-----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, Wsuga5qnhdWOZJjDpxVDA6nWqWqV6i6bebYssFbdDMd7JV8MS3/UGBqStuaOLwXw QTGasSoSnVsaKa1TL6BHIg== 0000950152-00-002090.txt : 20000327 0000950152-00-002090.hdr.sgml : 20000327 ACCESSION NUMBER: 0000950152-00-002090 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 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-K405 SEC ACT: SEC FILE NUMBER: 001-13006 FILM NUMBER: 578301 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-K405 1 PARK NATIONAL CORPORATION FORM 10-K405 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 1-13006 PARK NATIONAL CORPORATION --------------------------------------------------------- (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, P.O. Box 3500, Newark, Ohio 43058-3500 - -------------------------------------------------------------- ------------------------------------ (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 American Stock Exchange (9,719,637 common shares outstanding on February 25, 2000) Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Based upon the closing price reported on the American Stock Exchange on February 25, 2000 ($94.25), the aggregate market value of the Common Shares of the Registrant held by non-affiliates on that date was $617,077,276. Documents Incorporated by Reference: (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1999, are incorporated by reference into Part II of this Annual Report on Form 10-K. (2) Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 17, 2000, are incorporated by reference into Part III of this Annual Report on Form 10-K. Exhibit Index on Page E-1 2 PART I ITEM 1. BUSINESS. GENERAL Park National Corporation is a bank holding company under the Bank Holding Company Act of 1956 and is subject to regulation by the Federal Reserve Board. Park National was incorporated under Ohio law in 1992. Through its subsidiaries, The Park National Bank, Newark, Ohio, a national banking association, The Richland Trust Company, Mansfield, Ohio, an Ohio state-chartered bank, Century National Bank, Zanesville, Ohio, a national banking association, and The First-Knox National Bank of Mount Vernon, a national banking association, Park National engages in a general commercial banking and trust business in small and medium population Ohio communities. Park National Bank operates through two banking divisions with the Park National Division headquartered in Newark, Ohio and the Fairfield National Division headquartered in Lancaster, Ohio. First-Knox National Bank also operates through two banking divisions with the First-Knox National Division headquartered in Mount Vernon, Ohio and the Farmers and Savings Division headquartered in Loudonville, Ohio. In early 1999, Park National organized Guardian Financial Services Company, an Ohio consumer finance company based in Hilliard, Ohio. Guardian Financial provides consumer finance services in the central Ohio area. On September 24, 1999, the Park National Division acquired a branch office in Utica, Ohio from National City Bank. In addition to the fixed assets, the purchase included approximately $15 million of deposits. The excess of the cost over net assets purchased was approximately $2 million. On December 14, 1999, Park National entered into an agreement and plan of merger with U.B. Bancshares, Inc., an Ohio corporation which is a bank holding company under the Bank Holding Company Act, under which U.B. Bancshares will merge with and into Park National. Under the terms of the U.B. Bancshares merger agreement, as amended on February 14, 2000, the shareholders of U.B. Bancshares on the effective date of the U.B. Bancshares merger will receive an aggregate of 325,500 Park National common shares in exchange for their U.B. Bancshares common shares. The U.B. Bancshares shareholders are expected to receive .554 Park National common shares for each outstanding U.B. Bancshares common share. Completion of the U.B. Bancshares merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the adoption of the U.B. Bancshares merger agreement by the U.B. Bancshares shareholders and other specific conditions to closing customary of a transaction of this type. The principal regulatory approval required to be obtained is from the Federal Reserve Board. A bank holding company merger application was filed with the Federal Reserve Board on February 2, 2000. On March 6, 2000, that application was approved. Under the terms of that approval, the U.B. Bancshares merger could not be consummated before March 21, 2000 and must be consummated before June 6, 2000, unless the time period is extended by the Federal Reserve Board. The U.B. Bancshares special meeting of shareholders, at which adoption of the U.B. -2- 3 Bancshares merger agreement is to be considered, has been scheduled for April 19, 2000. The U.B. Bancshares merger is expected to be completed during the second quarter of 2000. On December 17, 1999, Park National entered into an agreement and plan of merger with SNB Corp., an Ohio corporation which is a bank holding company under the Bank Holding Company Act, under which SNB will merge with and into Park National. Under the terms of the SNB merger agreement, as amended on March 3, 2000, the shareholders of SNB on the effective date of the SNB merger will receive an aggregate of 835,500 Park National common shares in exchange for their SNB common shares. The SNB shareholders are expected to receive 5.37 Park National common shares for each outstanding SNB common share. Completion of the SNB merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the adoption of the SNB merger agreement by the SNB shareholders and other specific conditions to closing customary of a transaction of this type. The principal regulatory approval required to be obtained is from the Federal Reserve Board. A bank holding company merger application was filed with the Federal Reserve Board on February 2, 2000. On March 6, 2000, that application was approved. Under the terms of that approval, the SNB merger could not be consummated before March 21, 2000 and must be consummated before June 6, 2000, unless the time period is extended by the Federal Reserve Board. The SNB special meeting of shareholders, at which adoption of the SNB merger agreement is to be considered, has been scheduled for April 25, 2000. The SNB merger is expected to be completed during the second quarter of 2000. SERVICES PROVIDED BY PARK NATIONAL'S SUBSIDIARIES Park National Bank, Richland Trust, Century National Bank and First-Knox National Bank provide the following principal services: o the acceptance of deposits for demand, savings and time accounts and the servicing of those accounts; o commercial, industrial, consumer and real estate lending, including installment loans and automobile leasing, credit cards and personal lines of credit; o safe deposit operations; o trust services; o cash management; o electronic funds transfers; and o a variety of additional banking-related services tailored to the needs of individual customers. Park National believes that the deposit mix of its banking subsidiaries is such that no material portion has been obtained from a single customer and, consequently, the loss of any one -3- 4 customer of any banking subsidiary would not have a materially adverse effect on the business of that banking subsidiary or Park National. Park National's banking subsidiaries deal with a wide cross-section of businesses and corporations located primarily in Ashland, Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and Richland Counties in Ohio. Few loans are made to borrowers outside these counties. Each banking subsidiary makes lending decisions in accordance with written loan policies designed to maintain loan quality. Each banking subsidiary originates and retains for its own portfolio commercial and commercial real estate loans, variable rate residential real estate loans, home equity lines of credit, installment loans and credit card loans. Each banking subsidiary also generates fixed rate residential real estate loans for the secondary market. The loans of each banking subsidiary are spread over a broad range of industrial classifications. Park National believes that its banking subsidiaries have no significant concentrations of loans to borrowers engaged in the same or similar industries and have no loans to foreign entities. Commercial lending entails significant additional risks as compared with consumer lending--i.e., single-family residential mortgage lending, home equity lines of credit, installment lending, credit card loans and automobile leasing. In addition, the payment experience on commercial loans typically depends on adequate cash flow of a business and thus may be subject, to a greater extent, to adverse conditions in the economy generally or adverse conditions in a specific industry. At December 31, 1999, Park's banking subsidiaries had outstanding approximately $580.4 million in commercial loans (including commercial real estate loans) and commercial leases, representing approximately 31.7% of their total aggregate loan portfolio as of that date. The regulatory limits for loans made to one borrower by Park National Bank, Richland Trust, Century National Bank and First-Knox National Bank were $15.8 million, $4.7 million, $4.5 million and $8.3 million, respectively, at December 31, 1999. However, participations in loans of amounts larger than $5.0 million are generally sold to other banks. Loan terms include amortization schedules commensurate with the purpose of each loan, the source of each repayment and the risk involved. Executive Committee approval is required for loans to borrowers whose aggregate total debt, including the principal amount of the proposed loan, exceeds $2.0 million. The primary analysis technique used in determining whether to grant a commercial loan is the review of a schedule of cash flows to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. Park National has a loan review program which reevaluates annually all loans with an outstanding amount greater than $100,000. If deterioration has occurred, the lender subsidiary takes effective and prompt action designed to assure payment of the loan. Upon detection of the reduced ability of a borrower to service interest and/or principal on a loan, the subsidiary downgrades the loan and places it on non-accrual status. The subsidiary then works with the borrower to develop a payment schedule which they anticipate will permit service of the principal and interest on the loan by the borrower. Loans which deteriorate and show the inability of a borrower to repay principal and do not meet the subsidiary's standards are charged off quarterly. -4- 5 Park National Bank also leases equipment under terms similar to its commercial lending policies. Park Leasing Company, a division of Park National Bank, originates and services direct leases of equipment which Park National Bank acquires with no outside financing. In addition, Scope Leasing, Inc., a wholly-owned subsidiary of Park National Bank, specializes in aircraft financing. At December 31, 1999, Park National's subsidiaries had outstanding consumer loans (including automobile leases and credit cards) in an aggregate amount of approximately $486.7 million constituting approximately 26.5% of their aggregate total loan portfolio. The subsidiaries make installment credit available to customers and prospective customers in their primary market area of Ashland, Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and Richland Counties, Ohio. In addition, the banking subsidiaries participate in an automobile installment loan program sponsored by a major national insurance company under which automobile installment loans may be made to borrowers throughout the State of Ohio. Credit approval for consumer loans requires demonstration of sufficient income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of Park National's subsidiaries to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring each subsidiary's performance in this area and for advising and updating loan personnel. Park National's subsidiaries make credit life insurance and health and accident insurance available to all qualified buyers, thus reducing their risk of loss when a borrower's income is terminated or interrupted. Each subsidiary reviews its consumer loan portfolio monthly and charges off loans which do not meet that subsidiary's standards. Each banking subsidiary also offers VISA and MasterCard accounts through its consumer lending department. These accounts are administered under the same standards as other consumer loans and leases. Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of the collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections depend upon the borrower's continued financial stability, and thus are more likely to be adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. At December 31, 1999, Park National's banking subsidiaries had outstanding approximately $766.9 million in residential real estate, home equity lines of credit and construction mortgages, representing approximately 41.8% of total loans outstanding. The market area for real estate lending by the banking subsidiaries is concentrated in Ashland, Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry and Richland Counties, Ohio. Each banking subsidiary generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower. Loans made for each banking subsidiary's portfolio in this lending category are generally one-year adjustable rate, fully amortized mortgages. Each banking subsidiary also originates fixed rate real estate loans for the secondary market. The standards applicable to these loans permit a higher loan to value ratio and a longer loan term. These loans are generally sold immediately after closing. All real estate loans are secured by first mortgages with evidence of title in favor of the banking subsidiary in the -5- 6 form of an attorney's opinion of title or a title insurance policy. Each banking subsidiary also requires proof of hazard insurance with the banking subsidiary named as the mortgagee and as the loss payee. Independent appraisals are required in the case of consumer real estate loans in excess of $250,000. Home equity lines of credit are generally made as second mortgages by Park National's banking subsidiaries. The maximum amount of a home equity line of credit is generally limited to 80% of the appraised value of the property less the balance of the first mortgage. The home equity lines of credit are written with ten-year terms but are subject to review and reappraisal every three years. A variable interest rate is generally charged on the home equity lines of credit. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property's value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, the banking subsidiary making the loan may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the banking subsidiary may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default. COMPETITION Park National's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions and operate 59 full-service offices and a network of 65 automatic teller machines in 15 central and southern Ohio counties. Competitors now include securities dealers, brokers, mortgage bankers, investment advisors, finance companies, insurance companies and financial services subsidiaries of commercial and manufacturing companies. Many of these competitors enjoy the benefits of advanced technology, fewer regulatory constraints, and lower cost structures. Many of the newer competitors offer one-stop financial services to their customers that may include services that banks may not have been able or legally permitted to offer their customers in the past. The primary factors in competing for loans are interest rates charged and overall services provided to borrowers. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and convenience of office locations. EMPLOYEES As of December 31, 1999, Park National and its subsidiaries had 1,023 full-time equivalent employees. SUPERVISION AND REGULATION Park National, as a bank holding company, is regulated extensively under federal law. Park National Bank, Century National Bank and First-Knox National Bank, as national banks, and Richland Trust, as an Ohio state-chartered bank, are regulated extensively under federal and state -6- 7 law. Guardian Financial, as an Ohio state-chartered consumer finance company, is regulated under state law. Park National is subject to regulation, supervision and examination by the Federal Reserve Board. Park National Bank, Century National Bank and First-Knox National Bank are subject to regulation by the Office of the Comptroller of Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Richland Trust is subject to regulation, supervision and examination by the Ohio Division of Financial Institutions and the FDIC and Guardian Financial is subject to regulation, supervision and examination by the Ohio Division of Financial Institutions. The following information describes selected federal and Ohio statutory and regulatory provisions and is qualified in its entirety by reference to the full text of the particular statutory or regulatory provisions. These statutes and regulations are continually under review by Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Park National and its subsidiaries could have a material effect on their respective businesses. REGULATION OF BANK HOLDING COMPANIES Park National is registered with the Federal Reserve Board as a bank holding company under the Bank Holding Company Act. Bank holding companies and their activities are subject to extensive regulation by the Federal Reserve Board. Bank holding companies are required to file reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require, and are subject to regular examinations by the Federal Reserve Board. The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to: o assess civil money penalties, o issue cease and desist or removal orders, and o require that a bank holding company divest subsidiaries (including its bank subsidiaries). In general, the Federal Reserve Board may initiate enforcement actions for violations of law and regulations and unsafe or unsound practices. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank. The Bank Holding Company Act requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to: o acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it, -7- 8 o acquire all or substantially all of the assets of another bank or bank holding company, or o merge or consolidate with any other bank holding company. Section 4 of the Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. The primary exception allows the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks that ownership of shares of that company is appropriate. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the Bank Holding Company Act. These activities include: o operating a savings association, mortgage company, finance company, credit card company or factoring company; o performing certain data processing operations; o providing investment and financial advice; and o acting as an insurance agent for certain types of credit-related insurance. Effective March 11, 2000, subject to certain conditions, bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Also effective March 11, 2000, no regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on maintenance of reserves against deposits, extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities of the bank holding company or its subsidiaries and the taking of such stock or securities as collateral for loans to any borrower. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services. Various consumer laws and regulations also affect the operations of these subsidiaries. TRANSACTIONS WITH AFFILIATES Sections 23A and 23B of the Federal Reserve Act restrict transactions by banks and their subsidiaries with their affiliates. An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank. Generally, Sections 23A and 23B: -8- 9 o limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of that bank's capital stock and surplus (i.e., tangible capital) and o require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of transactions. A bank's authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms substantially the same as those offered to unaffiliated individuals, the amount of loans a bank may make to these persons is based, in part, on the bank's capital position, and specified approval procedures must be followed in making loans which exceed specified amounts. REGULATION OF NATIONALLY-CHARTERED BANKS As national banking associations, Park National Bank, Century National Bank and First-Knox National Bank are subject to regulation under the National Banking Act and are periodically examined by the OCC. They are subject, as member banks, to the rules and regulations of the Federal Reserve Board. Each is an insured institution. Park National Bank and First-Knox National Bank are members of the Bank Insurance Fund, and Century National Bank is a member of the Savings Association Insurance Fund. As a result, they are subject to regulation by the FDIC. The establishment of branches of each of Park National Bank, Century National Bank and First-Knox National Bank is subject to prior approval of the OCC. REGULATION OF OHIO STATE-CHARTERED BANKS AND CONSUMER FINANCE COMPANIES The FDIC is the primary federal regulator of Richland Trust. The FDIC issues regulations governing the operations of Richland Trust and examines Richland Trust. The FDIC may initiate enforcement actions against insured depository institutions and persons affiliated with them for violations of laws and regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the FDIC may appoint a conservator or a receiver for a nonmember bank. As a bank incorporated under Ohio law, Richland Trust is subject to regulation and supervision by the Ohio Division of Financial Institutions. Division regulation and supervision affects the internal organization of Richland Trust, as well as its savings, mortgage lending and other investment activities. The Division of Financial Institutions may initiate supervisory measures or formal enforcement actions against Ohio commercial banks. Ultimately, if the grounds provided by law exist, the Division of Financial Institutions may place an Ohio bank in conservatorship or receivership. Whenever the Superintendent of Financial Institutions considers it necessary or appropriate, the Superintendent may also examine the affairs of any holding company or any affiliate or subsidiary of an Ohio bank. -9- 10 As a consumer finance company incorporated under Ohio law, Guardian Financial is also subject to regulation and supervision by the Division of Financial Institutions. Division regulation and supervision affect the lending activities of Guardian Financial. If grounds provided by law exist, the Division of Financial Institutions may suspend or revoke an Ohio consumer finance company's ability to make loans. FEDERAL DEPOSIT INSURANCE CORPORATION The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. Two separate insurance funds are maintained and administered by the FDIC. In general, banking institutions are members of the "BIF" and savings associations are "SAIF" members. The insurance fund conversion provisions do not prohibit a SAIF member from either converting to a bank charter, as long as the resulting bank remains a SAIF member (as Century National Bank did when it converted to a national bank charter in April 1998), or merging with a bank, as long as the bank continues to pay the SAIF insurance assessments on the deposits acquired. Exit and entrance fees must be paid to the FDIC in full conversions. Insurance Premiums. Insurance premiums for SAIF and BIF members are determined during each semi-annual assessment period based upon the members' respective categorization as well capitalized, adequately capitalized or undercapitalized. The FDIC assigns banks to one of three supervisory subgroups within each capital group. The supervisory subgroup to which a bank is assigned is based on a supervisory evaluation provided to the FDIC by the bank's primary federal regulator and information which the FDIC determines to be relevant to the bank's financial condition and the risk posed to the deposit insurance funds (which may include, if applicable, information provided by the bank's state supervisor). A bank's assessment rate depends on the capital category and supervisory category to which it is assigned. Effective January 1, 2000, the BIF assessment rate and the SAIF assessment rate became the same. This assessment (which includes the FICO assessment) currently ranges from 2.12 to 29.12 cents per $100 of domestic deposits. An increase in this assessment rate could have a material adverse effect on the earnings of the affected banks, depending on the amount of the increase. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the bank's regulatory agency. Depositor Preference. The Federal Deposit Insurance Act provides that, in the event of the "liquidation or other resolution" of a bank, the claims of depositors of the bank, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the bank. If a bank fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors. -10- 11 Liability of Commonly Controlled Banks. Under the Federal Deposit Insurance Act, a bank is generally liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with (a) the default of a commonly controlled bank or (b) any assistance provided by the FDIC to a commonly controlled bank in danger of default. "Default" means generally the appointment of a conservator or receiver. "In danger of default" means generally the existence of conditions indicating that a default is likely to occur in the absence of regulatory assistance. REGULATORY CAPITAL The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and state member banks. The OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards also are used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions. The minimum guideline for the ratio of total capital to risk-weighted assets (including certain off-balance sheet items such as standby letters of credit) is 8%. This total risk-based capital ratio must be at least 10% for a bank holding company to be considered well capitalized. At least half of the minimum total risk-based capital ratio (4%) must be composed of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, a limited amount of qualifying preferred stock, less goodwill and certain other deductions, including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value (commonly known as "Tier 1" risk-based capital). To be considered well capitalized, the Tier 1 risk-based capital ratio must be at least 6%. The remainder of total risk-based capital (commonly known as "Tier 2" risk-based capital) may consist of mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, a limited amount of the loan and lease loss allowance and net unrealized gains, after applicable taxes, on available-for-sale equity securities with readily determinable fair values, subject to limitations established by the guidelines. Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan commitments and derivative financial instruments, are also assigned one of the above risk weights after calculating balance sheet equivalent amounts. For example, certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivative financial instruments are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. The Federal Reserve Board guidelines provide for a minimum ratio of Tier 1 -11- 12 risk-based capital to average assets (excluding the loan and lease loss allowance, goodwill and certain other intangibles), or "leverage ratio," of 3% for bank holding companies that meet certain criteria, including having the highest regulatory rating. To be considered well capitalized, the leverage ratio for a bank holding company must be at least 5%. The guidelines further provide that bank holding companies making acquisitions will be expected to maintain strong capital positions substantially above the minimum levels. The OCC and the FDIC have each also adopted minimum leverage ratio guidelines for national banks and for state non-member banks, respectively. Park National is in compliance with the current applicable capital guideline ratios. As of December 31, 1999, Park National had a total risk-based capital ratio of 14.4%, Tier 1 risk-based capital ratio of 13.2% and a leverage ratio of 9.1%. Park National anticipates that it will continue to meet current capital guideline ratios after the consummation of the U.B. Bancshares and SNB mergers. Park National's management believes that each of its subsidiary banks is "well capitalized" according to the guidelines described above. FISCAL AND MONETARY POLICIES The business and earnings of Park National are affected significantly by the fiscal and monetary policies of the federal government and its agencies. Park National is particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve Board are o conducting open market operations in United States government securities; o changing the discount rates of borrowings of depository institutions; o imposing or changing reserve requirements against depository institutions' deposits; and o imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of Park National. PROMPT CORRECTIVE REGULATORY ACTION The federal banking agencies have established a system of prompt corrective action to resolve certain of the problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank's capital level. For example, the banking agencies must appoint a receiver -12- 13 or conservator for a bank within 90 days after it becomes "critically undercapitalized" unless the bank's primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank's capital category. For example, a bank that is not "well capitalized" generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank's capital plan for the plan to be acceptable. Under the final rules implementing the prompt corrective action provisions: o a bank that has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater is deemed to be "well capitalized"; o a bank with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater (or a leverage ratio of 3% or greater and a capital adequacy, asset quality, management administration, earnings and liquidity (or CAMEL) 1 rating), is considered to be "adequately capitalized"; o a bank that has a total risk-based capital of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, and a leverage ratio that is less than 4% (or a leverage ratio of less than 3% and a CAMEL 1 rating), is considered "undercapitalized"; o a bank that has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized"; and o a bank that has tangible equity (Tier 1 capital minus intangible assets other than purchased mortgage servicing rights) to total assets ratio equal to or less than 2% is deemed to be "critically undercapitalized". LIMITS ON DIVIDENDS AND OTHER PAYMENTS There are various legal limitations on the extent to which subsidiary banks may finance or otherwise supply funds to their parent holding companies. Under federal and Ohio law, subsidiary banks may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, their bank holding companies. Subsidiary banks are also subject to collateral security requirements for any loans or extension of credit permitted by such exceptions. None of the Park National banking subsidiaries may pay dividends out of its surplus if, after paying these dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and minimum leverage ratio requirements established by the OCC and the FDIC. In addition, each bank must have the approval of its regulatory authority if a dividend in any year would cause the total dividends for that year to exceed the sum of the bank's current year's "net -13- 14 profits" (or net income, less dividends declared during the period based on regulatory accounting principles) and the retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by any of the Park National banking subsidiaries may be restricted at any time at the discretion of its regulatory authorities, if such regulatory authorities deem such dividends to constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital. The ability of Park National to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks. However, the Federal Reserve Board expects Park National to serve as a source of strength to its subsidiary banks, which may require Park National to retain capital for further investment in its subsidiary banks, rather than pay dividends to the Park National shareholders. Payment of dividends by one of Park National's banking subsidiaries may be restricted at any time at the discretion of its applicable regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting Park National's ability to pay dividends on its common shares. FINANCIAL SERVICES MODERNIZATION ACT OF 1999 On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act of 1999) which, effective March 11, 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Financial Services Modernization Act defines "financial in nature" to include: o securities underwriting, dealing and market making; o sponsoring mutual funds and investment companies; o insurance underwriting and agency; o merchant banking activities; o and activities that the Federal Reserve Board has determined to be closely related to banking. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real -14- 15 estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better. The specific effects of the enactment of the Financial Services Modernization Act on the banking industry in general and on Park National in particular have yet to be determined due to the fact that the Financial Services Modernization Act was only recently adopted. EFFECT OF ENVIRONMENTAL REGULATION Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of Park National and its subsidiaries. Park National believes the nature of the operations of its subsidiaries has little, if any, environmental impact. Park National, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. Park National believes its primary exposure to environmental risk is through the lending activities of its subsidiaries. In cases where management believes environmental risk potentially exists, Park National's subsidiaries mitigate their environmental risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. Environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by Park National with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Park National which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Park National or its management or board of directors, including those relating to products or services; (iii) statements relating to the benefits, revenues and earnings estimated to result from the U.B. Bancshares and -15- 16 SNB mergers and the estimated costs of combining those corporations with Park National; (iv) statements of future economic performance; and (v) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying those statements. Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including the following: o income (interest and non-interest) following the U.B. Bancshares and SNB mergers, is lower than expected; o the costs of providing compensation and benefits to Park National employees increase; o competition increases in the banking industry or the markets served by Park National's subsidiaries; o costs or difficulties related to the integration of the U.B. Bancshares and SNB businesses or other acquired businesses are greater than expected; o there are adverse changes in general economic conditions or in competitive forces; o technological changes are more difficult or expensive to implement than anticipated; o there are adverse changes in the securities markets; and o Park National suffers the loss of key personnel. There is also the risk that we incorrectly analyze these risks and forces, or that the strategies we develop to address them are unsuccessful. Forward-looking statements speak only as of the date on which they are made, and Park National undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to Park National or any person acting on our behalf are qualified by the cautionary statements in this section. ITEM 2. PROPERTIES. Park National's principal executive offices are located at 50 North Third Street, Newark, Ohio 43055. Park National does not lease or own any physical property, real or personal. Park National Bank, in addition to having seven offices in Newark (including the main office and operations center) has offices in Granville, Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala and Utica in Licking County, an office in Columbus in Franklin County, an -16- 17 office in Cincinnati in Hamilton County and offices in Baltimore, Pickerington and Lancaster (seven offices) in Fairfield County. The offices in Fairfield County comprise the Fairfield National Division. Park National Bank also operates nine stand-alone automatic banking center locations. Richland Trust, in addition to six offices in Mansfield (including the main office), has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland County. Richland Trust also operates three stand-alone automatic banking center locations. Century National Bank, in addition to having four offices (including the main office) and a mortgage lending office in Zanesville, has offices in New Concord and Dresden in Muskingum County, Malta in Morgan County, New Lexington in Perry County, Logan in Hocking County, Athens in Athens County and Coshocton in Coshocton County. Century National Bank also operates seven stand-alone automatic banking center locations. First-Knox National Bank, in addition to having three offices (including the main office and operations center) in Mount Vernon, has offices in Loudonville and Perrysville in Ashland County, an office in Millersburg in Holmes County, offices in Centerburg, Danville and Fredericktown in Knox County, two offices in Mount Gilead in Morrow County and an office in Bellville in Richland County. The offices in Ashland County comprise the Farmers and Savings Division. First-Knox National Bank also operates four stand-alone automatic banking center locations. Guardian Financial has its main office in Hilliard in Franklin County and an office in Mansfield where it leases space from Richland Trust. ITEM 3. LEGAL PROCEEDINGS. There are no pending legal proceedings to which Park National or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings to which Park National's banking subsidiaries are parties incidental to their respective banking businesses. Park National considers none of those proceedings to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table lists the names and ages of the executive officers of Park National as of February 25, 2000, the positions presently held by those officers and their individual business experience during the past five years. The board of directors may remove any of the executive officers at any time. -17- 18
Positions Held with Park National and its Name Age Principal Subsidiaries and Principal Occupation - ---- --- ----------------------------------------------- William T. McConnell 66 Chairman of the Board since 1994, Chief Executive Officer from 1986 to January 1999, President from 1986 to 1994 and Director of Park National; Chairman of the Board since 1993, Chief Executive Officer from 1983 to January 1999, President from 1979 to 1993, and Director of Park National Bank; Director of Century National Bank; Director of First-Knox National Bank C. Daniel DeLawder 50 Chief Executive Officer since January, 1999, President since 1994 and Director of Park National; Chief Executive Officer since January 1999, President since 1993, Executive Vice President from 1992 to 1993, and Director of Park National Bank; Chairman of Advisory Board since 1989 and President from 1985 to 1992 of the Fairfield National Division of Park National Bank; Director of Richland Trust; Chairman of the Board of Guardian Financial since February 1999 David C. Bowers 63 Secretary since 1987, Chief Financial Officer and Chief Accounting Officer from 1990 to 1998, and Director from 1989 to 1990, of Park National; Executive Vice President since January 1999, Senior Vice President from 1986 to January 1999, and Director of Park National Bank; Director of Guardian Financial
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information called for in Item 201 of Regulation S-K is incorporated herein by reference to page 29 of Park National's Annual Report to Shareholders for the fiscal year ended December 31, 1999. On November 15, 1999, Park National issued (a) 150 common shares to each of the thirteen non-employee directors of Park National (for an aggregate of 1,950 common shares), (b) 50 common shares to each of 33 non-employee directors of one of Park National's banking subsidiaries who is not also a director of Park National (for an aggregate of 1,650 common shares) and (c) 100 common shares to one individual who serves as a non-employee director of two of Park National's subsidiaries, in each case in lieu of an annual cash retainer for serving as a director. The common shares had a market value of $99 per share on the date of issuance. Park National issued the common shares in reliance upon the exemptions from registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933 based upon the limited number of persons to whom the -18- 19 common shares were "sold" and the status of each individual as a director of Park National or of one of its subsidiaries. ITEM 6. SELECTED FINANCIAL DATA. The information called for in this Item 6 is incorporated herein by reference to page 29 of Park National's Annual Report to Shareholders for the fiscal year ended December 31, 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information called for in this Item 7 is incorporated herein by reference to pages 21 through 29 of Park National's Annual Report to Shareholders for the fiscal year ended December 31, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. As noted on page 25 of Park National's Annual Report to Shareholders for the fiscal year ended December 31, 1999, during 1999, 1998 and 1997, Park National and its subsidiaries had no investment in off-balance sheet derivative instruments. The discussion of interest rate sensitivity included on pages 27 and 28 of Park National's 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Auditors, the Consolidated Balance Sheets of Park National and its subsidiaries at December 31, 1999 and 1998, the related Consolidated Statements of Income, of Changes in Stockholders' Equity and of Cash Flows for each of the fiscal years in the three-year period ended December 31, 1999, and the related Notes to the Consolidated Financial Statements, appearing on pages 31 through 48 of Park National's Annual Report to Shareholders for the fiscal year ended December 31, 1999, are incorporated herein by reference. Quarterly Financial Data set forth on page 29 of Park National's 1999 Annual Report to Shareholders are also incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No response required. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for in this Item 10 is incorporated herein by reference to Park National's definitive proxy statement relating to the annual meeting of shareholders to be held on April 17, 2000, under the caption "ELECTION OF DIRECTORS." In addition, certain information -19- 20 concerning the executive officers of Park National is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant." No information is required to be disclosed under Item 405 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION. The information called for in this Item 11 is incorporated herein by reference to Park National's definitive proxy statement relating to the annual meeting of shareholders to be held on April 17, 2000, under the captions "ELECTION OF DIRECTORS--Compensation of Directors," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "COMPENSATION OF EXECUTIVE OFFICERS." Neither the report on executive compensation nor the performance graph included in Park National's definitive proxy statement shall be deemed to be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for in this Item 12 is incorporated herein by reference to Park National's definitive proxy statement relating to the annual meeting of shareholders to be held on April 17, 2000, under the caption "PRINCIPAL SHAREHOLDERS OF PARK." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for in this Item 13 is incorporated herein by reference to Park National's definitive proxy statement relating to the annual meeting of shareholders to be held on April 17, 2000, under the captions "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "TRANSACTIONS INVOLVING MANAGEMENT." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements. For a list of all financial statements included with this Annual Report on Form 10-K, see "Index to Financial Statements" at page 23. (a)(2) Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have been omitted. -20- 21 (a)(3) Exhibits. Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see the Index to Exhibits beginning at page E-1. (b) Reports on Form 8-K. There were no Current Reports on Form 8-K filed during the fiscal quarter ended December 31, 1999. (c) Exhibits. Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see the Index to Exhibits beginning at page E-1. (d) Financial Statement Schedules. None -21- 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. PARK NATIONAL CORPORATION Date: March 24, 2000 By /s/ C. Daniel DeLawder ------------------------------------- C. Daniel DeLawder, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Date Capacity ---- ---- -------- *William T. McConnell * Chairman of the Board and Director *C. Daniel DeLawder * President, Chief Executive Officer and Director *John W. Kozak * Chief Financial Officer and Principal Accounting Officer *Maureen Buchwald * Director *James J. Cullers * Director *Dominic C. Fanello * Director *R. William Geyer * Director *Philip H. Jordan, Jr. * Director *Howard E. LeFevre * Director *Phillip T. Leitnaker * Director *Tami L. Longaberger * Director *James A. McElroy * Director *John J. O'Neill * Director *William A. Phillips * Director *J. Gilbert Reese * Director *Rick R. Taylor * Director *John L. Warner * Director *By: /s/ C. Daniel DeLawder ----------------------- C. Daniel DeLawder, Attorney-in-Fact Date: March 24, 2000
-22- 23 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1999 INDEX TO FINANCIAL STATEMENTS
PAGE(S) IN 1999 ANNUAL REPORT TO DESCRIPTION SHAREHOLDERS - ----------- ------------ Report of Independent Auditors (Ernst & Young LLP)............................................... 31 Consolidated Balance Sheets at December 31, 1999 and 1998........................................ 32-33 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997................................................................................ 34-35 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997........................................................ 36 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................................................................... 37 Notes to Consolidated Financial Statements....................................................... 38-48
-23- 24 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1999 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT --- ---------------------- 2.1 Agreement and Plan of Merger (excluding exhibits and schedules) dated as of December 17, 1999 by and between Park National Corporation ("Park National") and SNB Corp. (incorporated herein by reference to Exhibit 2.1 to Park National's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 20, 2000 (Registration No. 333-31810)) 2.2 Amendment to Agreement and Plan of Merger dated as of March 3, 2000 by and between Park National and SNB Corp. (incorporated herein by reference to Exhibit 2.2 to Park National's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 20, 2000 (Registration No. 333-31810)) 2.3 Agreement and Plan of Merger (excluding exhibits and schedules) dated as of December 14, 1999 by and between Park National and U.B. Bancshares, Inc. (incorporated herein by reference to Exhibit 2.1 to Park National's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 13, 2000 (Registration No. 333-30858)) 2.4 Amendment to Agreement and Plan of Merger dated as of February 14, 2000 by and between Park National and U.B. Bancshares, Inc. (incorporated herein by reference to Exhibit 2.2 to Park National's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 13, 2000 (Registration No. 333-30858)) 3.1 Articles of Incorporation of Park National as filed with the Ohio Secretary of State on March 24, 1992 (incorporated herein by reference to Exhibit 3(a) to Park National's Form 8-B, filed on May 20, 1992 (File No. 0-18772) ("Park National's Form 8-B")) 3.2 Certificate of Amendment to the Articles of Incorporation of Park National as filed with the Ohio Secretary of State on May 6, 1993 (incorporated herein by reference to Exhibit 3(b) to Park National's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772))
E-1 25
EXHIBIT NO. DESCRIPTION OF EXHIBIT --- ---------------------- 3.3 Certificate of Amendment to the Articles of Incorporation of Park National as filed with the Ohio Secretary of State on April 16, 1996 (incorporated herein by reference to Exhibit 3(a) to Park National's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (File No. 1-13006)) 3.4 Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National as filed with the Ohio Secretary of State on April 22, 1997 (incorporated herein by reference to Exhibit 3(a)(1) to Park National's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-13006)("Park National's June 1997 Form 10-Q")) 3.5 Articles of Incorporation of Park National (reflecting amendments through April 22, 1997) (for SEC reporting compliance purposes only - not filed with Ohio Secretary of State (incorporated herein by reference to Exhibit 3(a)(2) to Park National's June 1997 Form 10-Q) 3.6 Regulations of Park National (incorporated herein by reference to Exhibit 3(b) to Park National's Form 8-B) 3.7 Certified Resolution regarding adoption of amendment to Subsection 2.02(A) of the Regulations of Park National by Shareholders on April 22, 1997 (incorporated herein by reference to Exhibit 3(b)(1) to Park National's June 1997 Form 10-Q) 3.8 Regulations of Park National (reflecting amendments through April 22, 1997) (for SEC reporting compliance purposes only) (incorporated herein by reference to Exhibit 3(b)(2) to Park National's June 1997 Form 10-Q) *10.1 Summary of Incentive Bonus Plan of Park National (incorporated herein by reference to Exhibit 10.1 to Park National's Registration Statement on Form S-4 filed February 22, 2000 (Registration No. 333-30858) ("Park National's February 2000 Form S-4")) *10.2 Split-Dollar Agreement, dated May 17, 1993, between William T. McConnell and The Park National Bank (incorporated herein by reference to Exhibit 10(f) to Park National's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)); and Schedule A identifying other identical Split-Dollar Agreements between subsidiaries of Park National and executive officers of such subsidiaries who are directors or executive officers of Park National (incorporated herein by reference to Exhibit 10.2 to Park National's February 2000 Form S-4)
E-2 26
EXHIBIT NO. DESCRIPTION OF EXHIBIT --- ---------------------- *10.3 Split-Dollar Agreement dated September 29, 1993, between Dominic C. Fanello and The Richland Trust Company (incorporated herein by reference to Exhibit 10(g) to Park National's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)); and Schedule A identifying other identical Split-Dollar Agreements between directors of Park National and The Park National Bank, The Richland Trust Company, Century National Bank or The First-Knox National Bank of Mount Vernon as identified in such Schedule A (incorporated herein by reference to Exhibit 10.3 to Park National's February 2000 Form S-4) *10.4 Park National Corporation 1995 Incentive Stock Option Plan (as amended through April 20, 1998) (incorporated herein by reference to Exhibit 10 to Park National's Registration Statement on Form S-8 filed May 14, 1998 (Registration No. 333-52653)) *10.5 Form of Stock Option Agreement executed in connection with the grant of options under the Park National Corporation 1995 Incentive Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10(i) to Park National's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-13006)) *10.6 Description of Park National Corporation Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10(i) to Park National's Registration Statement on Form S-4, filed on January 24, 1997 (Registration No. 333-20417)) **13 Annual Report to Shareholders for the fiscal year ended December 31, 1999 (not deemed filed except for portions thereof which are specifically incorporated by reference in this Annual Report on Form 10-K) (incorporated by reference to the financial statements portion of this Annual Report on Form 10-K beginning at page 23) 21 Subsidiaries of Park National (incorporated herein by reference to Exhibit 21 to Park National's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-13006)) **23 Consent of Ernst & Young LLP **24 Powers of Attorney of Directors and Executive Officers of Park National **27 Financial Data Schedule (1999 fiscal year)
- -------------- * Management contract or compensatory plan or arrangement ** Filed herewith E-3 EX-13 2 EXHIBIT 13 1 Exhibit 13 Annual Report to Shareholders for Fiscal Year Ended December 31,1999 It's getting harder to read stockholders' letters these days. To read and make sense of them, that is. It used to be that if the letter opened by saying, "Last year was a year of rebuilding..." or, "Your management team spent this past year aggressively re-engineering your company to position it to meet the challenges of the future..." or something like that, then you knew immediately that earnings were down. But, if the letter began: "This was a year of record earnings..." then you might safely assume that something good had happened. Not so any more. Nowadays, you have to read further; and then be on your guard. The more gobbledygook you run into, the more likely it is that things didn't go well last year. For instance, a letter might begin something like this: We just had a record year -- even though the figures the accountants prepare for this report don't show it. It's true that the figure reported as "net income" is down, but that doesn't give a fair picture of the progress we've made. There were a number of NON-RECURRING items that distorted the real results -- the results from CONTINUING OPERATIONS (or ONGOING OPERATIONS). Although we had to charge off a bunch of bad loans, that's certainly not going to happen every year. Another ONE-TIME EVENT was the visit from the tax folks when they insisted that we pay some back taxes that got overlooked inadvertently. And, of course, we took a RESTRUCTURING CHARGE against income to account for the overpayment for several of last year's acquisitions. Except for these and a few other minor reporting problems, last year was a record year. This, of course, is an exaggeration. Perhaps not as much of an exaggeration as you might imagine. A stockholders' letter should enlighten, not confuse. It should do more than just reiterate the numbers. They all appear elsewhere in the report. Rather, the letter should help the reader who is not trained in accounting and finance to understand what happened to the company and what that means. Well, with all that as a preamble, what we want to report to you is that 1999 was a good year for Park National Corporation. And what that means in financial terms is that earnings (any way you care to measure them) were up and that, when compared with our peers, Park National looked very good indeed. Specifically, net income totaled $45.7 million last year versus $41.6 million the year before, an increase of 10.0 percent. On a per share basis the increase was somewhat greater, 10.7 percent. The reason for the difference is that we (the corporation) purchased some of our own shares last year so that there were fewer outstanding at the end of the year than at the beginning. An incidental result of these purchases is that each of us who did not sell now has a larger proportionate ownership of the place -- not much larger, but a little. Now, before leaving off talking about earnings, we must, with apologies, introduce some gobbledygook. You will notice several places in this report that per share net income is reported as $4.67 in 1999 and $4.22 in 1998. If by chance you should look back at last year's report, you would see that we told you then that we had earned $4.43 (not $4.22). What gives? This year's earnings, indeed all this year's per share data have been adjusted for the 5 percent stock dividend paid in December. Cash dividends paid in 1999 were up sharply. They increased 25 percent. In terms of total resources, the corporation grew by 7 percent last year. However, this growth was not balanced. In its simplest terms, our business can be described as receiving deposits and making loans. In other words, the deposits entrusted to us fund the loans we make in our communities. For some years now our loans have been growing faster than our deposits. Last year while deposits grew less than 4 percent, loans increased almost 12 percent. Our situation is not unique. Most banks face the same challenge. Regardless, we have to figure out how to resolve this situation for ourselves. It doesn't do much good to excuse ourselves by saying that many other banks are in the same boat, if the boat is taking on water. During this current year we are making a particular effort to balance our growth by placing more attention on attracting deposits. We probably won't achieve parity this year but we intend to move in that direction. There are three ratios that we follow closely in trying to measure our performance: - - The first is Return on Equity. Equity represents the stockholders' ownership, and return is the earnings we produce. Therefore, when the earnings are expressed as a percentage of the ownership, or your investment in the company, the resulting ratio provides an indication of how effectively your investment is being managed. Our return on equity has consistently been in the top 10 percent of banks our size across the country. It increased in 1999 to 19.43 percent. - - Another measure of the efficiency of management in profitably employing resources is Return on Assets. Here the denominator is the total assets of the institution and the numerator the earnings. The best banks earn in excess of 1.5 percent on assets. In 1999 the return on assets of Park National Corporation was 1.82 percent, up slightly from 1.78 percent the year before. This ratio will not increase each year. We will be very satisfied if we can maintain it near this level. - - Finally, we look carefully at our Efficiency Ratio. This is a measure of expense control and, as you might therefore imagine, less is better. For the industry, the efficiency ratio ranges all over the place -- from perhaps 40 to 70 percent. Ours was 46.39 percent in 1999, down from 48.01 percent in 1998. That's pretty good, but we would like it to be better. 1 2 A number of significant things happened last year, and while it isn't practical to describe each of them, we want to mention a few. Certainly the most newsworthy were the announcements in December of our agreements to acquire the United Bank in Bucyrus and the Second National Bank in Greenville. We should have known that, after spending a good bit of space in last year's letter explaining why we were not active in the mergers and acquisition arena, we would land two this year. The Bucyrus bank is easily understood. It fits the profile of our other affiliates as a first-rate county seat bank located adjacent to a county where we are already doing business. The Greenville bank, on the other hand, is located in the far western part of Ohio, well away from any market we now serve. Aside from the geography, however, the Second National Bank has everything we are looking for. The bank is well run by a management team whose banking philosophy closely parallels our own. Both of these new affiliates present us with significant and exciting new opportunities. For business relationships to be successful in the long run, it is necessary for all parties to benefit. The opportunities we envision fit this pattern. Our experience has been that we can learn a great deal from the banks with which we affiliate and they in turn can learn from us. We already have in place, transition teams with members from the new banks working with people from our other affiliates. Theirs is a major job, but we believe it is time well spent in order to achieve a smooth merger that is transparent to the customers of our new banks and relatively stress free for our new associates. We anticipate that both the United Bank and the Second National Bank will be able to offer new products and services to their customers as a result of their affiliation with Park National Corporation. For example, neither bank has a trust department. We will develop trust services in these new markets. Trust business is important to all our banks; we surpassed $1.7 billion in trust assets managed at year-end. We hope to complete these two mergers early in the second quarter of 2000. There are two things left to be said about Y2K. The first is that it came off without a hitch, thanks to the dedication and hard work of lots of people from all of our affiliate banks as well as our data processing unit, Consolidated Computer Center, all led by Dave Bowers. The second is that we may never mention it again. Several new initiatives have been launched in recent years, and by and large they are doing very well. The folks at Scope Leasing, our aircraft leasing and finance subsidiary, have done an extraordinary job. Scope's receivables passed $55 million in 1999. In 1998 we entered the municipal finance business and this year founded a consumer finance company. Both are off to a good start. To remain competitive we continue to invest significantly in technology. Last year we spent a lot to upgrade over 200 personal computers and 40 file servers plus for updates to our mainframe and its software. In addition, we invested an untold number of hours of staff time over several years in the development of a tool that provides commercial customers with complete access to their accounts from computers in their offices. Currently we are preparing to introduce Internet banking. It should be ready in a few months. Last year we talked about the transfer of leadership throughout the company. Another step in this process occurred in 1999. Tim Lehman moved from the management of the audit function for the corporation to replace Bill Jilek as CEO of the Richland Bank. Bill was responsible for the management of the Richland Bank for 22 years during which time it was owned by three different bank holding companies. Bill served several masters with loyalty and grace. He provided leadership not only to the bank but also to the entire Richland County community. Looking forward, we see great opportunities. We intend to focus this year on the fundamentals of our business, on blocking and tackling as it were. As stated above, we are anxious to expand our deposit base. We want to continue to grow our portfolio of good loans, and to search out new opportunities in each of the markets we serve. Delivering the highest level of quality service to our customers will continue to distinguish each of our banks. While such a goal is not easily achieved, and never achieved completely, we intend to help our associates understand how we are different and why that difference is so important to our continuing success. We thank you all for your support. As we have said often in the past, there is no better way to lend support to the bank you own than to do business (as much as possible) with it. /s/ William T. McConnell WILLIAM T. MCCONNELL Chairman /s/ C. Daniel DeLawder C. DANIEL DELAWDER President 2 3 FINANCIAL REVIEW This financial review presents management's discussion and analysis of the financial condition and results of operations for Park National Corporation ("Park" or the "Corporation"). This discussion should be read in conjunction with the consolidated financial statements and related footnotes and the five-year summary of selected financial data. Management's discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. These forward-looking statements involve significant risks and uncertainties including changes in general economic and financial market conditions, and the Corporation's ability to execute its business plans. Although Park believes that the expectations reflected in the forward-looking statements are reasonable, actual results may differ materially. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. The Corporation does not undertake any obligation to publicly update any forward-looking statement. OVERVIEW Net income for 1999 was $45.7 million, the highest in Park's thirteen year history as a bank holding company. This represents a 10.0% increase over net income of $41.6 million for 1998. Net income per share was $4.67 for 1999, up by 10.7% over the $4.22 net income per share for 1998. Net income has increased at an annual compound growth rate of 12.7% over the last five years, and net income per share has grown at an annual compound growth rate of 13.0% over the same period. The Corporation's Board of Directors approved a 5% stock dividend in November 1999. The additional common shares resulting from the dividend were distributed on December 15, 1999 to stockholders of record as of December 3, 1999. The consolidated financial statements, notes and other references to share and per share data have been retroactively restated for the stock dividend. Effective with the fourth quarter of 1999, the quarterly cash dividend on common stock was increased to $.65 per share. The new annualized cash dividend of $2.60 per share is 13.8% greater than the cash dividend paid in 1999. The Corporation has paid quarterly dividends since becoming a holding company in early 1987. The annual compound growth rate for the Corporation's per share dividend for the last five years is 20.4%. Park's business strategy is geared toward maximizing the return to stockholders. The Corporation's common stock value has appreciated 21.6% annually on a compounded, total return basis for the last five years and 24.8% annually for the past ten years. The December 31, 1999 value of a $1,000 investment on December 31, 1994 and a $1,000 investment on December 31, 1989 would be $2,663 and $9,164, respectively, inclusive of the reinvestment of dividends in the Corporation's stock. On May 5, 1997, Park merged with First-Knox Banc Corp. ("First-Knox"), a $569 million bank holding company headquartered in Mount Vernon, Ohio, in a transaction accounted for as a pooling-of-interests. Park issued 2.3 million shares of common stock to the stockholders of First-Knox based upon an exchange ratio of .5914 shares of Park common stock for each outstanding share of First-Knox common stock. The historical financial statements of Park have been restated to show Park and First-Knox on a combined basis. PENDING ACQUISITIONS On December 14, 1999, Park entered into an Agreement and Plan of Merger with U.B. Bancshares, Inc. (UB), a $180 million bank holding company headquartered in Bucyrus, Ohio, providing for a merger of UB into the Corporation. Under terms of the UB Merger Agreement, the stockholders of UB are expected to receive .554 shares of Park common stock for each outstanding share of UB in a tax free exchange. The Corporation expects to issue an aggregate of 325,500 shares of common stock to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to various conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of UB, and other conditions to closing, customary of a transaction of this type. The merger is expected to be completed during the second quarter of 2000. On December 17, 1999, Park entered into an Agreement and Plan of Merger with SNB Corp. (SNB), a $300 million bank holding company headquartered in Greenville, Ohio, providing for a merger of SNB into the Corporation. Under terms of the SNB Merger Agreement, the stockholders of SNB are expected to receive 5.37 shares of Park common stock for each outstanding share of SNB in a tax free exchange. The Corporation expects to issue an aggregate of 835,500 shares of common stock to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to various conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of SNB, and other conditions to closing, customary of a transaction of this type. The merger is expected to be completed during the second quarter of 2000. ABOUT OUR BUSINESS Through its banking subsidiaries, Park is engaged in the commercial banking and trust business, generally in small to medium population Ohio communities. Management believes there is a significant number of consumers and businesses which seek long-term relationships with community-based financial institutions of quality and strength. While not engaging in activities such as foreign lending, nationally syndicated loans and investment banking operations, the Corporation attempts to meet the needs of its customers for commercial, real estate and consumer loans, consumer and commercial leases, and investment and deposit services. Familiarity with the local market, coupled with conservative loan underwriting standards, has allowed the Corporation to achieve solid financial results even in periods where there have been weak economic conditions. The Corporation has produced performance ratios which compare favorably to peer bank holding companies in terms of equity and asset returns, capital adequacy and asset quality. Continued strong results are contingent upon economic conditions in Ohio and competitive factors, among other things. The Corporation's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. The Corporation and its subsidiaries operate fifty-nine full- service offices and a network of sixty-five automatic teller machines in fifteen central and southern Ohio counties. A table of financial data of the Corporation's affiliates for 1999, 1998, and 1997 is shown below. See Footnote 19 to the financial statements for additional financial information on the Corporation's affiliates. 3 4 TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
- ----------------------------------------------------------------------------------------------- 1999 1998 1997 Average Net Average Net Average Net (In thousands) Assets Income Assets Income Assets Income - ----------------------------------------------------------------------------------------------- Park National Bank: Park National Division $ 883,680 $20,411 $ 812,688 $18,333 $ 716,356 $20,013 Fairfield National Division 281,893 4,209 263,729 4,254 202,681 3,893 Richland Trust Company 415,528 5,085 405,646 5,006 385,469 5,195 Century National Bank 388,616 5,688 359,774 6,332 348,861 5,805 First-Knox National Bank: First-Knox National Division 509,143 8,765 477,663 7,541 502,723 2,516 Farmers and Savings National Division 63,160 903 62,955 960 60,189 512 Parent Company, including consolidating entries (24,530) 686 (46,972) (854) 3,303 (241) - ------------------------------------------------------------------------------------------------ Consolidated Totals $2,517,490 $45,747 $2,335,483 $41,572 $2,219,582 $37,693 - ------------------------------------------------------------------------------------------------
RETURN ON EQUITY The Corporation's primary financial goal is to achieve a superior, long-term return on stockholders' equity. The Corporation measures performance in its attempts to achieve this goal against its peers, defined as all U.S. bank holding companies between $1 billion and $3 billion in assets. At year-end 1999, there were approximately 155 bank holding companies in this peer group. The Corporation's net income to average equity ratio (ROE) was 19.43%, 18.35% and 18.21% in 1999, 1998, and 1997, respectively. In the past five years, the Corporation's ROE exceeded the mean and median return of the peer group by a substantial margin. Park's return on equity ratio has averaged 17.88% over the past five years. [GRAPH] HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY 1995 1996 1997 1998 1999 Park 16.52% 16.88% 18.21% 18.35% 19.43% Peer Mean 12.58% 13.55% 14.19% 13.63% 13.84%* *as of 09/30/99 BALANCE SHEET COMPOSITION Park functions as a financial intermediary. The following section discusses the sources of funds and the manner in which management has invested these funds. SOURCE OF FUNDS DEPOSITS: The Corporation's major source of funds is provided by core deposits from individuals, businesses, and local government units. These core deposits consist of all noninterest bearing and interest bearing deposits, excluding certificates of deposit of $100,000 and over which have been less than 16% of total deposits for each of the last three years. In 1999, year-end total deposits increased by $75 million or 3.9% compared to an increase of $85 million or 4.6% for 1998. Approximately $15 million of the 1999 increase resulted from the purchase of a bank branch office in Utica, Ohio in September 1999. Increases in noninterest bearing deposits were experienced in all three years, primarily from commercial and public fund depositors. Maturity of time certificates of deposit and other time deposits of $100,000 and over as of December 31, 1999 were: TABLE 2 - OVER $100,000 MATURITY SCHEDULE - ----------------------------------------------------------- DECEMBER 31, 1999 TIME CERTIFICATES (IN THOUSANDS) OF DEPOSIT - ----------------------------------------------------------- 3 months or less $171,423 Over 3 months through 6 months 52,872 Over 6 months through 12 months 53,431 Over 12 months 35,485 - ------------------------------------------------------------ Total $313,211 - ------------------------------------------------------------ SHORT-TERM BORROWINGS: Short-term borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank advances, federal funds purchased, and other borrowings. These funds are used to manage the Corporation's liquidity needs and interest rate sensitivity risk. The average rate paid on short-term borrowings generally moves closely with changes in market interest rates for short-term investments. The average rate paid on short-term borrowings was 4.61%, 4.77% and 4.76% for 1999, 1998 and 1997, respectively. By comparison, the average federal funds rate was 4.97%, 5.35% and 5.46% for 1999, 1998 and 1997, respectively. In 1999, average short-term borrowings were $295 million compared to $190 million in 1998 and $163 million in 1997. The increase in average short-term borrowings in 1999 and 1998 was needed to help fund the increase in the average balance of loans and investments and to repay long-term debt. Average short-term borrowings were less than 12% of average assets in all years. LONG-TERM DEBT: Long-term debt is a result of borrowings from the Federal Home Loan Bank. These borrowings were reduced in 1999, 1998 and late 1997 as more attractive rates were available in short-term markets. STOCKHOLDERS' EQUITY: The ratio of average stockholders' equity to average total assets was 9.35% in 1999, 9.70% in 1998 and 9.33% in 1997. In accordance with Statement of Financial Accounting Standards No. 115, the Corporation reflects any unrealized holding gain/(loss) on available-for-sale securities, net of federal taxes, as accumulated other income which is part of the Corporation's equity. While the effects of this accounting is not recognized for calculation of regulatory capital adequacy ratios, it does impact the Corporation's equity as reported in the audited financial statements. The unrealized holding gain/(loss) on available-for-sale securities, net of federal taxes, was $(7.5), $7.5, and $7.0 million at year-end 1999, 1998 and 1997, respectively. INVESTMENT OF FUNDS LOANS: Average loans, net of unearned income, were $1,715 million in 1999 compared to $1,601 million in 1998 and $1,528 million in 1997. The average yield on loans was 8.85% in 1999 compared to 9.25% in 1998 and 9.36% in 1997. The average prime lending rate in 1999 was 7.99% compared to 8.35% in 1998 and 8.44% in 1997. Approximately 66% of loan balances mature or reprice within one year. This results in the interest rate yield on the loan portfolio adjusting with changes in interest rates, but on a delayed basis. Year-end loan balances, net of unearned income, increased by $192 million or 11.7% in 1999 and by $50 million or 3.1% in 1998. Consumer loans increased by $76 million or 22.7% to $408 million at year-end 1999 compared to an increase of $19 million or 6.0% for 1998. Total lease outstandings increased by $57 million or 93.4% to $117 million at year-end 1999 compared to an increase of $26 million or 73.1% for 1998. These large 4 5 increases in 1999 were primarily due to strong demand for automobile loans and leases. As a percentage of assets, year-end loan balances were 69.6%, 66.7% and 69.6% in 1999, 1998 and 1997, respectively. Table 3 reports year-end loan balances by type of loan for the past five years. TABLE 3 - LOANS BY TYPE - -------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------- Commercial, financial and agriculture $ 236,718 $ 217,504 $ 212,970 $ 224,912 $ 211,535 Real estate - construction 72,968 70,998 65,548 70,359 52,084 Real estate - residential 693,930 679,239 708,768 617,018 585,739 Real estate - commercial 305,193 280,789 256,074 215,372 200,675 Consumer, net 407,849 332,320 313,517 320,831 282,618 Leases, net 117,290 60,662 35,050 23,532 22,717 - -------------------------------------------------------------------------------- Total Loans $1,833,948 $1,641,512 $1,591,927 $1,472,024 $1,355,368 - -------------------------------------------------------------------------------- TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION - ---------------------------------------------------------------------------- OVER ONE OVER DECEMBER 31, 1999 ONE YEAR THROUGH FIVE (IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL - ---------------------------------------------------------------------------- Commercial, financial and agriculture $95,142 $65,996 $ 75,580 $236,718 Real estate - construction 34,010 4,597 34,361 72,968 - ---------------------------------------------------------------------------- Total $129,152 $70,593 $109,941 $309,686 - ---------------------------------------------------------------------------- Total of these selected loans due after one year with: Fixed interest rate $ 52,972 Floating interest rate $127,562 - ---------------------------------------------------------------------------- INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to provide liquidity and contribute to earnings. The Corporation classifies approximately 99% of its securities as available-for-sale -- see Footnote 4 to the financial statements. These securities are carried on the books at the estimated fair value with the unrealized holding gain or loss, net of taxes, accounted for as comprehensive other income which is part of the Corporation's equity. Management classifies a large portion of the securities portfolio as available-for-sale so that these securities will be available to be sold in future periods in carrying out the Corporation's investment strategies. The remaining securities are classified as held-to-maturity and are accounted for at amortized cost. The Corporation's investment strategy is dynamic. As conditions change over time, the Corporation's overall interest rate risk, liquidity needs, and potential return on the investment portfolio will change. The Corporation regularly reevaluates the securities in its portfolio based on circumstances as they evolve. Circumstances that may precipitate a sale of a security would be to better manage interest rate risk, meet liquidity needs, or to improve the overall yield from the investment portfolio. Park realized security losses of $3.6 million in 1999 compared to a gain of $97,000 in 1998 and a loss of $7,000 in 1997. Interest rates on U.S. Treasury securities with a five year maturity increased to 6.36% at December 31, 1999 compared to 4.56% at December 31, 1998. This increase in interest rates provided the Corporation with an opportunity to realize security losses and reinvest at higher interest rates. The Corporation's strategy has generally been to reinvest the proceeds from the sale of securities at a loss into higher yielding securities with modest extension of maturities. The average yield on taxable investment securities was 6.61%, 6.91%, and 7.00% for 1999, 1998, and 1997, respectively. The average maturity or repricing of the taxable investment portfolio was approximately 5.1 years at year-end 1999 compared to 2.7 years at year-end 1998 and 3.1 years at year-end 1997. The extension of the average maturity of the investment portfolio in 1999 was primarily due to callable U.S. Agency securities of approximately $200 million being priced to their maturity of 7.5 years compared to their first call date in 2.5 years. If interest rates were to decline in 2000, the average maturity of the taxable portfolio could shorten by two years. The Corporation's tax-exempt securities portfolio was approximately 16% of the total securities portfolio at year-end 1999 compared to 17% at year-end 1998 and 16% at year-end 1997. The average tax-equivalent yield on tax-exempt securities was 7.25%, 7.33% and 7.82% for 1999, 1998 and 1997, respectively. The average maturity of the tax-exempt portfolio was 7.9 years at year-end 1999 compared to 6.7 years at year-end 1998 and 7.1 years at year-end 1997. Total year-end investment securities decreased by $29 million or 4.5% in 1999 compared to an increase of $112 million or 20.7% in 1998. Year-end 1999 loan totals increased by $192 million or 11.7% compared to an increase of $50 million or 3.1% in 1998. The investment security portfolio was reduced in 1999 to help fund the faster growth in the loan portfolio. The following table sets forth the book value of investment securities at year end: TABLE 5 - INVESTMENT SECURITIES - ------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1999 1998 1997 - ------------------------------------------------------------------------------- Obligations of U.S. Treasury and other U.S. Government agencies $201,527 $175,530 $159,248 Obligations of states and political subdivisions 102,333 110,616 87,367 U.S. Government asset-backed securities and other asset-backed securities 295,279 344,936 274,234 Other securities 24,191 21,385 19,881 - -------------------------------------------------------------------------------- Total $623,330 $652,467 $540,730 - -------------------------------------------------------------------------------- EARNING RESULTS The Corporation's principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them. Net interest income increased by $8.2 million or 7.6% to $115.9 million for 1999 compared to an increase of $4.4 million or 4.3% to $107.7 million for 1998. The net yield on interest earning assets was stable at 5.04% for 1999 compared to 5.05% for 1998 and 1997. Similarly, the net interest rate spread -- the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities was within the narrow range of 4.36% to 4.42% for all three years. The increase in net interest income for both 1999 and 1998 was primarily due to the growth in average interest earning assets. The yield on average interest earning assets was 8.26% in 1999 compared to 8.65% in 1998 and 8.75% in 1997. The average prime lending rate was approximately 7.99% for 1999 compared to 8.35% for 1998 and 8.44% for 1997. Market interest rates increased during the fourth quarter of 1999 and the prime lending rate increased to 8.50% at year-end 1999. About one-third of the Corporation's loan portfolio is indexed to the prime lending rate and as 5 6 a result, the average yield on interest earning assets is expected to increase in 2000. Average interest earning assets increased by $181 million or 8.3% to $2,359 million in 1999 compared to an increase of $94 million or 4.5% to $2,179 million in 1998. The average rate paid on average interest bearing liabilities was 3.84% in 1999 compared to 4.29% in 1998 and 4.38% in 1997. The average rate paid on deposits was 3.70% for 1999 compared to 4.22% for 1998 and 4.28% for 1997. The Corporation increased certain deposit rates during the fourth quarter of 1999 as a result of the increase in market interest rates. The average rate paid on deposits is expected to increase in 2000 and offset the expected increase in the average yield on interest earning assets. Average interest bearing liabilities increased by $155 million or 8.5% to $1,981 million in 1999 compared to an increase of $65 million or 3.7% to $1,825 million in 1998. Average interest bearing deposits as a percentage of average interest bearing liabilities were 85.0% in 1999, 88.8% in 1998, and 88.1% in 1997.
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 1997 (DOLLARS IN THOUSANDS) DAILY AVERAGE DAILY AVERAGE DAILY AVERAGE AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS INTEREST EARNING ASSETS: Loans (1) (2) $1,715,050 $151,718 8.85% $1,600,510 $148,085 9.25% $1,527,694 $142,934 9.36% Taxable investment securities 539,722 35,675 6.61% 481,867 33,290 6.91% 474,707 33,229 7.00% Tax-exempt investment securities (3) 103,927 7,536 7.25% 93,472 6,850 7.33% 73,613 5,757 7.82% Federal funds sold 490 30 6.12% 2,678 152 5.68% 8,132 460 5.66% - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EARNING ASSETS 2,359,189 194,959 8.26% 2,178,527 188,377 8.65% 2,084,146 182,380 8.75% - ----------------------------------------------------------------------------------------------------------------------------------- NONINTEREST EARNING ASSETS: Allowance for possible loan losses (40,081) (37,643) (34,346) Cash and due from banks 86,899 79,149 71,244 Premises and equipment, net 26,534 27,563 27,361 Other assets 84,950 87,887 71,177 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $2,517,491 $2,335,483 $2,219,582 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST BEARING LIABILITIES: Transaction accounts $ 391,994 $ 7,196 1.84% $ 366,890 $ 8,438 2.30% $ 364,776 $ 8,926 2.45% Savings deposits 284,295 5,685 2.00% 281,106 7,557 2.69% 278,371 7,823 2.81% Time deposits 1,007,730 49,503 4.91% 972,163 52,346 5.38% 907,718 49,699 5.48% - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING DEPOSITS 1,684,019 62,384 3.70% 1,620,159 68,341 4.22% 1,550,865 66,448 4.28% - ----------------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 295,309 13,601 4.61% 190,175 9,079 4.77% 162,626 7,738 4.76% Long-term debt 1,254 78 6.22% 15,099 875 5.80% 46,652 2,846 6.10% - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 1,980,582 76,063 3.84% 1,825,433 78,295 4.29% 1,760,143 77,032 4.38% - ----------------------------------------------------------------------------------------------------------------------------------- NONINTEREST BEARING LIABILITIES: Demand deposits 277,452 256,817 228,598 Other 23,989 26,632 23,842 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST BEARING LIABILITIES 301,441 283,449 252,440 - ----------------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 235,466 226,601 206,999 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $2,517,489 $2,335,483 $2,219,582 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest earnings $118,896 $110,082 $105,348 Net interest spread 4.42% 4.36% 4.37% Net yield on interest earning assets 5.04% 5.05% 5.05% - -----------------------------------------------------------------------------------------------------------------------------------
(1) Loan income includes net fee loan income/(expense) of $(53) in 1999, $1,210 in 1998 and $1,448 in 1997. Loan income also includes the effects of taxable equivalent adjustments using a 35% rate in 1999, 1998 and 1997. The taxable equivalent adjustment was $826 in 1999, $453 in 1998 and $434 in 1997. (2) For purposes of this computation, nonaccrual loans are included in the daily average loans outstanding. (3) Interest income on tax-exempt securities includes the effect of taxable equivalent adjustments using a 35% rate in 1999, 1998 and 1997. The taxable equivalent adjustment was $2,213 in 1999, $1,978 in 1998 and $1,658 in 1997. 6 7 The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. TABLE 7 - VOLUME/RATE VARIANCE ANALYSIS
- ------------------------------------------------------------------------------------------------------ Change from 1998 to 1999 Change from 1997 to 1998 (In thousands) Volume Rate Total Volume Rate Total - ------------------------------------------------------------------------------------------------------ Increase (decrease) in: Interest income: - ------------------------------------------------------------------------------------------------------ TOTAL LOANS $ 10,246 $ (6,613) $ 3,633 $ 6,828 $ (1,677) $ 5,151 - ------------------------------------------------------------------------------------------------------ Taxable investments 3,875 (1,490) 2,385 494 (433) 61 Tax-exempt investments 761 (75) 686 1,472 (379) 1,093 Federal funds sold (133) 11 (122) (309) 1 (308) - ------------------------------------------------------------------------------------------------------ TOTAL INTEREST INCOME 14,749 (8,167) 6,582 8,485 (2,488) 5,997 - ------------------------------------------------------------------------------------------------------ Interest expense: Transaction accounts 544 (1,786) (1,242) 52 (540) (488) Savings accounts 85 (1,957) (1,872) 75 (341) (266) Time deposits 1,858 (4,701) (2,843) 3,550 (903) 2,647 Short-term borrowings 4,837 (315) 4,522 1,325 16 1,341 Long-term debt (855) 58 (797) (1,837) (134) (1,971) - ------------------------------------------------------------------------------------------------------ TOTAL INTEREST EXPENSE 6,469 (8,701) (2,232) 3,165 (1,902) 1,263 - ------------------------------------------------------------------------------------------------------ NET VARIANCE $ 8,280 $ 534 $ 8,814 $ 5,320 $ (586) $ 4,734 - ------------------------------------------------------------------------------------------------------
OTHER INCOME: Total other income, exclusive of security gains or losses, increased by $2.8 million or 11.8% to $26.7 million in 1999 and increased by $3.2 million or 15.3% to $23.9 million in 1998 compared to $20.7 million for 1997. Service charges on deposit accounts increased by $850,000 or 12.5% in 1999 and by $515,000 or 8.2% in 1998 due primarily to increases in the number of transaction accounts. Additionally, in 1999 there was a fee increase on transaction accounts which was implemented during the middle of the year. The subcategory of "other" increased by $2.0 million or 29.4% in 1999 and increased by $1.2 million or 21.6% in 1998 due primarily to increased fees from check card and ATM products. The increased fee income is primarily due to an increase in the usage of these electronic cards and to a lesser extent fee increases. Fee income earned from the origination and sale into the secondary market of fixed rate mortgage loans is included with other nonyield related loan fees in the subcategory other service income. For 1999, other service income decreased by $614,000 or 11.9% due primarily to the decrease in fixed rate mortgage loan volume compared to an increase of $1.6 million or 43.1% in 1998 due to a large increase in fixed rate mortgage loan production. Fixed rate mortgage loan volume is greatly dependent on the level of interest rates and the slope of the yield curve. Income from fiduciary activities increased by $581,000 or 11.4% in 1999 due primarily to increases in assets under management for new trust department customers. Losses on sale of securities were $3.6 million in 1999 compared to a gain of $97,000 in 1998 and a loss of $7,000 in 1997. The proceeds from the sales of securities in 1999 were generally invested in higher yielding, longer maturity securities to take advantage of an upward sloping yield curve. Lower overall interest rates and a flat yield curve prevented sales for losses and related reinvestments in 1998 and 1997. During 1999, 1998, and 1997, the Corporation had no investment in off-balance sheet derivative instruments. OTHER EXPENSE: Total other expense increased by $3.2 million or 5.0% to $67.5 million in 1999 and increased by $1.9 million or 3.0% to $64.3 million in 1998 compared to $62.4 million for 1997. An increase in total other expense of approximately $2.0 million in 1997 was due to one-time expenses related to the May 1997 merger with First-Knox. These expenses were absorbed by First-Knox in 1997. Salaries and employee benefits increased by $3.2 million or 10.0% in 1999 compared to a decrease of $150,000 or .5% in 1998. Included in 1997, are one-time expenses related to the First-Knox merger of approximately $1.9 million for deferred employee payments, stock appreciation rights, and employee benefits expense. Exclusive of the $1.9 million one-time expense in 1997, salaries and employee benefits expense would have increased 5.8% in 1998. Full-time equivalent employees at year-end were 1,023 in 1999, 1,007 in 1998 and 978 in 1997. Data processing fees increased by $642,000 or 14.2% in 1999 compared to a decrease of $788,000 or 14.9% in 1998. The decrease in data processing expense in 1998 was due to efficiencies achieved from converting First-Knox to Park's data processing system at the end of 1997. The increase in data processing expense in 1999 was due to an upgrade in the mainframe equipment and to additional expenses related to Year 2000 compliance. Furniture and equipment expense decreased by $805,000 or 16.7% in 1999 compared to a large increase of $1.1 million or 30.6% in 1998. The increase in 1998 was primarily due to $1.0 million in increased depreciation expense on computer hardware and software as their estimated useful lives were shortened from five years to three years. Some of the older computer equipment was not Year 2000 compliant and accordingly was completely written-off in 1998. Exclusive of the $1.0 million one time expense in 1998, furniture and equipment expense would have increased 5.1% in 1999. The subcategory "other expense" increased by $1.2 million or 25.3% in 1998. The large increase in 1998 was primarily due to an increase in depreciation expense from operating leases, in supplies expense, and Year 2000 compliance expense. INCOME TAXES: Federal income tax expense as a percentage of income before taxes was 29.0% in 1999, 31.3% in 1998 and 30.9% in 1997. A lower tax percentage rate than the statutory rate of thirty-five percent is primarily due to tax-exempt interest income from state and municipal investments and loans. CREDIT EXPERIENCE PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to the allowance for loan losses to absorb possible future loan charge-offs. The amount of the loan loss provision is determined by management after reviewing the risk characteristics of the loan portfolio, historical loan loss experience and projections of future economic conditions. In 1997, First-Knox absorbed an increase in the loan loss provision charged to earnings in order to bring its allowance for possible loan losses into alignment with other Corporation affiliates. The impact of this was partially offset by a reduced loan loss provision at Park National Division. The allowance for possible loan losses at December 31, 1999 totaled $41.3 million and represented 2.25% of total loans outstanding at December 31, 1999 compared to $38.0 million or 2.31% of total loans outstanding at December 31, 1998 and $35.6 million or 2.24% of total loans outstanding at December 31, 1997. The provision for loan losses was $7.0 million for 1999 compared to $6.8 million for 1998 and $7.0 million for 1997. Net charge-offs were $3.7 million for 1999 compared to $4.4 million for 1998 and $3.8 million for 1997. Management believes that the allowance for possible loan losses at year-end 1999 is adequate to absorb estimated credit losses in the loan portfolio. See Footnote 1 to the financial statements for additional information on management's evaluation of the adequacy of the allowance for loan losses. 7 8 The following table summarizes the loan loss provision, charge-offs and recoveries for the last five years: TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
- -------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,715,050 $1,600,510 $1,527,694 $1,379,973 $1,318,275 ALLOWANCE FOR POSSIBLE LOAN LOSSES: Beginning Balance $ 37,989 $ 35,595 $ 32,347 $ 29,239 $ 25,438 CHARGE-OFFS: Commercial 1,014 663 1,332 868 407 Real estate 1,827 1,569 1,265 185 471 Consumer 4,210 4,976 3,530 2,971 2,019 Leases 263 184 144 414 55 - -------------------------------------------------------------------------------------------------------- TOTAL CHARGE-OFFS 7,314 7,392 6,271 4,438 2,952 - -------------------------------------------------------------------------------------------------------- RECOVERIES: Commercial 331 368 400 420 175 Real estate 1,471 1,008 696 365 171 Consumer 1,708 1,521 1,198 1,404 1,074 Leases 112 91 226 63 85 - -------------------------------------------------------------------------------------------------------- TOTAL RECOVERIES 3,622 2,988 2,520 2,252 1,505 - -------------------------------------------------------------------------------------------------------- NET CHARGE-OFFS 3,692 4,404 3,751 2,186 1,447 - -------------------------------------------------------------------------------------------------------- Provision charged to earnings 6,969 6,798 6,999 5,294 5,248 - -------------------------------------------------------------------------------------------------------- ENDING BALANCE $ 41,266 $ 37,989 $ 35,595 $ 32,347 $ 29,239 - -------------------------------------------------------------------------------------------------------- RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.22% 0.28% 0.25% 0.16% 0.11% RATIO OF ALLOWANCE FOR POSSIBLE LOAN LOSSES TO END OF YEAR LOANS, NET OF UNEARNED INTEREST 2.25% 2.31% 2.24% 2.20% 2.16% - --------------------------------------------------------------------------------------------------------
The following table summarizes Park's allocation of the allowance for possible loan losses. However, the total allowance for possible loan losses is available to absorb losses from any segment of the loan portfolio. TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 DECEMBER 31, PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF (DOLLARS IN LOANS PER LOANS PER LOANS PER LOANS PER LOANS PER THOUSANDS) ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY - ----------------------------------------------------------------------------------------------------------------------------------- Commercial $10,379 12.91% $10,332 13.25% $10,116 13.38% $ 8,996 15.28% $ 8,779 15.61% Real estate 11,950 58.46% 11,775 62.81% 11,420 64.73% 9,902 61.32% 8,071 61.86% Consumer 15,127 22.24% 13,791 20.24% 12,541 19.69% 12,513 21.80% 11,474 20.85% Leases 3,810 6.39% 2,091 3.70% 1,518 2.20% 936 1.60% 915 1.68% - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $41,266 100.00% $37,989 100.00% $35,595 100.00% $32,347 100.00% $29,239 100.00% - -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999, the Corporation had no significant concentrations of loans to borrowers engaged in the same or similar industries nor did the Corporation have any loans to foreign governments. NON-PERFORMING ASSETS: Non-performing loans include: l) loans whose interest is accounted for on a non-accrual basis; 2) loans whose terms have been renegotiated; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue. Other real estate owned results from taking title to property used as collateral for a defaulted loan. The following is a summary of the nonaccrual, past due and renegotiated loans and other real estate owned for the last five years: TABLE 10 - NONPERFORMING ASSETS - -------------------------------------------------------------------------------- DECEMBER 31, - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------- Nonaccrual loans $2,638 $2,155 $2,060 $2,301 $2,425 Renegotiated loans 429 492 1,642 2,348 2,525 Loans past due 90 days or more 2,035 2,314 2,512 2,963 1,640 - -------------------------------------------------------------------------------- TOTAL NONPERFORMING LOANS 5,102 4,961 6,214 7,612 6,590 - -------------------------------------------------------------------------------- OTHER REAL ESTATE OWNED 558 238 300 329 183 - -------------------------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $5,660 $5,199 $6,514 $7,941 $6,773 - -------------------------------------------------------------------------------- PERCENTAGE OF NONPERFORMING LOANS TO LOANS, NET OF UNEARNED INTEREST 0.28% 0.30% 0.39% 0.52% 0.49% PERCENTAGE OF NONPERFORMING ASSETS TO LOANS, NET UNEARNED INTEREST 0.31% 0.32% 0.41% 0.54% 0.50% PERCENTAGE OF NONPERFORMING ASSETS TO TOTAL ASSETS 0.22% 0.21% 0.28% 0.36% 0.34% - -------------------------------------------------------------------------------- Tax equivalent interest income from loans of $151.7 million for 1999 would have increased by $136,000 if all loans had been current in accordance with their original terms. Interest income for the year ended December 31, 1999 in the approximate amount of $307,000 is included in interest income for those loans in accordance with original terms. The Corporation had $42.6 million of loans included on the Corporation's watch list of potential problem loans at December 31, 1999 compared to $36.2 million at year-end 1998 and $17.6 million at year-end 1997. The existing conditions of these loans do not warrant classification as nonaccrual. Management undertakes additional surveillance regarding a borrower's ability to comply with payment terms and conditions for those loans identified for inclusion on the watch list. YEAR 2000 UPDATE The Corporation's operations achieved a successful transition to year 2000 (Y2K). No disruptions in services have been detected. All customer and internal systems including ATMs, audio response systems and other computer-dependent services are operating in a normal manner. The costs incurred to address the Y2K issue in implementing the Corporation's year 2000 plan in 1997, 1998 and 1999 are not material to the Corporation's financial statements and do not impact the comparability of information. Management believes the risk of continued exposure to date-related computer problems is low. During the testing process for Y2K all sensitive dates beyond December 31, 1999 were tested and it was determined that the systems are compliant. The Corporation will continue to monitor its performance throughout year 2000 with regard to date-related computer problems. 8 9 CAPITAL RESOURCES LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT: The Corporation's objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities. Cash and cash equivalents increased by $3.9 million during 1999 to $104.2 million at year end. Cash provided by operating activities was $59.3 million in 1999, $42.8 million in 1998, and $44.8 million in 1997. Net income was the primary source of cash for operating activities during each year. Cash used in investing activities was $197.9 million in 1999, $166.1 million in 1998, and $93.4 million in 1997. A major use of cash in investing activities is the net increase in the loan portfolio. Cash used for the net increase in loans was $195.1 million in 1999, $53.2 million in 1998, and $111.3 million in 1997. Cash of $2.6 million and $6.7 million was used in 1999 and 1997, respectively, to purchase branch offices and $11.6 million was used to acquire the related loans in 1997. Security transactions are the other major use or source of cash in investing activities. Proceeds from the sale or maturity of securities provide cash and purchases of securities use cash. Net security transactions provided $2.7 million of cash in 1999, used $109.4 million of cash in 1998 and provided $38.9 million in 1997. Cash provided by financing activities was $142.5 million in 1999, $130.0 million in 1998, and $60.4 million in 1997. A major source of cash for financing activities is the net increase in deposits. Cash provided from the net increase in deposits was $60.5 million in 1999, $84.8 million in 1998 and $42.4 million in 1997. The purchase of deposits with the branch offices in 1999 and 1997 provided cash of $14.9 million and $49.2 million, respectively. Changes in short-term borrowings or long-term debt is a major source or use of cash for financing activities. The net increase in short-term borrowings provided cash of $101.5 million in 1999 and $95.0 million in 1998 and $16.5 million in 1997. Cash was used to repay long-term debt of $8.4 million in 1999, $22.4 million in 1998 and $31.5 million in 1997. Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the capability to securitize or package loans for sale. The present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. Liquidity is enhanced by assets maturing or repricing within one year. Assets maturing or repricing within one year were $1,300 million or 52.9% of interest earning assets at year-end 1999. Liquidity is also enhanced by a significant amount of stable core deposits from a variety of customers in several Ohio markets served by the Corporation. An asset/liability committee monitors and forecasts rate sensitive assets and liabilities and develops strategies and pricing policies to influence the acquisition of certain assets and liabilities. The purpose of these efforts is to guard the Corporation from adverse impacts of unforeseen swings in interest rates and to enhance the net income of the Corporation by accepting a limited amount of interest rate risk, based on interest rate projections. The following table shows interest rate sensitivity data for five different time intervals as of December 31, 1999: TABLE 11 - INTEREST RATE SENSITIVITY
- ------------------------------------------------------------------------------------------------ (DOLLARS 0-3 3-12 1-3 3-5 OVER 5 IN THOUSANDS) MONTHS MONTHS YEARS YEARS YEARS TOTAL - ------------------------------------------------------------------------------------------------ INTEREST RATE SENSITIVE ASSETS: Investment securities(1) $ 26,424 $ 55,397 $ 192,649 $102,343 $246,517 $ 623,330 Loans(1) 524,926 693,096 343,496 179,938 92,492 1,833,948 - ------------------------------------------------------------------------------------------------ TOTAL INTEREST EARNING ASSETS 551,350 748,493 536,145 282,281 339,009 2,457,278 - ------------------------------------------------------------------------------------------------ INTEREST BEARING LIABILITIES: Interest Bearing Checking(2) 60,559 -- 181,676 -- -- 242,235 Savings accounts(2) 137,687 -- 137,687 -- -- 275,374 Money market checking 150,226 -- -- -- -- 150,226 Time deposits 372,437 408,659 224,546 48,384 2,568 1,056,594 Other 1,427 -- -- -- -- 1,427 - ------------------------------------------------------------------------------------------------ TOTAL DEPOSITS 722,336 408,659 543,909 48,384 2,568 1,725,856 - ------------------------------------------------------------------------------------------------ Short-term borrowings 348,199 -- -- -- -- 348,199 Long-term debt -- 2 4 5 65 76 - ------------------------------------------------------------------------------------------------ TOTAL INTEREST BEARING LIABILITIES 1,070,535 408,661 543,913 48,389 2,633 2,074,131 - ------------------------------------------------------------------------------------------------ INTEREST RATE SENSITIVITY GAP (519,185) 339,832 (7,768) 233,892 336,376 383,147 CUMULATIVE RATE SENSITIVITY GAP (519,185) (179,353) (187,121) 46,771 383,147 CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST EARNING ASSETS -21.13% -7.30% -7.61% 1.90% 15.59% - ------------------------------------------------------------------------------------------------
(1)Investment securities and loans that are subject to prepayment are shown in the table by the earlier of their repricing date or their expected repayment dates and not by their contractual maturity. (2)Management considers interest bearing checking accounts and savings accounts to be core deposits and therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 25% of interest bearing checking accounts and 50% of savings accounts are considered to reprice within one year. If all of the interest bearing checking accounts and savings accounts were considered to reprice within one year, the one year cumulative gap would change from a negative 7.30% to a negative 20.30%. The interest rate sensitivity gap analysis provides a good overall picture of the Corporation's static interest rate risk position. The Corporation's policy is that the twelve month cumulative gap position should not exceed fifteen percent of interest earning assets for three consecutive quarters. At December 31, 1999, the cumulative interest bearing liabilities maturing or repricing within twelve months were $1,479 million compared to the cumulative interest earning assets maturing or repricing within twelve months of $1,300 million. For the twelve months, rate sensitive liabilities exceed rate sensitive assets by $179 million or 7.3% of earning assets. This is expressed in the table as a negative number because cumulative rate sensitive liabilities within twelve months exceed cumulative rate sensitive assets within twelve months. A negative twelve month cumulative rate sensitivity gap would suggest that the Corporation's net interest margin would modestly decrease if interest rates were to rise. However, the usefulness of the interest sensitivity gap analysis as a forecasting tool in projecting net interest income is limited. The gap analysis does not consider the magnitude by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of transaction and savings accounts that may not prove to be correct. 9 10 The cumulative twelve month interest rate sensitivity gap position at December 31, 1998 was a negative $148 million or 6.5% of interest earning assets compared to a negative $179 million or a negative 7.3% of interest earning assets at December 31, 1999. This change in the cumulative twelve month interest rate sensitivity gap of a negative $31 million was primarily due to an increase in short-term borrowings. The cumulative interest bearing liabilities maturing or repricing within one year as a percentage of total interest earning assets was 60.2% at December 31, 1999 compared to 58.1% at December 31, 1998. Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin. The Corporation uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. This model is based on actual cash flows and repricing characteristics for balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. This model also includes management's projections for activity levels of various balance sheet instruments and noninterest fee income and operating expense. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into this earnings simulation model. These assumptions are inherently uncertain and as a result, the model cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income and net income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. Management uses a .50% change in market interest rates per quarter for a total of 2.00% per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve month horizon. At December 31, 1999, the earnings simulation model projected that net income would decrease by 1.6% using a rising interest rate scenario and increase by 1.1% using a declining interest rate scenario over the next year. At December 31, 1998, the earnings simulation model projected that net income would increase by .9% using a rising interest rate scenario and decrease by .9% using a declining interest rate scenario over the next year and at December 31, 1997, the earnings simulation model projected that net income would increase by 2.2% using a rising interest rate scenario and decrease by 2.2% using a declining interest rate scenario over the next year. During the past two years, Park's balance sheet has become more liability sensitive with the result that rising interest rates are projected to slightly reduce net income. CAPITAL: The Corporation's primary means of maintaining capital adequacy is through net retained earnings. At December 31, 1999, the Corporation's equity capital was $239.6 million, an increase of 1.7% over the equity capital at December 31, 1998. Stockholders' equity at December 31, 1999 was 9.09% of total assets compared to 9.58% of total assets at December 31, 1998. Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. The unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. The capital standard of risk-based capital to risk-based assets is 8.00% at December 31, 1999. At year-end 1999, the Corporation had a risk-based capital ratio of 14.41% or capital above the minimum required by $114.7 million. The capital standard of tier l capital to risk-based assets is 4% at December 31, 1999. Tier l capital includes stockholders' equity net of goodwill and any other intangible assets. At year-end 1999, the Corporation had a tier l capital to risk-based assets ratio of 13.15% or capital above the minimum required by $163.6 million. Bank regulators have also established a leverage capital ratio of 4%, consisting of tier 1 capital to total assets, not risk adjusted. At year-end 1999, the Corporation had a leverage capital ratio of 9.05% or capital above the minimum required by $131.2 million. Regulatory guidelines also establish capital ratio requirements for "well capitalized" bank holding companies. The capital ratios are 10% for risk-based capital, 6% for tier 1 capital to risk-based assets and 5% for tier 1 capital to total assets. The Corporation exceeds these higher capital standards and therefore is classified as "well capitalized." The financial institution subsidiaries of the Corporation each met the well capitalized capital ratio guidelines at December 31, 1999. The table below indicates the capital ratios for each subsidiary and the Corporation at December 31, 1999: TABLE 12 - CAPITAL RATIOS - -------------------------------------------------------------------------------- TIER 1 TOTAL DECEMBER 31, 1999 LEVERAGE RISK-BASED RISK-BASED - -------------------------------------------------------------------------------- Park National Bank 6.30% 8.54% 10.93% Richland Trust Company 6.01% 10.44% 11.70% Century National Bank 5.97% 10.28% 11.54% First-Knox National Bank 5.83% 8.28% 11.92% Park National Corporation 9.05% 13.15% 14.41% Minimum Capital Ratio 4.00% 4.00% 8.00% Well Capitalized Ratio 5.00% 6.00% 10.00% - -------------------------------------------------------------------------------- [GRAPH] RISK-BASED CAPITAL RATIOS (December 31, 1999) - -------------------------------------------------------------------------------- LEVERAGE TIER 1 TOTAL - -------------------------------------------------------------------------------- Park 9.05% 13.15% 14.41% Well-Capitalized 5.00% 6.00% 10.00% Regulatory Minimum 4.00% 4.00% 8.00% [GRAPH] AVERAGE STOCKHOLDERS' EQUITY (millions) 1999 1998 1997 1996 1995 $235.5 $226.6 $207.0 $187.8 $168.4 EFFECTS OF INFLATION: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation, financial institutions that are in a net positive monetary position 10 11 will experience a decline in purchasing power, which does have an impact on growth. Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is Park's ability to align its asset/liability management program to react to changes in interest rates. The following table summarizes five-year financial information. All per share data have been retroactively restated for the 5% stock dividend paid on December 15, 1999. TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS, 1999 1998 1997 1996 1995 EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Interest income $ 191,920 $ 185,946 $ 180,288 $ 163,193 $ 150,288 Interest expense 76,063 78,295 77,032 69,155 64,347 Net interest income 115,857 107,651 103,256 94,038 85,941 Gain/(loss) on sale of securities (3,608) 97 (7) (1,324) (634) Noninterest income 26,696 23,872 20,708 17,984 16,683 Noninterest expense 67,540 64,309 62,408 59,112 56,501 Provision for loan losses 6,969 6,798 6,999 5,294 5,248 Net income 45,747 41,572 37,693 31,700 27,829 PER SHARE: Net income - basic 4.69 4.24 3.82 3.23 2.82 Net income - diluted 4.67 4.22 3.81 3.22 2.81 Cash dividends declared 2.36 1.94 1.60 1.38 1.19 AVERAGE BALANCES: Loans $ 1,715,050 $1,600,510 $ 1,527,694 $ 1,379,973 $ 1,318,275 Investment securities 643,649 575,339 548,320 472,107 421,089 Money market instruments and other 490 2,678 8,132 39,573 17,325 - --------------------------------------------------------------------------------------------------------- TOTAL EARNING ASSETS 2,359,189 2,178,527 2,084,146 1,891,653 1,756,689 - --------------------------------------------------------------------------------------------------------- Noninterest bearing deposits 277,452 256,817 228,598 207,262 196,406 Interest bearing deposits 1,684,019 1,620,159 1,550,865 1,420,919 1,317,325 - --------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,961,471 1,876,976 1,779,463 1,628,181 1,513,731 - --------------------------------------------------------------------------------------------------------- Short-term borrowings 295,309 190,175 162,626 126,721 139,035 Long-term debt 1,254 15,099 46,652 46,497 33,413 Stockholders' equity 235,466 226,601 206,999 187,755 168,432 Total assets 2,517,489 2,335,483 2,219,582 2,011,795 1,872,999 RATIOS: Return on average assets 1.82% 1.78% 1.70% 1.58% 1.49% Return on average equity 19.43% 18.35% 18.21% 16.88% 16.52% Net interest margin(1) 5.04% 5.05% 5.05% 5.09% 5.02% Noninterest expense to net revenue(1) 46.39% 48.01% 49.51% 52.34% 54.24% Dividend payout ratio 50.41% 45.84% 41.93% 40.66% 38.45% Average stockholders' equity to average total assets 9.35% 9.70% 9.33% 9.33% 8.99% Leveraged capital 9.05% 9.06% 8.91% 8.73% 9.06% Tier 1 capital 13.15% 13.64% 13.46% 13.16% 14.06% Risk-based capital 14.41% 14.92% 14.72% 14.42% 15.30% - ---------------------------------------------------------------------------------------------------------
(1)Computed on a fully taxable equivalent basis The following table is a summary of selected quarterly results of operations for the years ended December 31, 1999 and 1998. Certain quarterly amounts have been reclassified to conform to the year-end financial statement presentation and share and per share data have been retroactively restated for the 5% stock dividend paid on December 15, 1999. TABLE 14 - QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------ THREE MONTHS ENDED (DOLLARS IN THOUSANDS, ------------------------------------------------------- EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31 - ------------------------------------------------------------------------------------------ 1999: Interest income $ 46,241 $ 46,884 $ 48,329 $ 50,466 Interest expense 18,343 18,145 19,226 20,349 Net interest income 27,898 28,739 29,103 30,117 Provision for loan losses 1,545 2,009 1,555 1,860 Loss on sale of securities -- (255) (707) (2,646) Income before income taxes 16,524 16,872 16,687 14,353 Net income 11,598 12,003 11,800 10,346 Per share data: Net income - basic 1.19 1.23 1.21 1.06 Net income - diluted 1.18 1.22 1.21 1.06 Weighted-average common stock outstanding - basic 9,771,925 9,762,958 9,743,255 9,736,488 Weighted-average common stock equivalent - diluted 9,810,600 9,796,100 9,780,011 9,786,099 - ----------------------------------------------------------------------------------------- 1998: Interest income $ 45,560 $ 46,450 $ 46,939 $ 46,997 Interest expense 19,235 19,604 20,089 19,367 Net interest income 26,325 26,846 26,850 27,630 Provision for loan losses 1,674 1,674 1,674 1,776 Gain on the sale of securities 97 -- -- -- Income before income taxes 15,305 15,815 15,561 13,832 Net income 10,583 10,949 10,766 9,274 Per share data: Net income - basic 1.07 1.12 1.10 0.95 Net income - diluted 1.07 1.11 1.10 0.94 Weighted-average common stock outstanding - basic 9,856,259 9,820,318 9,782,803 9,770,947 Weighted-average common stock equivalent - diluted 9,903,490 9,867,825 9,834,681 9,817,211 - -----------------------------------------------------------------------------------------
Park's common stock (symbol:PRK) is traded on the American Stock Exchange (AMEX). At December 31, 1999, the Corporation had 2,780 stockholders of record. The following table sets forth the high, low and closing sale prices of, and dividends declared on the common stock for each quarterly period for the years ended December 31, 1999 and 1998, as reported by AMEX. The sales prices and dividends per share have been retroactively restated for the 5% stock dividend paid on December 15, 1999. TABLE 15 - MARKET AND DIVIDEND INFORMATION - -------------------------------------------------------------------------------- CASH DIVIDEND LAST DECLARED HIGH LOW PRICE PER SHARE - -------------------------------------------------------------------------------- 1999: First Quarter $ 99.05 $ 87.33 $ 91.42 $ 0.57 Second Quarter 95.23 87.38 95.23 0.57 Third Quarter 96.19 90.72 96.19 0.57 Fourth Quarter 116.00 91.19 96.00 0.65 - -------------------------------------------------------------------------------- 1998: First Quarter $ 90.47 $ 80.95 $ 90.47 $ 0.46 Second Quarter 98.03 85.00 96.13 0.46 Third Quarter 102.14 90.00 99.05 0.46 Fourth Quarter 101.42 86.19 98.09 0.57 - -------------------------------------------------------------------------------- 11 12 STOCKHOLDERS INFORMATION - -------------------------------------------------------------------------------- STOCK LISTING: AMEX Symbol - PRK CUSIP #700658107 GENERAL STOCKHOLDER INQUIRIES: Park National Corporation David C. Bowers, Secretary 50 North Third Street Post Office Box 3500 Newark, Ohio 43058-3500 740/349-3708 DIVIDEND REINVESTMENT PLAN: The Corporation offers a plan whereby participating stockholders can purchase additional shares of Park National Corporation common stock through automatic reinvestment of their regular quarterly cash dividends. All commissions and fees connected with the purchase and safekeeping of the shares are paid by the Corporation. Details of the Plan and an enrollment card can be obtained by contacting the Secretary as indicated above. DIRECT DEPOSIT OF DIVIDENDS: The Corporation's stockholders may have their dividend payments directly deposited into their checking, savings or money market account. This direct deposit of dividends is free for all stockholders. If you have any questions or need an enrollment form, please contact the Corporation's Stock Transfer Agent and Registrar indicated below. STOCK TRANSFER AGENT AND REGISTRAR: First-Knox National Bank P.O. Box 871 One South Main Street Mount Vernon, Ohio 43050-0871 800/837-5266 FORM 10-K: Copies of Park National Corporation's Form 10-K for 1999, including financial statements, may be obtained, without charge, by contacting the Secretary as indicated above. INTERNET ADDRESS: www.parknationalcorp.com E-MAIL: main@parknationalbank.com 12 13 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Board of Directors and Stockholders Park National Corporation We have audited the accompanying consolidated balance sheets of Park National Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park National Corporation and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP January 18, 2000 13 14 CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31, 1999 and 1998 (Dollars in thousands)
ASSETS 1999 1998 - --------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 104,222 $100,291 INVESTMENT SECURITIES: Securities available-for-sale, at fair value (amortized cost of $630,586 and $634,809 at December 31, 1999 and 1998, respectively) 619,009 646,403 Securities held-to-maturity, at amortized cost (fair value of $4,451 and $6,347 at December 31, 1999 and 1998, respectively) 4,321 6,064 - --------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 623,330 652,467 - --------------------------------------------------------------------------------------------------------------- Loans 1,850,710 1,654,003 Unearned loan interest (16,762) (12,491) - --------------------------------------------------------------------------------------------------------------- TOTAL LOANS 1,833,948 1,641,512 - --------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses (41,266) (37,989) - --------------------------------------------------------------------------------------------------------------- NET LOANS 1,792,682 1,603,523 - --------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Premises and equipment, net 26,542 26,755 Accrued interest receivable 14,226 14,356 Other 73,335 63,387 - --------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 114,103 104,498 - --------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,634,337 $2,460,779 - ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 14 15 CONSOLIDATED BALANCE SHEETS (continued) - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31, 1999 and 1998 (Dollars in thousands)
- --------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 - --------------------------------------------------------------------------------------------------- DEPOSITS: Noninterest bearing $ 289,291 $ 285,574 Interest bearing 1,725,856 1,654,204 - --------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 2,015,147 1,939,778 - --------------------------------------------------------------------------------------------------- BORROWINGS: Short-term borrowings 348,199 246,659 Long-term debt 76 8,430 OTHER LIABILITIES: Accrued interest payable 7,447 6,938 Other 23,888 23,284 - --------------------------------------------------------------------------------------------------- TOTAL OTHER LIABILITIES 31,335 30,222 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,394,757 2,225,089 - --------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock, no par value (20,000,000 shares authorized; 10,031,135 shares issued in 1999 and 10,031,077 issued in 1998) 68,383 68,398 Accumulated other comprehensive income, net (7,525) 7,536 Retained earnings 199,736 177,050 Less: Treasury stock (291,301 shares in 1999 and 257,765 shares in 1998) (21,014) (17,294) - --------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 239,580 235,690 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,634,337 $ 2,460,779 - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 15 16 CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $150,892 $147,632 $142,500 Interest and dividends on: Obligations of U.S. Government, its agencies and other securities 35,675 33,290 33,229 Obligations of states and political subdivisions 5,323 4,872 4,099 Other interest income 30 152 460 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 191,920 185,946 180,288 - ------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits: Demand and savings deposits 12,881 15,995 16,749 Time deposits 49,503 52,346 49,699 Interest on short-term borrowings 13,601 9,079 7,738 Interest on long-term debt 78 875 2,846 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 76,063 78,295 77,032 - ------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 115,857 107,651 103,256 - ------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 6,969 6,798 6,999 - ------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 108,888 100,853 96,257 - ------------------------------------------------------------------------------------------------------------------------------- OTHER INCOME: Income from fiduciary activities 5,662 5,081 5,192 Service charges on deposit accounts 7,673 6,823 6,308 Gain/(loss) on sales of securities (3,608) 97 (7) Other service income 4,535 5,149 3,598 Other 8,826 6,819 5,610 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME $ 23,088 $ 23,969 $ 20,701 - -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 16 17 CONSOLIDATED STATEMENTS OF INCOME (continued) - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------- OTHER EXPENSE: Salaries and employee benefits $34,909 $31,738 $31,888 Data processing fees 5,160 4,518 5,306 Fees and service charges 3,666 3,344 3,732 Net occupancy expense of bank premises 3,643 3,351 3,339 Amortization of intangibles 2,379 2,787 2,019 Furniture and equipment expense 4,002 4,807 3,680 Insurance 747 786 774 Marketing 2,306 2,247 2,182 Postage and telephone 3,183 3,007 2,747 State taxes 1,747 1,729 1,957 Other 5,798 5,995 4,784 - ------------------------------------------------------------------------------- TOTAL OTHER EXPENSE 67,540 64,309 62,408 - ------------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 64,436 60,513 54,550 Federal income taxes 18,689 18,941 16,857 - ------------------------------------------------------------------------------- NET INCOME $45,747 $41,572 $37,693 - ------------------------------------------------------------------------------- EARNINGS PER SHARE: BASIC $ 4.69 $ 4.24 $ 3.82 DILUTED $ 4.67 $ 4.22 $ 3.81 - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 17 18 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK ACCUMULATED -------------------- OTHER SHARES RETAINED COMPREHENSIVE TREASURY OUTSTANDING AMOUNT EARNINGS INCOME, NETSTOCK TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1997 9,822,159 $ 64,611 $ 132,648 $ 4,687 $ (2,985) $ 198,961 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (101,557) -- -- -- (6,249) (6,249) Treasury stock reissued primarily for stock options exercised 28,647 -- -- -- 1,522 1,522 Shares issued for dividend reinvestment plan and stock options 113,337 2,325 -- -- -- 2,325 Cash payment for fractional shares in merger (630) (40) -- -- -- (40) Tax benefit from exercise of stock options -- 1,379 -- -- -- 1,379 Net income -- -- 37,693 -- -- 37,693 Other comprehensive income, net of tax: Unrealized net holding gain on securities available-for-sale, net of income taxes of $1,256 2,332 2,332 - ----------------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income 2,332 - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income 40,025 Cash dividends: Corporation at $1.60 per share -- -- (14,905) -- -- (14,905) Cash dividends declared at First-Knox, prior to merger -- -- (901) -- -- (901) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 9,861,956 68,275 154,535 7,019 (7,712) 222,117 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (130,439) -- -- -- (11,829) (11,829) Treasury stock reissued primarily for stock options exercised 39,481 -- -- -- 2,247 2,247 Shares issued for stock options 2,314 81 -- -- -- 81 Tax benefit from exercise of stock options -- 42 -- -- -- 42 Net income -- -- 41,572 -- -- 41,572 Other comprehensive income, net of tax: Unrealized net holding gain on securities available-for-sale, net of income taxes of $278 517 517 - ----------------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income 517 - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income 42,089 Cash dividends: Corporation at $1.94 per share -- -- (19,057) -- -- (19,057) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 9,773,312 $ 68,398 $ 177,050 $ 7,536 $(17,294) $ 235,690 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (55,888) -- -- -- (5,147) (5,147) Treasury stock reissued primarily for stock options exercised 22,352 -- -- -- 1,427 1,427 Shares issued for stock options 652 22 -- -- -- 22 Tax benefit from exercise of stock options -- 14 -- -- -- 14 Cash payment for fractional shares in 5% stock dividend (594) (51) (51) Net income -- -- 45,747 -- -- 45,747 Other comprehensive income, net of tax: Unrealized net holding loss on securities available-for-sale, net of income taxes of $(8,110) (15,061) (15,061) - ----------------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income (15,061) - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income 30,686 Cash dividends: Corporation at $2.36 per share -- -- (23,061) -- -- (23,061) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 9,739,834 $ 68,383 $ 199,736 $ (7,525) $(21,014) $ 239,580 - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 18 19 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands)
- -------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 45,747 $ 41,572 $ 37,693 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,969 6,798 6,999 Amortization of loan costs and fees, net (1,069) (796) (788) Provision for depreciation and amortization 3,541 4,491 3,273 Amortization of the excess of cost over net assets of banks purchased 2,379 2,787 2,019 Accretion of investment security discounts, net (369) (1,357) (1,726) Deferred income taxes 4,806 829 139 Realized investment security losses (gains) 3,608 (97) 7 Changes in assets and liabilities: Increase in other assets (6,695) (11,762) (5,781) Increase in other liabilities 367 338 2,949 - -------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 59,284 42,803 44,784 - -------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of available-for-sale securities 141,607 51,839 45,083 Proceeds from maturities of securities: Held-to-maturity 1,743 1,727 2,973 Available-for-sale 170,829 133,674 141,765 Purchases of securities: Available-for-sale (311,453) (296,672) (150,873) Net increase in loans (195,059) (53,192) (111,284) Purchase of loans -- -- (11,582) Cash paid for branches (2,587) -- (6,748) Purchases of premises and equipment, net (2,938) (3,442) (2,740) - -------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (197,858) (166,066) (93,406) - -------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Purchase of deposits 14,887 -- 49,192 Net increase in deposits 60,482 84,814 42,354 Net increase in short-term borrowings 101,540 95,035 16,513 Cash payment for fractional shares of common stock (51) -- (40) Exercise of stock options 36 123 3,704 Purchase of treasury stock, net (3,720) (9,582) (4,727) Repayment of long-term debt (8,354) (22,438) (31,507) Cash dividends paid (22,315) (17,983) (15,047) - -------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 142,505 129,969 60,442 - -------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 3,931 6,706 11,820 Cash and cash equivalents at beginning of year 100,291 93,585 81,765 - -------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 104,222 $ 100,291 $ 93,585 - --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 19 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Park National Corporation (the Corporation or Park) and all of its subsidiaries. Material intercompany accounts and transactions have been eliminated. ORGANIZATION The Corporation is a multi-bank holding company headquartered in Newark, Ohio. Through its banking subsidiaries, The Park National Bank (PNB), The Richland Trust Company (RTC), Century National Bank (CNB), and The First-Knox National Bank of Mount Vernon (FKNB), the Corporation is engaged in a general commercial banking and trust business, primarily in Central Ohio. A new wholly owned subsidiary of the Corporation, Guardian Finance Company (GFC), began operating in May 1999. GFC is a consumer finance company located in Central Ohio. PNB operates through two banking divisions with the Park National Division (PND) headquartered in Newark, Ohio and the Fairfield National Division (FND) headquartered in Lancaster, Ohio. FKNB also operates through two banking divisions with the First-Knox National Division (FKND) headquartered in Mount Vernon, Ohio and the Farmers and Savings Division (FSD) headquartered in Loudonville, Ohio. All of the banking subsidiaries and their respective divisions provide the following principal services: the acceptance of deposits for demand, savings, and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards, home equity lines of credit and commercial and auto leasing; trust services; cash management; safe deposit operations; electronic funds transfers; and a variety of additional banking-related services. See Note 19 for financial information on the Corporation's banking subsidiaries. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with current year presentation. INVESTMENT SECURITIES Investment securities are classified upon acquisition into one of three categories: Held-to-maturity, available-for-sale, or trading (see Note 4). Held-to-maturity securities are those securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the future in response to the Corporation's liquidity needs, changes in market interest rates, and asset-liability management strategies, among others. Available-for-sale securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and are included in other comprehensive income, net of applicable taxes. At December 31, 1999 and 1998, the Corporation did not hold any trading securities. Gains and losses realized on the sale of investment securities have been accounted for on the completed transaction method in the year of sale on an "identified certificate" basis. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful lives of the improvements, whichever are the shorter periods. Upon the sale or other disposal of the assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred while renewals and improvements are capitalized. OTHER REAL ESTATE OWNED Other real estate owned is recorded at the lower of cost or fair market value (which is not in excess of estimated net realizable value) and consists of property acquired through foreclosure, loans in judgment and subject to redemption, and real estate held for sale. Subsequent to acquisition, allowances for losses are established if carrying values exceed fair value less estimated costs to sell. Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), whereas costs relating to holding the properties are charged to expense. INCOME RECOGNITION Income earned by the Corporation and its subsidiaries is recognized principally on the accrual basis of accounting. Loan origination fees are amortized over the life of the loans using the interest method on a loan by loan basis, and origination costs are deferred and amortized if material. Certain fees, principally service, are recognized as income when billed or collected. The Corporation's subsidiaries suspend the accrual of interest when, in management's opinion, the collection of all or a portion of interest has become doubtful. Generally, when a loan is placed on non-accrual, the Corporation's subsidiaries charge all previously accrued and unpaid interest against income. In future periods, interest will be included in income to the extent received only if complete principal recovery is reasonably assured. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is that amount believed adequate to absorb estimated credit losses in the loan portfolio based on management's evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current and anticipated economic conditions. A provision for loan losses is charged to operations based on management's periodic evaluation of these and other pertinent factors. Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosure" requires an allowance to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loan will not be collected, and the recorded investment in the loan exceeds the fair value. Fair value is measured using either the present value of expected future cash flows based upon the initial effective interest rate on the loan, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. LEASE FINANCING Leases of equipment, automobiles, and aircraft to customers generally are direct leases in which the Corporation's subsidiaries have acquired the equipment, automobiles, or aircraft with no outside financing. 20 21 Such leases are accounted for as direct financing leases for financial reporting purposes. Under the direct financing method, a receivable is recorded for the total amount of the lease payments to be received. Unearned lease income, representing the excess of the sum of the aggregate rentals of the equipment, automobiles or aircraft over its cost is included in income over the term of the lease under the interest method. EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED The excess of cost over net assets of the banks purchased is being amortized, principally on the straight-line method, over periods ranging from seven to fifteen years. CONSOLIDATED STATEMENT OF CASH FLOWS Cash and cash equivalents include cash and cash items, amounts due from banks and federal funds sold. Generally federal funds are purchased and sold for one day periods. Net cash provided by operating activities reflects cash payments as follows: - -------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 1997 (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- Interest paid on deposits and other borrowings $75,554 $77,905 $77,105 - -------------------------------------------------------------------------------- Income taxes paid $17,947 $19,550 $14,104 - -------------------------------------------------------------------------------- INCOME TAXES The Corporation accounts for income taxes using the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. STOCK DIVIDEND The Corporation's Board of Directors approved a 5% stock dividend in November 1999. The additional shares resulting from the dividend were distributed on December 15, 1999 to stockholders of record as of December 3, 1999. The consolidated financial statements, notes and other references to share and per share data have been retroactively restated for the stock dividend. ACCOUNTING CHANGES Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income", establishes reporting and display standards for comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances arising from nonowner sources. The statement requires the Corporation's unrealized gains or losses on securities available-for-sale, to be included in other comprehensive income. Since SFAS No. 130 only requires additional information, it had no impact on the Corporation's financial position or results of operations. Prior year financial statements have been reclassified to conform with the new requirements. Comprehensive income is presented in the Statements of Changes in Stockholders' Equity. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement require that derivative instruments be carried at fair value on the balance sheet. The statement continues to allow derivative instruments to be used to hedge various risks and sets forth specific criteria to be used to determine when hedge accounting can be used. The statement also provided for offsetting changes in fair value or cash flows of both the derivative and the hedged asset or liability to be recognized in earnings in the same period; however, any changes in fair value or cash flow that represent the ineffective portion of a hedge are required to be recognized in earnings and cannot be deferred. For derivative instruments not accounted for as hedges, changes in fair value are required to be recognized in earnings. The provisions of this statement become effective for quarterly and annual reporting beginning January 1, 2001. Although the statement allows for early adoption in any quarterly period that began after June 1998, the Corporation has no plans to adopt the provisions of SFAS No. 133 prior to the effective date. The Corporation did not use any derivative instruments in 1999 and 1998 and as a result does not expect that adoption of this statement will have any impact on the Corporation's financial position, results of operations and cash flows. 2. ACQUISITIONS On May 5, 1997, the Corporation merged with First-Knox Banc Corp. (First-Knox), a $569 million bank holding company headquartered in Mount Vernon, Ohio, in a transaction accounted for as a pooling-of-interests. Park issued approximately 2.3 million shares of common stock to the stockholders of First-Knox based upon an exchange ratio of .5914 shares of Park common stock for each outstanding share of First-Knox common stock. The historical financial statements of the Corporation have been restated to show Park and First-Knox on a combined basis. On September 24, 1999, Park National Division acquired a branch office in Utica, Ohio from National City Bank. In addition to the fixed assets, the purchase included $15 million of deposits. The excess of the cost over net assets purchased was $2 million and is being amortized using the straight-line method over seven years. On December 8, 1997, Fairfield National Division acquired three branch offices in Lancaster, Ohio from KeyBank National Association. In addition to the fixed assets, the purchase included $49 million of deposits and $12 million of loans. The excess of the cost over net assets purchased was $6 million and is being amortized using the straight-line method over seven years. On December 14, 1999, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement") with U.B. Bancshares, Inc. (UB), a $180 million bank holding company headquartered in Bucyrus, Ohio, providing for a merger of UB into the Corporation. Under terms of the UB Merger Agreement, the stockholders of UB are expected to receive .554 shares of Park common stock for each outstanding share of UB in a tax free exchange. The Corporation expects to issue an aggregate of 325,500 shares of common stock to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of UB, and other conditions to closing customary of a transaction of this type. The UB merger is expected to be completed during the second quarter of 2000. On December 17, 1999, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement") with SNB Corp. (SNB), a $300 million bank holding company headquartered in Greenville, Ohio, providing for a merger of SNB into the Corporation. Under terms of the SNB Merger Agreement, the stockholders of SNB are expected to receive 5.37 shares of Park common stock for each outstanding share of SNB in a tax free exchange. The Corporation expects to issue an aggregate of 835,500 shares of common stock to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of SNB, and other conditions to closing customary of a transaction of this type. The SNB merger is expected to be completed during the second quarter of 2000. 21 22 3. RESTRICTIONS ON CASH AND DUE FROM BANKS The Corporation's banking subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average required reserve balance was approximately $20,487,000 and $16,851,000 at December 31, 1999 and 1998, respectively. No other compensating balance arrangements were in existence at year end. 4. INVESTMENT SECURITIES The amortized cost and fair values of investment securities at December 31 are as follows (in thousands):
- ---------------------------------------------------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING ESTIMATED (IN THOUSANDS) COST GAINS LOSSES FAIR VALUE - ---------------------------------------------------------------------------------------- 1999: SECURITIES AVAILABLE-FOR-SALE Obligations of U.S. Treasury and other U.S. Government agencies $208,896 $ 98 $ 7,467 $201,527 Obligations of states and political subdivisions 99,209 626 1,792 98,043 U.S. Government agencies' asset-backed securities and other asset-backed securities 298,433 246 3,431 295,248 Other equity securities 24,048 377 234 24,191 - ---------------------------------------------------------------------------------------- TOTAL $630,586 $ 1,347 $ 12,924 $619,009 - ---------------------------------------------------------------------------------------- 1999: SECURITIES HELD-TO-MATURITY Obligations of states and political subdivisions $ 4,290 $ 131 $ 2 $ 4,419 Other asset-backed securities 31 1 0 32 - ---------------------------------------------------------------------------------------- TOTAL $ 4,321 $ 132 $ 2 $ 4,451 - ---------------------------------------------------------------------------------------- 1998: SECURITIES AVAILABLE-FOR-SALE Obligations of U.S. Treasury and other U.S. Government agencies $172,150 $ 3,380 $ -- $175,530 Obligations of states and political subdivisions 100,790 4,159 45 104,904 U.S. Government agencies' asset-backed securities and other asset-backed securities 341,247 3,574 237 344,584 Other equity securities 20,622 763 -- 21,385 - ---------------------------------------------------------------------------------------- TOTAL $634,809 $ 11,876 $ 282 $646,403 - ---------------------------------------------------------------------------------------- 1998: SECURITIES HELD-TO-MATURITY Obligations of states and political subdivisions $ 5,712 $ 283 $ 3 $ 5,992 Other asset-backed securities 352 3 -- 355 - ---------------------------------------------------------------------------------------- TOTAL $ 6,064 $ 286 $ 3 $ 6,347 - ----------------------------------------------------------------------------------------
The amortized cost and estimated fair value of investments in debt securities at December 31, 1999 are shown below (in thousands) by contractual maturity except for asset-backed securities which are shown based on expected maturities. The average yield is computed on a tax equivalent basis using a 35 percent tax rate.
- ----------------------------------------------------------------------------------------- UNREALIZED 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 $ 10,576 $ 10,674 .9 years 7.38% Due five through ten years 198,320 190,853 7.8 years 6.59% - ----------------------------------------------------------------------------------------- TOTAL $208,896 $201,527 7.5 years 6.63% - ----------------------------------------------------------------------------------------- Obligations of states and political subdivisions: Due within one year $ 3,328 $ 3,354 .6 years 8.16% Due one through five years 22,116 22,384 3.1 years 7.64% Due five through ten years 40,351 40,381 7.8 years 7.42% Due over ten years 33,414 31,924 12.5 years 6.98% - ----------------------------------------------------------------------------------------- TOTAL $ 99,209 $ 98,043 8.1 years 7.35% - ----------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities and other asset-backed securities: Due within one year $ 14,975 $ 15,003 .7 years 6.68% Due one through five years 270,317 267,517 3.6 years 6.77% Due five through ten years 13,141 12,728 5.4 years 6.31% - ----------------------------------------------------------------------------------------- TOTAL $298,433 $295,248 3.5 years 6.75% - ----------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY Obligations of state and political subdivisions: Due within one year $ 1,387 $ 1,430 .9 years 11.26% Due one through five years 2,128 2,214 2.5 years 10.44% Due five through ten years 630 630 8.0 years 7.63% Due over ten years 145 145 10.9 years 7.63% - ----------------------------------------------------------------------------------------- TOTAL $ 4,290 $ 4,419 3.1 years 10.20% - ----------------------------------------------------------------------------------------- OTHER ASSET-BACKED SECURITIES: Due one through five years $ 31 $ 32 3.6 years 8.70% - -----------------------------------------------------------------------------------------
Investment securities having a book value of $474,877,000 and $432,489,000 at December 31, 1999 and 1998, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements and to secure repurchase agreements sold. In 1999, 1998 and 1997, gross gains of $335,000, $159,000, and $64,000 and gross losses of $3,943,000, $62,000 and $71,000 were realized, respectively. Tax benefits related to net securities losses were $1,263,000 in 1999, and $2,000 in 1997. Tax expense related to net securities gains in 1998 was $34,000. 5. LOANS The composition of the loan portfolio is as follows: - --------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - --------------------------------------------------------------------- Commercial, financial and agricultural $ 236,718 $ 217,504 REAL ESTATE: Construction 72,968 70,998 Residential 693,930 679,239 Commercial 305,193 280,789 Consumer, net 407,849 332,320 LEASES, NET 117,290 60,662 - --------------------------------------------------------------------- TOTAL LOANS $1,833,948 $1,641,512 - --------------------------------------------------------------------- Under the Corporation's credit policies and practices, all non-accrual and restructured commercial, financial, agricultural, construction and commercial real estate loans meet the definition of impaired loans under SFAS No. 114 and 118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer loans, residential real estate loans and lease financing classified as non-accrual. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. 22 23 Non-accrual and restructured loans are summarized as follows: - ------------------------------------------------------------------ DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------ Impaired loans: Non-accrual $2,638 $2,150 Restructured 429 492 Total impaired loans 3,067 2,642 Other non-accrual loans -- 5 - ------------------------------------------------------------------ TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,067 $2,647 - ------------------------------------------------------------------ The allowance for credit losses related to impaired loans at December 31, 1999 and 1998 was $607,000 and $436,000, respectively. All impaired loans for both periods were subject to a related allowance for credit losses. The average balance of impaired loans was $2,576,000, $2,457,000 and $3,599,000 for 1999, 1998 and 1997, respectively. Interest income on impaired loans is recognized after all past due and current principal payments have been made, and collectibility is no longer doubtful. For the years ended December 31, 1999, 1998, and 1997, the Corporation recognized $321,000, $149,000 and $283,000, respectively, of interest income on impaired loans, which included $307,000, $121,000 and $270,000, respectively, of interest income recognized using the cash basis method of income recognition. Certain of the Corporation's executive officers, directors and their affiliates are loan customers of the Corporation's banking subsidiaries. As of December 31, 1999 and 1998, loans aggregating approximately $52,738,000 and $45,079,000, respectively, were outstanding to such parties. 6. ALLOWANCE FOR POSSIBLE LOAN LOSSES Activity in the allowance for possible loan losses is summarized as follows: - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1999 1998 1997 - ------------------------------------------------------------------------------- Balance, January 1 $ 37,989 $ 35,595 $ 32,347 Provision for loan losses 6,969 6,798 6,999 Losses charged to the reserve (7,314) (7,392) (6,271) Recoveries 3,622 2,988 2,520 - ------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $ 41,266 $ 37,989 $ 35,595 - ------------------------------------------------------------------------------- 7. INVESTMENT IN FINANCING LEASES The following is a summary of the components of the Corporation's affiliates' net investment in direct financing leases: - ------------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------------- Total minimum payments to be received $ 86,991 $ 50,118 Estimated unguaranteed residual value of leased property 43,211 19,230 Less unearned income (12,912) (8,686) - ------------------------------------------------------------------------------- TOTAL $ 117,290 $ 60,662 - ------------------------------------------------------------------------------- Minimum lease payments, in thousands, to be received as of December 31, 1999 are: - ----------------------------------------------- (IN THOUSANDS) - ----------------------------------------------- 2000 $31,836 2001 21,393 2002 15,884 2003 11,731 2004 5,219 Thereafter 928 - ----------------------------------------------- TOTAL $86,991 - ----------------------------------------------- 8. PREMISES AND EQUIPMENT The major categories of premises and equipment and accumulated depreciation are summarized as follows: - -------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - -------------------------------------------------------------------------- Land $ 6,550 $ 6,392 Buildings 27,019 26,203 Equipment, furniture and fixtures 29,491 27,514 Leasehold improvements 1,204 1,144 - -------------------------------------------------------------------------- TOTAL 64,264 61,253 - -------------------------------------------------------------------------- Less accumulated depreciation and amortization (37,722) (34,498) - -------------------------------------------------------------------------- PREMISES AND EQUIPMENT, NET $ 26,542 $ 26,755 - -------------------------------------------------------------------------- Depreciation and amortization expense amounted to $3,541,000, $4,491,000 and $3,273,000 for the three years ended December 31, 1999, 1998 and 1997, respectively. The Corporation and its subsidiaries lease certain premises and equipment accounted for as operating leases. The following is a schedule of the future minimum rental payments required for the next five years under such leases with initial terms in excess of one year (in thousands): - -------------------------------------------------- (IN THOUSANDS) - -------------------------------------------------- 2000 $ 451,644 2001 372,236 2002 284,994 2003 262,183 2004 240,270 Thereafter 212,500 - -------------------------------------------------- TOTAL $1,823,827 - -------------------------------------------------- Rent expense amounted to $704,000, $659,000 and $639,000, for the three years ended December 31, 1999, 1998 and 1997, respectively. 23 24 9. SHORT-TERM BORROWINGS Short-term borrowings are as follows: - ------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------- Securities sold under agreements to repurchase and federal funds purchased $149,679 $160,616 Federal Home Loan Bank advances 190,100 80,000 Other short-term borrowings 8,420 6,043 - ------------------------------------------------------------------------- TOTAL SHORT-TERM BORROWINGS $348,199 $246,659 - ------------------------------------------------------------------------- The outstanding balances for all short-term borrowings as of December 31, 1999, 1998 and 1997 (in thousands) and the weighted-average interest rates as of and paid during each of the years then ended are as follows: - ------------------------------------------------------------------------- REPURCHASE DEMAND AGREEMENTS FEDERAL NOTES AND FEDERAL HOME LOAN DUE U.S. FUNDS BANK TREASURY (Dollars in thousands) PURCHASED ADVANCES AND OTHER - ------------------------------------------------------------------------- 1999: ENDING BALANCE $149,679 $190,100 $ 8,420 HIGHEST MONTH-END BALANCE 188,269 197,600 10,044 AVERAGE DAILY BALANCE 157,993 133,418 3,898 WEIGHTED-AVERAGE INTEREST RATE: AS OF YEAR-END 4.20% 5.82% 4.47% PAID DURING THE YEAR 4.11% 5.18% 5.07% - ------------------------------------------------------------------------- 1998: Ending balance $160,616 $ 80,000 $ 6,043 Highest month-end balance 182,957 104,300 6,043 Average daily balance 157,951 29,356 2,868 Weighted-average interest rate: As of year-end 4.21% 6.00% 4.06% Paid during the year 4.58% 5.83% 4.87% - ------------------------------------------------------------------------- 1997: Ending balance $127,587 $ 18,900 $ 5,137 Highest month-end balance 161,172 86,000 5,137 Average daily balance 132,976 26,741 2,909 Weighted-average interest rate: As of year-end 4.61% 6.25% 5.75% Paid during the year 4.60% 5.49% 5.25% - ------------------------------------------------------------------------- At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized by the FHLB stock owned by the Corporation's affiliate banks and by residential mortgage loans pledged under a blanket agreement by the Corporation's affiliate banks. 10. LONG-TERM DEBT Long-term debt is listed below: - ----------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ----------------------------------------------------------------------- FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY PRINCIPAL AND INTEREST PAYMENTS: 2.00% Advance due November 1, 2027 $ 38 $ 39 2.00% Advance due January 1, 2028 38 39 5.60% Advance due August 1, 2003 -- 1,443 5.70% Advance due May 1, 2004 -- 3,199 5.85% Advance due January 1, 2016 -- 3,710 - ----------------------------------------------------------------------- TOTAL LONG-TERM DEBT $ 76 $8,430 - ----------------------------------------------------------------------- At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized by the FHLB stock owned by the Corporation's affiliate banks and by residential mortgage loans pledged under a blanket agreement by the Corporation's affiliate banks. 11. STOCK OPTION PLAN The Park National Corporation 1995 Incentive Stock Option Plan ("the Park Plan") was adopted April 17, 1995 and amended April 20, 1998. The Park Plan is intended as an incentive to encourage stock ownership by the key employees of the Corporation. The maximum number of common shares with respect to which incentive stock options may be granted under the Park Plan is 735,000. At December 31, 1999, 420,214 common shares were available for future grants under this plan. Incentive stock options may be granted at a price not less than the fair market value at the date of the grant, and for an option term of up to five years. No incentive stock options may be granted under the Park Plan after January 16, 2005. In conjunction with the First-Knox Merger in 1997, the Corporation assumed the 1995 First-Knox Director's Stock Option and Stock Appreciation Rights Plan and the 1990 First-Knox Stock Option and Stock Appreciation Rights Plan. Additionally, in conjunction with the merger in 1997, all former First-Knox Plans were terminated with respect to the granting of any additional options and stock appreciation rights. The Corporation's stock option activity and related information is summarized below. All data has been restated, as applicable, for subsequent stock dividends.
- -------------------------------------------------------------------------------------------------------------- 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, 1997 219,537 190,883 $ 30.43 36,388 27,791 $ 23.52 Granted (91,775) 91,775 59.20 -- -- -- Exercised -- (143,901) 26.72 -- (27,767) 23.52 Forfeited/Expired (80,511) (4,449) 56.26 (36,388) (24) 22.90 - -------------------------------------------------------------------------------------------------------------- December 31, 1997 47,251 134,308 $ 53.22 -- -- -- Authorized 525,000 -- -- -- -- -- Granted (91,719) 91,719 88.60 -- -- -- Exercised -- (37,910) 51.57 -- -- -- Forfeited/Expired 6,832 (6,832) 58.61 -- -- -- - -------------------------------------------------------------------------------------------------------------- December 31, 1998 487,364 181,285 $ 71.23 -- -- -- Granted (71,407) 71,407 91.36 -- -- -- Exercised -- (19,137) 56.60 -- -- -- Forfeited/Expired 4,257 (4,257) 84.91 -- -- -- - -------------------------------------------------------------------------------------------------------------- December 31, 1999 420,214 229,298 $ 78.47 -- -- -- - -------------------------------------------------------------------------------------------------------------- Range of exercise prices: $33.04 - $110.75 Weighted-average remaining contractual life: 3.4 Years Exerciseable at year end: 222,333 Weighted-average exercise price of exerciseable options: $78.09 - --------------------------------------------------------------------------------------------------------------
Compensation expense related to stock appreciation rights was $0, $0 and $339,000 in 1999, 1998 and 1997, respectively. The Corporation has elected to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 24 25 The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for 1999, 1998 and 1997 respectively: risk-free interest rates of 5.50%, 5.25% and 6.25%; a dividend yield of 2.50%, a volatility factor of the expected market price of the Corporation's common stock of .213, .237 and .219 and a weighted-average expected option life of 4.0 years. The weighted-average fair value of options granted were $18.04, $18.52 and $13.28 for 1999, 1998 and 1997, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, options valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Corporation's employee stock options have characteristics significantly different from those traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Corporation's pro-forma information follows:
- ------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS, 1999 1998 1997 EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------ Net income as reported $ 45,747 $ 41,572 $ 37,693 Pro-forma net income 44,358 39,814 36,620 Basic earnings per share as reported 4.69 4.24 3.82 Pro-forma basic earnings per share 4.55 4.06 3.72 Diluted earnings per share as reported 4.67 4.22 3.81 Pro-forma diluted earnings per share 4.53 4.04 3.70 - ------------------------------------------------------------------------------------------
12. BENEFIT PLANS The Corporation has a noncontributory defined benefit pension plan covering substantially all of its employees. The plan provides benefits based on an employee's years of service and compensation. The Corporation's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions from those used for financial reporting purposes. - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 17,497 $ 16,498 Service cost 1,197 1,055 Interest cost 1,120 1,189 Actuarial (1,535) 2,096 Benefits paid (1,071) (3,341) BENEFIT OBLIGATION AT END OF YEAR 17,208 17,497 - ------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 17,135 19,578 Actual return on plan assets 2,951 662 Company contributions 602 236 Benefits paid (1,071) (3,341) FAIR VALUE OF PLAN ASSETS AT END OF YEAR 19,617 17,135 Funded status of the plan (underfunded) 2,409 (362) Unrecognized net actuarial loss (gain) (2,803) 314 Unrecognized prior service cost 9 3 Unrecognized net transaction asset (93) (157) Accrued benefit cost $ (478) $ (202)
- ---------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS: Discount rate 7.64% 6.52% Expected return on plan assets 8.00% 8.00% Rate of compensation increase 5.00% 5.00% - ---------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1999 1998 1997 - ---------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 1,197 $ 1,055 $ 942 Interest cost 1,120 1,189 1,098 Expected return on plan assets (1,369) (1,555) (1,375) Amortization of prior service cost (6) (64) (6) Recognized net actuarial loss (64) (62) (60) Benefit cost $ 878 $ 563 $ 599 - ----------------------------------------------------------------------------------------
The Corporation has a voluntary salary deferral plan covering substantially all of its employees. Eligible employees may contribute a portion of their compensation subject to a maximum statutory limitation. The Corporation provides a matching contribution established annually by the Corporation. Contribution expense for the Corporation was $717,000, $724,000 and $586,000 for 1999, 1998 and 1997, respectively. The Corporation has a Supplemental Executive Retirement Plan (SERP) covering certain key officers of the Corporation and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. At December 31, 1999 and 1998, the accrued benefit cost for this plan totaled $520,000 and $32,000, respectively. The expense for the Corporation was $480,000, $30,000, and $14,000 for 1999, 1998, and 1997, respectively. 13. FEDERAL INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation's deferred tax assets and liabilities are as follows: - ---------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ---------------------------------------------------------------------------- DEFERRED TAX ASSETS: Allowance for loan losses $14,443 $13,352 Unrealized holding loss on securities 4,052 -- Deferred loan fees 695 461 Deferred compensation 413 474 Other 3,697 3,259 - ---------------------------------------------------------------------------- TOTAL DEFERRED TAX ASSETS 23,300 17,546 - ---------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Lease revenue reporting 12,816 6,951 Unrealized holding gain on securities -- 4,058 Fixed assets, principally due to depreciation 542 506 Other 6,148 5,541 - ---------------------------------------------------------------------------- TOTAL DEFERRED TAX LIABILITIES 19,506 17,056 - ---------------------------------------------------------------------------- NET DEFERRED TAX ASSETS $ 3,794 $ 490 - ---------------------------------------------------------------------------- The components of the provision for federal income taxes are shown below: - ----------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1999 1998 1997 - ----------------------------------------------------------------------------- Currently payable $13,883 $18,112 $16,718 Deferred 4,806 829 139 - ----------------------------------------------------------------------------- TOTAL $18,689 $18,941 $16,857 - ----------------------------------------------------------------------------- 25 26 The following is a reconcilement of federal income tax expense to the amount computed at the statutory rate of 35% for the years ended December 31, 1999, 1998, and 1997. - -------------------------------------------------------------------------- DECEMBER 31 1999 1998 1997 - -------------------------------------------------------------------------- Statutory corporate tax rate 35.0% 35.0% 35.0% Changes in rates resulting from: Tax-exempt interest income (3.4%) (3.0%) (2.9%) Tax credits (low income housing) (1.7%) (1.0%) (.9%) Other (.9%) .3% (.3%) - -------------------------------------------------------------------------- EFFECTIVE TAX RATE 29.0% 31.3% 30.9% - -------------------------------------------------------------------------- The following is a summary of the income tax effect allocated to other comprehensive income.
- ------------------------------------------------------------------------------------- BEFORE-TAX TAX NET-OF-TAX YEAR ENDED DECEMBER 31, 1999 AMOUNT EXPENSE AMOUNT - ------------------------------------------------------------------------------------- Unrealized losses on available-for-sale securities $(26,779) $ (9,373) $(17,406) Less: reclassification adjustment for losses realized in net income 3,608 1,263 2,345 - ------------------------------------------------------------------------------------- Other comprehensive income $(23,171) $ (8,110) $(15,061) - ------------------------------------------------------------------------------------- Year ended December 31, 1998 Unrealized gains on available-for-sale securities $ 892 $ 312 $ 580 Less: reclassification adjustment for gains realized in net income (97) (34) (63) - ------------------------------------------------------------------------------------- Other comprehensive income $ 795 $ 278 $ 517 - ------------------------------------------------------------------------------------- Year ended December 31, 1997 Unrealized gains on available-for-sale securities $ 3,581 $ 1,254 $ 2,327 Less: reclassification adjustment for losses realized in net income 7 2 5 - ------------------------------------------------------------------------------------- Other comprehensive income $ 3,588 $ 1,256 $ 2,332 - -------------------------------------------------------------------------------------
14. EARNINGS PER SHARE SFAS No. 128, "Earnings Per Share" requires the reporting of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:
- -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1999 1998 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------------------------- NUMERATOR: Net income $ 45,747 $ 41,572 $ 37,693 DENOMINATOR: Basic earnings per share: Weighted-average shares 9,753,656 9,807,582 9,855,119 Effect of dilutive securities - stock options 39,546 48,220 39,841 Diluted earnings per share: Adjusted weighted-average shares and assumed conversions 9,793,202 9,855,802 9,894,960 EARNINGS PER SHARE: Basic earnings per share $ 4.69 $ 4.24 $ 3.82 Diluted earnings per share $ 4.67 $ 4.22 $ 3.81 - --------------------------------------------------------------------------------------------------
15. DIVIDEND RESTRICTIONS Bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. At December 31, 1999, approximately $20,798,000 of the total stockholders' equity of the bank subsidiaries is available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities. 26 27 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk are as follows: - ------------------------------------------------------------------ DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------ Loan commitments $289,448 $267,602 Unused credit card limits 96,193 96,710 Standby letters of credit 6,585 3,953 - ------------------------------------------------------------------ The loan commitments are generally for variable rates of interest. The Corporation grants retail, commercial and commercial real estate loans to customers primarily located in Central Ohio. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers' ability to honor their contracts is dependent upon the economic conditions in each borrower's geographic location. 27 28 17. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values. INVESTMENT SECURITIES: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential) are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. The fair value of financial instruments at December 31, 1999 and 1998 is as follows (in thousands):
- ------------------------------------------------------------------------------------------------------ DECEMBER 31, 1999 1998 (IN THOUSANDS) CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - ------------------------------------------------------------------------------------------------------ FINANCIAL ASSETS: Cash and federal funds sold $ 104,222 $ 104,222 $ 100,291 $ 100,291 Investment securities 623,330 623,460 652,467 652,750 Loans: Commercial, financial and agricultural 236,718 236,718 217,504 217,504 Real estate: Construction 72,968 72,968 70,998 70,998 Residential 693,930 699,671 679,239 688,497 Commercial 305,193 303,724 280,789 281,162 Consumer, net 407,849 406,373 332,320 334,138 - ------------------------------------------------------------------------------------------------------ TOTAL LOANS 1,716,658 1,719,454 1,580,850 1,592,299 - ------------------------------------------------------------------------------------------------------ Allowance for loan losses (41,266) -- (37,989) -- - ------------------------------------------------------------------------------------------------------ LOANS RECEIVABLE, NET $ 1,675,392 $ 1,719,454 $ 1,542,861 $ 1,592,299 - ------------------------------------------------------------------------------------------------------ FINANCIAL LIABILITIES: Noninterest bearing checking $ 289,291 $ 289,291 $ 285,574 $ 285,574 Interest bearing checking 242,235 242,235 235,113 235,113 Savings 275,374 275,374 276,546 276,546 Money market accounts 150,226 150,226 159,722 159,722 Time deposits 1,056,594 1,057,518 981,305 988,152 Other 1,427 1,427 1,518 1,518 - ------------------------------------------------------------------------------------------------------ TOTAL DEPOSITS $ 2,015,147 $ 2,016,071 $ 1,939,778 $ 1,946,625 - ------------------------------------------------------------------------------------------------------ Short-term borrowings 348,199 348,199 246,659 246,659 Long-term debt 76 40 8,430 8,526 UNRECOGNIZED FINANCIAL INSTRUMENTS: Loan commitments -- (289) -- (268) Standby letters of credit -- (33) -- (20) - ------------------------------------------------------------------------------------------------------
18. CAPITAL RATIOS The following table reflects various measures of capital at December 31, 1999 and December 31, 1998 (dollars in thousands):
- ---------------------------------------------------------------------------------------- DECEMBER 31, 1999 1998 (DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO - ---------------------------------------------------------------------------------------- Total equity (1) $239,580 9.09% $235,690 9.58% Tier 1 capital (2) 235,124 13.15% 215,990 13.64% Total risk-based capital (3) 257,708 14.41% 236,356 14.92% Leverage (4) 235,124 9.05% 215,990 9.06% - ----------------------------------------------------------------------------------------
(1) Computed in accordance with generally accepted accounting principles, including accumulated other comprehensive income. (2) Stockholders' equity less certain intangibles and accumulated other comprehensive income; computed as a ratio to risk-adjusted assets as defined. (3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to risk-adjusted assets, as defined. (4) Tier 1 capital computed as a ratio to average total assets less certain intangibles. 28 29 The Corporation's Tier 1, total risk-based capital and leverage ratios are well above both the required minimum levels of 4.00%, 8.00% and 4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and 5.00%, respectively. At December 31, 1999, and 1998, all of the Corporation's subsidiary financial institutions met the well-capitalized levels under the capital definitions prescribed in the FDIC Improvement Act of 1991. 19. SEGMENT INFORMATION The Corporation's segments are its banking subsidiaries and their respective divisions. The operating results of the banking subsidiaries and their respective divisions are monitored closely by senior management and each president of the subsidiary or division is held accountable for their results. Information about reportable segments is listed below (in thousands). See Note 1 for a detailed description of individual banking subsidiaries and their respective divisions
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS) ALL PND FND RTC CNB FKND FSD OTHER TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 41,448 $ 12,734 $ 17,739 $ 16,520 $ 23,095 $ 3,211 $ 1,110 $ 115,857 Provision for loan losses 710 755 1,039 1,410 2,353 646 56 6,969 Other income 12,290 2,081 1,261 2,280 4,213 343 620 23,088 Depreciation and amortization 1,092 406 483 489 814 103 154 3,541 Other expense 22,649 7,461 9,822 8,727 11,828 1,576 1,936 63,999 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 29,287 6,193 7,656 8,174 12,313 1,229 (416) 64,436 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 8,876 1,984 2,571 2,486 3,548 326 (1,102) 18,689 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 20,411 $ 4,209 $ 5,085 $ 5,688 $ 8,765 $ 903 $ 686 $ 45,747 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1999: Assets $ 949,212 $ 280,451 $ 435,220 $ 393,733 $ 541,724 $ 62,474 $ (28,477) $2,634,337 Loans 693,579 168,078 243,037 269,897 396,412 62,374 571 1,833,948 Deposits 691,356 219,598 354,521 316,702 394,084 57,598 (18,712) 2,015,147 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31, 1998 Net interest income $ 39,877 $ 11,586 $ 16,018 $ 15,510 $ 20,910 $ 2,827 $ 923 $ 107,651 Provision for loan losses 2,880 600 1,602 480 1,116 120 -- 6,798 Other income 11,468 2,349 2,972 3,079 3,833 268 -- 23,969 Depreciation and amortization 1,119 354 558 648 1,513 149 150 4,491 Other expense 20,483 6,689 9,283 8,168 11,646 1,490 2,059 59,818 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 26,863 6,292 7,547 9,293 10,468 1,336 (1,286) 60,513 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 8,530 2,038 2,541 2,961 2,927 376 (432) 18,941 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,333 $ 4,254 $ 5,006 $ 6,332 $ 7,541 $ 960 $ (854) $ 41,572 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1998: Assets $ 865,974 $ 277,482 $ 413,590 $ 385,150 $ 484,965 $ 62,303 $ (28,685) $2,460,779 Loans 636,189 149,487 213,360 239,032 351,695 51,749 -- 1,641,512 Deposits 641,618 219,907 337,964 310,769 394,470 55,789 (20,739) 1,939,778 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31, 1997 Net Interest Income $ 39,106 $ 9,676 $ 16,018 $ 14,590 $ 20,507 $ 2,569 $ 790 $ 103,256 Provision for loan losses 220 450 650 330 4,870 479 -- 6,999 Other income 10,648 1,740 2,383 2,571 3,148 211 -- 20,701 Depreciation and amortization 824 219 505 494 1,000 82 149 3,273 Other expense 19,138 5,046 9,531 7,928 15,144 1,579 769 59,135 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 29,572 5,701 7,715 8,409 2,641 640 (128) 54,550 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 9,559 1,808 2,520 2,604 125 128 113 16,857 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 20,013 $ 3,893 $ 5,195 $ 5,805 $ 2,516 $ 512 $ (241) $ 37,693 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1997: Assets $ 777,707 $ 250,324 $ 401,683 $ 353,816 $ 492,315 $ 63,322 $ (50,784) $2,288,383 Loans 589,044 137,567 229,658 247,663 340,888 47,107 -- 1,591,927 Deposits 578,050 211,004 330,922 301,967 384,278 56,946 (8,203) 1,854,964 - -----------------------------------------------------------------------------------------------------------------------------------
29 30 Reconciliation of financial information for the reportable segments to the Corporation's consolidated totals.
- -------------------------------------------------------------------------------------------------------------------------- INTEREST DEPRECIATION OTHER INCOME INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS - -------------------------------------------------------------------------------------------------------------------------- 1999: Totals for reportable segments $ 114,747 $ 3,387 $ 62,063 $ 19,791 $ 2,662,814 $ 2,033,859 Elimination of intersegment items -- -- -- -- (40,904) (18,712) Parent Co. and GFC totals - not eliminated 1,110 4 1,936 (1,102) 12,427 -- Other items -- 150 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- TOTALS $ 115,857 $ 3,541 $ 63,999 $ 18,689 $ 2,634,337 $ 2,015,147 - ----------------------------------------------------------------------------------------------------------------------------- 1998: Totals for reportable segments $ 106,728 $ 4,341 $ 57,759 $ 19,373 $ 2,489,464 $ 1,960,517 Elimination of intersegment items -- -- -- -- (35,764) (20,739) Parent Co. totals - not eliminated 923 -- 2,059 (432) 7,079 -- Other items -- 150 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Totals $ 107,651 $ 4,491 $ 59,818 $ 18,941 $ 2,460,779 $ 1,939,778 - ----------------------------------------------------------------------------------------------------------------------------- 1997: Totals for reportable segments $ 102,466 $ 3,124 $ 58,366 $ 16,744 $ 2,339,167 $ 1,863,167 Elimination of intersegment items -- -- -- -- (57,181) (8,203) Parent Co. totals - not eliminated 790 -- 769 113 6,397 -- Other items -- 149 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Totals $ 103,256 $ 3,273 $ 59,135 $ 16,857 $ 2,288,383 $ 1,854,964 - -----------------------------------------------------------------------------------------------------------------------------
20. PARENT COMPANY STATEMENTS The Parent Company statements should be read in conjunction with the consolidated financial statements and the information set forth below. Investments in subsidiaries are accounted for using the equity method of accounting. The effective tax rate for the Parent Company is substantially less than the statutory rate due principally to tax-exempt dividends from subsidiaries. Cash represents noninterest bearing deposits with a bank subsidiary. Net cash provided by operating activities reflects cash payments for income taxes of $652,000, $18,000 and $1,040,000 in 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, stockholders' equity reflected in the Parent Company balance sheet includes $86.7 million and $82.4 million, respectively, of undistributed earnings of the Corporation's subsidiaries which are restricted from transfer as dividends to the Corporation. BALANCE SHEETS AT DECEMBER 31, 1999 AND 1998 - ------------------------------------------------------------------------- (IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------- ASSETS: Cash $ 25,148 $ 29,770 Investment in subsidiaries 166,692 170,927 Debentures receivable from subsidiary banks 20,000 12,000 Other investments 1,408 507 Dividends receivable from subsidiaries 25,500 21,375 Other assets 8,397 7,115 - ------------------------------------------------------------------------- TOTAL ASSETS $247,145 $241,694 - ------------------------------------------------------------------------- LIABILITIES: Dividends payable $ 6,331 $ 5,586 Other liabilities 1,234 418 - ------------------------------------------------------------------------- TOTAL LIABILITIES 7,565 6,004 TOTAL STOCKHOLDERS' EQUITY 239,580 235,690 - ------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $247,145 $241,694 - ------------------------------------------------------------------------- STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - ------------------------------------------------------------------------------- (IN THOUSANDS) 1999 1998 1997 - ------------------------------------------------------------------------------- INCOME: Dividends from subsidiaries $ 34,500 $ 33,500 $ 45,097 Interest and dividends 960 923 790 Other 619 -- -- - -------------------------------------------------------------------------------- TOTAL INCOME 36,079 34,423 45,887 - -------------------------------------------------------------------------------- EXPENSE: Amortization of intangibles -- 295 304 Other, net 1,767 1,764 465 - -------------------------------------------------------------------------------- TOTAL EXPENSES 1,767 2,059 769 - -------------------------------------------------------------------------------- INCOME BEFORE FEDERAL TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 34,312 32,364 45,118 Federal income tax benefit (expense) 1,074 432 (113) - -------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 35,386 32,796 45,005 Equity in undistributed earnings of subsidiaries 10,361 8,776 (7,312) - -------------------------------------------------------------------------------- NET INCOME $ 45,747 $ 41,572 $ 37,693 - -------------------------------------------------------------------------------- 30 31 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------------ (IN THOUSANDS) 1999 1998 1997 - ------------------------------------------------------------------------------------ OPERATING ACTIVITIES: Net income $ 45,747 $ 41,572 $ 37,693 Adjustments to reconcile net income to net cash provided by operating activities: Amortization -- 295 304 Undistributed earnings of subsidiaries (10,361) (8,776) 7,312 (Increase) decrease in dividends receivable from subsidiaries (4,125) 10,325 (23,000) Increase in other assets (1,214) (979) (1,345) Increase (decrease) increase in other liabilities 816 (474) (259) - ------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 30,863 41,963 20,705 - ------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Purchase of debenture from subsidiary bank (10,000) -- (10,000) Capital contribution to subsidiary (300) -- -- Purchase of investment securities (1,135) (423) -- Other, net 2,000 (42) (1,379) - ------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (9,435) (465) (11,379) - ------------------------------------------------------------------------------------ FINANCING ACTIVITIES: Cash dividends paid (22,315) (17,983) (15,047) Proceeds from issuance of common stock 36 123 3,664 Purchase of treasury stock, net (3,771) (9,582) (4,727) - ------------------------------------------------------------------------------------ NET CASH USED IN FINANCING ACTIVITIES (26,050) (27,442) (16,110) - ------------------------------------------------------------------------------------ (DECREASE) INCREASE IN CASH (4,622) 14,056 (6,784) Cash at beginning of year 29,770 15,714 22,498 - ------------------------------------------------------------------------------------ CASH AT END OF YEAR $ 25,148 $ 29,770 $ 15,714 - ------------------------------------------------------------------------------------
31 EX-23 3 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 333-20417, Registration Statement No. 333-31810, and Registration Statement No. 333-30858, all on Form S-4, and Registration Statement No. 33-92060 and Registration Statement No. 333-52653, both on Form S-8, of our report dated January 18, 2000, with respect to the consolidated financial statements of Park National Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Columbus, Ohio March 24, 2000 EX-24 4 EXHIBIT 24 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ William T. McConnell -------------------------- William T. McConnell 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ C. Daniel DeLawder ------------------------ C. Daniel DeLawder 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ John W. Kozak --------------------- John W. Kozak 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Maureen Buchwald ----------------------- Maureen Buchwald 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ James J. Cullers ----------------------- James J. Cullers 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Dominic C. Fanello ------------------------- Dominic C. Fanello 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ R. William Geyer ----------------------- R. William Geyer 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Philip H. Jordan, Jr. -------------------------- Philip H. Jordan, Jr. 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Howard E. LeFevre ------------------------ Howard E. LeFevre 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Phillip T. Leitnaker ------------------------- Phillip T. Leitnaker 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Tami L. Longaberger ------------------------- Tami L. Longaberger 12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ James A. McElroy ----------------------- James A. McElroy 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ John J. O'Neill ----------------------- John J. O'Neill 14 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ William A. Phillips ------------------------- William A. Phillips 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ J. Gilbert Reese ------------------------ J. Gilbert Reese 16 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ Rick R. Taylor ----------------------- Rick R. Taylor 17 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation, (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of January 2000. /s/ John L. Warner ------------------------ John L. Warner EX-27 5 EXHIBIT 27
9 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 104,222 0 0 0 619,009 4,321 4,451 1,833,948 41,266 2,634,337 2,015,147 348,199 31,335 76 0 0 68,383 171,197 2,634,337 150,892 40,998 30 191,920 62,384 76,063 115,857 6,969 (3,608) 67,540 64,436 45,747 0 0 45,757 4.69 4.67 5.04 2,638 2,035 429 0 37,989 7,314 3,622 41,266 41,266 0 0
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