vii) acquisitions and the ability to successfully integrate their operations; (viii) the ability to increase market share and control expenses; (ix) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply; (x) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board; (xi) changes in the Company's organization, compensation and benefit plans; (xii) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and (xiii) the success of the Company at managing the risks involved in the foregoing. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. Item 2. Properties. The Company's principal executive offices are located at 50 North Third Street, Newark, Ohio 43055. The Company neither leases nor owns any physical property, real or personal. The principal offices of PNB are located in its two-story main office building at 50 North Third Street, Newark, Ohio 43055. PNB occupies all of this building. PNB's Operations Center is located in a three-story building owned by it at 21 South First Street, Newark, Ohio 43055. PNB occupies approximately 36,000 square feet of this building, with the remaining 4,000 square feet leased to outside tenants. PNB, in addition to having six offices in Newark (including the main office and the Operations Center), has offices in Granville, Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala and Utica in Licking County, an office in Columbus in Franklin County, an office in Cincinnati in Hamilton County and offices in Baltimore, Pickerington and Lancaster (seven offices) in Fairfield County. The offices in Fairfield County comprise the Fairfield National Division. PNB also operates eight stand-alone automatic banking center locations. The properties occupied by ten of PNB's Licking County offices (including the main office and the Operations Center) and by four -9- 10 Fairfield County offices are owned by PNB. The remaining three offices in Licking County, five offices in Fairfield County and PNB's Franklin County and Hamilton County offices are leased under leases with various expiration dates through 2006. Certain of the leases contain renewal options. PNB owes no mortgage debt on any of its property. The principal offices of Richland are located in its eight-story main office building located at 3 North Main Street, Mansfield, Ohio. Richland occupies 22,166 square feet out of the total 42,969 square feet of the building, with the remaining portion leased to tenants not affiliated with Richland. Richland, in addition to six offices in Mansfield (including the main office), has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland County. Richland also operates three stand-alone automatic banking center locations. Richland owns the property occupied by all of these offices, with the exception of one branch office in Mansfield which is leased through 2000. Richland owes no mortgage debt on any of its property. The principal offices of Century are located in a two-story building owned by it at 14 South Fifth Street, Zanesville, Ohio. Century occupies all of this building. Century, in addition to having four offices (including the main office) and a mortgage lending office in Zanesville, has offices in New Concord in Muskingum County, Malta in Morgan County, New Lexington in Perry County, Logan in Hocking County, Athens in Athens County and Coshocton in Coshocton County. Century also operates three stand-alone automatic banking center locations and a lending office in Dresden in Muskingum County. All of the properties occupied by Century's offices are owned by Century, with the exception of the office located in Coshocton which is leased under a lease which expires in November, 1999 and the lending office in Dresden which is leased month-to-month. Century owes no mortgage debt on any of its properties. The principal offices of FKNB are located in its four-story main office building located at One South Main Street, Mount Vernon, Ohio. FKNB occupies all of this building. FKNB's Operations Center is located in a two-story building owned by it at 105 West Vine Street, Mount Vernon, Ohio. FKNB occupies all of this building. FKNB, in addition to having three offices (including the main office and the Operations Center) in Mount Vernon, has offices in Loudonville and Perrysville in Ashland County, an office in Millersburg in Holmes County, offices in Centerburg, Danville and Fredericktown in Knox County, two offices in Mount Gilead in Morrow County and offices in Bellville and Lexington in Richland County. The offices in Ashland County comprise the Farmers and Savings Bank Division. FKNB also operates five stand-alone automatic banking center locations. FKNB owns the property occupied by all of these offices, with the exception of the branch in Millersburg where a portion of this branch is leased through 2000. FKNB owes no mortgage debt on any of its property. Item 3. Legal Proceedings. There are no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings to which the Company's subsidiaries are parties incidental to their respective banking businesses. None of such proceedings are considered by the Company to be material. -10- 11 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 the Company as of the date of this Annual Report on Form 10-K, the positions presently held by each such executive officer and the positions held by each such executive officer during his tenure as an executive officer of the Company and its subsidiaries. All executive officers serve at the pleasure of the Board of Directors of the Company.
Position(s) Held with the Company Name Age and its Principal Subsidiaries - ---- --- ------------------------------ William T. McConnell 64 Chairman of the Board since 1994, Chief Executive Officer and Director since 1986, and President from 1986 to 1994, of the Company; Chairman of the Board since 1993, Chief Executive Officer since 1983, President from 1979 to 1993, and Director since 1977, of PNB; Director of Century since 1990; Director of FKNB since 1997 C. Daniel DeLawder 48 President and Director of the Company since 1994; President since 1993, Executive Vice President from 1992 to 1993, and Director since 1992, of PNB; Chairman of Advisory Board since 1989, and President from 1985 to 1992, of the Fairfield National Division of PNB; Director of Richland since 1997 David C. Bowers 61 Secretary since 1987, Chief Financial Officer and Chief Accounting Officer since 1990, and Director from 1989 to 1990, of the Company; Senior Vice President since 1986, and Director since 1989, of PNB
PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. In accordance with General Instruction G(2), the information called for in Item 201 of Regulation S-K is incorporated herein by reference to page 39 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997. On November 11, 1997, the Company issued to (a) each of the thirteen non-employee directors of the Company 150 common shares (for an aggregate of 1,950 common shares) in lieu of an annual cash retainer for serving as a director of the Company and its subsidiaries, and (b) each of the 33 non-employee directors of one of the Company's subsidiaries who is not also a director of the Company 50 common shares (for an aggregate of 1,650 common shares) in lieu of an annual cash retainer for serving as a director of the subsidiary. The common shares had a market value of -11- 12 $89.31 per share on the date of issuance. The common shares were issued in reliance upon the exemptions from registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933 based upon the limited number of persons to whom the common shares were "sold" and the status of each of such individuals as a director of the Company or of one of its subsidiaries. Item 6. Selected Financial Data. In accordance with General Instruction G(2), the information called for in this Item 6 is incorporated herein by reference to page 37 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. In accordance with General Instruction G(2), the information called for in this Item 7 is incorporated herein by reference to pages 23 through 36 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997. Item 7A. Quantitive and Qualitative Disclosure About Market Risk. As noted on page 29 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, during 1997, 1996 and 1995, the Company and its subsidiaries had no investment in off-balance sheet derivative instruments. Item 8. Financial Statements and Supplementary Data. The Consolidated Balance Sheets of the Company and its subsidiaries at December 31, 1997 and December 31, 1996, 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, 1997, the related Notes to the Consolidated Financial Statements, and the Report of Independent Auditors, appearing on pages 41 through 68 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, are incorporated herein by reference. Quarterly Financial Data set forth on page 38 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997 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. In accordance with General Instruction G(3), the information called for in this Item 10 is incorporated herein by reference to the Company's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 20, 1998, under the captions "ELECTION OF DIRECTORS" and "SECURITY -12- 13 OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Section 16(a) Beneficial Ownership Reporting Compliance." In addition, certain information concerning the executive officers of the Company called for in this Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant" in accordance with General Instruction G(3). Item 11. Executive Compensation. In accordance with General Instruction G(3), the information called for in this Item 11 is incorporated herein by reference to the Company's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 20, 1998, 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 the Company's definitive Proxy Statement relating to the Company's Annual Meeting of Shareholders to be held on April 20, 1998, shall be deemed to be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. In accordance with General Instruction G(3), the information called for in this Item 12 is incorporated herein by reference to the Company's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 20, 1998, under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Item 13. Certain Relationships and Related Transactions. In accordance with General Instruction G(3), the information called for in this Item 13 is incorporated herein by reference to the Company's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 20, 1998, under the caption "TRANSACTIONS INVOLVING MANAGEMENT." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Financial Statements. For a list of all financial statements included with this Annual Report on Form 10-K, see "Index to Financial Statements" at page 18. -13- 14 (a)(2) Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits. Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" beginning at page 92. The following table provides certain information concerning the executive compensation plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibit No. Description Location - ------- ----------- -------- 10(a) Certified Copy of Resolutions Adopted by Incorporated herein by reference to the Board of Directors of Park National Company's Annual Report on Form 10-K for the Corporation on July 17, 1995 Affecting Park fiscal year ended December 31, 1995 (File No. National Corporation Defined Benefit Pension 1-13006) (the "1995 Form 10-K") [Exhibit Plan and Trust 10(a)] 10(b) Park National Corporation Defined Benefit Incorporated herein by reference to the Pension Plan Company's 1995 Form 10-K [Exhibit 10(b)] 10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to the Salary Deferral Plan and Trust Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772) [Exhibit 10(d)] 10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to the National Corporation Company's Registration Statement on Form S-4, filed on January 24, 1997 (Registration No. 333-20417) (the "Company's Form S-4") [Exhibit 10(d)]
-14- 15
Exhibit No. Description Location - ------- ----------- -------- 10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: (a) the between William T. McConnell and The Park Company's Annual Report on Form 10-K for the National Bank; and Schedule A to Exhibit fiscal year ended December 31, 1993 (File No. 10(f) identifying other identical 0-18772) [Exhibit 10(f)]; and (b) the Split-Dollar Agreements between The Park Company's Annual Report on Form 10-K for the National Bank and executive officers of the fiscal year ended December 31, 1994 (File No. Company 1-13006) [Exhibit 10(g)] 10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to the 1993, between Dominic C. Fanello and The Company's Annual Report on Form 10-K for the Richland Trust Company; and Schedule A to fiscal year ended December 31, 1993 (File No. Exhibit 10(f) identifying other identical 0-18772 [Exhibit 10(g)]; Schedule A to Split-Dollar Agreements between directors of Exhibit 10(f) is being filed herewith the Company and The Park National Bank, The Richland Trust Company or Century National Bank, as identified in such Schedule A 10(g) Park National Corporation 1995 Incentive Incorporated herein by reference to the Stock Option Plan Company's Registration Statement on Form S-8 filed May 9, 1995 (Registration No. 33-92060) [Exhibit 4(d)] 10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to the connection with the grant of options under Company's 1995 Form 10-K [Exhibit 10(i)] Park National Corporation 1995 Incentive Stock Option Plan 10(i) Description of Park National Corporation Incorporated herein by reference to the Supplemental Executive Retirement Plan Company's Form S-4 [Exhibit 10(i)]
(b) Reports on Form 8-K. There were no Current Reports on Form 8-K filed during the fiscal quarter ended December 31, 1997. -15- 16 (c) Exhibits. Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" beginning at page 92. (d) Financial Statement Schedules. None -16- 17 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 19, 1998 By David C. Bowers, -- Secretary, Chief Financial Officer and Chief Accounting 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.
Name Date Capacity ---- ---- -------- *William T. McConnell * Chairman of the Board, Chief Executive Officer, Principal Executive Officer and Director *C. Daniel DeLawder * President and Director *David C. Bowers * Secretary, Chief Financial Officer and Chief Accounting Officer *Maureen Buchwald * Director *James J. Cullers * Director *Dominic C. Fanello * Director *R. William Geyer * Director *Philip H. Jordan, Jr. * Director *Tamala Longaberger Kaido * Director
*By: David C. Bowers, Attorney-in-Fact Date: March 19, 1998 -17- 18 Name Date Capacity ---- ---- -------- *Howard E. LeFevre * Director *Phillip T. Leitnaker * 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: David C. Bowers, Attorney-in-Fact Date: March 19, 1998 -18- 19 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 INDEX TO FINANCIAL STATEMENTS
PAGE(S) DESCRIPTION IN FORM 10-K - ----------- ------------ Report of Independent Auditors (Ernst & Young LLP)............................................... 62 Consolidated Balance Sheets at December 31, 1997 and 1996........................................ 63-64 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995................................................................................ 65-66 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995........................................................ 67 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995........................................................................... 68 Notes to the Consolidated Financial Statements................................................... 69-89
-19- 20 FINANCIAL REVIEW This financial review presents management's discussion and analysis of 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. However, such performance involves risks and uncertainties which may cause actual results to differ materially from those in such statements. For a discussion of certain factors that may cause such forward-looking statements to differ materially from Park's actual results see Park's Annual Report on Form 10-K for the year ended December 31, 1997. OVERVIEW 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 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 Park have been restated to show Park and First-Knox on a combined basis. Net income for 1997 was $37.7 million, the highest in Park's ten- year history as a bank holding company. This represents an 18.9% increase over net income of $31.7 million for 1996. Net income per share-diluted was $4.00 for 1997, up by 18.3% over the $3.38 net income per share-diluted for 1996. Net income has increased at an annual compound growth rate of 12.99% over the last five years, and net income per share has grown at an annual compound growth rate of 12.40% over the same period. Effective with the fourth quarter of 1997, the quarterly cash dividend on common stock was increased to $.48 per share. The new annualized dividend of $1.92 per share is 20.0% greater than the dividend paid in 1997. 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 13.81% and the dividends declared to net income ratio has averaged 38.4% over that same period. Park's business strategy is geared toward maximizing the return to stockholders. The Corporation's common stock value has appreciated 19.8% annually on a compounded, total return basis for the last five years. The December 31, 1997 value of a $100 investment on December 31, 1992 would be $247, inclusive of the reinvestment of dividends in the Corporation's stock. ABOUT OUR BUSINESS Through its banking subsidiaries, Park is engaged in the commercial banking and trust business, generally in small to medium population Ohio communities. Management believes there is a significant number of consumers and businesses which seek long-term relationships with community-based financial institutions of quality and strength. While not engaging in activities such as foreign lending, nationally syndicated loans and investment banking operations, the Corporation attempts to meet the needs of its customers for commercial, real estate and consumer loans, and investment and deposit services. Familiarity with the local market, coupled with conservative loan underwriting standards, has allowed the Corporation to achieve solid financial results even in periods where there have been changes in economic conditions and the general level of interest rates. The Corporation has produced performance ratios which compare favorably to peer bank holding companies in terms of equity and asset returns, capital adequacy and asset quality. Continued satisfactory results are contingent upon economic conditions in Ohio and competitive factors, among other things. The Corporation's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. The Corporation and its subsidiaries operate fifty-seven full-service banking offices and a network of fifty-eight automatic teller machines in fifteen central and southern Ohio counties. 23 21 A table of financial data of the Corporation's affiliates for 1997, 1996, and 1995 is shown below: TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- AVERAGE NET Average Net Average Net (In thousands) ASSETS INCOME Assets Income Assets Income - ----------------------------------------------------------------------------------------------------------------------- Park National Bank: Park National Division $ 716,356 $20,013 $ 672,374 $15,900 $ 637,211 $13,716 - ----------------------------------------------------------------------------------------------------------------------- Fairfield National Division 202,681 3,893 187,226 3,564 171,572 3,315 - ----------------------------------------------------------------------------------------------------------------------- Richland Trust Company 385,469 5,195 275,287 3,747 255,311 3,642 - ----------------------------------------------------------------------------------------------------------------------- Century National Bank 348,861 5,805 346,512 3,401 329,848 2,016 - ----------------------------------------------------------------------------------------------------------------------- First-Knox National Bank: First-Knox National Division 502,723 2,516 471,046 5,646 423,925 5,036 - ----------------------------------------------------------------------------------------------------------------------- Farmers and Savings Division 60,189 512 56,718 827 53,247 695 - ----------------------------------------------------------------------------------------------------------------------- Parent Company, including consolidating entries 3,303 (241) 2,632 (1,385) 1,885 (591) - ----------------------------------------------------------------------------------------------------------------------- CONSOLIDATED TOTALS $2,219,582 $37,693 $2,011,795 $31,700 $1,872,999 $27,829 - -----------------------------------------------------------------------------------------------------------------------
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 1997 there were 126 peer bank holding companies. The Corporation's net income to average equity was 18.21%, 16.88% and 16.52% in 1997, 1996, and 1995, respectively. In the past five years, the Corporation's net income to average equity exceeded the mean and median return of the peer group by a substantial margin. The return on equity ratio has averaged 17.19% over the past five years. Maintaining the Corporation's favorable equity return on an ever increasing equity base is a continual challenge for management. HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY [GRAPHIC]
1993 1994 1995 1996 1997 Park 17.61% 16.72% 16.52% 16.88% 18.21% Peer Median 12.41% 12.27% 12.58% 13.55% 14.42%*
*as of 09/30/97 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. 24 22 SOURCE OF FUNDS DEPOSITS: The Corporation's major source of funds is provided by core deposits from individuals, businesses, and local government units. These core deposits consist of all noninterest bearing and interest bearing deposits, excluding certificates of deposit of $100,000 and over which were less than 12.2% of total deposits for the last three years. In 1997, year-end total deposits increased by $92 million or 5.2%. Approximately $49.2 million of this increase was a result of the purchase of three bank branches in Lancaster, Ohio from KeyBank, Cleveland, Ohio in December, 1997. The mix of core deposits shifted toward core certificates of deposit as more aggressive pricing and more flexible withdrawal options were offered. 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, 1997 were: TABLE 2 - OVER $100,000 MATURITY SCHEDULE
- ------------------------------------------------------------------------------- TIME CERTIFICATES DECEMBER 31, 1997 (IN THOUSANDS) OF DEPOSIT - ------------------------------------------------------------------------------- 3 months or less $ 97,176 - ------------------------------------------------------------------------------- Over 3 months through 6 months 27,009 - ------------------------------------------------------------------------------- Over 6 months through 12 months 45,373 - ------------------------------------------------------------------------------- Over 12 months 36,599 - ------------------------------------------------------------------------------- TOTAL $206,157 - -------------------------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings primarily result from securities sold under agreements to repurchase but also include Federal Home Loan Bank advances and federal funds purchased. These funds are also used to manage the Corporation's liquidity needs and interest rate sensitivity risk. They are subject to short-term price swings as the Corporation's needs change or the overall market rates for short-term investment funds change. In 1997, average short-term borrowings were $162.6 million compared to $126.7 million in 1996 and $139.0 million in 1995. Average short-term borrowings were less than 7.5% 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 late 1997 as more attractive rates were available in short-term markets. STOCKHOLDERS' EQUITY: Average stockholders' equity to average total assets increased to 9.33% in both 1997 and 1996 from 8.99% in 1995. 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 an adjustment to 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 $7.0, $4.7, and $7.8 million at year-end 1997, 1996, and 1995, respectively. INVESTMENT OF FUNDS Loans: Average loans, net of unearned income, were $1,528 million in 1997 compared to $1,380 million in 1996 and $1,318 million in 1995. The average yield on loans was reasonably stable at 9.37% in 1997 compared to 9.41% in 1996 and 9.26% in 1995. Approximately 73% 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. 25 23 Year-end loan balances, net of unearned income, increased by $120 million or 8.2% in 1997 and by $116.7 million or 8.6% in 1996. The growth in 1997, includes $11.6 million of loans acquired from the purchase of three branches in Lancaster in December, 1997. As a percentage of assets, year-end loan balances were 69.6%, 67.4%, and 68.7% in 1997, 1996, and 1995, respectively. Year-end real estate loans, both commercial and residential, increased to $965 million from $832 million in 1996, an increase of 16.0% . The growth in real estate loans was principally due to the strength of the economy in Central Ohio. 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) 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- Commercial, financial and agriculture $ 212,970 $ 224,912 $ 211,535 $ 189,303 $ 203,005 - ----------------------------------------------------------------------------------------------------------------------- Real estate - construction 65,548 70,359 52,084 42,485 32,037 - ----------------------------------------------------------------------------------------------------------------------- Real estate - residential 708,768 617,018 585,739 565,663 509,107 - ----------------------------------------------------------------------------------------------------------------------- Real estate - commercial 256,074 215,372 200,675 187,936 157,199 - ----------------------------------------------------------------------------------------------------------------------- Consumer, net 313,517 320,831 282,618 278,427 249,141 - ----------------------------------------------------------------------------------------------------------------------- Leases, net 35,050 23,532 22,717 21,494 12,807 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LOANS $1,591,927 $1,472,024 $1,355,368 $1,285,308 $1,163,296 - -----------------------------------------------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
- ---------------------------------------------------------------------------------------------------------------------- Over One Over One Year Through Five DECEMBER 31, 1997 (IN THOUSANDS) or Less Five Years Years TOTAL - ---------------------------------------------------------------------------------------------------------------------- Commercial, financial and agriculture $105,449 $62,239 $45,282 $212,970 - ---------------------------------------------------------------------------------------------------------------------- Real estate - construction 28,423 4,595 32,530 65,548 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $133,872 $66,834 $77,812 $278,518 - ---------------------------------------------------------------------------------------------------------------------- Total of these selected loans due after one year with: Fixed interest rate $ 37,165 - ---------------------------------------------------------------------------------------------------------------------- Floating interest rate 107,481 - ----------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to provide liquidity and contribute to earnings. The Corporation classifies approximately 98% 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/(loss), net of taxes, accounted for as an adjustment to 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. 26 24 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 re-evaluates the securities in its portfolio based on circumstances as they evolve. Circumstances that may precipitate a sale of a security would be to better manage interest rate risk, meet liquidity needs, or to improve the overall yield from the investment portfolio. There were negligible security losses in 1997, $1.3 million, and $.6 million in 1996, and 1995, respectively. The Corporation's strategy has generally been to reinvest the proceeds from the sale of securities at a loss into higher yielding securities with modest extension of maturities. Generally lower overall interest rates in 1997 prevented this strategy from being executed. The average yield on taxable investment securities was 7.00%, 6.85%, and 6.69% for 1997, 1996, and 1995, respectively. The average maturity or repricing of the taxable investment portfolio was approximately 3.1 years at year-end 1997 compared to 3.2 years at year-end 1996 and 3.4 years at year-end 1995. The Corporation's nontaxable investment securities as a percent of total securities was increased to 16.2% in 1997 as more favorable tax-effective rates were available. The average tax-equivalent yield on the tax-exempt securities portfolio was 7.82%, 8.56%, and 8.61% for 1997, 1996, and 1995, respectively. The average maturity of the tax-exempt portfolio was approximately 7.1 years at year-end 1997 and year-end 1996 compared to 7.6 years at year-end 1995. The following table sets forth the book value of investment securities at year end: TABLE 5 - INVESTMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Treasury and other U.S. Government agencies $159,248 $222,034 $192,263 - --------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 87,367 67,357 64,763 - --------------------------------------------------------------------------------------------------------------------- U.S. Government asset-backed securities and other asset-backed securities 274,234 270,003 191,883 - --------------------------------------------------------------------------------------------------------------------- Other securities 19,881 14,999 11,809 - --------------------------------------------------------------------------------------------------------------------- TOTAL $540,730 $574,393 $460,718 - ---------------------------------------------------------------------------------------------------------------------
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. The net yield on interest earning assets was relatively stable at 5.07% for 1997 compared to 5.09% for 1996 and 5.02% in 1995. Similarly, the net interest rate spread -- the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities was within the narrow range of 4.36% to 4.41% for all three years. The yield on average interest earning assets was 8.76% in 1997 compared to 8.75% in 1996 and 8.68% in 1995. Average interest earning assets increased by $193 million or 10.2% to $2,084 million in 1997 compared to an increase of $135 million or 7.7% to $1,892 million in 1996. The rate paid on average interest bearing liabilities was 4.38% in 1997 compared to 4.34% in 1996 and 4.32% in 1995. Average interest bearing liabilities increased by $166.0 million or 10.4% to $1,760.1 million in 1997 compared to an increase of $104.4 million or 7.0% to $1,594.1 million in 1996. Average interest bearing deposits as a percentage of average interest bearing liabilities were 88.1% in 1997, 89.1% in 1996, and 88.4% in 1995. 27 25 TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------- December 31, 1997 1996 1995 (Dollars in thousands) DAILY AVERAGE Daily Average Daily Average AVERAGE INTEREST RATE Average Interest Rate Average Interest Rate - ---------------------------------------------------------------------------------------------------------------------------- ASSETS INTEREST EARNING ASSETS: Loans (1) (2) $1,527,694 $143,157 9.37% $1,379,973 $129,843 9.41% $1,318,275 $122,121 9.26% - ---------------------------------------------------------------------------------------------------------------------------- Taxable investment securities 474,707 33,229 7.00% 410,339 28,125 6.85% 360,539 24,119 6.69% - ---------------------------------------------------------------------------------------------------------------------------- Tax-exempt investment securities (3) 73,613 5,757 7.82% 61,768 5,288 8.56% 60,550 5,212 8.61% - ---------------------------------------------------------------------------------------------------------------------------- Interest bearing deposits in banks -- -- -- -- -- -- 157 8 5.10% - ---------------------------------------------------------------------------------------------------------------------------- Federal funds sold 8,132 461 5.67% 39,573 2,184 5.52% 17,168 1,001 5.83% - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EARNING ASSETS 2,084,146 182,604 8.76% 1,891,653 165,440 8.75% 1,756,689 152,461 8.68% - ---------------------------------------------------------------------------------------------------------------------------- NONINTEREST EARNING ASSETS: Allowance for possible loan losses (34,346) (30,816) (27,171) - ---------------------------------------------------------------------------------------------------------------------------- Cash and due from banks 71,244 69,396 70,231 - ---------------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 27,361 27,742 27,541 - ---------------------------------------------------------------------------------------------------------------------------- Other assets 71,177 53,820 45,709 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL $2,219,582 $2,011,795 $1,872,999 - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST BEARING LIABILITIES: Transaction accounts $ 364,776 $ 8,927 2.45% $ 354,944 $ 8,450 2.38% $ 268,568 $ 6,180 2.30% - ---------------------------------------------------------------------------------------------------------------------------- Savings deposits 278,371 7,863 2.82% 269,991 7,599 2.81% 358,490 10,658 2.97% - ---------------------------------------------------------------------------------------------------------------------------- Time deposits 907,718 49,659 5.47% 795,984 44,612 5.60% 690,267 38,385 5.56% - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING DEPOSITS 1,550,865 66,449 4.28% 1,420,919 60,661 4.27% 1,317,325 55,223 4.19% - ---------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 162,626 7,738 4.76% 126,721 5,694 4.49% 139,035 7,173 5.16% - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt 46,652 2,846 6.10% 46,497 2,800 6.02% 33,413 1,951 5.84% - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 1,760,143 77,033 4.38% 1,594,137 69,155 4.34% 1,489,773 64,347 4.32% - ---------------------------------------------------------------------------------------------------------------------------- NONINTEREST BEARING LIABILITIES: Demand deposits 228,598 207,262 196,406 - ---------------------------------------------------------------------------------------------------------------------------- Other 23,842 22,641 18,388 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST BEARING LIABILITIES 252,440 229,903 214,794 - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 206,999 187,755 168,432 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL $2,219,582 $2,011,795 $1,872,999 - ---------------------------------------------------------------------------------------------------------------------------- Net interest earnings $105,571 $ 96,285 $ 88,114 - ---------------------------------------------------------------------------------------------------------------------------- Net interest spread 4.38% 4.41% 4.36% - ---------------------------------------------------------------------------------------------------------------------------- Net yield on interest earning assets 5.07% 5.09% 5.02% - ----------------------------------------------------------------------------------------------------------------------------
(1) Loan income includes net fee loan income of $1,670 in 1997, $1,905 in 1996 and $1,577 in 1995. Loan income also includes the effects of taxable equivalent adjustments using a 35% rate in 1997, 1996 and 1995. The taxable equivalent adjustment was $435 in 1997, $459 in 1996 and $395 in 1995. (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 1997, 1996 and 1995. The taxable equivalent adjustment was $1,658 in 1997, $1,788 in 1996 and $1,778 in 1995. 28 26 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
- ---------------------------------------------------------------------------------------------------------------------- Change from 1996 to 1997 Change from 1995 to 1996 ---------------------------------------------------------------------------- (IN THOUSANDS) Volume Rate TOTAL Volume Rate Total - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in: Interest income: TOTAL LOANS $13,867 $ (553) $13,314 $ 5,737 $1,985 $ 7,722 - ---------------------------------------------------------------------------------------------------------------------- Taxable investments 4,479 625 5,104 3,415 591 4,006 - ---------------------------------------------------------------------------------------------------------------------- Tax-exempt investments 953 (484) 469 106 (30) 76 - ---------------------------------------------------------------------------------------------------------------------- Federal funds sold (1,781) 58 (1,723) 1,239 (56) 1,183 - ---------------------------------------------------------------------------------------------------------------------- Interest bearing deposits in banks -- -- -- (4) (4) (8) - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 17,518 (354) 17,164 10,493 2,486 12,979 - ---------------------------------------------------------------------------------------------------------------------- Interest expense: Transaction accounts 231 246 477 2,048 222 2,270 - ---------------------------------------------------------------------------------------------------------------------- Savings accounts 237 27 264 (2,511) (548) (3,059) - ---------------------------------------------------------------------------------------------------------------------- Time deposits 6,107 (1,060) 5,047 5,948 279 6,227 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 1,686 358 2,044 (600) (879) (1,479) - ---------------------------------------------------------------------------------------------------------------------- Long-term debt 9 37 46 787 62 849 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 8,270 (392) 7,878 5,672 (864) 4,808 - ---------------------------------------------------------------------------------------------------------------------- NET VARIANCE $ 9,248 $ 38 $ 9,286 $ 4,821 $3,350 $ 8,171 - ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME: Total other income, exclusive of security losses, increased by 13.9% to $20.5 million in 1997 and increased by 7.8% to $18.0 million in 1996 compared to $16.7 million for 1995. Income from fiduciary activities increased by 26.7% to $5.2 million in 1997 primarily due to increases in assets under management for new Trust Department customers. The Other subcategory increased in 1997 due to rental income from operating leases originated by Scope Leasing, Inc., an aircraft leasing company acquired by the Corporation in May, 1994 and increased fees from check card and ATM products. Losses on sale of securities were $1.3 million in 1996 compared to $.6 million in 1995. The proceeds from these sales of securities were generally invested in higher yielding, longer maturity securities to take advantage of an upward sloping yield curve. Generally lower overall interest rates and a flat yield curve prevented sales for losses and related reinvestments in 1997. During 1997, 1996, and 1995, the Corporation had no investment in off-balance sheet derivative instruments. OTHER EXPENSE: Total Other Expense increased by 5.6% to $62.4 million in 1997 and increased by 4.6% to $59.1 million in 1996 compared to $56.5 million in 1995. Increases in Total Other Expense of approximately $2.0 million in 1997 and $1.4 million in 1996 were due to one-time expenses related to the May, 1997 merger with First-Knox. These expenses were absorbed by First-Knox in 1997 and 1996. Salaries and employee benefits increased by 10.1% in 1997 and by 5.4% in 1996 compared to the prior years. The increase in 1997 was primarily due to one-time expenses related to the First-Knox merger of approximately $1.9 million for deferred employee payments, stock appreciation rights, and employee benefits expense. The increase in 1996 was due to normal merit increases and staff increases to accommodate new banking offices, extended hours in selected banking offices, and annuity/mutual fund 29 27 alternative investment product sales. Full-time equivalent employees at year-end were 978 in 1997, 961 in 1996 and 944 in 1995. Amortization of intangibles expense increased sharply in 1997 to $2.0 million due to the increased amortization of goodwill resulting from branch purchases in 1997 and 1996. Insurance expense decreased in 1997 and 1996 as Park's deposit insurance premium expense was sharply reduced. The Corporation's thrift subsidiary -- Mutual Federal Savings -- incurred a one-time FDIC recapitalization expense in 1996. Mutual Federal Savings converted to a national bank charter in the second quarter of 1997 and now operates under the name of Century National Bank. The subcategory Other Expense decreased from 1995 in 1996 and 1997 primarily due to a decrease in depreciation expense from operating leases. INCOME TAXES: Federal income tax expense as a percentage of income before taxes was 30.9% in 1997, 31.5% in 1996 and 30.8% in 1995. 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 bond investments. CREDIT EXPERIENCE PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to the allowance for loan losses to absorb possible future loan charge-offs. The amount of the loan loss provision is determined by management after reviewing the risk characteristics of the loan portfolio, historical loan loss experience and projections of future economic conditions. In 1997, First-Knox absorbed a significant increase in the loan loss provision charged to earnings in order to bring its allowance for possible loan losses into alignment with other Corporation affiliates. The impact of this was partially offset by a reduced loan loss provision at Park National Division. The allowance for possible loan losses at December 31, 1997 totaled $35.6 million and represented 2.24% of total loans outstanding at December 31, 1997 compared to $32.3 million or 2.20% of total loans outstanding at December 31, 1996 and $29.2 million or 2.16% of total loans outstanding at December 31, 1995. The provision for loan losses increased by $1.7 million to $7.0 million for 1997 compared to $5.3 million for 1996 and $5.2 million for 1995. Net charge-offs increased by $1.6 million to $3.8 million for 1997 compared to $2.2 million for 1996 and $1.4 million for 1995. The allowance for possible loan losses as a percentage of ending loans represents one measure of adequacy. The allowance for possible loan losses expressed as a percentage of nonperforming loans is another. On this basis, the December 31, 1997 allowance for possible loan losses represented 573% of nonperforming loans up from 425% at December 31, 1996 and 444% at December 31, 1995. It is management's opinion that the allowance for possible loan losses at year-end 1997 is adequate to absorb estimated credit losses in the loan portfolio. 30 28 The following table summarizes the loan loss provision, charge-offs and recoveries for the last five years: TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,527,694 $1,379,973 $1,318,275 $1,220,333 $1,112,873 - ---------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR POSSIBLE LOAN LOSSES: Beginning balance $ 32,347 $ 29,239 $ 25,438 $ 23,775 $ 21,564 - ---------------------------------------------------------------------------------------------------------------------- CHARGE-OFFS: Commercial 1,332 868 407 1,131 1,374 - ---------------------------------------------------------------------------------------------------------------------- Real estate 1,265 185 471 60 398 - ---------------------------------------------------------------------------------------------------------------------- Consumer 3,530 2,971 2,019 1,777 1,748 - ---------------------------------------------------------------------------------------------------------------------- Lease financing 144 414 55 103 92 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CHARGE-OFFS 6,271 4,438 2,952 3,071 3,612 - ---------------------------------------------------------------------------------------------------------------------- RECOVERIES: Commercial 400 420 175 1,035 1,088 - ---------------------------------------------------------------------------------------------------------------------- Real estate 696 365 171 164 118 - ---------------------------------------------------------------------------------------------------------------------- Consumer 1,198 1,404 1,074 984 622 - ---------------------------------------------------------------------------------------------------------------------- Lease financing 226 63 85 73 61 - ---------------------------------------------------------------------------------------------------------------------- TOTAL RECOVERIES 2,520 2,252 1,505 2,256 1,889 - ---------------------------------------------------------------------------------------------------------------------- NET CHARGE-OFFS 3,751 2,186 1,447 815 1,723 - ---------------------------------------------------------------------------------------------------------------------- Provision charged to earnings 6,999 5,294 5,248 2,478 3,934 - ---------------------------------------------------------------------------------------------------------------------- ENDING BALANCE $ 35,595 $ 32,347 $ 29,239 $ 25,438 $ 23,775 - ---------------------------------------------------------------------------------------------------------------------- RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.25% 0.16% 0.11% 0.07% 0.15% - ---------------------------------------------------------------------------------------------------------------------- RATIO OF ALLOWANCE FOR POSSIBLE LOAN LOSSES TO END OF YEAR LOANS, NET OF UNEARNED INTEREST 2.24% 2.20% 2.16% 1.98% 2.04% - ----------------------------------------------------------------------------------------------------------------------
The following table summarizes the allocation of allowance for possible loan losses: TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
----------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------------------------------------------------- Commercial $10,116 13.38% $ 8,996 15.28% $ 8,779 15.61% $ 7,572 14.73% $ 8,120 17.45% ----------------------------------------------------------------------------------------------------------------------- Real estate 11,420 64.73% 9,902 61.32% 8,071 61.86% 7,252 61.94% 6,238 60.03% ----------------------------------------------------------------------------------------------------------------------- Consumer 12,541 19.69% 12,513 21.80% 11,474 20.85% 9,772 21.66% 8,894 21.42% ----------------------------------------------------------------------------------------------------------------------- Leases 1,518 2.20% 936 1.60% 915 1.68% 842 1.67% 523 1.10% ----------------------------------------------------------------------------------------------------------------------- TOTAL $35,595 100.00% $32,347 100.00% $29,239 100.00% $25,438 100.00% $23,775 100.00% -----------------------------------------------------------------------------------------------------------------------
As of December 31, 1997, 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. 31 29 NONPERFORMING ASSETS: Nonperforming loans include: l) loans whose interest is accounted for on a nonaccrual basis; 2) loans whose terms have been renegotiated; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue. Other real estate owned results from taking title to property used as collateral for a defaulted loan. The following is a summary of the nonaccrual, past due and renegotiated loans and other real estate owned for the last five years: TABLE 10 - NONPERFORMING ASSETS
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Nonaccrual loans $2,060 $2,301 $2,425 $2,677 $2,718 - ---------------------------------------------------------------------------------------------------------------------- Renegotiated loans 1,642 2,348 2,525 1,365 1,285 - ---------------------------------------------------------------------------------------------------------------------- Loans past due 90 days or more 2,512 2,963 1,640 1,090 2,035 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NONPERFORMING LOANS 6,214 7,612 6,590 5,132 6,038 - ---------------------------------------------------------------------------------------------------------------------- Other real estate owned 300 329 183 406 1,386 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $6,514 $7,941 $6,773 $5,538 $7,424 - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NONPERFORMING LOANS TO LOANS, NET OF UNEARNED INTEREST 0.39% 0.52% 0.49% 0.40% 0.52% - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NONPERFORMING ASSETS TO LOANS, NET OF UNEARNED INTEREST 0.41% 0.54% 0.50% 0.43% 0.64% - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NONPERFORMING ASSETS TO TOTAL ASSETS 0.28% 0.36% 0.34% 0.30% 0.43% - ----------------------------------------------------------------------------------------------------------------------
Tax equivalent interest income from loans of $143.2 million for 1997 would have increased by $87,000 if all loans had been current in accordance with their original terms. Interest income for the year ended December 31, 1997 in the approximate amount of $373,000 is included in interest income for those loans in accordance with original terms. The Corporation had $17.6 million of loans included on the Corporation's watch list of potential problem loans at December 31, 1997 compared to $19.8 million at year-end 1996 and $18.9 million at year-end 1995. The existing conditions of these loans do not warrant classification as nonaccrual. Management undertakes additional surveillance regarding a borrower's ability to comply with payment terms for watch list loans. TECHNOLOGY RISK - YEAR 2000 COMPLIANCE ISSUES In early 1997, the Corporation formed a Year 2000 project team to identify software systems and computer-related devices that require modification for the year 2000. A project plan has been developed with goals and target dates. The Corporation's business areas are in various stages of completing this project plan. The Corporation has incurred expenses throughout 1997 related to this project and will continue to incur expenses over the next two years. These expenses are not expected to materially impact operating results in any one period, with a significant portion of these expenses represented by existing staff that has been redeployed to this project. Many of the Corporation's systems are vendor-supplied. All the vendors have been contacted and most have provided certification or a delivery commitment letter for compliance with Year 2000. Management presently believes with the planned modifications to existing systems, conversion to new systems, and vendor delivery of millenium-compliant systems, the year 2000 compliance issues will be resolved on a timely basis, and any related costs will not have a material impact on the operations, cash flows, or financial condition of future periods. 32 30 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 $11.8 million during 1997 to $93.6 million at year end. Cash provided by operating activities was $44.8 million in 1997, $35.2 million in 1996, and $39.3 million in 1995. Net income was the primary source of such cash during each year. Cash used in investing activities was $93.4 million in 1997, $249.5 million in 1996, and $103.0 million in 1995. The primary use of cash in investing activities was the net increase in the loan portfolio. Cash used for the net increase in loans was $111.3 million in 1997, $87.6 million in 1996, and $71.4 million in 1995. Cash of $6.7 million was used in 1997 to purchase branch offices and $11.6 million was used to acquire the related loans. During 1996, $10.9 million in cash was used to purchase branch offices and $30.8 million was invested to acquire the related loans. Security transactions are the other major source or use 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 $38.9 million of cash in 1997 and used $118.2 million and $27.7 million of cash in 1996 and 1995, respectively. Cash provided by financing activities was $60.4 million in 1997, $183.0 million in 1996, and $94.6 million in 1995. A major source of cash for financing activities is the net increase in deposits. Cash provided from the net increase in deposits was $42.3 million in 1997, $54.9 million in 1996 and $155.1 million in 1995. The purchase of deposits with the branch offices in 1997 and 1996 provided cash of $49.2 million and $97.9 million, respectively. Changes in short-term borrowings or long-term debt is a major source or use of cash for financing activities. The net increase in short-term borrowings provided cash of $16.5 million in 1997 and $13.1 million in 1996. The net decrease in short-term borrowings used cash of $44.7 million in 1995. Proceeds from long-term debt provided cash of $30.0 million in 1996 and $5.0 million in 1995. Cash was used to repay long-term debt of $31.5 million in 1997, $1.0 million in 1996, and $6.3 million in 1995. 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 $1,273 million or 59.7% of interest earning assets at year-end 1997. Liquidity is also enhanced by a significant amount of stable core deposits from a variety of customers in several Ohio markets served by the Corporation. An asset/liability committee monitors and forecasts rate-sensitive assets and liabilities and develops strategies and pricing policies to influence the acquisition of certain assets and liabilities. The purpose of these efforts is to guard the Corporation from adverse impacts of unforeseen swings in interest rates and to enhance the net income of the Corporation by accepting a limited amount of interest rate risk, based on interest rate projections. The following table shows interest sensitivity data for five different time intervals as of December 31, 1997: 33 31 TABLE 11 - INTEREST RATE SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------- 0-3 3-12 1-3 3-5 Over 5 (DOLLARS IN THOUSANDS) Months Months Years Years Years TOTAL - ---------------------------------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVE ASSETS: Investment securities (1) $ 31,607 $ 78,547 $146,826 $ 60,239 $223,511 $ 540,730 - ---------------------------------------------------------------------------------------------------------------------- Loans (1) 544,828 618,389 271,157 115,459 42,094 1,591,927 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EARNING ASSETS 576,435 696,936 417,983 175,698 265,605 2,132,657 - ---------------------------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES: Interest bearing checking (2) 31,022 -- 93,065 -- -- 124,087 - ---------------------------------------------------------------------------------------------------------------------- Savings accounts (2) 137,013 -- 137,012 -- -- 274,025 - ---------------------------------------------------------------------------------------------------------------------- Money market checking 242,854 -- -- -- -- 242,854 - ---------------------------------------------------------------------------------------------------------------------- Time deposits 201,715 449,682 255,841 44,000 3,326 954,564 - ---------------------------------------------------------------------------------------------------------------------- Other 1,567 -- -- -- -- 1,567 - ---------------------------------------------------------------------------------------------------------------------- Total deposits 614,171 449,682 485,918 44,000 3,326 1,597,097 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 149,824 1,800 -- -- -- 151,624 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt 731 1,080 20,984 2,398 5,675 30,868 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 764,726 452,562 506,902 46,398 9,001 1,779,589 - ---------------------------------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY GAP (188,291) 244,374 (88,919) 129,300 256,604 353,068 - ---------------------------------------------------------------------------------------------------------------------- CUMULATIVE RATE SENSITIVITY GAP (188,291) 56,083 (32,836) 96,464 353,068 - ---------------------------------------------------------------------------------------------------------------------- CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST EARNING ASSETS -8.83% 2.63% -1.54% 4.52% 16.56% - ----------------------------------------------------------------------------------------------------------------------
(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; 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 positive 2.63% to a negative 8.16%. For the first three months, there was a cumulative excess of rate-sensitive liabilities over rate-sensitive assets while in the next period (three to twelve months), the reverse was true. For the year, rate-sensitive assets are greater than rate-sensitive liabilities, by 2.63% of interest earning assets, which indicates that the Corporation's interest rate risk position is somewhat balanced. A positive one-year cumulative gap would suggest that the Corporation's net interest margin would modestly increase, if interest rates were to rise. The interest rate sensitivity gap analysis does provide a good overall picture of the Corporation's static interest rate risk position. The Corporation's current policy is that the one-year cumulative gap should not exceed fifteen percent of earning assets for three consecutive quarters. Trying to manage this gap within an acceptable percentage range of earning assets is a continual challenge in a changing interest rate environment and one of the objectives of the Corporation's Asset/Liability Committee. 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 34 32 may not prove to be correct. 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 can not 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 one-year horizon. 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. At December 31, 1996, the earnings simulation model projected that net income would increase by 2.8% using a rising interest rate scenario and decrease by 3.2% using a declining interest rate scenario over a one-year horizon. Management believes that at December 31, 1997 the balance sheet reflects a slight asset sensitive rate risk position for the one-year horizon. CAPITAL: The Corporation's primary means of maintaining capital adequacy is through net retained earnings. At December 31, 1997, the Corporation's equity capital was $222.1 million, an increase of 11.6% over the equity capital at December 31, 1996. Exclusive of the unrealized gain on available-for-sale securities, equity capital increased 10.7% in 1997 compared to 1996. Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. In 1990, the banking industry began to phase in new capital requirements based on "risk-based" assets. 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, 1997. At year-end 1997, the Corporation had a risk-based capital ratio of 14.72% or capital above the minimum required by $99.4 million. The capital standard of Tier 1 capital to risk-based assets is 4% at December 31, 1997. Tier 1 capital includes stockholders' equity net of goodwill and any other intangible assets. At year-end 1997, the Corporation had a Tier 1 capital to risk-based assets ratio of 13.46% or capital above the minimum required by $139.8 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 1997, the Corporation had a leverage capital ratio of 8.91% or capital above the minimum required by $109.7 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." 35 33 The financial institution subsidiaries of the Corporation each met the well capitalized capital ratio guidelines at December 31, 1997. The table below indicates the capital ratios for each subsidiary and the Corporation at December 31, 1997: TABLE 12 - CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------------------- TIER 1 TOTAL DECEMBER 31, 1997 LEVERAGE RISK-BASED RISK-BASED - ------------------------------------------------------------------------------------------------------------------- Park National Bank 6.17% 8.55% 11.22% - ------------------------------------------------------------------------------------------------------------------- Richland Trust Company 5.97% 10.43% 11.69% - ------------------------------------------------------------------------------------------------------------------- Century National Bank 5.93% 10.03% 11.30% - ------------------------------------------------------------------------------------------------------------------- First-Knox National Bank 6.67% 9.63% 11.49% - ------------------------------------------------------------------------------------------------------------------- Park National Corporation 8.91% 13.46% 14.72% - ------------------------------------------------------------------------------------------------------------------- Minimum Capital Ratio 4.00% 4.00% 8.00% - ------------------------------------------------------------------------------------------------------------------- Well Capitalized Ratio 5.00% 6.00% 10.00% - -------------------------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS December 31, 1997 [GRAPHIC] Park Well Capitalized Regulatory Minimum AVERAGE STOCKHOLDERS' EQUITY (millions) 1997 $207.0 1996 $187.8 1995 $168.4 1994 $150.6 1993 $134.6
EFFECTS OF INFLATION: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth. Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is the Corporation's ability to align its asset/liability management program to react to changes in interest rates. 36 34 The following table summarizes five-year financial information: TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS, 1997 1996 1995 1994 1993 EXCEPT PER SHARE DATA) - ---------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Interest income $ 180,511 $ 163,193 $ 150,288 $ 127,411 $ 121,676 - ---------------------------------------------------------------------------------------------------------------------- Interest expense 77,033 69,155 64,347 48,791 46,520 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 103,478 94,038 85,941 78,620 75,156 - ---------------------------------------------------------------------------------------------------------------------- Noninterest income 20,479 16,660 16,049 11,783 13,375 - ---------------------------------------------------------------------------------------------------------------------- Noninterest expense 62,408 59,112 56,501 52,512 52,959 - ---------------------------------------------------------------------------------------------------------------------- Provision for losses 6,999 5,294 5,248 2,478 3,934 - ---------------------------------------------------------------------------------------------------------------------- Income before extraordinary item and cumulative effect of a change in accounting principle 37,693 31,700 27,829 25,181 22,211 - ---------------------------------------------------------------------------------------------------------------------- Net income 37,693 31,700 27,829 25,181 23,711 - ---------------------------------------------------------------------------------------------------------------------- PER SHARE: Income before extraordinary item and cumulative effect of a change in accounting principle - basic $4.02 $3.39 $2.96 $2.68 $2.42 - ---------------------------------------------------------------------------------------------------------------------- Income before extraordinary item and cumulative effect of a change in accounting principle - diluted 4.00 3.38 2.95 2.67 2.39 - ---------------------------------------------------------------------------------------------------------------------- Net income - basic 4.02 3.39 2.96 2.68 2.58 - ---------------------------------------------------------------------------------------------------------------------- Net income - diluted 4.00 3.38 2.95 2.67 2.55 - ---------------------------------------------------------------------------------------------------------------------- Cash dividends declared 1.68 1.45 1.25 0.98 1.05 - ---------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES: Loans $1,527,694 $1,379,973 $1,318,275 $1,221,333 $1,112,873 - ---------------------------------------------------------------------------------------------------------------------- Investment securities 548,320 472,107 421,089 429,572 434,963 - ---------------------------------------------------------------------------------------------------------------------- Money market instruments and other 8,132 39,573 17,325 8,612 18,473 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EARNING ASSETS 2,084,146 1,891,653 1,756,689 1,659,517 1,566,309 - ---------------------------------------------------------------------------------------------------------------------- Noninterest bearing deposits 228,598 207,262 196,406 186,508 169,498 - ---------------------------------------------------------------------------------------------------------------------- Interest bearing deposits 1,550,865 1,420,919 1,317,325 1,264,862 1,229,858 - ---------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,779,463 1,628,181 1,513,731 1,451,370 1,399,356 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 162,626 126,721 139,035 130,831 110,973 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt 46,652 46,497 33,413 27,246 4,773 - ---------------------------------------------------------------------------------------------------------------------- Stockholders' equity 206,999 187,755 168,432 150,640 134,642 - ---------------------------------------------------------------------------------------------------------------------- Total assets 2,219,582 2,011,795 1,872,999 1,772,848 1,662,533 - ---------------------------------------------------------------------------------------------------------------------- RATIOS: Return on average assets 1.70% 1.58% 1.49% 1.42% 1.43% - ---------------------------------------------------------------------------------------------------------------------- Return on average equity 18.21% 16.88% 16.52% 16.72% 17.61% - ---------------------------------------------------------------------------------------------------------------------- Net interest margin (1) 5.07% 5.09% 5.02% 4.88% 4.94% - ---------------------------------------------------------------------------------------------------------------------- Noninterest expense to net revenue (1) 49.51% 52.34% 54.24% 56.59% 58.38% - ---------------------------------------------------------------------------------------------------------------------- Dividend payout ratio 41.93% 40.66% 38.45% 33.95% 36.87% - ---------------------------------------------------------------------------------------------------------------------- Average stockholders' equity to average total assets 9.33% 9.33% 8.99% 8.50% 8.10% - ---------------------------------------------------------------------------------------------------------------------- Leveraged capital 8.91% 8.73% 9.06% 8.62% 8.14% - ---------------------------------------------------------------------------------------------------------------------- Tier 1 capital 13.46% 13.16% 14.06% 13.37% 13.47% - ---------------------------------------------------------------------------------------------------------------------- Risk-based capital 14.72% 14.42% 15.30% 14.61% 14.70% - ----------------------------------------------------------------------------------------------------------------------
(1) Computed on a fully taxable equivalent basis 37 35 The following table is a summary of selected quarterly results of operations for the years ended December 31, 1997 and 1996. Certain quarterly amounts have been reclassified to conform to the year-end financial statement presentation. TABLE 14 - QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS, THREE MONTHS ENDED EXCEPT PER SHARE DATA) -------------------------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 - ------------------------------------------------------------------------------------------------------------------------ 1997: Interest income $43,461 $45,214 $45,731 $46,105 - ------------------------------------------------------------------------------------------------------------------------ Interest expense 18,777 19,466 19,451 19,339 - ------------------------------------------------------------------------------------------------------------------------ Net interest income 24,684 25,748 26,280 26,766 - ------------------------------------------------------------------------------------------------------------------------ Provision for loan losses 1,194 1,454 1,521 2,830 - ------------------------------------------------------------------------------------------------------------------------ Loss on the sale of securities -- -- (7) -- - ------------------------------------------------------------------------------------------------------------------------ Income before income taxes 13,016 13,849 15,040 12,645 - ------------------------------------------------------------------------------------------------------------------------ Net income 8,989 9,552 10,384 8,768 - ------------------------------------------------------------------------------------------------------------------------ Per share data: Net income - basic 0.96 1.02 1.11 0.93 - ------------------------------------------------------------------------------------------------------------------------ Net income - diluted 0.96 1.01 1.10 0.93 - ------------------------------------------------------------------------------------------------------------------------ Weighted-average common stock outstanding - basic 9,343,358 9,402,886 9,410,162 9,386,903 - ------------------------------------------------------------------------------------------------------------------------ Weighted-average common stock equivalent - diluted 9,390,650 9,420,240 9,448,032 9,436,164 - ------------------------------------------------------------------------------------------------------------------------ 1996: Interest income $39,511 $39,640 $41,074 $42,968 - ------------------------------------------------------------------------------------------------------------------------ Interest expense 16,933 16,629 17,483 18,110 - ------------------------------------------------------------------------------------------------------------------------ Net interest income 22,578 23,011 23,591 24,858 - ------------------------------------------------------------------------------------------------------------------------ Provision for loan losses 1,086 1,256 1,216 1,736 - ------------------------------------------------------------------------------------------------------------------------ Loss on the sale of securities (300) (400) (168) (456) - ------------------------------------------------------------------------------------------------------------------------ Income before income taxes 10,930 12,174 12,971 10,217 - ------------------------------------------------------------------------------------------------------------------------ Net income 7,589 8,423 8,947 6,741 - ------------------------------------------------------------------------------------------------------------------------ Per share data: Net income - basic 0.81 0.90 0.96 0.72 - ------------------------------------------------------------------------------------------------------------------------ Net income - diluted 0.81 0.90 0.95 0.72 - ------------------------------------------------------------------------------------------------------------------------ Weighted-average common stock outstanding - basic 9,346,853 9,354,309 9,353,594 9,352,853 - ------------------------------------------------------------------------------------------------------------------------ Weighted-average common stock equivalent - diluted 9,380,518 9,385,471 9,393,742 9,386,219 - ------------------------------------------------------------------------------------------------------------------------
38 36 The Corporation's common stock (symbol:PRK) is traded on the American Stock Exchange (AMEX). At December 31, 1997, the Corporation had 2,691 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, 1997 and 1996, as reported by AMEX. TABLE 15 - MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------------------------------------------- CASH DIVIDEND LAST DECLARED HIGH LOW PRICE PER SHARE - --------------------------------------------------------------------------------------------------------------------- 1997: First Quarter $54 5/8 $51 1/8 $54 5/8 $0.40 - --------------------------------------------------------------------------------------------------------------------- Second Quarter 79 3/4 54 1/8 79 3/4 0.40 - --------------------------------------------------------------------------------------------------------------------- Third Quarter 80 7/8 66 5/8 80 7/8 0.40 - --------------------------------------------------------------------------------------------------------------------- Fourth Quarter 98 80 88 1/8 0.48 - --------------------------------------------------------------------------------------------------------------------- 1996: First Quarter $50 1/4 $47 3/8 $48 3/8 $0.35 - --------------------------------------------------------------------------------------------------------------------- Second Quarter 49 1/2 46 3/8 49 1/2 0.35 - --------------------------------------------------------------------------------------------------------------------- Third Quarter 49 5/8 47 7/8 48 1/4 0.35 - --------------------------------------------------------------------------------------------------------------------- Fourth Quarter 53 48 53 0.40 - ---------------------------------------------------------------------------------------------------------------------
TEN-YEAR RETURN (December 31, 1987 - December 31, 1997) [GRAPHIC] 87 $ 1,000 88 89 90 91 92 93 94 95 96 97 $11,687
Assumes initial investment of $1,000 with reinvestment of dividends in the common stock of Park. 39 37 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 1997, including financial statements and inserts, may be obtained by contacting the Secretary as indicated above. INTERNET ADDRESS: http://www.parknationalbank.com/corp.htm E-MAIL: main@parknationalbank.com 40 38 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, 1997 and 1996, 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, 1997. 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. The consolidated financial statements give retroactive effect to the merger of Park National Corporation and First-Knox Banc Corp. (First-Knox), which has been accounted for using the pooling of interests accounting method as described in Note 2 to the consolidated financial statements. We did not audit the 1996 and 1995 financial statements of First-Knox, which statements reflect total assets constituting 26% for 1996 and net income constituting 19% for 1996 and 21% for 1995 of the related consolidated financial statement totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts for First-Knox, is based solely on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, and for 1996 and 1995, the report of other auditors, 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Columbus, Ohio January 20, 1998 41 39 CONSOLIDATED BALANCE SHEETS PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31, 1997 and 1996 (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------- ASSETS 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 93,585 $ 81,765 - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES: Securities available-for-sale, at fair value (amortized cost of $522,179 and $556,436 at December 31, 1997 and 1996, respectively) 532,922 563,613 - ----------------------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $8,156 and $11,217 at December 31, 1997 and 1996, respectively) 7,808 10,780 - ----------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 540,730 574,393 - ----------------------------------------------------------------------------------------------------------------------- Loans 1,603,648 1,483,387 - ----------------------------------------------------------------------------------------------------------------------- Unearned loan interest (11,721) (11,363) - ----------------------------------------------------------------------------------------------------------------------- TOTAL LOANS 1,591,927 1,472,024 - ----------------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses (35,595) (32,347) - ----------------------------------------------------------------------------------------------------------------------- LOANS, NET 1,556,332 1,439,677 - ----------------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Premises and equipment, net 27,805 27,548 - ----------------------------------------------------------------------------------------------------------------------- Accrued interest receivable 13,923 12,790 - ----------------------------------------------------------------------------------------------------------------------- Other 56,008 48,797 - ----------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 97,736 89,135 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,288,383 $2,184,970 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 42 40 CONSOLIDATED BALANCE SHEETS (continued) PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31, 1997 and 1996 (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- DEPOSITS: Noninterest bearing $ 257,867 $ 225,424 - ----------------------------------------------------------------------------------------------------------------------- Interest bearing 1,597,097 1,537,994 - ----------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,854,964 1,763,418 - ----------------------------------------------------------------------------------------------------------------------- BORROWINGS: Short-term borrowings 151,624 135,111 - ----------------------------------------------------------------------------------------------------------------------- Long-term debt 30,868 62,375 - ----------------------------------------------------------------------------------------------------------------------- OTHER LIABILITIES: Accrued interest payable 6,548 6,620 - ----------------------------------------------------------------------------------------------------------------------- Other 22,262 18,485 - ----------------------------------------------------------------------------------------------------------------------- TOTAL OTHER LIABILITIES 28,810 25,105 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,066,266 1,986,009 - ----------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock, no par value (20,000,000 shares authorized; 9,551,203 shares issued in 1997 and 9,443,864 issued in 1996) 68,275 64,611 - ----------------------------------------------------------------------------------------------------------------------- Unrealized holding gain on available-for-sale securities, net 7,019 4,687 - ----------------------------------------------------------------------------------------------------------------------- Retained earnings 154,535 132,648 - ----------------------------------------------------------------------------------------------------------------------- Less: Treasury stock (158,864 shares in 1997 and 89,426 shares in 1996) (7,712) (2,985) - ----------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 222,117 198,961 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,288,383 $2,184,970 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 43 41 CONSOLIDATED STATEMENTS OF INCOME for the years ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $142,722 $129,384 $121,726 - ---------------------------------------------------------------------------------------------------------------------- Interest and dividends on: Obligations of U.S. Government, its agencies and other securities 33,229 28,125 24,119 - ---------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 4,099 3,500 3,434 - ---------------------------------------------------------------------------------------------------------------------- Other interest income 461 2,184 1,009 - ---------------------------------------------------------------------------------------------------------------------- Total interest income 180,511 163,193 150,288 - ---------------------------------------------------------------------------------------------------------------------- Interest expense: Interest on deposits: Demand and savings deposits 16,790 16,049 16,838 - ---------------------------------------------------------------------------------------------------------------------- Time deposits 49,659 44,612 38,385 - ---------------------------------------------------------------------------------------------------------------------- Interest on short-term borrowings 7,738 5,694 7,173 - ---------------------------------------------------------------------------------------------------------------------- Interest on long-term debt 2,846 2,800 1,951 - ---------------------------------------------------------------------------------------------------------------------- Total interest expense 77,033 69,155 64,347 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 103,478 94,038 85,941 - ---------------------------------------------------------------------------------------------------------------------- Provision for loan losses 6,999 5,294 5,248 - ---------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 96,479 88,744 80,693 - ---------------------------------------------------------------------------------------------------------------------- Other income: Income from fiduciary activities 5,192 4,099 3,583 - ---------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts 6,308 5,849 5,388 - ---------------------------------------------------------------------------------------------------------------------- Loss on sales of securities (7) (1,324) (634) - ---------------------------------------------------------------------------------------------------------------------- Other service income 3,376 3,236 2,805 - ---------------------------------------------------------------------------------------------------------------------- Other 5,610 4,800 4,907 - ---------------------------------------------------------------------------------------------------------------------- Total other income $ 20,479 $ 16,660 $ 16,049 - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 44 42 CONSOLIDATED STATEMENTS OF INCOME for the years ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- OTHER EXPENSE: Salaries and employee benefits $31,888 $28,966 $27,476 - ---------------------------------------------------------------------------------------------------------------------- Data processing fees 5,306 5,183 4,836 - ---------------------------------------------------------------------------------------------------------------------- Fees and service charges 3,732 4,874 3,272 - ---------------------------------------------------------------------------------------------------------------------- Net occupancy expense of bank premises 3,339 3,063 2,933 - ---------------------------------------------------------------------------------------------------------------------- Amortization of intangibles 2,019 635 603 - ---------------------------------------------------------------------------------------------------------------------- Furniture and equipment expense 3,680 3,589 3,256 - ---------------------------------------------------------------------------------------------------------------------- Insurance 774 1,785 2,325 - ---------------------------------------------------------------------------------------------------------------------- Marketing 2,182 1,925 1,796 - ---------------------------------------------------------------------------------------------------------------------- Postage and telephone 2,747 2,539 2,446 - ---------------------------------------------------------------------------------------------------------------------- State taxes 1,957 2,022 2,027 - ---------------------------------------------------------------------------------------------------------------------- Other 4,784 4,531 5,531 - ---------------------------------------------------------------------------------------------------------------------- TOTAL OTHER EXPENSE 62,408 59,112 56,501 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 54,550 46,292 40,241 - ---------------------------------------------------------------------------------------------------------------------- Federal income taxes 16,857 14,592 12,412 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $37,693 $31,700 $27,829 - ---------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: BASIC $4.02 $3.39 $2.96 - ---------------------------------------------------------------------------------------------------------------------- DILUTED $4.00 $3.38 $2.95 - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 45 43 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the years ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------------- UNREALIZED HOLDING GAIN/(LOSS) ON COMMON STOCK AVAILABLE- TREASURY STOCK --------------------- FOR-SALE ------------------------ SHARES RETAINED SECURITIES, ISSUED AMOUNT EARNINGS NET SHARES AMOUNT TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1995 9,373,236 $ 56,336 $ 106,260 $ (7,350) 32,960 $ (255) $ 154,991 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased -- -- -- -- 112,977 (4,675) (4,675) - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock reissued primarily for stock options exercised -- -- -- -- (5,345) 212 212 - ----------------------------------------------------------------------------------------------------------------------------------- Shares issued for dividend reinvestment plan and stock options 8,116 239 -- -- -- -- 239 - ----------------------------------------------------------------------------------------------------------------------------------- Net income -- -- 27,829 -- -- -- 27,829 - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends: Corporation at $1.25 per share -- -- (8,950) -- -- -- (8,950) - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends declared First-Knox, prior to merger -- -- (1,751) -- -- -- (1,751) - ----------------------------------------------------------------------------------------------------------------------------------- Two-for-one stock split in the form of a 100% stock dividend at First-Knox, prior to merger -- 5,693 (5,693) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Unrealized net holding gain on available-for-sale securities -- -- -- 15,188 -- -- 15,188 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 9,381,352 62,268 117,695 7,838 140,592 (4,718) 183,083 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased -- -- -- -- 13,000 (640) (640) - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock reissued primarily for stock options exercised -- 38 (15,628) 650 688 - ----------------------------------------------------------------------------------------------------------------------------------- Shares issued for dividend reinvestment plan and stock options 5,540 171 -- -- -- -- 171 - ----------------------------------------------------------------------------------------------------------------------------------- Net income -- -- 31,700 -- -- -- 31,700 - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends: Corporation at $1.45 per share -- -- (10,354) -- -- -- (10,354) - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends declared First-Knox, prior to merger -- -- (2,536) -- -- -- (2,536) - ----------------------------------------------------------------------------------------------------------------------------------- 5% stock dividend at First-Knox, prior to merger 56,972 2,134 (3,857) -- (48,538) 1,723 -- - ----------------------------------------------------------------------------------------------------------------------------------- Unrealized net holding loss on available-for-sale securities -- -- -- (3,151) -- -- (3,151) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 9,443,864 64,611 132,648 4,687 89,426 (2,985) 198,961 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased -- -- -- -- 96,721 (6,249) (6,249) - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock reissued primarily for stock options exercised -- -- -- -- (27,283) 1,522 1,522 - ----------------------------------------------------------------------------------------------------------------------------------- Shares issued for dividend reinvestment plan and stock options 107,939 2,325 -- -- -- -- 2,325 - ----------------------------------------------------------------------------------------------------------------------------------- Cash payment for fractional shares in merger (600) (40) -- -- -- -- (40) - ----------------------------------------------------------------------------------------------------------------------------------- Tax benefit from exercise of stock options -- 1,379 -- -- -- -- 1,379 - ----------------------------------------------------------------------------------------------------------------------------------- Net income -- -- 37,693 -- -- -- 37,693 - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends: Corporation at $1.68 per share -- -- (14,905) -- -- -- (14,905) - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends declared First-Knox, prior to merger -- -- (901) -- -- -- (901) - ----------------------------------------------------------------------------------------------------------------------------------- Unrealized net holding gain on available-for-sale securities -- -- -- 2,332 -- -- 2,332 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 9,551,203 $ 68,275 $ 154,535 $ 7,019 158,864 $ (7,712) $ 222,117 - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 46 44 CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 37,693 $ 31,700 $ 27,829 - ----------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,999 5,294 5,248 - ----------------------------------------------------------------------------------------------------------------------- Amortization of loan costs and fees, net (788) (475) (161) - ----------------------------------------------------------------------------------------------------------------------- Provision for depreciation and amortization 3,273 3,005 2,929 - ----------------------------------------------------------------------------------------------------------------------- Market loss on loans held-for-sale -- 59 -- - ----------------------------------------------------------------------------------------------------------------------- Amortization of the excess of cost over net assets of banks purchased 2,019 380 363 - ----------------------------------------------------------------------------------------------------------------------- Accretion of investment security discounts, net (1,726) (1,658) (1,083) - ----------------------------------------------------------------------------------------------------------------------- Deferred income taxes (378) (213) (770) - ----------------------------------------------------------------------------------------------------------------------- Realized investment security losses 7 1,324 634 - ----------------------------------------------------------------------------------------------------------------------- Loan sale gain -- -- (27) - ----------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: Increase in other assets (5,264) (4,521) (742) - ----------------------------------------------------------------------------------------------------------------------- Increase in other liabilities 2,949 223 5,121 - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 44,784 35,118 39,341 - ----------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of securities: Available-for-sale 45,083 85,717 48,923 - ----------------------------------------------------------------------------------------------------------------------- Proceeds from maturities of securities: Held-to-maturity 2,973 2,110 6,032 - ----------------------------------------------------------------------------------------------------------------------- Available-for-sale 141,765 86,150 53,363 - ----------------------------------------------------------------------------------------------------------------------- Purchases of securities: Held-to-maturity -- (1,575) (2,265) - ----------------------------------------------------------------------------------------------------------------------- Available-for-sale (150,873) (290,580) (133,789) - ----------------------------------------------------------------------------------------------------------------------- Net increase in loans (111,284) (87,612) (71,356) - ----------------------------------------------------------------------------------------------------------------------- Purchase of loans (11,582) (30,755) -- - ----------------------------------------------------------------------------------------------------------------------- Cash paid for branches (6,748) (10,857) -- - ----------------------------------------------------------------------------------------------------------------------- Purchases of premises and equipment, net (2,740) (2,072) (3,881) - ----------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (93,406) (249,474) (102,973) - ----------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Purchase of deposits 49,192 97,928 -- - ----------------------------------------------------------------------------------------------------------------------- Net increase in deposits 42,354 54,883 155,121 - ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in short-term borrowings 16,513 13,133 (44,740) - ----------------------------------------------------------------------------------------------------------------------- Issuance of common stock -- 337 247 - ----------------------------------------------------------------------------------------------------------------------- Exercise of stock options 3,664 -- -- - ----------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (4,727) (118) (4,471) - ----------------------------------------------------------------------------------------------------------------------- Proceeds from long-term debt -- 30,000 5,000 - ----------------------------------------------------------------------------------------------------------------------- Repayment of long-term debt (31,507) (1,040) (6,305) - ----------------------------------------------------------------------------------------------------------------------- Cash dividends paid (15,047) (12,166) (10,282) - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 60,442 182,957 94,570 - ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,820 (31,399) 30,938 - ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 81,765 113,164 82,226 - ----------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 93,585 $ 81,765 $ 113,164 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 47 45 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 (Richland), Century National Bank (Century), and The First-Knox National Bank of Mount Vernon (FKNB), the Corporation is engaged in a general commercial banking and trust business, primarily in Central Ohio. PNB operates through two banking divisions with the Park National Division headquartered in Newark, Ohio and the Fairfield National Division headquartered in Lancaster, Ohio. FKNB 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. 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. 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 reported as a separate component of stockholders' equity, net of applicable taxes. At December 31, 1997 and 1996, 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. 48 46 PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful lives of the improvements, whichever are the shorter periods. Upon the sale or other disposal of the assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred while renewals and improvements are capitalized. OTHER REAL ESTATE OWNED Other real estate owned is recorded at the lower of cost or fair market value (which is not in excess of estimated net realizable value) and consists of property acquired through foreclosure, loans in judgment and subject to redemption, and real estate held for sale. Subsequent to acquisition, allowances for losses are established if carrying values exceed fair value less estimated costs to sell. Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), whereas costs relating to holding the properties are charged to expense. INCOME RECOGNITION Income earned by the Corporation and its subsidiaries is recognized principally on the accrual basis of accounting. Loan origination fees are amortized over the life of the loans using the interest method on a loan by loan basis, and origination costs are deferred and amortized if material. Certain fees, principally service, are recognized as income when billed or collected. The Corporation's subsidiaries suspend the accrual of interest when, in management's opinion, the collection of all or a portion of interest has become doubtful. Generally, when a loan is placed on non-accrual, the Corporation's subsidiaries charge all previously accrued and unpaid interest against income. In future periods, interest will be included in income to the extent received only if complete principal recovery is reasonably assured. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is that amount believed adequate to absorb estimated credit losses in the loan portfolio based on management's evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current and anticipated economic conditions. A provision for loan losses is charged to operations based on management's periodic evaluation of these and other pertinent factors. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." These standards require an allowance to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loan will not be collected, and the recorded investment in the loan exceeds the fair value. Fair value is measured using either the present value of expected future cash flows based upon the initial effective interest rate on the loan, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. The adoption of these standards did not have a material impact on the overall allowance for loan losses and did not affect the Corporation's charge-off or income recognition policies. 49 47 LEASE FINANCING Leases of equipment, automobiles, and aircraft to customers generally are direct leases in which the Corporation's subsidiaries have acquired the equipment, automobiles, or aircraft with no outside financing. Such leases are accounted for as direct financing leases for financial reporting purposes. Under the direct financing method, a receivable is recorded for the total amount of the lease payments to be received. Unearned lease income, representing the excess of the sum of the aggregate rentals of the equipment, automobiles or aircraft over its cost is included in income over the term of the lease under the interest method. EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED The excess of cost over net assets of the banks purchased is being amortized, principally on the straight-line method, over periods ranging from seven to fifteen years. CONSOLIDATED STATEMENT OF CASH FLOWS Cash and cash equivalents include cash and cash items, amounts due from banks and federal funds sold. Generally federal funds are purchased and sold for one day periods. Net cash provided by operating activities reflects cash payments as follows:
- --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Interest paid on deposits and other borrowings $77,105 $68,541 $62,238 - --------------------------------------------------------------------------------------------------------------------- Income taxes paid 14,104 15,808 10,177 - ---------------------------------------------------------------------------------------------------------------------
INCOME TAXES The Corporation accounts for income taxes using the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ACCOUNTING CHANGES In 1997, SFAS No. 128, "Earnings per Share" replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to SFAS No. 128 requirements. 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. Separate results of operations for Park and First-Knox are as follows: 50 48
- -------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED Twelve Months Ended (IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 December 31 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME: Park $19,077 $72,271 $66,352 - -------------------------------------------------------------------------------------------------------------------- First-Knox 5,607 21,767 19,589 - -------------------------------------------------------------------------------------------------------------------- COMBINED $24,684 $94,038 $85,941 - -------------------------------------------------------------------------------------------------------------------- NET INCOME: Park $7,296 $25,664 $22,120 - -------------------------------------------------------------------------------------------------------------------- First-Knox 1,693 6,036 5,709 - -------------------------------------------------------------------------------------------------------------------- COMBINED $8,989 $31,700 $27,829 - -------------------------------------------------------------------------------------------------------------------- BASIC NET INCOME PER SHARE: Park $1.02 $3.60 $3.09 - -------------------------------------------------------------------------------------------------------------------- First-Knox 0.45 1.61 1.51 - -------------------------------------------------------------------------------------------------------------------- COMBINED $0.96 $3.39 $2.96 - -------------------------------------------------------------------------------------------------------------------- DILUTED NET INCOME PER SHARE: Park $1.02 $3.60 $3.09 - -------------------------------------------------------------------------------------------------------------------- First-Knox 0.44 1.59 1.50 - -------------------------------------------------------------------------------------------------------------------- COMBINED $0.96 $3.38 $2.95 - --------------------------------------------------------------------------------------------------------------------
On December 8, 1997, Fairfield National Division acquired three branch offices in Lancaster, Ohio from KeyBank National Association. In addition to the fixed assets, the purchase included $49 million of deposits and $12 million of loans. The excess of the cost over net assets purchased was $6 million and is being amortized using the straight-line method over seven years. On December 6, 1996, Richland Trust Company acquired five branch offices in Richland County from Peoples National Bank. In addition to the fixed assets, the purchase included $98 million of deposits and $31 million of loans. The banking business of the five branches was consolidated into Richland Trust Company's operations. The excess of the cost over net assets purchased was $10 million and is being amortized using the straight-line method over seven years. Proforma information for the branch acquisitions has not been provided as the impact on the consolidated financial statements of the Corporation is not material. 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 $19,493,000 and $19,224,000 at December 31, 1997 and 1996, respectively. No other compensating balance arrangements were in existence at year end. 51 49 4. INVESTMENT SECURITIES The amortized cost and estimated fair values of investment securities at December 31 are as follows:
- ---------------------------------------------------------------------------------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED (IN THOUSANDS) AMORTIZED HOLDING HOLDING ESTIMATED COST GAINS LOSSES FAIR VALUE - ---------------------------------------------------------------------------------------------------------------------- 1997: SECURITIES AVAILABLE-FOR-SALE: Obligations of U.S. Treasury and other U.S. Government agencies $ 155,780 $ 3,468 $ -- $159,248 - ---------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 76,803 3,192 62 79,933 - ---------------------------------------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities and other asset-backed securities 270,708 3,628 102 274,234 - ---------------------------------------------------------------------------------------------------------------------- Other equity securities 18,888 619 -- 19,507 - ---------------------------------------------------------------------------------------------------------------------- TOTAL SECURITIES AVAILABLE-FOR-SALE $522,179 $10,907 $164 $532,922 - ---------------------------------------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY: Obligations of states and political subdivisions $ 7,434 $ 349 $ 5 $ 7,778 - ---------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 374 4 -- 378 - ---------------------------------------------------------------------------------------------------------------------- TOTAL SECURITIES HELD-TO-MATURITY $ 7,808 $ 353 $ 5 $ 8,156 - ---------------------------------------------------------------------------------------------------------------------- 1996: SECURITIES AVAILABLE-FOR-SALE: Obligations of U.S. Treasury and other U.S. Government agencies $ 218,201 $ 3,969 $ 136 $ 222,034 - ---------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 56,493 1,337 257 57,573 - ---------------------------------------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities and other asset-backed securities 267,406 2,371 442 269,335 - ---------------------------------------------------------------------------------------------------------------------- Other equity securities 14,336 335 -- 14,671 - ---------------------------------------------------------------------------------------------------------------------- Total Securities Available-for-Sale $ 556,436 $ 8,012 $ 835 $ 563,613 - ---------------------------------------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY: Obligations of states and political subdivisions $ 9,784 $ 453 $ 8 $ 10,229 - ---------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 668 3 11 660 - ---------------------------------------------------------------------------------------------------------------------- Other securities 328 -- -- 328 - ---------------------------------------------------------------------------------------------------------------------- Total Securities Held-to-Maturity $ 10,780 $ 456 $ 19 $ 11,217 - ----------------------------------------------------------------------------------------------------------------------
52 50 The amortized cost and estimated fair value of investments in debt securities at December 31, 1997 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:
- --------------------------------------------------------------------------------------------------- WEIGHTED AMORTIZED ESTIMATED AVERAGE AVERAGE (DOLLARS IN THOUSANDS) COST FAIR VALUE MATURITY YIELD - --------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE: U.S. Treasury and agencies' notes: Due within one year $ 43,829 $ 44,201 0.5 years 7.33% - --------------------------------------------------------------------------------------------------- Due one through five years 111,951 115,047 2.0 years 7.43% - --------------------------------------------------------------------------------------------------- Total $155,780 $159,248 1.6 years 7.40% - --------------------------------------------------------------------------------------------------- Obligations of state and political subdivisions: Due within one year $ 4,861 $ 4,926 0.5 years 9.75% - --------------------------------------------------------------------------------------------------- Due one through five years 17,206 17,798 3.3 years 7.87% - --------------------------------------------------------------------------------------------------- Due five through ten years 29,677 30,943 7.6 years 7.47% - --------------------------------------------------------------------------------------------------- Due over ten years 25,059 26,266 11.2 years 7.57% - --------------------------------------------------------------------------------------------------- Total $ 76,803 $ 79,933 7.4 years 7.74% - --------------------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities and other asset-backed securities: Due within one year $ 23,940 $ 23,995 0.5 years 6.17% - --------------------------------------------------------------------------------------------------- Due one through five years 134,156 136,161 3.3 years 7.03% - --------------------------------------------------------------------------------------------------- Due five through ten years 112,612 114,078 5.5 years 6.96% - --------------------------------------------------------------------------------------------------- Total $270,708 $274,234 4.0 years 6.92% - --------------------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY: Obligations of state and political subdivisions: Due within one year $ 1,685 $ 1,694 0.5 years 8.29% - --------------------------------------------------------------------------------------------------- Due one through five years 4,477 4,812 3.0 years 10.08% - --------------------------------------------------------------------------------------------------- Due five through ten years 852 852 7.5 years 8.03% - --------------------------------------------------------------------------------------------------- Due over ten years 420 420 11.9 years 7.63% - --------------------------------------------------------------------------------------------------- Total $ 7,434 $ 7,778 3.5 years 9.30% - --------------------------------------------------------------------------------------------------- Other asset-backed securities: Due one through five years $ 61 $ 65 4.2 years 8.73% - --------------------------------------------------------------------------------------------------- Due over ten years 313 313 14.1 years 7.63% - --------------------------------------------------------------------------------------------------- Total $ 374 $ 378 12.5 years 6.50% - ---------------------------------------------------------------------------------------------------
Investment securities having a book value of $378,469,000 and $363,054,000 at December 31, 1997 and 1996, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements and to secure repurchase agreements sold. 53 51 In 1997, 1996, and 1995, gross gains of $64,000, $234,000, and $73,000 and gross losses of $71,000, $1,558,000, and $707,000 were realized, respectively. Tax benefits related to net securities losses were $2,000 in 1997, $463,000 in 1996, and $222,000 in 1995. 5. LOANS The composition of the loan portfolio is as follows:
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 212,970 $ 224,912 - ---------------------------------------------------------------------------------------------------------------------- Real estate - construction 65,548 70,359 - ---------------------------------------------------------------------------------------------------------------------- Real estate - residential 708,768 617,018 - ---------------------------------------------------------------------------------------------------------------------- Real estate - commercial 256,074 215,372 - ---------------------------------------------------------------------------------------------------------------------- Consumer, net 313,517 320,831 - ---------------------------------------------------------------------------------------------------------------------- Leases, net 35,050 23,532 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $ 1,591,927 $ 1,472,024 - ----------------------------------------------------------------------------------------------------------------------
The financial review section provides detail regarding nonperforming loans. Under the Corporation's credit policies and practices, all nonaccrual and restructured commercial, financial, agricultural, construction and commercial real estate loans meet the definition of impaired loans under SFAS No. 114 and 118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer loans, residential real estate loans and lease financing classified as nonaccrual. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. Nonaccrual and restructured loans are summarized as follows:
- -------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Impaired loans: Nonaccrual $ 1,070 $ 1,042 - -------------------------------------------------------------------------------------------------------------------- Restructured 1,642 2,348 - -------------------------------------------------------------------------------------------------------------------- Total impaired loans 2,712 3,390 - -------------------------------------------------------------------------------------------------------------------- Other nonaccrual loans 990 1,259 - -------------------------------------------------------------------------------------------------------------------- TOTAL NONACCRUAL AND RESTRUCTURED LOANS $ 3,702 $ 4,649 - --------------------------------------------------------------------------------------------------------------------
The allowance for credit losses related to impaired loans at December 31, 1997 and 1996 was $406,000 and $403,000, respectively. All impaired loans for both periods were subject to a related allowance for credit losses. The average balance of impaired loans was $3,599,000 for 1997 and $3,663,000 for 1996. 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, 1997 and 1996, the Corporation recognized $283,000 and $353,000, respectively, of interest income on impaired loans, which included $290,000 and $344,000, respectively, of interest income recognized using the cash basis method of income recognition. 54 52 Certain of the Corporation's executive officers, directors and their affiliates are loan customers of the Corporation's banking subsidiaries. As of December 31, 1997 and 1996, loans aggregating approximately $43,555,000 and $39,806,000, respectively, were outstanding to such parties. 6. ALLOWANCE FOR POSSIBLE LOAN LOSSES Activity in the allowance for possible loan losses is summarized as follows:
- --------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Balance, January 1 $32,347 $29,239 $25,438 - --------------------------------------------------------------------------------------------------------------------- Provision for loan losses 6,999 5,294 5,248 - --------------------------------------------------------------------------------------------------------------------- Losses charged to the reserve (6,271) (4,438) (2,952) - --------------------------------------------------------------------------------------------------------------------- Recoveries 2,520 2,252 1,505 - --------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $35,595 $32,347 $29,239 - ---------------------------------------------------------------------------------------------------------------------
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, (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Total minimum payments to be received $26,294 $19,534 - ----------------------------------------------------------------------------------------------------------------------- Estimated unguaranteed residual value of leased property 14,712 7,409 - ----------------------------------------------------------------------------------------------------------------------- Less: unearned income (5,956) (3,411) - ----------------------------------------------------------------------------------------------------------------------- TOTAL $35,050 $23,532 - -----------------------------------------------------------------------------------------------------------------------
Minimum lease payments, in thousands, to be received as of December 31, 1997 are:
- --------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- 1998 $ 7,114 - --------------------------------------------------------------------------------------------------------------------- 1999 6,523 - --------------------------------------------------------------------------------------------------------------------- 2000 5,832 - --------------------------------------------------------------------------------------------------------------------- 2001 3,790 - --------------------------------------------------------------------------------------------------------------------- 2002 3,035 - --------------------------------------------------------------------------------------------------------------------- TOTAL $ 26,294 - ---------------------------------------------------------------------------------------------------------------------
55 53 8. PREMISES AND EQUIPMENT The major categories of premises and equipment and accumulated depreciation are summarized as follows:
- ----------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Land $ 6,524 $ 6,269 - ----------------------------------------------------------------------------------------------------------------------- Buildings 25,851 25,543 - ----------------------------------------------------------------------------------------------------------------------- Equipment, furniture and fixtures 24,720 22,501 - ----------------------------------------------------------------------------------------------------------------------- Leasehold improvements 1,144 967 - ----------------------------------------------------------------------------------------------------------------------- TOTAL 58,239 55,280 - ----------------------------------------------------------------------------------------------------------------------- Less: accumulated depreciation and amortization (30,434) (27,732) - ----------------------------------------------------------------------------------------------------------------------- PREMISES AND EQUIPMENT, NET $ 27,805 $ 27,548 - -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense amounted to $3,273,000, $3,005,000, and $2,929,000 for the three years ended December 31, 1997, 1996 and 1995, 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):
- --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- 1998 $ 417 - --------------------------------------------------------------------------------------------------------------------- 1999 410 - --------------------------------------------------------------------------------------------------------------------- 2000 294 - --------------------------------------------------------------------------------------------------------------------- 2001 195 - --------------------------------------------------------------------------------------------------------------------- 2002 195 - --------------------------------------------------------------------------------------------------------------------- Thereafter 370 - --------------------------------------------------------------------------------------------------------------------- Total $1,881 - ---------------------------------------------------------------------------------------------------------------------
Rent expense amounted to $639,000, $609,000 and $593,000, for the three years ended December 31, 1997, 1996 and 1995, respectively. 9. SHORT-TERM BORROWINGS
Short-term borrowings are as follows: - ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Securities sold under agreements to repurchase and federal funds purchased $127,587 $119,959 - ---------------------------------------------------------------------------------------------------------------------- Federal Home Loan Bank advances 18,900 10,000 - ---------------------------------------------------------------------------------------------------------------------- Other short-term borrowings 5,137 5,152 - ---------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM BORROWINGS $151,624 $135,111 - ----------------------------------------------------------------------------------------------------------------------
56 54 The outstanding balances for all short-term borrowings as of December 31, 1997, 1996 and 1995 (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 - ---------------------------------------------------------------------------------------------------------------------- 1997: Ending balance $127,587 $18,900 $5,137 - ---------------------------------------------------------------------------------------------------------------------- Highest month-end balance 161,172 86,000 5,137 - ---------------------------------------------------------------------------------------------------------------------- Average daily balance 132,976 26,741 2,909 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate: As of year-end 4.61% 6.25% 5.75% - ---------------------------------------------------------------------------------------------------------------------- Paid during the year 4.60% 5.49% 5.25% - ---------------------------------------------------------------------------------------------------------------------- 1996: Ending balance $119,959 $10,000 $5,152 - ---------------------------------------------------------------------------------------------------------------------- Highest month-end balance 137,843 10,000 5,895 - ---------------------------------------------------------------------------------------------------------------------- Average daily balance 118,592 4,420 3,709 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate: As of year-end 4.53% 5.85% 5.32% - ---------------------------------------------------------------------------------------------------------------------- Paid during the year 4.40% 6.06% 5.75% - ---------------------------------------------------------------------------------------------------------------------- 1995: Ending balance $110,105 $10,000 $1,874 - ---------------------------------------------------------------------------------------------------------------------- Highest month-end balance 153,683 11,040 6,113 - ---------------------------------------------------------------------------------------------------------------------- Average daily balance 125,591 10,361 3,083 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate: As of year-end 4.63% 5.94% 5.28% - ---------------------------------------------------------------------------------------------------------------------- Paid during the year 5.07% 6.21% 5.29% - ----------------------------------------------------------------------------------------------------------------------
57 55 10. LONG-TERM DEBT Long-term debt is listed below:
- ----------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY PRINCIPAL AND INTEREST PAYMENTS: 5.60% Advance due August 1, 2003 $ 1,902 $ 2,180 - ----------------------------------------------------------------------------------------------------------------------- 6.35% Advance due August 1, 2013 2,628 2,723 - ----------------------------------------------------------------------------------------------------------------------- 5.95% Advance due March 1, 2004 519 586 - ----------------------------------------------------------------------------------------------------------------------- 5.70% Advance due May 1, 2004 4,230 4,760 - ----------------------------------------------------------------------------------------------------------------------- 5.85% Advance due January 1, 2016 4,259 4,876 - ----------------------------------------------------------------------------------------------------------------------- 2.00% Advance due November 1, 2027 40 -- - ----------------------------------------------------------------------------------------------------------------------- 2.00% Advance due January 1, 2028 40 -- - ----------------------------------------------------------------------------------------------------------------------- FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY INTEREST PAYMENTS: 5.35% Advance due February 1, 1999 5,000 5,000 - ----------------------------------------------------------------------------------------------------------------------- 5.60% Advance due April 1, 1999 5,000 5,000 - ----------------------------------------------------------------------------------------------------------------------- 5.70% Advance due June 1, 1999 7,000 7,000 - ----------------------------------------------------------------------------------------------------------------------- 6.35% Advance due March 1, 2004 250 250 - ----------------------------------------------------------------------------------------------------------------------- 6.15% Advance due July 21, 1997 -- 10,000 - ----------------------------------------------------------------------------------------------------------------------- 6.60% Advance due July 21, 1999 -- 10,000 - ----------------------------------------------------------------------------------------------------------------------- 6.90% Advance due July 21, 2001 -- 10,000 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT $30,868 $62,375 - -----------------------------------------------------------------------------------------------------------------------
At December 31, 1997, Federal Home Loan Bank (FHLB) advances were collaterized by the FHLB stock owned by the Corporation's affiliate banks and by residential mortgage loans pledged under a blanket agreement by the Corporation's affiliate banks. 11. STOCK OPTION PLAN The Park National Corporation 1995 Incentive Stock Option Plan ("the Park Plan") was adopted April 17, 1995. 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 200,000. At December 31, 1997, 45,142 options were available for future grants under this plan. Incentive stock options may be granted at a price not less than the fair market value at the date of the grant, and for an option term of up to five years. No incentive stock options may be granted under the Park Plan after January 16, 2005. In conjunction with the First-Knox Merger in 1997, the Corporation assumed the 1995 First-Knox Director's Stock Option and Stock Appreciation Rights Plan and the 1990 First-Knox Stock Option and Stock Appreciation Rights Plan. Additionally, in conjunction with the merger in 1997, all former First-Knox Plans were terminated with respect to the granting of any additional options and stock appreciation rights. 58 56 The Corporation's stock option activity and related information is summarized as follows:
- ----------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------- January 1, 1995 101 105,362 $20.49 22,967 25,906 $22.95 - ----------------------------------------------------------------------------------------------------------------- Authorized 311,774 -- -- 37,258 -- -- - ----------------------------------------------------------------------------------------------------------------- Granted (53,486) 53,486 45.26 -- -- -- - ----------------------------------------------------------------------------------------------------------------- Exercised -- (9,688) 28.74 -- (1,223) 17.75 - ----------------------------------------------------------------------------------------------------------------- Forfeited/Expired (101) (805) 19.12 (22,967) (161) 19.12 - ----------------------------------------------------------------------------------------------------------------- December 31, 1995 258,288 148,355 28.89 37,258 24,522 23.23 - ----------------------------------------------------------------------------------------------------------------- Granted (49,605) 49,605 43.62 (2,602) 2,602 37.01 - ----------------------------------------------------------------------------------------------------------------- Exercised -- (15,766) 39.56 -- (656) 18.45 - ----------------------------------------------------------------------------------------------------------------- Forfeited/Expired 400 (400) 47.28 -- -- -- - ----------------------------------------------------------------------------------------------------------------- December 31, 1996 209,083 181,794 31.95 34,656 26,468 24.70 - ----------------------------------------------------------------------------------------------------------------- Granted (87,405) 87,405 62.16 -- -- -- - ----------------------------------------------------------------------------------------------------------------- Exercised -- (137,049) 28.06 -- (26,445) 24.70 - ----------------------------------------------------------------------------------------------------------------- Forfeited/Expired (76,536) (4,317) 59.07 (34,656) (23) 24.04 - ----------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 45,142 127,833 55.88 -- -- -- - -----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- Range of exercise prices: $34.70 - $98.00 - ----------------------------------------------------------------------------------------------------------------- Weighted-average remaining contractual life: 4.2 years - ----------------------------------------------------------------------------------------------------------------- Exerciseable at year-end: 117,807 - ----------------------------------------------------------------------------------------------------------------- Weighted-average exercise price of exerciseable options: $53.37 - -----------------------------------------------------------------------------------------------------------------
Compensation expense related to stock appreciation rights was $339,000, $212,000 and $150,000 in 1997, 1996 and 1995, respectively. The Corporation has elected to follow Accounting Principles Board Opinion No.25 "Accounting for Stock issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.25%, 6.48% and 6.41%; a dividend yield of 2.50%, 2.61% and 2.49%; a volatility factor of the expected market price of the Corporation's common stock of .219, .206 and .200 and a weighted-average expected option life of 4.0, 4.2 and 4.3 years. The weighted-average fair value of options granted were $13.94, $8.30 and $9.90 for 1997, 1996 and 1995, respectively. 59 57 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 proforma information follows:
- --------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Net income as reported $37,693 $31,700 $27,829 - --------------------------------------------------------------------------------------------------------------------- Proforma net income 36,620 31,360 27,353 - --------------------------------------------------------------------------------------------------------------------- Basic earnings per share as reported $4.02 $3.39 $2.96 - --------------------------------------------------------------------------------------------------------------------- Proforma basic earnings per share 3.90 3.36 2.92 - --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share as reported 4.00 3.38 2.95 - --------------------------------------------------------------------------------------------------------------------- Proforma diluted earnings per share 3.89 3.34 2.91 - ---------------------------------------------------------------------------------------------------------------------
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. Net pension cost for 1997, 1996 and 1995 included the following components:
- --------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 942 $ 911 $ 823 - --------------------------------------------------------------------------------------------------------------------- Interest cost on projected benefit obligation 1,098 1,025 917 - --------------------------------------------------------------------------------------------------------------------- Actual return on plan assets (3,934) (2,253) (2,303) - --------------------------------------------------------------------------------------------------------------------- Net amortization and deferral 2,493 915 1,158 - --------------------------------------------------------------------------------------------------------------------- PENSION COST, NET $ 599 $ 598 $ 595 - ---------------------------------------------------------------------------------------------------------------------
60 58 The funded status of the plan and the prepaid pension cost at December 31, 1997, 1996, and 1995 were as follows:
- --------------------------------------------------------------------------------------------------------------------- December 31, (In thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $12,128 $10,318 $ 9,810 - --------------------------------------------------------------------------------------------------------------------- Nonvested benefits 176 312 235 - --------------------------------------------------------------------------------------------------------------------- ACCUMULATED BENEFIT OBLIGATION 12,304 10,630 10,045 - --------------------------------------------------------------------------------------------------------------------- Impact of projected future salary increases 4,194 3,629 3,730 - --------------------------------------------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION 16,498 14,259 13,775 - --------------------------------------------------------------------------------------------------------------------- Plan assets at fair value 19,578 16,376 15,169 - --------------------------------------------------------------------------------------------------------------------- PLAN ASSETS IN EXCESS OF PROJECTED BENEFIT OBLIGATION 3,080 2,117 1,394 - --------------------------------------------------------------------------------------------------------------------- Items not yet recognized in income: Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (2,731) (1,537) (169) - --------------------------------------------------------------------------------------------------------------------- Unrecognized prior service cost (3) (10) (118) - --------------------------------------------------------------------------------------------------------------------- Initial transition asset which is being amortized over 15.8 years (221) (285) (349) - --------------------------------------------------------------------------------------------------------------------- PREPAID PENSION COST INCLUDED IN CONSOLIDATED BALANCE SHEET $ 125 $ 285 $ 758 - ---------------------------------------------------------------------------------------------------------------------
The assumptions used as of December 31, 1997, 1996, and 1995 in determining pension expense and funded status information shown above were as follows:
- --------------------------------------------------------------------------------------------------------------------- December 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Weighted-average discount rate 7.71% 7.50 - 8.00% 7.50% - --------------------------------------------------------------------------------------------------------------------- Rate of future salary increases 5.00% 4.75 - 5.00% 4.75 - 5.00% - --------------------------------------------------------------------------------------------------------------------- Long-term rate of return on assets 8.00% 8.00 - 9.00% 8.00 - 9.00% - ---------------------------------------------------------------------------------------------------------------------
The Corporation contributed approximately $438,000, $125,000, and $1,276,000 to the plan in 1997, 1996 and 1995, respectively. The Corporation has a voluntary salary deferral plan covering substantially all of its employees. Eligible employees may contribute a portion of their compensation subject to a maximum statutory limitation. The Corporation provides a matching contribution established annually by the Corporation. Contribution expense for the Corporation was $586,000, $475,000 and $458,000 for 1997, 1996 and 1995, respectively. 61 59 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, (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Allowance for loan losses $ 12,491 $10,937 - ----------------------------------------------------------------------------------------------------------------------- Deferred loan fees 457 328 - ----------------------------------------------------------------------------------------------------------------------- Deferred compensation 529 559 - ----------------------------------------------------------------------------------------------------------------------- Other 2,776 2,451 - ----------------------------------------------------------------------------------------------------------------------- TOTAL DEFERRED TAX ASSETS $ 16,253 $14,275 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Lease revenue reporting $ 4,472 $ 3,126 - ----------------------------------------------------------------------------------------------------------------------- Unrealized holding gain on securities 3,760 2,492 - ----------------------------------------------------------------------------------------------------------------------- Fixed assets, principally due to depreciation 870 953 - ----------------------------------------------------------------------------------------------------------------------- Other 5,017 4,680 - ----------------------------------------------------------------------------------------------------------------------- TOTAL DEFERRED TAX LIABILITIES $ 14,119 $11,251 - ----------------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS, NET $ 2,134 $ 3,024 - -----------------------------------------------------------------------------------------------------------------------
The components of the provision for federal income taxes are shown below:
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Currently payable $17,235 $14,805 $13,182 - ---------------------------------------------------------------------------------------------------------------------- Deferred (378) (213) (770) - ---------------------------------------------------------------------------------------------------------------------- TOTAL $16,857 $14,592 $12,412 - ----------------------------------------------------------------------------------------------------------------------
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, 1997 and the weighted-average statutory rate of 34.8% for the years ended December 31, 1996 and 1995.
- ---------------------------------------------------------------------------------------------------------------------- December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Statutory corporate tax rate 35.0% 34.8% 34.8% - ---------------------------------------------------------------------------------------------------------------------- Changes in rate resulting from: Tax-exempt interest income -2.9% -1.5% -1.7% - ---------------------------------------------------------------------------------------------------------------------- Other -1.2% -1.8% -2.3% - ---------------------------------------------------------------------------------------------------------------------- EFFECTIVE TAX RATE 30.9% 31.5% 30.8% - ----------------------------------------------------------------------------------------------------------------------
62 60 14. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995:
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- NUMERATOR: Net income $ 37,693 $ 31,700 $ 27,829 - ---------------------------------------------------------------------------------------------------------------------- DENOMINATOR: Denominator for basic earnings per share - weighted-average shares 9,385,827 9,351,902 9,395,341 - ---------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities - stock options 37,944 34,317 29,003 - ---------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 9,423,771 9,386,219 9,424,344 - ---------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: Basic earnings per share $4.02 $3.39 $2.96 - ---------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $4.00 $3.38 $2.95 - ----------------------------------------------------------------------------------------------------------------------
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, 1997, approximately $7,385,000 of the total stockholders' equity of the bank subsidiaries is available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities. 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk are as follows:
- ----------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Loan commitments $215,638 $231,023 - ----------------------------------------------------------------------------------------------------------------------- Unused credit card limits 92,993 93,282 - ----------------------------------------------------------------------------------------------------------------------- Standby letters of credit 6,362 6,259 - -----------------------------------------------------------------------------------------------------------------------
The loan commitments are generally for variable rates of interest. 63 61 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 debtors' ability to honor their contracts is dependent upon the economic conditions in each loan's respective location. 17. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values. INVESTMENT SECURITIES: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans, 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 are, by definition, equal to the amount payable on demand at the reporting date. 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. LONG-TERM DEBT: The fair value for long-term debt is estimated using a discounted cash flow evaluation using current market interest rates available to replace the various maturities. 54 62 The fair value of financial instruments at December 31, 1997 and 1996 is as follows:
- ----------------------------------------------------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) Carrying Fair Carrying Fair Amount Value Amount Value - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and federal funds sold $ 93,585 $ 93,585 $ 81,765 $ 81,765 - ----------------------------------------------------------------------------------------------------------------------- Investment securities 540,370 541,078 574,393 574,830 - ----------------------------------------------------------------------------------------------------------------------- Loans: Commercial, financial and agricultural 212,970 212,970 224,912 224,912 - ----------------------------------------------------------------------------------------------------------------------- Real estate - construction 65,548 65,548 70,359 70,359 - ----------------------------------------------------------------------------------------------------------------------- Real estate - residential 708,768 722,794 617,018 630,457 - ----------------------------------------------------------------------------------------------------------------------- Real estate - commercial 256,074 256,183 215,372 215,629 - ----------------------------------------------------------------------------------------------------------------------- Consumer, net 313,517 314,757 320,831 322,520 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LOANS 1,556,877 1,572,252 1,448,492 1,463,877 - ----------------------------------------------------------------------------------------------------------------------- Allowance for loan losses (35,595) -- (32,347) -- - ----------------------------------------------------------------------------------------------------------------------- LOANS RECEIVABLE, NET $1,521,282 $1,572,252 $1,416,145 $1,463,877 - ----------------------------------------------------------------------------------------------------------------------- FINANCIAL LIABILITIES: Noninterest bearing checking $ 257,867 $ 257,867 $ 225,424 $ 225,424 - ----------------------------------------------------------------------------------------------------------------------- Interest bearing checking 124,087 124,087 201,698 201,698 - ----------------------------------------------------------------------------------------------------------------------- Savings accounts 274,025 274,025 276,442 276,442 - ----------------------------------------------------------------------------------------------------------------------- Money market accounts 242,854 242,854 168,740 168,740 - ----------------------------------------------------------------------------------------------------------------------- Time deposits 954,564 959,077 889,345 892,935 - ----------------------------------------------------------------------------------------------------------------------- Other 1,567 1,567 1,769 1,769 - ----------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS $1,854,964 $1,859,477 $1,763,418 $1,767,008 - ----------------------------------------------------------------------------------------------------------------------- Short-term borrowings 151,624 151,624 135,111 135,111 - ----------------------------------------------------------------------------------------------------------------------- Long-term debt 30,868 30,344 62,375 62,036 - ----------------------------------------------------------------------------------------------------------------------- UNRECOGNIZED FINANCIAL INSTRUMENTS: Loan commitments -- $ (216) -- $ (231) - ----------------------------------------------------------------------------------------------------------------------- Standby letters of credit -- (32) -- (31) - -----------------------------------------------------------------------------------------------------------------------
18. CAPITAL RATIOS The following table reflects various measures of capital at December 31, 1997 and December 31, 1996:
- ----------------------------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) AMOUNT RATIO Amount Ratio - ----------------------------------------------------------------------------------------------------------------------- Total equity (1) $222,117 9.71% $198,961 9.11% - ----------------------------------------------------------------------------------------------------------------------- Tier 1 capital (2) 198,949 13.46% 182,041 13.16% - ----------------------------------------------------------------------------------------------------------------------- Total risk-based capital (3) 217,636 14.72% 199,517 14.42% - ----------------------------------------------------------------------------------------------------------------------- Leverage (4) 198,949 8.91% 182,041 8.73% - -----------------------------------------------------------------------------------------------------------------------
65 63 (1) Computed in accordance with generally accepted accounting principles, including unrealized market value adjustment of securities available-for-sale. (2) Stockholders' equity less certain intangibles and the unrealized market value adjustment of securities available-for-sale; computed as a ratio to risk-adjusted assets as defined. (3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to risk-adjusted assets, as defined. (4) Tier 1 capital computed as a ratio to average total assets less certain intangibles. The Corporation's Tier 1, total risk-based capital and leverage ratios are well above both the required minimum levels of 4.00%, 8.00% and 4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and 5.00%, respectively. At December 31, 1997, all of the Corporation's subsidiary financial institutions met the well-capitalized levels under the capital definitions prescribed in the FDIC Improvement Act of 1991. 19. 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 $1,040,000, $663,000 and $876,000 in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996, stockholders' equity reflected in the Parent Company balance sheet includes $80.6 million and $73.9 million, respectively, of undistributed earnings of the Corporation's subsidiaries which are restricted from transfer as dividends to the Corporation. 66 64 19. PARENT COMPANY STATEMENTS (continued) Balance Sheets at December 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------ (IN THOUSANDS) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ ASSETS: Cash $ 15,714 $ 22,498 - ------------------------------------------------------------------------------------------------------------------------ Investment in subsidiaries 161,591 165,193 - ------------------------------------------------------------------------------------------------------------------------ Debentures receivable from subsidiary banks 12,000 2,000 - ------------------------------------------------------------------------------------------------------------------------ Other investments 84 84 - ------------------------------------------------------------------------------------------------------------------------ Excess of cost over net assets of banks purchased, net 1,218 1,522 - ------------------------------------------------------------------------------------------------------------------------ Dividends receivable from subsidiaries 31,700 8,700 - ------------------------------------------------------------------------------------------------------------------------ Other assets 5,214 3,869 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $227,521 $203,866 - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES: Dividends payable $ 4,512 $ 3,754 - ------------------------------------------------------------------------------------------------------------------------ Other liabilities 892 1,151 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 5,404 4,905 - ------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY: TOTAL STOCKHOLDERS' EQUITY 222,117 198,961 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $227,521 $203,866 - ------------------------------------------------------------------------------------------------------------------------
Statements of Income for the years ended December 31, 1997, 1996 and 1995 - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- INCOME: Dividends from subsidiaries $45,097 $26,965 $24,901 - ---------------------------------------------------------------------------------------------------------------------- Interest and dividends 790 629 193 - ---------------------------------------------------------------------------------------------------------------------- Gain of sale of securities -- 181 -- - ---------------------------------------------------------------------------------------------------------------------- TOTAL INCOME 45,887 27,775 25,094 - ---------------------------------------------------------------------------------------------------------------------- EXPENSE: Amortization of intangibles 304 259 259 - ---------------------------------------------------------------------------------------------------------------------- Other, net 465 2,179 837 - ---------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 769 2,438 1,096 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE FEDERAL TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 45,118 25,337 23,998 - ---------------------------------------------------------------------------------------------------------------------- Federal income tax (expense) benefit (113) 449 516 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 45,005 25,786 24,514 - ---------------------------------------------------------------------------------------------------------------------- Equity in undistributed earnings of subsidiaries (7,312) 5,914 3,315 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $37,693 $31,700 $27,829 - ----------------------------------------------------------------------------------------------------------------------
67 65 19. PARENT COMPANY STATEMENTS (continued) Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995
- ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 37,693 $ 31,700 $ 27,829 - ---------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Amortization 304 259 259 - ---------------------------------------------------------------------------------------------------------------------- Undistributed earnings of subsidiaries 7,312 (5,914) (3,315) - ---------------------------------------------------------------------------------------------------------------------- Gain on sale of securities available-for-sale -- (181) -- - ---------------------------------------------------------------------------------------------------------------------- Increase in dividends receivable from subsidiaries (23,000) (1,200) (990) - ---------------------------------------------------------------------------------------------------------------------- (Increase) decrease in other assets (1,345) (3,236) 110 - ---------------------------------------------------------------------------------------------------------------------- (Decrease) increase in other liabilities (259) 705 411 - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 20,705 22,133 24,304 - ---------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of debenture from subsidiary bank (10,000) -- -- - ---------------------------------------------------------------------------------------------------------------------- Purchase of investment securities -- (54) (30) - ---------------------------------------------------------------------------------------------------------------------- Proceeds from sale of securities available-for-sale -- 431 -- - ---------------------------------------------------------------------------------------------------------------------- Capital contribution to subsidiary -- (8,000) -- - ---------------------------------------------------------------------------------------------------------------------- Other, net (1,379) -- -- - ---------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (11,379) (7,623) (30) - ---------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends paid (15,047) (12,166) (10,282) - ---------------------------------------------------------------------------------------------------------------------- Proceeds from issuance of common stock 3,664 337 247 - ---------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (4,727) (118) (4,471) - ---------------------------------------------------------------------------------------------------------------------- NET CASH USED FINANCING ACTIVITIES (16,110) (11,947) (14,506) - ---------------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH (6,784) 2,563 9,768 - ---------------------------------------------------------------------------------------------------------------------- Cash at beginning of year 22,498 19,935 10,167 - ---------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 15,714 $ 22,498 $ 19,935 - ----------------------------------------------------------------------------------------------------------------------
68 66 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 INDEX TO EXHIBITS
Exhibit No. Description Page No. - ----------- ----------- -------- 2(a)(1) Agreement and Plan of Merger, dated as of Incorporated herein by reference to October 28, 1996, between Park National Registrant's Registration Statement on Corporation ("Registrant") and First-Knox Banc Form S-4, filed January 24, 1997 Corp. (Registration No. 333-20417) ("Registrant's Form S-4") [Exhibit 2(a)] 2(a)(2) Amendment to Agreement and Plan of Merger, Incorporated herein by reference to dated as of January 10, 1997, between Registrant's Form S-4 [Exhibit 2(b)] Registrant and First-Knox Banc Corp. 2(b)(1) Branch Purchase and Assumption Agreement * between KeyBank National Association and The Park National Bank, dated as of May 23, 1997 2(b)(2) Amendment No. 1 to Branch Purchase and * Assumption Agreement between KeyBank National Association and The Park National Bank, dated as of September 24, 1997 3(a)(1) Articles of Incorporation of Park National Incorporated herein by reference to Corporation as filed with the Ohio Registrant's Form 8-B, filed May 20, Secretary of State on March 24, 1992 1992 (File No. 0-18772) ("Registrant's Form 8-B") [Exhibit 3(a)]
67
Exhibit No. Description Page No. - ----------- ----------- -------- 3(a)(2) Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Park National Registrant's Annual Report on Form 10-K Corporation as filed with the Ohio Secretary for the fiscal year ended of State on May 6, 1993 December 31, 1993 (File No. 0-18772) [Exhibit 3(b)] 3(a)(3) Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Park National Corporation as Registrant's Quarterly Report on filed with the Ohio Secretary of State on Form 10-Q for the fiscal quarter ended April 16, 1996 March 31, 1996 (File No. 1-13006) ("Registrant's March 1996 Form 10-Q") [Exhibit 3(a)] 3(a)(4) Certificate of Amendment by Shareholders to Incorporated herein by reference to the Articles of Incorporation of Park Registrant's Quarterly Report on Form National Corporation as filed with the 10-Q for the fiscal quarter ended Ohio Secretary of State on April 22, 1997 June 30, 1997 (File No. 1-13006) ("Registrant's June 1997 Form 10-Q") [Exhibit 3(a)(1)] 3(a)(5) Articles of Incorporation of Park National Incorporated herein by reference to Corporation (reflecting amendments through Registrant's June 1997 Form 10-Q April 22, 1997) (For SEC reporting compliance [Exhibit 3(a)(2)] purposes only -- not filed with Ohio Secretary of State) 3(b)(1) Regulations of Registrant Incorporated herein by reference to Registrant's Form 8-B [Exhibit 3(b)] 3(b)(2) Certified Resolution regarding adoption of Incorporated herein by reference to amendment to Subsection 2.02(A) of the Registrant's June 1997 Form 10-Q Regulations of Park National Corporation [Exhibit 3(b)(1)] by Shareholders on April 21, 1997 3(b)(3) Regulations of Park National Corporation Incorporated herein by reference to (reflecting amendments through April 21, Registrant's June 1997 Form 10-Q 1997) (For SEC reporting [Exhibit 3(b)(2)] compliance purposes only)
68
Exhibit No. Description Page No. - ----------- ----------- -------- 10(a) Certified Copy of Resolutions Adopted by Board Incorporated herein by reference to of Directors of Park National Corporation on Registrant's Annual Report on Form 10-K July 17, 1995 Affecting Park National for the fiscal year ended December 31, Corporation Defined Benefit Pension Plan and 1995 (File No. 1-13006) ("Registrant's Trust 1995 Form 10-K") [Exhibit 10(a)] 10(b) Park National Corporation Defined Benefit Incorporated herein by reference to Pension Plan Registrant's 1995 Form 10-K [Exhibit 10(b)] 10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to Salary Deferral Plan and Trust Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772) [Exhibit 10(d)] 10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to National Corporation Registrant's Form S-4 [Exhibit 10(d)] 10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: between William T. McConnell and The Park (a) Registrant's Annual Report on National Bank; and Schedule A to Exhibit 10(f) Form 10-K for the fiscal year ended identifying other identical Split-Dollar December 31, 1993 (File No. 0-18772) Agreements between The Park National Bank and [Exhibit 10(f)]; and (b) Registrant's executive officers of Registrant Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-13006) [Exhibit 10(g)] 10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a) 1993, between Dominic C. Fanello and The Registrant's Annual Report on Form 10-K Richland Trust Company; and Schedule A to for the fiscal year ended December 31, Exhibit 10(f) identifying other identical 1993 (File No. 0-18772) [Exhibit 10(g)]; Split-Dollar Agreements between directors of Schedule A to Exhibit 10(f) is being Registrant and The Park National Bank, The filed herewith Richland Trust Company or Century National Bank, as identified in such Schedule A
69
Exhibit No. Description Page No. - ----------- ----------- -------- 10(g) Park National Corporation 1995 Incentive Stock Incorporated herein by reference to Option Plan Registrant's Registration Statement on Form S-8 filed May 9, 1995 (Registration No. 33-92060) [Exhibit 4(d)] 10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to connection with the grant of options under the Registrant's 1995 Form 10-K Park National Corporation 1995 Incentive Stock [Exhibit 10(i)] Option Plan 10(i) Description of Park National Corporation Incorporated herein by reference to Supplemental Executive Retirement Plan Registrant's Form S-4 [Exhibit 10(i)] 13 Annual Report to Stockholders of Registrant Incorporated herein by reference to the for the fiscal year ended December 31, 1997 financial statements portion of this (Not deemed filed except for portions thereof Annual Report on Form 10-K beginning at which are specifically incorporated by page 18 reference into this Annual Report on Form 10-K) 21 Subsidiaries of Registrant * 23(a) Consent of Ernst & Young LLP * 23(b) Consent of Crowe, Chizek and Company LLP * 24 Powers of Attorney * 27 Financial Data Schedule * 99 Report of Crowe, Chizek and Company LLP * - --------------- *Filed herewith
EX-2.B.1 2 EXHIBIT 2(B)(1) 1 EXHIBIT 2(b)(1) Branch Purchase and Assumption Agreement, dated as of May 23, 1997, between The Park National Bank and KeyBank National Association 2 Exhibit 2(b)(1) BRANCH PURCHASE AND ASSUMPTION AGREEMENT BY AND BETWEEN KEYBANK NATIONAL ASSOCIATION AND THE PARK NATIONAL BANK DATED AS OF MAY 23, 1997 3 INDEX OF DEFINITIONS AGREED VALUE shall mean, with regard to the Owned Real Estate and the Leasehold Estate, its value as reflected by the Appraisal. Agreed Value shall mean, with regard to the furniture, fixture and equipment which constitute part of the Assets, the net book value determined as of the most recent month end preceding the Closing Date under generally accepted accounting principles (the "Net Book Value") of such furniture, fixture and equipment. In no event shall the Agreed Value of the furniture, fixtures and equipment at any Branch be less than $5,000.00. APPRAISAL shall mean, with regard to the Owned Real Estate and the Leasehold Estate, a limited summary format appraisal of its Fair Market Value furnished by an Appraiser reasonably acceptable to Seller and Purchaser. For purposes of this Agreement, "Appraiser" shall mean a reputable appraiser certified as an MIA appraiser with at least five (5) years' experience within the previous ten (10) years as a real estate appraiser working in the geographic region in which the Owned Real Estate or Leasehold Estate to be appraised is located, with knowledge of market values and practices. The cost of the Appraisal shall be paid equally by each party hereto. BRANCH(ES) shall mean each of Seller's branches identified on Schedule A hereto. CODE shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. ENCUMBRANCE shall mean all mortgages, claims, liens, encumbrances, easements, limitations, restrictions, commitments and security interests, except for statutory liens securing payments not yet due, liens incurred in the ordinary course of business and such other liens or encumbrances which do not materially adversely affect the use of the properties or assets subject thereto or affected thereby or which otherwise do not materially impair business operations at such properties. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. EXCLUDED DEPOSITS shall mean: (a) any individual retirement account or similar account created by a trust for the exclusive benefit of an individual or his beneficiaries in accordance with the provisions of Section 408 of the Code and any simplified employee pension account established in accordance with Section 408(k) of the Code which hold investments in non-deposit instruments; (b) deposits which have been pledged to secure, or as to which the owner is an obligor with regard to, any extension of credit by Seller or an affiliate of Seller other than a Loan, (c) in the event that the Loans are rejected by Purchaser pursuant to Section 1.08(b) hereof, deposits which have been pledged to secure any Loan and (d) any deposits obtained directly or indirectly through a "deposit broker" (as that term is defined in Section 337.6(a)(5) of the Rules and Regulations of the FDIC, 12 CFR Section 337.6(a)(5)). FAIR MARKET VALUE shall mean, with regard to the Owned Real Estate and the Leasehold Estate, the price in terms of money which it will bring, free and clear of all indebtedness and, in the case of the Leasehold Estate, subject to all of the terms of the Lease creating such Leasehold Estate, if exposed to the open market, allowing a reasonable time to find a purchaser, who buys with the intention of using the Owned Real Estate or the Leasehold Estate for conducting the business of banking. FEDERAL FUNDS RATE shall mean the "near closing bid" federal funds rate published in the Wall Street Journal on the first business day following the Closing. 1 4 KNOWLEDGE shall mean, with regard to Article X hereof, the actual present knowledge as of the date hereof, without further investigation, of any Vice President in KeyCorp's Corporate Real Estate Group and, with regard to Sections 3.01(j) and 5.01 hereof, the actual present knowledge as of the date hereof, without further investigation, of any officer that holds the title of Senior Vice President or above of Seller and has responsibility with respect to the operations conducted at the Branches. MEDIATOR shall mean Deloitte and Touche LL P PERMITTED EXCEPTIONS shall mean, with respect to the Owned Real Estate or the Leasehold Estate, (a) those standard printed exceptions appearing as Schedule B items in a standard American Land Title Association ("ALTA") owner's or leasehold title insurance policy, as the case may be, (provided, however, that if Purchaser elects to obtain a survey as to any of the Owned Real Estate or Leasehold Estate, the Permitted Exceptions for such Owned Real Estate or Leasehold Estate shall not include the standard exception for matters that would be disclosed by a survey, but shall include specific exceptions, if any, disclosed by such survey provided that such specific exceptions are otherwise included in the definition of Permitted Exceptions), (b) statutory liens for current real estate taxes or assessments, both general and special, not yet due, or if due not yet delinquent, or the validity of which is being contested in good faith by appropriate proceedings; (c) all zoning laws and rulings, easements, rights of way, and restrictions of record; (d) such other liens, imperfections in title, charges, easements, restrictions, and encumbrances (but in all cases excluding those which secure borrowed money) which individually and in the aggregate are not material in character, amount, or extent, or do not materially detract from the value of, or materially interfere with, the present use of, any Owned Real Estate or any Leasehold Estate subject thereto or affected thereby; (e) any exceptions to title arising from the action, inaction, or status of Purchaser; and (f) such other exceptions as are approved in writing by Purchaser. REGULATORY APPROVALS shall mean all approvals, permits, authorizations, waivers, or consents of governmental agencies or authorities necessary or appropriate to permit consummation of the transaction contemplated hereby. 2 5 BRANCH PURCHASE AND ASSUMPTION AGREEMENT This Branch Purchase and Assumption Agreement ("Agreement"), dated as of May 23, 1997, is made by and between KeyBank National Association, a national banking association ("Seller"), and The Park National Bank, a national banking association ("Purchaser"). Certain definitions used herein are set forth in the Index of Definitions of this Agreement. In consideration of the mutual promises hereinafter contained and other good and valuable consideration, Seller and Purchaser hereby agree as follows: ARTICLE I THE TRANSACTION 1.01 THE TRANSACTION. Subject to the terms and conditions set forth in this Agreement, at the Closing, (a) Purchaser shall purchase the Assets and shall assume the Liabilities, and Seller shall assign, transfer, convey, and deliver to Purchaser, free and clear of all Encumbrances, all of Seller's right, title and interest in and to such Assets and such Liabilities and (b) Purchaser shall assume and thereafter honor and fully and timely pay, perform and discharge all of Seller's obligations and liabilities of every type and character relating to the Assets and Liabilities. Purchaser understands and agrees that it is purchasing only the Assets (and assuming only the Liabilities) specified in this Agreement and, except as may be expressly provided for in this Agreement, Purchaser has no interest in, right to, or obligations relating to any other business relationship which Seller may have with any customer of any of the Branches. 1.02 ASSETS AND LIABILITIES PURCHASED AND ASSUMED. (a) ASSETS. For purposes of this Agreement, "Assets" shall mean: (i) all real property owned by Seller on which Branches are located, including all of Seller's rights in and to all improvements thereon ("Owned Real Estate") and all leasehold estates held by Seller ("Leasehold Estate") in and to any real estate on which any of the Branches is situated, including all of Seller's rights in and to all improvements thereon ("Leased Real Estate"); (ii) all furniture, fixtures and equipment that are located in or necessary for the conduct of business in the ordinary course at any Branch (including Automated Teller Machines ("ATMs"), if any, and branch teller and platform automation equipment, if any); (iii) safe deposit agreements relating to safe deposit boxes located at the Branches; (iv) all loans (exclusive of any reserve for possible loan losses) that are attributable to the Branches, including all loans made in the ordinary course of business consistent with Seller's credit standards between the date of this Agreement and the Closing, including all documents executed or delivered in connection with any loan and any and all collateral relating to any such loan and all rights in relation thereto attributable to the Branches at the Closing (the "Loans") (unless the Loans are rejected by Purchaser pursuant to Section 1.08(b) hereof); 3 6 (v) all rights of Seller under any service or similar contracts in effect as of the Closing Date with non-affiliated third-party service providers which relate solely to the operations of the Branches to the extent such contracts are assignable; (vi) all cash on hand (i.e., all petty cash, vault cash, teller cash, ATM cash, and prepaid postage) at the Branches as of the Closing; and (vii) all prepaid expenses identified as an asset on the final closing statement. (b) LIABILITIES. For purposes of this Agreement, "Liabilities" shall mean all of Seller's obligations and liabilities of every type and character relating to all deposit accounts, including accrued interest, which are reflected on the books of Seller as of the Closing and are attributable to the Branches, including, without limitation, all passbook accounts, statement savings accounts, checking, Money Market and NOW accounts, certificates of deposit, individual retirement accounts, simplified employee pension accounts, saving incentive match plan for employees accounts, Keogh accounts, and repurchase agreements except for the Excluded Deposits (the "Assumed Deposits"). Liabilities shall also include: (i) all obligations due under any service or similar contracts, in effect at the Closing, relating to the operations of the Branches, to the extent such contracts are included in 1.02(a)(v); (ii) all of Seller's obligations and liabilities, arising from and after the Closing Date, to the extent attributable to the Assets and the Assumed Deposits; and (iii) all accrued and unpaid expenses identified as a liability on the final closing statement. 1.03 PRELIMINARY CLOSING STATEMENT AND PAYMENT. (a) PRELIMINARY CLOSING STATEMENT. Not less than five (5) days prior to the Closing Date, Seller shall deliver to Purchaser a proposed preliminary closing statement, in the form of Schedule B to this Agreement, completed as at a date mutually agreed to by the parties. The parties shall agree upon the preliminary closing statement before the Closing Date, and it shall be the basis of a preliminary payment to be made to Purchaser's account, or to Seller's account, as the case may be, on the Closing Date (the "Preliminary Payment"). (b) PRELIMINARY PAYMENT. Subject to the terms and conditions hereof, at the Closing, Seller shall wire transfer to Purchaser immediately available funds equal to: (i) the sum of (A) the amount of the Assumed Deposits (including accrued and unpaid interest thereon) reflected on the preliminary closing statement and (B) the amount of all accrued and unpaid expenses reflected as a liability on the preliminary closing statement; less (ii) an amount equal to the sum of: (A) twelve point zero seven percent (12.07%) of the Assumed Deposits based on a 30-day average prior to September 12, 1997; (B) the amount of cash on hand at the Branches as of the Closing; (C) the sum of ($125,000), representing the Agreed Value of all furniture, fixtures, and equipment constituting part of the Assets; (D) the Agreed Value of the Owned Real Estate and the Leased Real Estate; (E) the amount of all prepaid expenses of Seller as reflected as an asset on the preliminary closing statement; (F) the Net Book Value of all Loans, plus accrued and unpaid interest thereon as reflected on the preliminary closing statement; and (G) the amount of estimated sales taxes, if any, to be paid by Purchaser in connection with the transaction contemplated hereby. 4 7 (c) PURCHASER PAYMENT. In the event that the amount equal to subclause (b)(ii) above exceeds the amount equal to subclause (b)(i) above, the amount of such excess shall constitute an amount due from Purchaser to Seller and shall be paid to Seller at the Closing. 1.04 FINAL CLOSING STATEMENT AND ADJUSTMENT PAYMENT. Not more than fifteen (15) days after the Closing Date, Seller shall provide Purchaser with a proposed final closing statement, which shall be calculated as of the Closing Date and the parties shall promptly agree upon the final closing statement. The final closing statement shall be in a form consistent with the preliminary closing statement. On the first business day after Purchaser agrees to the final closing statement or Seller is notified of any determination as to the final closing statement under Section 1.05 below, Seller shall wire transfer to Purchaser (or Purchaser shall wire transfer to Seller, as the case may be) in immediately available funds an amount equal to the amount by which the final payment reflected on the final closing statement indicates an amount in excess of (or any amount less than) the Preliminary Payment paid at Closing (the "Adjustment Payment"), plus interest, at a rate per annum equal to the Federal Funds Rate. 1.05 DISPUTES AND MEDIATION; PAYMENT OF FEES. If Purchaser disagrees with the final closing statement, then Purchaser shall contact Seller and Purchaser and Seller shall cooperate to resolve the matters in dispute. If the parties are unable to agree on a final closing statement, then Purchaser or Seller may submit the matter to the Mediator which shall determine all disputed portions of the final closing statement; provided, however, that if the fees of the Mediator as estimated by the Mediator would exceed 50% of the net amount in dispute, the parties agree that such firm will not be engaged by either party and that such net amount in dispute will be equally apportioned between Seller and Purchaser. The parties shall each pay one-half of the fees and expenses of the Mediator. The final closing statement, as agreed upon by the parties and/or determined under this subsection, shall be final and binding upon the parties. 1.06 PRORATION OF CERTAIN EXPENSES. All prepaid expenses and all accrued and unpaid expenses shall be prorated between Purchaser and Seller as of the Closing Date; provided, however, that (i) all property Taxes as to the Owned Real Estate shall be prorated on the basis of the most recently certified tax duplicate and rates; (ii) all real property taxes and other expenses or charges required to be paid by Seller as tenant under any lease pursuant to which Seller leases any of the Leased Real Property ("Lease") shall be prorated based upon amounts paid by Seller during the current lease year as to any period that includes but extends after the Closing Date; (iii) all utility payments paid (excluding any such payment paid by Seller to a landlord, which shall be covered by clause (ii) hereof) shall be prorated on the basis of the best information available at the Closing Date. All security deposits under any Lease, together with any accrued but unpaid interest payable thereon, shall be credited to Seller. All prepaid expenses that are allocable to Purchaser hereunder shall appear as an asset on the preliminary or final closing statement. To the extent that expenses allocable to Seller hereunder have been accrued and not paid by Seller prior to the Closing Date, they shall appear as a liability on the preliminary or final closing statement. There shall be no post-closing adjustment for any of the foregoing. 1.07 ALLOCATION AND REIMBURSEMENT OF REAL ESTATE EXPENSES. All expenses attributable to the Owned Real Estate and the Leasehold Estate incurred in connection with the acquisition of the Branches by Purchaser shall be allocated to and solely borne by Purchaser except for standard title insurance commitment fees and title examination fees for the Owned Real Estate which shall be paid by Seller. 1.08 LOANS. (a) LOAN INFORMATION. Prior to the date hereof, Seller provided to Purchaser certain information relating to the Loans to be transferred to Purchaser, which included, among other data, summary information relating to loan delinquencies. 5 8 (b) OPPORTUNITY TO REVIEW AND REJECT LOANS. Following the date hereof, Purchaser shall be provided with the opportunity to conduct a limited due diligence review of the Loans for the purpose of determining whether Purchaser desires to purchase the Loans in their entirety. Within fourteen (14) days after the date upon which Purchaser is first provided access to documentation relating to the Loans, Purchaser shall notify Seller as to whether Purchaser shall accept or reject the Loans, provided however, that Purchaser shall only be permitted to accept or reject all of the Loans other than overdraft lines directly attributable to the Assumed Deposits. In the event that Purchaser notifies Seller that it intends to reject the Loans, the payment under Section 1.03(b) shall be calculated without giving effect to any amounts described in (F) thereunder. (c) LOAN DOCUMENTATION. As soon as practicable after the Closing, Seller shall deliver to Purchaser all loan files that Seller retains in original paper form. From and after the Closing, Seller shall promptly deliver upon Purchaser's reasonable request on a loan by loan basis any additional loan information that Seller has retained in its possession in electronic form (e.g., microfiche or magnetic tape). Seller shall indemnify Purchaser for any and all losses which arise as a direct result of the failure of Seller to have delivered to Purchaser all necessary documentation with respect to any Loan, provided, however, that Seller shall not be obligated to indemnify Purchaser pursuant to this Section 1.08(c) in the event that Purchaser shall not have notified Seller of the missing documentation within sixty (60) days following the Closing. For purposes of this provision, a "loss" shall mean a loss of the principal balance of the affected Loan outstanding as of the Closing Date and any interest accrued thereon. 1.09 SUCCESSOR CUSTODIAN. Effective at the Closing, Seller hereby appoints Purchaser as the successor custodian to Seller under the Liabilities consisting of individual retirement accounts, simplified employee pension accounts, saving incentive match plan for employee accounts, and Keogh accounts and Purchaser hereby accepts from Seller the appointment to serve in such capacity from and after the Closing Date. ARTICLE II OBLIGATIONS OF THE PARTIES PRIOR TO THE CLOSING DATE 2.01 COVENANTS OF SELLER. Seller hereby covenants to Purchaser that, from the date hereof until the Closing Date or by such earlier time as may be specified in this Agreement, it will do or cause the following to occur: (a) OPERATION OF BRANCHES. Seller shall continue to operate and maintain the Branches in a manner consistent with its customary practices and in a condition substantially the same as exists on the date hereof (ordinary wear and tear and casualty excepted). (b) INFORMATION CONCERNING BRANCHES. Seller shall use its reasonable efforts to furnish Purchaser, its agents, or representatives reasonable access to, and permit Purchaser to make or cause to be made such reasonable investigation of, information and materials relating to the financial and physical condition of the Branches as Purchaser reasonably deems necessary or advisable; provided, further, that nothing in this Section 2.01(b) shall be deemed to require Seller to breach any obligation of confidentiality or to reveal any proprietary information, trade secrets, or marketing or strategic plans. (c) CREATION OF ENCUMBRANCES. Seller shall not voluntarily create any Encumbrances affecting the Owned Real Estate. 6 9 (d) INSURANCE. Seller will maintain in effect until and including the Closing Date all casualty and public liability policies relating to the Branches and maintained by Seller on the date hereof or procure comparable replacement policies and maintain such replacement policies in effect until and including the Closing Date. (e) RIGHT TO INTERVENE. In the event that any claim, protest, suit or other proceeding is instituted against Purchaser under this Agreement, Seller shall have the right, at its discretion and expense, to intervene in such litigation, and Purchaser hereby consents to such intervention. 2.02 COVENANTS OF PURCHASER. Purchaser hereby covenants to Seller that, from the date hereof until the Closing Date or by such earlier time as may be specified in this Agreement, it will do or cause the following to occur: (a) CERTAIN APPLICATIONS. Not later than twenty-one (21) days after the date hereof, Purchaser shall prepare and submit for filing, at no expense to Seller, applications to all regulatory agencies required by Purchaser to obtain the Regulatory Approvals. Purchaser shall promptly deliver to Seller a copy of such applications and any supplement, amendment, or item of additional information in connection therewith. Purchaser shall also promptly deliver to Seller a copy of each material notice, order, opinion, approval or denial and other item of correspondence received by Purchaser from the regulatory agencies and shall keep Seller promptly informed of developments and progress with respect to such matters. Purchaser hereby represents that it knows of no reason why it should not obtain all Regulatory Approvals in a timely manner. (b) REAL ESTATE LEASE CONSENTS. In connection with the consent and release noted in Section 2.03 hereof, Purchaser shall provide to Seller within five (5) days after the date hereof current financial information concerning Purchaser for Seller's transmittal to the landlord under each Lease and shall provide promptly to Seller any other information requested by such landlord. 2.03 COVENANTS OF BOTH PARTIES. Seller hereby covenants to Purchaser, and Purchaser hereby covenants to Seller, that, from the date hereof until the Closing, such party shall cooperate fully in obtaining, and make all reasonable efforts to obtain, any third party consents which are required to consummate the transaction contemplated by this Agreement, including, without limitation, (a) an estoppel certificate of each landlord in the form attached hereto as Schedule G, if the landlord agrees to execute such estoppel certificate, (b) the written consent of each landlord under a Lease to the assignment and assumption by Purchaser of such Lease or, if the landlord does not so consent, and if such consent is necessary to validly effect such assignment or assumption or sublease, to a sublease of the premises demised by such Lease, and (c) in either case, the release of Seller from all obligations and liabilities under any such Lease from and after the Closing Date (provided, however, that this Section 2.03 shall not obligate Seller to make any payment or to execute any indemnification or guaranty or other similar instrument which would render Seller liable for any obligations, liabilities or duties of Purchaser arising out of such Lease from and after the Closing Date). Each of Seller and Purchaser also hereby covenant to the other that it shall cooperate fully in promptly selecting an Appraiser and shall make all reasonable efforts to obtain an Appraisal of the Owned Real Property and the Leasehold Estate within thirty (30) days of the date hereof. 7 10 2.04 SELLER'S AND PURCHASER'S RIGHTS AND OBLIGATIONS REGARDING TITLE MATTERS. (a) TITLE COMMITMENTS. Seller, at its sole expense, shall deliver to Purchaser not later than thirty (30) days after the date hereof, with respect to the Owned Real Estate, title commitments for issuance of ALTA Owner's Policies of Title Insurance (collectively, the "Title Commitments" and individually, a "Title Commitment") issued not earlier than thirty (30) days prior to the execution of this Agreement and issued by a title insurance company authorized to do business in the state in which the Owned Real Estate is located designated by Seller (the "Title Company"). (b) SURVEYS. For thirty (30) days from the date hereof, Purchaser shall have the right, but not the obligation, to obtain, at Purchaser's sole cost and expense, (i) surveys as to any or all of the Owned Real Estate or the Leasehold Estate and (ii) title commitments for issuance of ALTA Leasehold Policies of Title Insurance as to the Leasehold Estate from the Title Company ("Leasehold Title Commitment"). Purchaser shall cause a true and complete copy of each survey to be promptly delivered to Seller and to the Title Company. Purchaser shall cause a true and complete copy of each Leasehold Title Commitment to be promptly delivered to Seller. (c) TITLE DEFECTS. (i) Ten (10) days after receipt by Purchaser of an original Title Commitment or any survey or Leasehold Title Commitment obtained pursuant to Section 2.04(b) hereof, Purchaser shall give Seller and the Title Company written notice of any defect(s) disclosed in such Title Commitment, survey or Leasehold Title Commitment that: (w) is (are) not included in the exceptions specifically identified on the Title Commitment or Leasehold Title Commitment; (x) is(are) not included in clauses (a)-(d) of the definition of Permitted Exceptions related to the applicable Owned Real Estate or Leased Real Estate; (y) that materially adversely affect(s) the business of the Branch situated upon such Owned Real Estate or Leased Real Estate; and (z) which Purchaser does not approve. Failure of Purchaser to provide such notice on a timely basis shall constitute a waiver by Purchaser of any matter(s) disclosed in such Title Commitment, survey or Leasehold Title Commitment and thereupon such matter(s) shall be deemed included in clause (b) of the definition of Permitted Exceptions set forth in this Agreement. (ii) If the notice referred to in (i) above is timely given by Purchaser, Seller shall, within ten (10) days of such notice, notify Purchaser and the Title Company as to whether Seller shall cure or remove any defect(s). Following Seller's notice to Purchaser and the Title Company that Seller elects not to cure any defect(s), Purchaser must elect, within five (5) days, as its sole remedy hereunder with respect to such defect(s), to terminate this Agreement as to the Assets and Liabilities attributable to the Branch situated upon the affected Owned Real Estate and/or Leased Real Estate. Purchaser's failure to make such an election shall be deemed to be a waiver of such defect(s) and such defect(s) shall be included in the Permitted Exceptions and shown as Permitted Exceptions in the deed and the title policy relating to such Owned Real Estate or Leasehold Estate. (iii) Seller shall cause the Title Company to update the Title Commitments and Purchaser may, at its sole cost and expense, cause the Title Company to update Leasehold Title Commitments, as of the business day prior to the Closing Date. In the event that the updated Title Commitment or Leasehold Title Commitment as to any Owned Real Estate or Leasehold Estate discloses any defect(s) not included in the original Title Commitment, survey or Leasehold Title Commitment, the procedure set forth in (ii) above shall apply. 8 11 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.01 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser as follows: (a) CORPORATE ORGANIZATION AND AUTHORITY. Seller is a national banking association duly organized, validly existing, and in good standing under the laws of the United States of America with corporate power to carry on its business as presently conducted at the Branches. Seller is an insured bank, as defined in the Federal Deposit Insurance Act and applicable regulations thereunder ("FDIA"). Seller is a member of the Bank Insurance Fund of the FDIC ("BIF") and pays deposit insurance assessments to BIF and the Savings Association Insurance Fund. Seller is in compliance in all material respects with all applicable fair lending laws, rules and regulations, including without limitation the Community Reinvestment Act of 1977, as amended. Seller has all requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transaction contemplated hereby, and this Agreement is a valid and binding obligation of Seller in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditor's rights generally, whether applied at law or equity, and to general equity principals. (b) EFFECTIVE AGREEMENT. Subject to the receipt of any and all Regulatory Approvals and required third party consents, the execution, delivery, and performance of this Agreement by Seller and the consummation of the transaction contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create an Encumbrance, under any of the provisions of the Charter or By-Laws of Seller, under any judgment, decree, or order, under any law, rule, or regulation of any government or agency thereof, or under any material contract or instrument to which Seller is subject, where such conflict, breach, violation, default, acceleration, or Encumbrance would have a material adverse effect on the business of any Branch or Seller's ability to perform its obligations hereunder. (c) INDIVIDUAL RETIREMENT ACCOUNTS. The Individual Retirement Custodial Account Agreement (i.e. Internal Revenue Service Model Form 5305-A with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of an "individual retirement account" as specified in Section 408(a) of the Code in all material respects. (d) SIMPLIFIED EMPLOYEE PENSION ACCOUNTS. The Simplified Employee Pension - Individual Retirement Account Agreement (i.e. Internal Revenue Service Model Form 5305-SEP with certain supplementary provisions) and the Salary Reduction and Other Elective Simplified Employee Pension - Individual Retirement Account Agreement (i.e. Internal Revenue Service Model Form 5305A-SEP with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of a "simplified employee pension" as specified in Section 408(k) of the Code in all material respects. (e) SAVING INCENTIVE MATCH PLAN FOR EMPLOYEES ACCOUNTS. The Saving Incentive Match Plan for Employees of Small Employers Agreement (i.e. Internal Revenue Service Model Form 5305-SIMPLE with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of a "saving incentive match plan for employees" as specified in Section 408(p) of the Code in all material respects. 9 12 (f) KEOGH ACCOUNTS. The custodial agreement for the retirement plan for self-employed individuals used at the Branches materially meets the criteria for the establishment of a "Keogh plan" as specified in Section 401(a) and Section 401(c) of the Code in all material respects. (g) NO BROKER. No broker or finder, or other party or agent performing similar functions, has been retained by Seller or is entitled to be paid based upon any agreements, arrangements, or understandings made by Seller in connection with the transaction contemplated hereby, and no brokerage fee or other commission has been agreed to be paid by Seller on account of such transaction. (h) ENVIRONMENTAL. Seller makes the representations and warranties to Purchaser set forth in Section 10.01 hereof. (i) ASSETS. The fixed Assets material to the operations of each of the Branches are in adequate working condition for the conduct of the business at each of the Branches currently conducted by Seller except for ordinary wear and tear. (j) DEPOSITS. All of the Assumed Deposits have been administered and, to Seller's knowledge, originated, in material compliance with the documents governing the relevant type of deposit account and all applicable laws. The Assumed Deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC up to the current applicable maximum limits, and no action is pending or, to Seller's knowledge, threatened by the FDIC with respect to the termination of such insurance. (k) LIMITATION OF WARRANTIES. Except as otherwise specifically provided for in this Agreement, Seller makes no representations or warranties whatsoever with respect to the Assets or the Liabilities, express or implied, including, without limitation, any warranties with respect to merchantability, fitness, title, enforceability, collectibility, documentation or freedom from liens or encumbrances (in whole or in part). 3.02 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to Seller as follows: (a) CORPORATE ORGANIZATION, AUTHORITY AND COMPLIANCE. Purchaser is a national banking association duly organized, validly existing, and in good standing under the laws of the United States of America with corporate power to own its properties and to carry on its business as presently conducted, except where the failure of Purchaser to have such corporate power would not have a material adverse effect on the ability of Purchaser to perform its obligations hereunder. Purchaser is an insured bank, as defined in the FDIA. Purchaser has all requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transaction contemplated hereby, and this Agreement is a valid and binding obligation of Purchaser in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditor's rights generally, whether applied at law or equity, and to general equity principals. Purchaser is in compliance with all applicable fair lending laws, rules and regulations including but not limited to the Community Reinvestment Act of 1977, as amended. 10 13 (b) EFFECTIVE AGREEMENT. Subject to the receipt of any and all Regulatory Approvals and required third party consents, the execution, delivery, and performance of this Agreement by Purchaser and the consummation of the transaction contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create an Encumbrance, under any of the provisions of the Articles of Association or By-Laws of Purchaser, under any judgment, decree, or order, under any law, rule, or regulation of any government or agency thereof, or under any material contract or instrument to which Purchaser is subject, where such conflict, breach, violation, default, acceleration, or lien would have a material adverse effect on Purchaser's ability to perform its obligations hereunder. (c) NO BROKER. No broker or finder, or other party or agent performing similar functions, has been retained by Purchaser or is entitled to be paid based upon any agreements, arrangements, or understandings made by Purchaser in connection with the transaction contemplated hereby, and no brokerage fee or other commission has been agreed to be paid by Purchaser on account of such transaction. (d) REGULATORY MATTERS. (i) There are no pending, or, to Purchaser's knowledge, threatened or contemplated, disputes or controversies (including any written order, decree, agreement or memorandum of understanding, or Commitment Letter or similar submission) with, to or between Purchaser and any federal, state or local governmental agency or authority that, individually or in the aggregate, would have a material adverse effect on Purchaser's ability to perform any of its obligations hereunder. (ii) Purchaser is, and on a pro forma basis giving effect to the transaction contemplated hereby will be, (A) at least "well capitalized", as defined for purposes of the FDIA, and (B) in compliance with all capital requirements, standards and ratios required by each state or federal bank regulator with jurisdiction over Purchaser, including, without limitation, any such higher requirements, standard or ratio as shall apply to institutions engaging in the acquisition of insured institution deposits, assets or branches, and no such regulator is likely to, or has indicated that it will, condition any of the Regulatory Approvals upon an increase in Purchaser's capital or compliance with any capital requirements, standard or ratio. (iii) Purchaser has no knowledge that it will be required to divest deposit liabilities, branches, loans or any business or line of business as a condition to the receipt of any of the Regulatory Approvals. (iv) Except for First-Knox National Bank and Farmers and Savings Bank which were both rated "Satisfactory", each of the subsidiaries, if any, or affiliates of Purchaser that is an insured depository institution was rated "Outstanding" following its most recent Community Reinvestment Act examination by the regulatory agency responsible for its supervision. Purchaser has received no notice of and has no knowledge of any planned or threatened objection by any community group to the transactions contemplated hereby. (e) FINANCING AVAILABLE. Purchaser's ability to consummate the transactions contemplated by this Agreement is not contingent on raising any equity capital, obtaining specific financing thereof, obtaining the consent of any lender or any other matter. 11 14 3.03 SURVIVABILITY; NO INDEMNIFICATION. The representations and warranties of Seller and Purchaser contained or referred to in this Agreement or in any certificate, schedule, or other instrument delivered or to be delivered pursuant to this Agreement shall not survive beyond the Closing and neither Seller nor Purchaser shall have any obligation whatsoever after the Closing to indemnify, defend, or hold the other harmless for any loss, cost, charge, liability or expense arising as a result of the inaccuracy or breach of any such representation or warranty. Nothing in this provision shall affect the rights and obligations of the parties provided for in Sections 1.08(c), 4.02(a), 6.03 and 10.02 hereof. ARTICLE IV EMPLOYEE BENEFITS 4.01 LIST OF BRANCH EMPLOYEES; HANDBOOK. Names of all employees (including full and part-time employees, employees on short term disability and employees on leave of absence and excluding employees on long-term disability) employed by the Seller and assigned to the Branches as of the date hereof (the "Branch Employees"), and, as to each Branch Employee, such employee's date of hire and current compensation are listed on attached Schedule C. At least ten days prior to the Closing Date, Seller shall update Schedule C to a date within 15 days prior to the Closing Date. 4.02 ACTIONS TO BE TAKEN BY PURCHASER WITH RESPECT TO BRANCH EMPLOYEES. Purchaser covenants to Seller that it will do or cause the following to occur: (a) OFFER OF EMPLOYMENT. Seller shall make available and Purchaser shall hire, as of the Closing Date, all Branch Employees, at salaries, or at base wages, not less than the current salaries or base wages paid to such Branch Employees as of the Closing Date. Purchaser shall be responsible for all obligations (including any obligation to provide notices) or liabilities, if any, which may arise in connection with any Branch Employee under the Workers Adjustment and Retraining Notification Act (the "WARN Act") and Purchaser shall indemnify Seller for any and all losses which Seller may incur under the WARN Act in connection with any Branch Employee due to actions taken by Purchaser. (b) EMPLOYEE BENEFITS. All Branch Employees shall be eligible to participate in Purchaser's employee benefit plans and fringe benefit plans (including, without limitation, pension and profit sharing plans, retirement income and post retirement welfare benefits, health insurance benefits (medical and dental), disability, life and accident insurance, sickness benefit, vacation, employees' loans, and banking privileges) on the same basis as such plans and benefits exist and are offered to employees of Purchaser with comparable positions with Purchaser. Purchaser shall credit such Branch Employees for their length of service with Seller, its predecessors, or its affiliates, for all purposes under each employee benefit and fringe benefit plan to be provided by Purchaser to such Branch Employees and for purposes of vesting and eligibility (but not for purposes of benefit accrual) under any pension benefit plan as defined in Section 3(2) of ERISA. (c) CREDITED SICKNESS DAYS. If Purchaser offers a salary continuation or similar program for employees unable to work for medical reasons, the Branch Employees shall be credited under any program of Purchaser with at least the number of sickness and/or personal benefit days accrued under Seller's program at the Closing Date. After the Closing Date, the Branch Employees shall accrue additional sickness and/or personal benefit days in accordance with the terms of Purchaser's program. 12 15 (d) PRE-EXISTING CONDITION. Purchaser agrees that any pre-existing condition clause in any of Purchaser's health or disability insurance coverage shall not be applicable to the Branch Employees or their dependents. (e) SEVERANCE PAY. Seller's severance policy and Purchaser's severance policy, if any, are attached hereto as Schedule D. Effective as of the Closing Date, Purchaser shall assume liability for all severance benefits payable to any Branch Employee who is terminated by Purchaser after the Closing Date. For a period of one (1) year following the Closing Date, Purchaser shall provide such benefit pursuant to either Purchaser's severance policy or Seller's severance policy, whichever is greater, and Purchaser shall compute severance benefits by giving all Branch Employees full credit for all years of service with Seller, its affiliates, and predecessors, in accordance with Section 4.02(b). In the event that Purchaser does not maintain a severance policy, Purchaser will adopt a severance policy for a period of one (1) year from the Closing Date on a basis consistent with the terms of Seller's severance policy in existence on the Closing Date as disclosed in writing to Purchaser by Seller on or prior to the date hereof. After the initial one-year period, Purchaser shall provide Branch Employees with severance benefits in accordance with Purchaser's severance policy, if any, in accordance with their years of service as credited under this Agreement. (f) SUCCESSOR EMPLOYER. Purchaser agrees it will qualify as a successor employer of Branch Employees for withholding tax purposes. (g) PAYMENT OF CLAIMS. Purchaser assumes responsibility for (i) payment of any medical, dental, health and disability claims incurred by Branch Employees on or after the Closing Date and (ii) Continuation Coverage (as defined in Section 4.03(d) below) to any Branch Employee (and each Branch Employee's qualified beneficiaries) whose qualifying event occurs on or after the Closing Date. 4.03 ACTIONS TO BE TAKEN BY SELLER WITH RESPECT TO BRANCH EMPLOYEES. Seller covenants to Purchaser that it will do or cause the following to occur: (a) ACCRUED BENEFITS. Seller agrees to remain responsible for the payment of all accrued benefits to such Branch Employees who are participants or retirees in accordance with the terms of Seller's retirement income plans. Purchaser shall not at any time assume any liability for the benefits of any active or any terminated, vested, or retired participants whose benefit accrued prior to the Closing Date under Seller's retirement income plans. (b) PAYMENT OF CLAIMS. Seller shall retain the responsibility for payment of all medical, dental, health and disability claims incurred by a Branch Employee prior to the Closing Date, and Purchaser shall not assume any liability with respect to such claims. (c) CONTINUATION COVERAGE. Seller shall be responsible for providing any Branch Employee whose "qualifying event," within the meaning of Section 4980B(f) of the Code, occurs prior to the Closing Date (and such Branch Employee's "qualified beneficiaries" within the meaning of Section 4980B(g) of the Code) with the continuation of group health coverage required by Section 4980B(f) of the Code ("Continuation Coverage") under the terms of the health plan maintained by Seller. 13 16 (d) RETIRED OR TERMINATED BRANCH EMPLOYEES. Seller agrees that it shall retain, consistent with its normal employment practices, all liability and obligation, if any (including, without limitation, the liability and obligation for all wages, salary, vacation pay and unemployment, medical, dental, health and disability benefits), for those former employees of the Branches who retired or terminated employment prior to the Closing Date, but shall in all other instances cease to have any liability for Branch Employees with regard to the foregoing provisions on or after the Closing Date, except as otherwise required by law. 4.04 SELLER'S PENSION AND SAVINGS PLAN. On and after the Closing Date, Seller shall vest all of the Branch Employees in the KeyCorp Cash Balance Pension Plan ("Seller's Pension Plan") and the KeyCorp 401(K) Savings Plan ("Seller's Savings Plan"). ARTICLE V TAX MATTERS 5.01 DEPOSIT ACCOUNTS DOCUMENTATION. To Seller's Knowledge, with respect to the Assumed Deposits, Seller is in compliance with the law and IRS regulations relative to obtaining from depositors executed IRS Forms W-8 and W-9 or is back-up withholding on the applicable account. 5.02 ASSISTANCE AND COOPERATION; TAX MATTERS. After the Closing Date, each of Seller and Purchaser shall, with respect to the Assets or income therefrom, the Assumed Deposits or payments in respect thereof, or the operation of the Branches: (a) TAX INFORMATION. Make available to the other and, subject to attorney-client privilege, to any taxing authority as reasonably requested all relevant information, records, and documents relating to taxes. (b) AUDITS AND ASSESSMENTS. Provide timely notice to the other party in writing of any pending or proposed tax audits (with copies of all relevant correspondence received from any taxing authority in connection with any tax audit or information request) or assessments for taxable periods for which the other party may have a liability. The party requesting assistance or cooperation shall bear the other party's reasonable out-of-pocket expenses in complying with such request to the extent that those expenses are attributable to fees and other costs of unaffiliated third-party service providers. ARTICLE VI CONDITIONS PRECEDENT TO CLOSING 6.01 CONDITIONS TO BOTH PARTIES OBLIGATIONS. The obligations of each party to consummate the transaction contemplated hereby are subject to the satisfaction, or the waiver by such party to the extent permitted, of each of the following conditions at or prior to the Closing: 14 17 (a) PRIOR REGULATORY APPROVAL OF THE TRANSACTION CONTEMPLATED HEREBY. All filings and registrations with, and notifications to, all federal and state authorities required for consummation of the transaction contemplated hereby and Purchaser's operation of the Branches shall have been made, all Regulatory Approvals shall have been received and shall be in full force and effect, and all applicable waiting periods shall have passed. A Regulatory Approval will be deemed to have been received, and the condition to closing set forth in this Section 6.01 shall be deemed to have been met notwithstanding the fact that such Regulatory Approval requires Purchaser to effect any divestiture of any of the Branches. (b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the other party set forth in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of such time (unless a different date is specifically indicated in such representations and warranties), and each party shall have delivered to the other a certificate, dated as of the Closing Date, to the effect that this condition has been satisfied with respect to such party, provided, however, that the representation of Seller set forth in Section 3.01(i) hereof shall be deemed to be true and correct in accordance with this Section 6.01 unless Buyer shall have notified Seller at least 10 days prior to the Closing Date of any potential breach of Section 3.01(i) by Seller and Seller shall have had sufficient opportunity to correct such potential breach. (c) COVENANTS. Each and all of the covenants and agreements of the other party to be performed or complied with at or prior to the Closing Date pursuant to this Agreement shall have been duly performed or complied with in all material respects by such party, or shall have been waived in accordance with the terms hereof, and such party shall have delivered a certificate, dated as of the Closing Date, to the effect that this condition has been satisfied with respect to such party; provided, however, that the covenant of Seller set forth in Section 2.01(a) hereof shall be deemed to have been duly performed and complied with in accordance with this Section 6.01(c) unless Buyer shall have notified Seller at least 10 days prior to the Closing Date of any potential breach of Section 2.01(a) and Seller shall have had sufficient opportunity to correct such potential breach. (d) NO PROCEEDING OR PROHIBITION. At the time of the Closing, no court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect to restrain, enjoin, or prohibit consummation of the transaction contemplated hereby or which might result in rescission in connection with such transaction, and Purchaser shall have delivered to Seller a certificate, dated as of the Closing Date, to that effect. 6.02 ADDITIONAL CONDITION TO PURCHASER'S OBLIGATIONS. The Updated Title Commitments shall have been delivered to Purchaser in accordance with Section 2.04. Subject to the provisions of Section 2.04, the Title Company shall be ready and willing, upon the recording of the applicable deeds, to issue to Purchaser, at Purchaser's sole cost and expense, an ALTA Owner's Policy of Title Insurance as to each parcel of Owned Real Estate, showing as exceptions to title only the Permitted Exceptions. 6.03 OVERRIDING PROVISIONS RELATING TO THE LEASES. Notwithstanding anything to the contrary herein, if, by no later than five (5) days prior to the Closing Date, a landlord under a Lease shall not have consented to the assignment to and assumption by Purchaser of that Lease or to a sublease by Seller to Purchaser of the Leased Real Estate demised by the Lease and such consent is required under the terms of the Lease, the Seller shall have the right, exercisable by written notice no later than the Closing Date, to terminate the Agreement: (a) as to the Leasehold Estate demised by such Lease and all furniture, fixtures and equipment located thereon; or (b) as to the Assets and Liabilities relating to the Branch situated upon such Leased Real Estate. Furthermore, and also notwithstanding anything to the 15 18 contrary herein, if, by not later than five (5) days prior to the Closing Date, a landlord under a Lease shall not have agreed to the release of Seller from all obligations and liabilities under the Lease from and after the Closing Date, but either the landlord shall have consented to a sublease by Seller to Purchaser of the Leased Real Estate demised by the Lease (if the Lease requires such consent) or such a sublease does not require the landlord's consent, then Seller and Purchaser agree to proceed with the transactions contemplated by this Agreement as to the Branch located at the Leased Real Estate demised by such Lease, except that Seller and Purchaser shall enter into a sublease agreement by which Seller shall sublease the Leased Real Estate and Purchaser shall agree to indemnify Seller for any loss, cost, charge or liability incurred by Seller as a result of the failure to obtain the landlord's release. If the parties are to enter into a sublease, then Seller shall provide to Purchaser promptly after the lapse of such deadline a form of sublease which shall contain substantially the same terms and conditions as the corresponding Lease, with appropriate modifications to reflect the sublease nature. ARTICLE VII CLOSING 7.01 CLOSING AND CLOSING DATE. The transaction contemplated hereby shall be effective at a closing (the "Closing") to be held in the offices of Seller, located at 127 Public Square, Cleveland, Ohio 44107, or via courier or facsimile transmission as Seller may designate. The Closing shall be effective at 11:59 p.m. on Friday, September 12, 1997 or Friday, December 5, 1997, or such other date as Seller in its discretion may designate, which date shall be reasonably acceptable to Purchaser. The date on which the Closing occurs is referred to in this Agreement as the "Closing Date". 7.02. PARTIES' ACTIONS AT THE CLOSING. At the Closing, Seller and Purchaser shall, except as otherwise provided in this Agreement, take such actions, including the execution and delivery of certain documentation, all as set forth on Schedule E, and including the filing or recording of any and all documents (including, without limitation, deeds) necessary in order to transfer legal and equitable title to the Owned Real Estate to Purchaser as of the Closing Date. ARTICLE VIII CERTAIN TRANSITIONAL MATTERS TRANSITIONAL ACTION BY PURCHASER AND SELLER. Purchaser and Seller shall cooperate in good faith and will use all reasonable efforts to comply with the various transitional matters set forth in Schedule F hereto. 16 19 ARTICLE IX GENERAL COVENANTS 9.01 INFORMATION. Except as otherwise set forth in this Agreement, for a period of three (3) years following the Closing, Seller and Purchaser mutually agree, subject to any limitations imposed by law, to provide each other, upon written request, with reasonable access to, or copies of, information and records relating to the Branches, including, without limitation, Branch Employee and customer files which are in the possession or control of Purchaser or Seller reasonably necessary to permit Seller or Purchaser or any of their affiliates to comply with or contest any applicable legal, tax, banking, accounting, or regulatory policies or requirements, any legal or regulatory proceedings, or inquiries by customers or Branch Employees. The provisions of this Section 9.01 shall survive the Closing for a period of three (3) years and any claim for the breach of this Section 9.01 must be brought within such three (3) year period. 9.02 CONFIDENTIALITY OBLIGATIONS. From and after the date hereof, each party shall, and shall cause its affiliates to, treat all information received from the other party concerning the business, assets, operations, and financial condition of the other party as well as any other material which is included in the definition of "Evaluation Material" as such term is defined under the confidentiality agreement between Purchaser and Seller dated as of April 30, 1997 as Evaluation Material in accordance with the terms of such confidentiality agreement. From and after the Closing Date, Seller shall assign to Purchaser all of Seller's rights under any confidentiality agreements executed by or on behalf of parties other than Purchaser. 9.03 ALLOCATION OF CONSIDERATION. Purchaser and Seller agree that the consideration payable hereunder at the Closing shall be allocated among the Assets on the basis of an allocation to be mutually agreed upon by Purchaser and Seller within thirty (30) days after the Closing, and that is consistent with Section 1060 of the Code. 9.04 COVENANT REGARDING THE ESTABLISHMENT OF BRANCHES AND THE RETENTION OF CUSTOMER LISTS. (a) For two (2) years after the Closing, Seller shall not open, and shall not permit any of its affiliates to open, any branch office or install any ATM within Lancaster, Ohio; provided that the foregoing restriction shall not apply from and after any date that the Seller or one of its affiliates shall have completed an acquisition transaction, including a merger of Seller or one of Seller's affiliates, with any other financial institution holding company or any insured depository institution which at the time of such acquisition transaction is providing retail branch services in Lancaster, Ohio. (b) Following the Closing, neither Seller nor KeyCorp or any of its affiliates will solicit any Branch customer except such as may occur as a result of solicitations to (i) the public generally, or (ii) customers of Seller or KeyCorp or any of its affiliates, including without limitation, all customers that Seller retains as a result of Purchaser rejecting the Loans in accordance with Section 1.08(b). 9.05 FURTHER ASSURANCES. From and after the date hereof, each party hereto agrees to execute and deliver such instruments and to take such other actions as the other party hereto may reasonably request or as may be reasonably necessary, including obtaining all required consents of third parties, in order to carry out and implement this Agreement. Purchaser shall use its best efforts to pursue all applications filed in connection with obtaining the Regulatory Approvals diligently and in good faith. 9.06 OPERATION OF BRANCHES. Not later than the Closing Date, Purchaser: (a) shall change the legal name of the Branches to a name that does not include the word Key, and (b) except for any documents or materials in possession of the customers of the Branches (including, but not limited to, deposit tickets and checks), shall not use 17 20 and shall cause the Branches to cease using (i) any signage, stationery, advertising, documents, or printed or written materials that refer to such Branches by any name that includes the word Key and (ii) any logo, trademark or service mark or trade name registered in the name of, or otherwise owned by Seller or any of its affiliates, except as otherwise provided in this Agreement or permitted pursuant to any written agreement(s) between Purchaser and Seller or its affiliates. 9.07 NOTICES OF DEFAULT. Each of Seller and Purchaser shall promptly give written notice to the other upon becoming aware of the impending or threatened occurrence of any event which could reasonably be expected to cause or constitute a breach of any of their respective representations, warranties, covenants or agreements contained in this Agreement. 9.08 FIRE, CASUALTY AND TAKINGS. If any Owned Real Estate, Leasehold Estate or Leased Real Estate or any fixtures or leasehold improvements composing part thereof shall be damaged by fire or other casualty and such damage materially affects the operations of the Branch related thereto, whether insured or uninsured, and shall not be substantially repaired or restored by the Closing Date, or if the land where any of the Branches is located or any building thereon or any part thereof shall be taken by condemnation or exercise of the power of eminent domain, or if proceedings therefor have commenced or been threatened, on or prior to the Closing Date and such taking materially affects or would materially affect the operations of the Branch related thereto, Purchaser shall have the right and option exercisable within 10 days of notification of such damage or taking to elect (i) to terminate this Agreement with respect to the affected Branch, and the purchase price shall be adjusted to reflect the decrease in the value of the assets and liabilities of the affected Branch assigned thereto pursuant to the terms hereof, or (ii) to cause Seller to assign to Purchaser as of the Closing Date all of Seller's rights and claims against any third party by reason of such fire or other casualty, including without limitation, any insurance claims. ARTICLE X ENVIRONMENTAL MATTERS . 10.01 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. (a) Prior to the date hereof, Seller shall have provided to Purchaser Phase I audit reports, as of a date no earlier than January 1, 1994, undertaken by Seller with respect to the Owned Real Estate (the "Phase I Reports"). Except as set forth in the Phase I Reports, to the Knowledge of Seller, the Branches are in compliance with all environmental laws, rules and regulations of the United States of America and of states and localities in which the Branches are located, except for any such noncompliance which, individually or in the aggregate, has not had, and is not expected to have, to the Knowledge of Seller, a material adverse effect on the business of any Branch. (b) Except as may be set forth in the Phase I Reports, to the Knowledge of Seller, Seller has no liability with respect to the Branches which, taken singularly or as a whole, if adversely determined, would have a material adverse effect on the business of any Branch (i) relating to the handling, storage, treatment, use, disposal, discharge or release into the environment of any hazardous material or waste at, on or from the Owned Real Estate or the Leased Real Estate, (ii) for the release or emission of any hazardous material from, on, under, or within the Owned Real Estate or Leased Real Estate into the air, water, surface water, ground water, land surface, or subsurface strata, (iii) for the disposal of any hazardous material on the Owned Real Estate or Leased Real Estate or (iv) for the contamination of the Owned Real Estate or Leased Real Estate with any hazardous material. 18 21 10.02 ENVIRONMENTAL INVESTIGATION. (a) If any Phase I Report indicates the presence of any hazardous substance with respect to any Owned Real Estate, and such presence is a condition that requires remediation pursuant to appropriate governmental standards, then, at Purchaser's request made in writing to Seller within ten (10) days after the date of this Agreement, and at Purchaser's sole cost and expense, Seller shall arrange to cause a consultant approved by both Seller and Purchaser to conduct a Phase II environmental audit as to such hazardous substance and deliver to Seller and Purchaser the results of such audit within forty-five days after the request by Purchaser. If the Phase II audit report confirms that such presence requires remediation pursuant to appropriate governmental standards and if such presence, if not remediated, would materially adversely affect the business of the Branch situated upon the Owned Real Estate and Purchaser requests that Seller take remedial action with respect thereto, then Purchaser shall so notify Seller in writing promptly after receipt of the Phase II environmental audit report, whereupon Seller shall have the right to (i) terminate this Agreement as it relates to the Assets and Liabilities of the affected Branch, (ii) undertake remedial action as to such presence at its sole cost and expense so that no material continuing violation of any environmental law exists (provided, however, that the timing of any such remediation shall be coordinated with Purchaser to minimize any resulting business interruption), or (iii) agree to indemnify Purchaser for all actual costs and expenses incurred by Purchaser to remediate the Owned Real Estate as to such presence so that no material continuing violation of any environmental law exists. (b) If Purchaser fails to request a Phase II environmental audit or to exercise its right to make a request that Seller remediate any Owned Real Estate in each case as and when required above, then Purchaser shall be bound to the terms of this Agreement without a right of termination except as provided in Article XI and without a further right to request or to require any Seller remediation or indemnification. Any termination by Seller under this Article X shall neither create nor result in any liability of the Seller to the Purchaser. ARTICLE XI TERMINATION 11.01 METHODS OF TERMINATION. This Agreement may be terminated in any of the following ways: (a) By either Purchaser or Seller, in writing, if the Closing has not occurred on or before the earlier of the nine (9) month anniversary of this Agreement; (b) At any time prior to the Closing Date by the mutual consent in writing of Purchaser and Seller; (c) By Purchaser or Seller as to the Owned Real Estate and/or Leasehold Estate and all furniture, fixture and equipment located thereon, all of the Assets and Liabilities relating to the affected Branch, or as to the Agreement in its entirety, as provided, in each case, in Section 2.04(c), 6.03 or 10.02; (d) By Purchaser in writing if and when, at any time prior to the Closing, any condition of its obligations hereunder set forth in Section 6.01 of this Agreement becomes incapable of being fulfilled and such condition has not been waived by Purchaser; 19 22 (e) By Seller in writing if and when, at any time prior to the Closing, any condition of its obligations hereunder set forth in Section 6.01 of this Agreement becomes incapable of being fulfilled and such condition has not been waived by Seller; (f) At any time prior to the Closing Date by Purchaser or Seller in writing if the other continues to be in breach of any representation and warranty (as if such representation and warranty had been made on and as of the date of the notice of breach referred to below unless a different time is specified in any such representation and warranty), covenant, or agreement in any material respect and such breach has not been cured within twenty-five (25) days after the giving of notice to the breaching party of such breach; or (g) By Purchaser or Seller in writing at any time after any applicable regulatory authority has denied approval of any application of Purchaser for approval of the transaction contemplated hereby. 11.02 EFFECT OF TERMINATION. Except as otherwise specifically provided in this Agreement, in the event of termination of this Agreement pursuant to this Article XI, neither Purchaser nor Seller nor their respective officers, directors, or agents shall have any liability or obligation to the other of any nature whatsoever except liabilities and obligations arising from Section 9.02 of this Agreement and liabilities and obligations arising from any material breach of any provision of this Agreement occurring prior to the termination hereof. ARTICLE XII MISCELLANEOUS PROVISIONS 12.01 EXPENSES. Except as otherwise specifically allocated herein, each of the parties hereto shall bear its own expenses, whether or not the transaction contemplated hereby is consummated. 12.02 TRANSFER OF LOANS WITHOUT RECOURSE; LIMITATION ON WARRANTIES. Except as may be provided in Section 1.08, all Loans transferred to Purchaser pursuant to this Agreement shall be transferred without recourse and without any representations or warranties whatsoever (including, without limitation, any representations or warranties as to the enforceability or collectibility of any such Loans, the creditworthiness of any obligors or guarantors thereunder, or the value or adequacy of such collateral). EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT TO THE ASSETS OR THE LIABILITIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES WITH RESPECT TO MERCHANTABILITY, FITNESS, TITLE, ENFORCEABILITY, COLLECTIBILITY, DOCUMENTATION OR FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART). 12.03 AMENDMENT, MODIFICATIONS AND WAIVERS. The parties hereto, by mutual consent of their duly authorized officers, may amend, modify, and supplement this Agreement in such manner as may be agreed upon by them in writing. Each party hereto, by written instrument signed by an officer of such party, may extend the time for the performance of any of the obligations or other acts of the other party hereto and may waive, but only as affects the party signing such instrument: (a) any inaccuracies in the representations or warranties of the other party; (b) compliance with any of the covenants or agreements of the other party; (c) the performance by the other party of such of its obligations set out herein; and (d) satisfaction of any condition to the obligations of the waiving party pursuant to this Agreement. 20 23 12.04 NOTICES. Any notice or other communication required or permitted pursuant to this Agreement shall be effective only if it is in writing and delivered personally, by facsimile transmission, or by registered or certified return receipt mail, postage prepaid, addressed as follows: If to Purchaser: The Park National Bank 21 South First Street Newark, Ohio 43055 Facsimile: (614) 349-3787 Attention: David C. Bowers, Senior Vice President with a copy to the following: Vorys Sater Seymour & Pease P.O Box 1008 52 East Gay Street Columbus, Ohio 43216-1008 Facsimile: (614) 464-6350 Attention: Betsy Farrar If to Seller: KeyCorp 127 Public Square Cleveland, Ohio 44114 Facsimile: 216-689-3610 Attention: Matthew M. Nickels with a copy to the following: KeyCorp 127 Public Square Cleveland, Ohio 44114 Facsimile: 216-689-4121 Attention: Daniel R. Stolzer, Esq. or such other person or address as any such party may designate by notice to the other parties, and shall be deemed to have been given as of the date received. 12.05 PARTIES IN INTEREST; ASSIGNMENT. This Agreement is binding upon and is for the benefit of the parties hereto and their respective successors, legal representatives, and assigns, and no person, including a Branch Employee, who is not a party hereto (or a successor or assignee of such party) shall have any rights or benefits under this Agreement, either as a third party beneficiary or otherwise. This Agreement cannot be assigned except by a written agreement executed by the parties hereto or their respective successors and assigns. Notwithstanding the foregoing, Seller acknowledges that Purchaser may intend to arrange for resales of certain of the Branches simultaneously with 21 24 the Closing; provided, however, that no third party beneficiary relationship or any contractual relationship between Seller and any other third party shall be deemed to exist or to be created hereunder by virtue of the resale of any of the Branches by Purchaser hereunder. 12.06 PRESS RELEASES. Seller and Purchaser shall mutually agree as to the form, timing and substance of any press release of any matters relating to this Agreement; provided, however, that nothing in this Section 12.06 shall be deemed to prohibit any party hereto from making any press release which its legal counsel deems necessary in order to fulfill such party's disclosure obligations imposed by law. 12.07 ENTIRE AGREEMENT. This Agreement supersedes any and all oral or written agreements and understandings heretofore made relating to the subject matter hereof and contains the entire agreement of the parties relating to the subject matter hereof. All Schedules to this Agreement are incorporated into this Agreement by reference and made a part hereof. 12.08 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. If any part of this Agreement is declared illegal by a court of competent jurisdiction, the remaining parts shall remain in full force and effect. 12.09 COUNTERPARTS. This Agreement and any Schedule hereto may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officer whose signature appears below as of the date first above written. PURCHASER: SELLER: The Park National Bank KeyBank National Association By: /s/ WILLIAM T. McCONNELL By: /s/ MATTHEW M. NICKELS ----------------------------- --------------------------- Name: William T. McConnell Name: Matthew M. Nickels --------------------------- ------------------------- Title: Chairman Title: Vice President --------------------------- ------------------------- 22 25 List of Schedules and Exhibit to Branch Purchase and Assumption Agreement, dated as of May 23, 1997, between The Park National Bank and KeyBank National Association Schedule Description -------- ----------- A Branches to be Purchased B Form of Preliminary Closing Statement C Employee List D Severance Policies E Actions to be Taken at Closing Attachment 1 Instrument of Assumption Attachment 2 Bill of Sale and Receipt Attachment 3 Limited Warranty Deed for Ohio Attachment 4 Assignment and Assumption of Lease F Transitional Matters G Landlord Estoppel Certificate Exhibit ------- 1 Lease The above-described Schedules and Exhibit are not being filed herewith. Park National Corporation agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Securities and Exchange Commission upon request. EX-2.B.2 3 EXHIBIT 2(B)(2) 1 EXHIBIT 2(b)(2) Amendment No. 1 to Branch Purchase and Assumption Agreement between KeyBank National Association and The Park National Bank, dated as of September 24, 1997 2 Exhibit 2(b)(2) AMENDMENT NO. 1 BRANCH PURCHASE AND ASSUMPTION AGREEMENT This Amendment No. 1 (this "Amendment") dated as of September 24, 1997, is entered into by and between KeyBank National Association, a national banking association (the "Seller") and The Park National Bank, a national banking association (the "Purchaser"). SECTION 1. BRANCH PURCHASE AND ASSUMPTION AGREEMENT Reference is made to the Branch Purchase and Assumption Agreement dated as of May 23, 1997 (the "Agreement") regarding Purchaser's purchase of certain assets and assumption of certain liabilities of three (3) branches from Seller. Unless otherwise changed in this Amendment, terms used herein, which are defined in the Agreement, are used herein with the meanings therein described to them. The Agreement as amended by this Amendment is and shall continue to be in full force and effect and shall not be affected by this Amendment except and only to the extent specified herein. The Agreement provided that the Closing of the transaction would be effective at 11:59 p.m. on Friday, September 12, 1997 or Friday, December 5, 1997. The purpose of this Amendment is to modify the Agreement to reflect that the transaction will close on Friday, December 5, 1997, but will have an Effective Time (as that term is defined herein) as of 12:01 a.m. Monday, December 8, 1997. This Amendment also removes the requirement that Purchaser obtain new telephone numbers for the Branches in Purchaser's name. SECTION 2. AMENDMENTS TO THE AGREEMENT 2.1. Amendments to Article I; The Transaction. Article I of the Agreement shall be and hereby is amended as follows: 2.1.1. Section 1.01 is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Effective Time". 2.1.2. Section 1.02(a)(iv) is amended, such that each reference to the term "Closing" is deleted and in place thereof, in each instance, is inserted the term "Effective Time". 2.1.3. Section 1.02(a)(v) is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.1.4. Section 1.02(a)(vi) is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Effective Time". 2.1.5. Section 1.02(b) is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Effective Time". 2.1.6. Section 1.02(b)(i) is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Effective Time". 3 2.1.7. Section 1.02(b)(ii) is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.1.8. Section 1.03(a) is amended and restated as follows: (a) PRELIMINARY CLOSING STATEMENT. Not less than five (5) days prior to the Closing Date, Seller shall deliver to Purchaser a proposed preliminary closing statement, in the form of Schedule B to this Agreement, completed as at a date mutually agreed to by the parties. The parties shall agree upon the preliminary closing statement before the Closing, and it shall be the basis of a preliminary payment to be made to Purchaser's account on the Closing Date, or to Seller's account at the Closing, as the case may be (the "Preliminary Payment"). 2.1.8. Section 1.03(b) is amended and restated as follows: (b) PRELIMINARY PAYMENT. Subject to the terms and conditions hereof, by no later than 12:00 p.m. on the Closing Date, Seller shall wire transfer to Purchaser immediately available funds equal to: (i) the sum of (A) the amount of the Assumed Deposits (including accrued and unpaid interest thereon) reflected on the preliminary closing statement; (B) the amount of all accrued and unpaid expenses reflected as a liability on the preliminary closing statement; and (C) the aggregate of all prepaid safe deposit rental payments prorated to the Effective Time; less (ii) an amount equal to the sum of: (A) 12.07% of the Assumed Deposits based upon an estimated 30-day average prior September 12, 1997; (B) the amount of cash on hand at the Branches as reflected on the preliminary closing statement; (C) the sum of $125,000, representing the Agreed Value of all furniture, fixtures, and equipment constituting part of the Assets; (D) the Agreed Value of the Owned Real Estate and the Leased Real Estate; (E) the amount of all prepaid expenses of Seller as reflected as an asset on the preliminary closing statement; (F) the Net Book Value of all Loans, plus accrued and unpaid interest thereon as reflected on the preliminary closing statement; and (G) the amount of estimated sales taxes, if any, to be paid by Purchaser in connection with the transaction contemplated hereby. 2.1.9. Section 1.04 is amended, such that the reference to the phrase to "at Closing" in the last sentence of this Section 1.04 is deleted and in place thereof is inserted the phrase "on the Closing Date or at the Closing, as the case may be". 2.1.10. Section 1.08(c) is amended, such that each reference to the term "Closing" is deleted and in place thereof, in each instance, is inserted the term "Closing Date"; and Section 1.08(c) is further amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2 4 2.1.11. Section 1.09 is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Effective Time". 2.2. Amendments to Article II; Obligations of the Parties Prior to the Closing Date. Article II of the Agreement shall be and hereby is amended as follows: 2.2.1. Section 2.01(d) is amended and restated in its entirety as follows: (d) INSURANCE. Seller will maintain in effect until the Effective Time all casualty and public liability policies relating to the Branches and maintained by Seller on the date hereof or procure comparable replacement policies and maintain such replacement policies in effect until the Effective Time. 2.2.2. Section 2.02 is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Closing". 2.3. Amendments to Article III; Representations and Warranties. Article III of the Agreement shall be and hereby is amended as follows: 2.3.1. Section 3.03 is amended, such that each reference to the term "Closing" is deleted and in place thereof, in each instance, is inserted the term "Closing Date". 2.4. Amendments to Article IV; Employee Benefits. Article IV of the Agreement shall be and hereby is amended as follows: 2.4.1. Section 4.02(c) is amended, such that each reference to the term "Closing Date" is deleted and in place thereof, in each instance, is inserted the term "Effective Time". 2.4.2. The second sentence of Section 4.02(e) is amended and restated in its entirety as follows: Effective as of the Closing Date, Purchaser shall assume liability for all severance benefits payable to any Branch Employee who is terminated by Purchaser on or after the Closing Date. 2.4.3. Section 4.04 is amended, such that the initial phrase "On and after the Closing Date" is deleted and in place thereof is inserted the phrase "Effective upon the Closing Date". 2.5 Amendments to Article VI; Conditions Precedent to Closing. Article VI of the Agreement shall be and hereby is amended as follows: 3 5 2.5.1. Section 6.01(b) is amended, such that the first and third references to the term "Closing Date" are deleted and in place thereof, in each instance, is inserted the term "Closing". 2.5.2. Section 6.01(c) is amended, such that the first and third references to the term "Closing Date" are deleted and in place thereof, in each instance, is inserted the term "Closing". 2.5.3. Section 6.03 is amended, such that each reference to the term "Closing Date" in the first sentence of this Section 6.03 is deleted and in place thereof, in each instance, is inserted the term "Closing"; and Section 6.03 is further amended, such that the first reference to the term "Closing Date" in the second sentence of this Section 6.03 is deleted and in place thereof is inserted the term "Closing". 2.6. Amendments to Article VII; Closing. Article VII of the Agreement shall be and hereby is amended as follows: 2.6.1. Section 7.01 is amended and restated in its entirety to read as follows: 7.01 CLOSING, CLOSING DATE AND EFFECTIVE TIME. The Transaction contemplated hereby shall occur at a closing (the "Closing") to be held in the offices of Seller, located at 127 Public Square, Cleveland, Ohio 44114, or via courier or facsimile transmission as Seller may designate, on Friday, December 5, 1997, or such other date as Seller in its discretion may designate, which date shall be reasonably acceptable to Purchaser. The "Closing Date" shall be Monday, December 8, 1997. The "Effective Time" of this Agreement for purposes of making calculations and for other purposes specifically referred to in this Agreement shall be as of 12:01 a.m. on Monday, December 8, 1997. In addition, the Closing shall be deemed to have been consummated and final as of the Effective Time. All actions taken and documents delivered at the Closing will be deemed to have been taken and executed simultaneously, and no action will be deemed taken nor any document deemed delivered until all have been taken and delivered. Both parties acknowledge that time is of the essence with respect to consummating the transactions contemplated hereby. 2.6.2. Section 7.03 is added to Article VII as follows: 7.03 RECORDED INSTRUMENTS. If any instrument of transfer contemplated herein shall be filed or recorded in any public record before the Closing Date and thereafter the transaction is not consummated, then at the request of Seller, Purchaser will deliver (or execute and deliver) such instruments and take such other action as Seller shall reasonably request to revoke such purported transfer and to record any additional transfers as are necessary to record property in the name of the Seller. 4 6 2.7. Amendments to Article IX; General Covenants. Article IX of the Agreement shall be and hereby is amended as follows: 2.7.1. Section 9.03 is amended, such that the first reference to the phrase "at the Closing" is deleted and in place thereof is inserted the phrase "on the Closing Date or at the Closing, as the case may be"; and Section 9.03 is further amended, such that the second reference to the term "Closing" is deleted and in place thereof is inserted the phrase "Closing Date or the Closing, respectively,". 2.7.2. Section 9.06 is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.8. Amendments to Article XI; Termination. Article XI of the Agreement shall be and hereby is amended as follows: 2.8.1. Section 11.01(a) is amended, such that the phrase "the earlier of" is deleted. 2.8.2. Section 11.01(d) is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Closing Date". 2.8.3. Section 11.01(e) is amended, such that the reference to the term "Closing" is deleted and in place thereof is inserted the term "Closing Date". 2.9. Amendments to Schedule E. Schedule E to the Agreement shall be and hereby is amended as follows: 2.9.1. The paragraph entitled "Delivery of Documentation" set forth under the Section "Seller's Actions at the Closing" is amended and restated as follows: DELIVERY OF DOCUMENTATION. Execute, acknowledge, and/or deliver to Purchaser, dated as of the Closing Date, the certificates of Seller contemplated by Section 6.01, the Bill of Sale and Receipt in the form of Attachment 2, Limited Warranty Deed in the form of Attachment 3 for the Owned Real Estate upon which each Branch is situated dated as of the Closing and effective upon recording, the Assignment and Assumption of Lease in the form of Attachment 4 for the Leased Real Estate upon which each Branch is situated, all other documents required to be delivered to Purchaser by Seller at the Closing pursuant to the terms of this Agreement, and any other documents which Purchaser has identified to Seller at a reasonable time prior to the Closing that are necessary or reasonably advisable to consummate the transaction contemplated by the Agreement. 5 7 2.9.2. The paragraph entitled "Delivery of Funds" set forth under the Section "Seller's Actions at the Closing" is amended and restated as follows: DELIVERY OF FUNDS. Deliver to Purchaser any funds required to be paid by Seller to Purchaser no later than 12:00 p.m. on the Closing Date pursuant to the terms of this Agreement. 2.9.3. Attachment 1: Instrument of Assumption, paragraph (b) is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.10. Amendments to Schedule F; Transitional Matters. Schedule F to the Agreement shall be and hereby is amended as follows: 2.10.1. Schedule F, paragraph (a) under the heading "Transitional Actions by Purchaser" is amended, such that the first sentence is restated as follows: "From and after the Effective Time, Purchaser shall: (i) . . ." 2.10.2. Schedule F, paragraph (b) under the heading "Transitional Actions by Purchaser" is amended such that the reference to the term "Closing Date" in the first sentence is deleted and in place thereof is inserted the term "Effective Time". 2.10.3. Schedule F, paragraph (c) under the heading "Transitional Actions by Purchaser" is amended, such that the second reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.10.4. Schedule F, paragraph (d) under the heading "Transitional Actions by Purchaser" is amended, such that each reference to the term "Closing Date" is deleted and in place thereof, in each instance, is inserted the term "Effective Time". 2.10.5. Schedule F, paragraph (e) under the heading "Transitional Actions by Purchaser" is amended, such that each reference to the term "Closing Date" is deleted and in place thereof, in each instance, is inserted the term "Effective Time". 2.10.6. Schedule F, paragraph (g) under the heading "Transitional Actions by Purchaser" is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.10.7. Schedule F, paragraph (h) under the heading "Transitional Actions by Purchaser" is deleted. 2.10.8. Schedule F, paragraph (i) under the heading "Transitional Actions by Purchaser" is amended, such that the second sentence is restated as follows: "Purchaser shall notify affected customers to destroy the old ATM/Debit cards and shall notify customers of standard withdrawal limits beginning on the date of the Closing." 6 8 2.10.9. Schedule F, the second paragraph of paragraph (a) under the heading "Transitional Actions by Seller" is amended, such that the phrase "As early as practicable after the Closing Date" is deleted and in place thereof is inserted the phrase "No later than the Closing Date". 2.10.10. Schedule F, paragraph (f) under the heading "Transitional Actions by Seller" is amended, such that the reference to the term "Closing Date" is deleted and in place thereof is inserted the term "Effective Time". 2.10.11. Schedule F, paragraph (g) under the heading "Transitional Actions by Seller" is amended such that the phrase "on the Closing Date" is deleted and in place thereof is inserted the phrase "on the date of the Closing". 2.10.12. Schedule F under the heading "Transitional Actions by Seller" is amended, such that a new paragraph (h) is inserted to read as follows: (h) OPERATION OF THE BRANCHES. During the weekend immediately preceding the Closing Date, Seller shall not open the Branches for the conduct of business. 2.10.13. Schedule F, paragraph (b) under the heading "Transitional Action by Both Parties" is amended, such that the reference to the term "Closing Date" in the first sentence is deleted and in place thereof is inserted the term "Effective Time". 2.10.14. Schedule F, paragraph (e) under the heading "Transitional Action by Both Parties" is amended, such that each reference to the term "Closing Date" in the last sentence is deleted and in place thereof, in each instance, is inserted the term "Effective Time". 2.10.15. Schedule F, paragraph (f) under the heading "Transitional Action by Both Parties" is amended, such that each reference to the term "Closing Date" is deleted and in place thereof, in each instance, is inserted the term "Effective Time". SECTION 3. MISCELLANEOUS 3.1 Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original, by all of which shall constitute one and the same agreement. 3.2 Headings. The section headings set forth in this Amendment are for convenience only and shall not affect the construction hereof. 3.3 Entire Agreement. This Amendment contains the entire agreement and understanding of the parties with respect to its subject matter. This Amendment supersedes all prior agreements and understandings between the parties, both written and oral, with respect to its subject matter. 7 9 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as a relevant instrument by their duly authorized officer as of the day and year first written above. THE PARK NATIONAL BANK By: /s/ DAVID C. BOWERS -------------------------------- Title: SVP ------------------------------ KEYBANK NATIONAL ASSOCIATION By: /s/ PHILIP J. ENGLISH -------------------------------- Title: AVP ----------------------------- 8 EX-10.F 4 EXHIBIT 10(F) 1 SCHEDULE A TO EXHIBIT 10(f) The following directors of Park National Corporation (the "Company") entered into Split-Dollar Agreements with the subsidiaries of the Company identified below which are identical to the Split-Dollar Agreement, dated September 29, 1993, between Dominic C. Fanello and The Richland Trust Company ("Richland") filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772):
Subsidiary of the Company which is a Date of Split-Dollar Name of Director Party to Split-Dollar Agreement Agreement - ---------------- --------------------------------------------- -------------------- R. William Geyer Century National Bank (formerly Mutual Federal October 4, 1993 Savings Bank) ("Century") Tamala Longaberger Kaido Century October 19, 1993 Howard E. LeFevre The Park National Bank ("PNB") September 7, 1993 Phillip T. Leitnaker PNB October 5, 1993 John J. O'Neill PNB September 2, 1993 William A. Phillips Century September 14, 1993 J. Gilbert Reese PNB September 8, 1993 Rick R. Taylor Richland September 29, 1993 John L. Warner PNB September 7, 1993
EX-21 5 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF PARK NATIONAL CORPORATION
State or Other Jurisdiction of Name Incorporation or Organization ---- ------------------------------ The Park National Bank ("PNB") United States (federally-chartered national banking association) Park Investments, Inc. (NOTE: is a wholly-owned subsidiary Delaware of PNB) Scope Leasing, Inc. (NOTE: is a wholly-owned subsidiary of Ohio PNB) The Richland Trust Company ("Richland") Ohio Richland Investments, Inc. (NOTE: is a wholly-owned Delaware subsidiary of Richland) Century National Bank ("Century") United States (federally-chartered national banking association) Zane-Fed Services, Incorporated (NOTE: is a wholly-owned Ohio subsidiary of Century) MFS Investments, Inc. (NOTE: is a wholly-owned subsidiary Delaware of Century) The First-Knox National Bank of Mount Vernon ("FKNB") United States (federally-chartered national banking association) First-Knox, Inc. (NOTE: is a wholly-owned subsidiary of Ohio FKNB)
EX-23.A 6 EXHIBIT 23(A) 1 EXHIBIT 23(a) Consent of Ernst & Young LLP 2 Exhibit 23(a) CONSENT OF INDEPENDENT AUDITORS ------------------------------- We consent to the incorporation by reference in this Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 1997, of our report dated January 20, 1998, with respect to the consolidated financial statements of Park National Corporation included in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1997. We also consent to the incorporation by reference in (a) the Registration Statement on Form S-8 (Registration No. 33-92060) dated March 5, 1995 and (b) the Registration Statement on Form S-4 (Registration No. 333-20417) effective March 20, 1997 of our report dated January 20, 1998, with respect to the consolidated financial statements of Park National Corporation incorporated by reference in this Annual Report on Form 10-K for the fiscal year ended December 31, 1997. /s/ ERNST & YOUNG LLP Columbus, Ohio March 19, 1998 EX-23.B 7 EXHIBIT 23(B) 1 EXHIBIT 23(b) Consent of Crowe, Chizek and Company LLP 2 Exhibit 23(b) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in (a) the Registration Statement of Park National Corporation on Form S-8 (Registration No. 33-92060) dated March 5, 1995 and (b) the Registration Statement of Park National Corporation on Form S-4 (Registration No. 333-20417) effective March 20, 1997, of our report dated January 22, 1997, with respect to the consolidated balance sheet of First-Knox Banc Corp. as of December 31, 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1996, not included separately herein, which report is included in this Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 1997. /s/ CROWE, CHIZEK AND COMPANY LLP Crowe, Chizek and Company LLP Columbus, Ohio March 19, 1998 EX-24 8 EXHIBIT 24 1 EXHIBIT 24 Powers of Attorney 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, 1997, 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 20th day of January, 1998. /s/ William T. McConnell ------------------------ William T. McConnell 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, 1997, 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 20th day of January, 1998. /s/ C. Daniel DeLawder ---------------------- C. Daniel DeLawder 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, 1997, 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 20th day of January, 1998. /s/ David C. Bowers ------------------- David C. Bowers 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, 1997, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C. Bowers as her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her 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 she 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 her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 20th day of January, 1998. /s/ Maureen Buchwald -------------------- Maureen Buchwald 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, 1997, 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 20th day of January, 1998. /s/ James J. Cullers -------------------- James J. Cullers 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, 1997, 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 20th day of January, 1998. /s/ Dominic C. Fanello ---------------------- Dominic C. Fanello 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, 1997, 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 20th day of January, 1998. /s/ R. William Geyer -------------------- R. William Geyer 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, 1997, 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 20th day of January, 1998. /s/ Philip H. Jordan, Jr. ------------------------- Philip H. Jordan, Jr. 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, 1997, 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 20th day of January, 1998. /s/ Tamala Longaberger Kaido ---------------------------- Tamala Longaberger Kaido 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, 1997, 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 20th day of January, 1998. /s/ Howard E. LeFevre --------------------- Howard E. LeFevre 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, 1997, 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 20th day of January, 1998. /s/ Phillip T. Leitnaker ------------------------ Phillip T. Leitnaker 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, 1997, 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 20th day of January, 1998. /s/ James A. McElroy -------------------- James A. McElroy 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, 1997, 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 20th day of January, 1998. /s/ John J. O'Neill ------------------- John J. O'Neill 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, 1997, 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 20th day of January, 1998. /s/ William A. Phillips ----------------------- William A. Phillips 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, 1997, 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 20th day of January, 1998. /s/ J. Gilbert Reese -------------------- J. Gilbert Reese 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, 1997, 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 20th day of January, 1998. /s/ Rick R. Taylor ------------------ Rick R. Taylor 18 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, 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 20th day of January, 1998. /s/ John L. Warner ------------------ John L. Warner EX-27 9 EXHIBIT 27
9 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 93,585 0 0 0 532,922 7,808 8,156 1,591,927 35,595 2,288,383 1,854,964 151,624 28,810 30,868 0 0 68,275 153,842 2,288,383 142,722 37,328 461 180,511 66,449 77,033 103,478 6,999 (7) 62,408 54,550 37,693 0 0 37,693 4.02 4.00 5.07 2,060 2,512 1,642 0 32,347 6,271 2,520 35,595 35,595 0 0
EX-99 10 EXHIBIT 99 1 Exhibit 99 CROWE CHIZEK LETTERHEAD Board of Directors and Shareholders First-Knox Banc Corp. Mount Vernon, Ohio We have audited the consolidated balance sheet of First-Knox Banc Corp. as of December 31, 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First-Knox Banc Corp. as of December 31, 1996, and the results of its operations and cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /S/ CROWE, CHIZEK AND COMPANY LLP Crowe, Chizek and Company LLP Columbus, Ohio January 22, 1997 -----END PRIVACY-ENHANCED MESSAGE-----