-----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, E8LZE31qzTpQDm6HN0HXu9NEY0mzQ7syHfrfhaWf2qXeBUP/hyWlBM8X3SchH8kg nsdU1p3D572P5MdnyR6obQ== 0000950152-01-500531.txt : 20010321 0000950152-01-500531.hdr.sgml : 20010321 ACCESSION NUMBER: 0000950152-01-500531 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010320 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: 1572513 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 l86956ae10-k405.txt PARK NATIONAL CORPORATION 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 1-13006 PARK NATIONAL CORPORATION --------------------------------------------------------- (Exact name of Registrant as specified in its charter) Ohio 31-1179518 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 North Third Street, 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 (10,735,013 common shares outstanding on February 23, 2001) 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 23, 2001 ($84.50), the aggregate market value of the common shares of the Registrant held by non-affiliates (for this purpose, common shares held by the Registrant's banking subsidiaries in fiduciary accounts are not considered to be held by affiliates) on that date was $754,631,137. Documents Incorporated by Reference: (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000, are incorporated by reference into Parts I and 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 16, 2001, 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 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, The First-Knox National Bank of Mount Vernon, a national banking association, United Bank, N.A., Bucyrus, Ohio, a national banking association, and Second National Bank, Greenville, Ohio, a national banking association, Park 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. Park's banking subsidiaries and their respective divisions comprise Park's segments. Financial information about Park's reportable segments is included in Note 19 to the Consolidated Financial Statements located on pages 46 and 47 of Park's Annual Report to Shareholders for the fiscal year ended December 31, 2000. That financial information is incorporated herein by reference. In early 1999, Park organized Guardian Financial Services Company, an Ohio consumer finance company based in Hilliard, Ohio. Guardian Finance provides consumer finance services in the central Ohio area. Effective April 30, 2000 (the "UB Effective Date"), Park acquired U.B. Bancshares, Inc. of Bucyrus, Ohio, an Ohio corporation which was a one-bank holding company ("UB"), through the merger of UB with and into Park (the "UB Merger"). The UB Merger was effected pursuant to the terms of the Agreement and Plan of Merger, dated as of December 14, 1999, as amended by the Amendment to Agreement and Plan of Merger, dated as of February 14, 2000 (collectively, the "UB Merger Agreement"), between Park and UB. Under the terms of the UB Merger Agreement, each outstanding share of UB common stock was cancelled and extinguished and the holder thereof became entitled to receive .577209 Park common shares in a tax-free exchange. Park issued approximately 325,500 common shares in this merger transaction accounted for as a pooling-of-interests. United Bank, N.A., the wholly-owned subsidiary of UB, is being operated as a separate banking subsidiary by Park. Effective April 30, 2000 (the "SNB Effective Date"), Park also acquired SNB Corp. of Greenville, Ohio, an Ohio corporation which was a one-bank holding company ("SNB"), through the merger of SNB with and into Park (the "SNB Merger"). The SNB Merger was effected pursuant to the terms of the Agreement and Plan of Merger, dated as of December 17, 1999, as amended by the Amendment to Agreement and Plan of Merger, dated as of March 3, 2000, and the Amendment No. 2 to Agreement and Plan of Merger, dated as of April 25, 2000 (collectively, the -2- 3 "SNB Merger Agreement"), between Park and SNB. Under the terms of the SNB Merger Agreement, each outstanding SNB common share was converted into the right to receive 5.367537 Park common shares in a tax-free exchange. Park issued approximately 835,500 common shares in this merger transaction accounted for as a pooling-of-interests. Second National Bank, the wholly-owned subsidiary of SNB, is being operated as a separate banking subsidiary by Park. On November 20, 2000, Park entered into an Agreement and Plan of Merger (the "Security Merger Agreement") with Security Banc Corporation, an Ohio corporation which is a multi-bank holding company, under which Security will merge with and into Park. Security has three subsidiaries, The Security National Bank and Trust Co., Springfield, Ohio, a national banking association; The Citizens National Bank of Urbana, Urbana, Ohio, a national banking association; and The Third Savings and Loan Company, Piqua, Ohio, an Ohio state-chartered savings association. All of the financial service offices of Security's subsidiaries are located in Champaign, Clark, Fayette, Greene, Madison and Miami Counties in Ohio. As of December 31, 2000, Security had total consolidated assets of approximately $995 million, total consolidated deposits of approximately $737 million and total consolidated shareholders' equity of approximately $123 million. Under the terms of the Security Merger Agreement, the shareholders of Security on the effective date of the Security merger will receive an aggregate of 3,350,000 Park common shares in exchange for their Security common shares. The Security shareholders are expected to receive .284436 Park common shares for each outstanding Security common share. Each option to purchase Security common shares that is outstanding immediately before the Security merger is completed will be converted into an option to purchase Park common shares. The number of Park common shares subject to each converted option, as well as the exercise price of that option, will be adjusted to reflect the exchange ratio. Completion of the Security merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the adoption of the Security Merger Agreement by the shareholders of Security and Park 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 Bank of Cleveland on January 2, 2001 and a notice filing related to the acquisition of Third Savings through the Security merger was filed with the Federal Reserve Board on January 4, 2001. The Federal Reserve Board forwarded copies of the application and/or notice of its receipt to the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the U.S. Department of Justice. On February 8, 2001, the Federal Reserve Board application was approved. Under the terms of that approval, the Security merger could not have been consummated before February 23, 2001 and must be consummated before May 8, 2001, unless the time period is extended by the Federal Reserve Board. The notice filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, were made with the Federal Trade Commission and the U.S. Department of Justice on January 9, 2001, and the waiting period for HSR purposes expired on February 10, 2001. The Security special meeting of shareholders, at which adoption of the Security Merger Agreement was approved, was held on March 9, 2001. The Park special meeting of shareholders, at which adoption of the Security Merger Agreement was approved, was held on March 12, 2001. The Security merger transaction is scheduled to close on March 23, 2001. -3- 4 SERVICES PROVIDED BY PARK'S SUBSIDIARIES Park National Bank, Richland Trust Company, Century National Bank, First-Knox National Bank, United Bank and Second National Bank provide the following principal services: - the acceptance of deposits for demand, savings and time accounts and the servicing of those accounts; - commercial, industrial, consumer and real estate lending, including installment loans and automobile leasing, credit cards and personal lines of credit; - safe deposit operations; - trust services; - cash management; - electronic funds transfers; and - a variety of additional banking-related services tailored to the needs of individual customers. Park believes that the deposit mix of its banking subsidiaries is such that no material portion has been obtained from a single customer and, consequently, the loss of any one customer of any banking subsidiary would not have a materially adverse effect on the business of that banking subsidiary or Park. Park's banking subsidiaries deal with a wide cross-section of businesses and corporations located primarily in Ashland, Athens, Coshocton, Crawford, Darke, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Marion, Mercer, Montgomery, 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 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. -4- 5 At December 31, 2000, Park's banking subsidiaries had outstanding approximately $741.2 million in commercial loans (including commercial real estate loans) and commercial leases, representing approximately 32.5% 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 Company, Century National Bank, First-Knox National Bank, United Bank and Second National Bank were $16.5 million, $4.9 million, $4.8 million, $8.5 million, $1.8 million, and $4.0 million, respectively, at December 31, 2000. However, participations in loans of amounts larger than $10.0 million are generally sold to other banks or financial institutions. 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 existing borrowers whose aggregate total debt, including the principal amount of the proposed loan, exceeds $8.0 million. For new borrowers, a loan of $4.0 million or more requires the approval of the Executive Committee. The primary analysis technique used in determining whether to grant a commercial loan is the review of a schedule of cash flows to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. Park has a loan review program which reevaluates annually all loans with an outstanding amount greater than $250,000. 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. 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, 2000, Park's subsidiaries had outstanding consumer loans (including automobile leases and credit cards) in an aggregate amount of approximately $529.0 million, constituting approximately 23.2% 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, Crawford, Darke, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Marion, Mercer, Montgomery, Morgan, Morrow, Muskingum, Perry and Richland Counties in 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. This automobile leasing program is expected to stop during the third quarter of 2001 as the national insurance company will utilize its own banking operations in the State of Ohio. Park's subsidiaries had approximately $80.5 million of automobile installment loans outstanding under this program at December 31, 2000. The banking subsidiaries also have an automobile leasing program with the same major national insurance company under which automobile leases may be entered into with lessees throughout the States of Ohio and Michigan. Park's subsidiaries had approximately $9.5 million of automobile leases outstanding under this program at December 31, 2000. This automobile leasing -5- 6 program is expected to continue in the States of Ohio and Michigan and expand to several other states during 2001. Credit approval for consumer loans requires demonstration of sufficient income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of Park's subsidiaries to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring each subsidiary's performance in this area and for advising and updating loan personnel. Park's subsidiaries make credit life insurance and health and accident insurance available to all qualified buyers, thus reducing their risk of loss when a borrower's income is terminated or interrupted. Each subsidiary reviews its consumer loan portfolio monthly and charges off loans which do not meet that subsidiary's standards. Each 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, 2000, Park's banking subsidiaries had outstanding approximately $1,008.0 million in residential real estate, home equity lines of credit and construction mortgages, representing approximately 44.3% of total loans outstanding. The market area for real estate lending by the banking subsidiaries is concentrated in Ashland, Athens, Coshocton, Crawford, Darke, Fairfield, Franklin, Hamilton, Hocking, Holmes, Knox, Licking, Marion, Mercer, Montgomery, Morgan, Morrow, Muskingum, Perry and Richland Counties in 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 adjustable rate, fully amortized mortgages. Each banking subsidiary also originates fixed rate real estate loans for the secondary market. 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 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 generally obtained for consumer real estate loans. Home equity lines of credit are generally made as second mortgages by Park's banking subsidiaries. The maximum amount of a home equity line of credit is generally limited to 85% 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 -6- 7 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's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions and operate 78 financial service offices and a network of 86 automatic banking center locations in 20 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, 2000, Park and its subsidiaries had 1,218 full-time equivalent employees. SUPERVISION AND REGULATION Park, as a bank holding company, is regulated extensively under federal law. Park National Bank, Century National Bank, First-Knox National Bank, United Bank and Second National Bank as national banks, and Richland Trust Company, as an Ohio state-chartered bank, are regulated extensively under federal and state law. Guardian Finance, as an Ohio state-chartered consumer finance company, is regulated under state law. Park is subject to regulation, supervision and examination by the Federal Reserve Board. Park National Bank, Century National Bank, First-Knox National Bank, United Bank and Second National Bank are subject to regulation by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). Richland Trust Company is subject to regulation, supervision and examination by the Ohio Division of Financial Institutions and the FDIC and Guardian Finance 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 and its subsidiaries could have a material effect on their respective businesses. -7- 8 REGULATION OF BANK HOLDING COMPANIES Park 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: - assess civil money penalties; - issue cease and desist or removal orders; and - 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: - 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; - acquire all or substantially all of the assets of another bank or bank holding company; or - 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: - operating a savings association, mortgage company, finance company, credit card company or factoring company; -8- 9 - performing certain data processing operations; - providing investment and financial advice; and - 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. As of the date of this Annual Report on Form 10-K, Park has not elected to become a financial holding company. 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 tying 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: - 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 - 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 and must not involve a greater than normal risk of repayment. In addition, 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. -9- 10 REGULATION OF NATIONALLY-CHARTERED BANKS As national banking associations, Park National Bank, Century National Bank, First-Knox National Bank, United Bank and Second 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, First-Knox National Bank, United Bank and Second 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, First-Knox National Bank, United Bank and Second 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 Company. The FDIC issues regulations governing the operations of Richland Trust Company and examines Richland Trust Company. 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 Company is subject to regulation and supervision by the Ohio Division of Financial Institutions. Division regulation and supervision affects the internal organization of Richland Trust Company, 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. As a consumer finance company incorporated under Ohio law, Guardian Finance is also subject to regulation and supervision by the Division of Financial Institutions. Division regulation and supervision affect the lending activities of Guardian Finance. 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 -10- 11 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 1.96 to 28.96 cents per $100 of domestic deposits. Each of Park's banking subsidiaries is currently paying an assessment rate of 1.96 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. 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 -11- 12 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 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, and 4% for all other bank holding companies. 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 is in compliance with the current applicable capital guideline ratios. As of December 31, 2000, Park had a total risk-based capital ratio of 15.61%, Tier 1 risk-based capital ratio of 14.35% and a leverage ratio of 9.41%. Park anticipates that it will continue to meet current capital guideline ratios after the consummation of the Security merger. Park's management believes that each of its subsidiary banks is "well capitalized" according to the guidelines described above. -12- 13 FISCAL AND MONETARY POLICIES The business and earnings of Park are affected significantly by the fiscal and monetary policies of the federal government and its agencies. Park 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 - conducting open market operations in United States government securities; - changing the discount rates of borrowings of depository institutions; - imposing or changing reserve requirements against depository institutions' deposits; and - 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. 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 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. As noted above, Park's management believes that each of its subsidiary banks qualifies as "well capitalized." 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 -13- 14 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 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 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 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 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 to serve as a source of strength to its subsidiary banks, which may require Park to retain capital for further investment in its subsidiary banks, rather than pay dividends to the Park shareholders. Payment of dividends by one of Park'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'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 (also 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: - securities underwriting, dealing and market making; - sponsoring mutual funds and investment companies; - insurance underwriting and agency; - merchant banking activities; -14- 15 - 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 estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized and well managed, has at least a satisfactory Community Reinvestment Act rating and has received the prior approval of the OCC to engage in such activities. 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. STATISTICAL DISCLOSURE The statistical disclosure relating to Park and its subsidiaries required under the SEC's Industry Guide 3, "Statistical Disclosure by Bank Holding Companies," is included in the section of Park's Annual Report to Shareholders for the fiscal year ended December 31, 2000 captioned "Financial Review" , on pages 21 through 30 and in Note 4 to the Consolidated Financial Statements located on page 40 of that Annual Report to Shareholders. This statistical disclosure is incorporated herein by reference. EFFECT OF ENVIRONMENTAL REGULATION Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of Park and its subsidiaries. Park believes the nature of the operations of its subsidiaries has little, if any, environmental impact. Park, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. Park 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'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 -15- 16 statements in future filings by Park with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Park which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Park or its management or board of directors, including those relating to products or services; (iii) statements relating to the benefits, revenues and earnings estimated to result from the Security merger and the estimated costs of combining that corporation with Park; (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: - income (interest and non-interest) following the Security merger, is lower than expected; - the costs of providing compensation and benefits to Park's employees increase; - competition increases in the banking industry or the markets served by Park's subsidiaries; - costs or difficulties related to the integration of Security's business or other acquired businesses are greater than expected; - there are adverse changes in general economic conditions or in competitive forces; - technological changes are more difficult or expensive to implement than anticipated; - there are adverse changes in the securities markets; and - Park 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 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 or any person acting on our behalf are qualified by the cautionary statements in this section. ITEM 2. PROPERTIES. Park's principal executive offices are located at 50 North Third Street, Newark, Ohio 43055. Park does not lease or own any physical property, real or personal. -16- 17 Park National Bank, in addition to having six financial service offices (including the main office) and the operations center in Newark, has financial service offices in Granville, Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala and Utica in Licking County, a financial service office in Columbus in Franklin County, a financial service office in Cincinnati in Hamilton County, a financial service office in Dayton in Montgomery County and financial service offices in Baltimore, Pickerington and Lancaster (seven offices) in Fairfield County. The financial service offices in Fairfield County comprise the Fairfield National Division. Park National Bank also operates six off-site automatic banking center locations. Richland Trust Company, in addition to six financial service offices in Mansfield (including the main office), has financial service offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland County. Richland Trust Company also operates four off-site automatic banking center locations. Century National Bank, in addition to having four financial service offices (including the main office) and a mortgage lending office in Zanesville, has financial service 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 four off-site automatic banking center locations. First-Knox National Bank, in addition to having two financial service offices (including the main office) in Mount Vernon, has financial service offices in Loudonville and Perrysville in Ashland County, a financial service office in Millersburg in Holmes County, financial service offices in Centerburg, Danville and Fredericktown in Knox County, two financial service offices in Mount Gilead in Morrow County and a financial service office in Bellville in Richland County. The financial service offices in Ashland County comprise the Farmers and Savings Division. First-Knox National Bank also operates nine off-site automatic banking center locations. United Bank, in addition to having two financial service offices (including the main office) in Bucyrus, has financial service offices in Crestline and Galion in Crawford County and financial service offices in Waldo, Marion, Caledonia and Prospect in Marion County. United Bank also operates one off-site automatic banking center location. Second National Bank, in addition to having four financial service offices (including the main office) in Greenville, has two financial service offices in Arcanum and a financial service office in Versailles in Darke County and a financial service office in Fort Recovery in Mercer County. Guardian Finance has its main office in Hilliard in Franklin County, a financial service office in Mansfield where it leases space from Richland Trust Company, and a financial service office in Lancaster where it leases space from the Fairfield National Division of Park National Bank. ITEM 3. LEGAL PROCEEDINGS. There are no pending legal proceedings to which Park or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings to which Park's banking subsidiaries are parties incidental to their respective banking businesses. Park considers none of those proceedings to be material. -17- 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table lists the names and ages of the executive officers of Park as of February 23, 2001, the positions presently held by those individuals and their individual business experience during the past five years. The board of directors may remove any of the executive officers at any time.
Positions Held with Park and its Name Age Principal Subsidiaries and Principal Occupation - ---- --- --------------------------------------------------------------------------- William T. McConnell 67 Chairman of the Board since 1994, Chief Executive Officer from 1986 to January 1999, President from 1986 to 1994 and Director since 1986, of Park; 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 51 Chief Executive Officer since January 1999, President since 1994 and Director since 1994, of Park; 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 Company; Director of Second National Bank; Chairman of the Board of Guardian Finance since February 1999 David C. Bowers 64 Secretary since 1987, Chief Financial Officer and Chief Accounting Officer from 1990 to 1998, and Director from 1989 to 1990, of Park; Executive Vice President since January 1999, Senior Vice President from 1986 to January 1999, and Director of Park National Bank; Director of Guardian Finance
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's Annual Report to Shareholders for the fiscal year ended December 31, 2000 ("Park's 2000 Annual Report to Shareholders"). On November 20, 2000, Park issued (a) 150 common shares to each of the twelve non-employee directors of Park (for an aggregate of 1,800 common shares), (b) 50 common shares to -18- 19 each of 55 non-employee directors of one of Park's banking subsidiaries who is not also a director of Park (for an aggregate of 2,750 common shares) and (c) 100 common shares to one individual who serves as a non-employee director of two of Park's subsidiaries, in each case in lieu of an annual cash retainer for serving as a director. The common shares had a market value of $97.81 per share. Park issued the common shares in reliance upon the exemptions from registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933 based upon the limited number of individuals to whom the common shares were "sold" and the status of each individual as a director of Park or of one of its subsidiaries. ITEM 6. SELECTED FINANCIAL DATA. The information called for in this Item 6 is incorporated herein by reference to page 29 of Park's 2000 Annual Report to Shareholders. 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's 2000 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. As noted on page 25 of Park's 2000 Annual Report to Shareholders, during 2000, 1999 and 1998, Park 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's 2000 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Auditors, the Consolidated Balance Sheets of Park and its subsidiaries at December 31, 2000 and 1999, 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, 2000, and the related Notes to Consolidated Financial Statements, appearing on pages 31 through 48 of Park's 2000 Annual Report to Shareholders, are incorporated herein by reference. Quarterly Financial Data set forth on page 29 of Park's 2000 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's definitive proxy statement relating to the annual meeting of shareholders to be held on April 16, -19- 20 2001, under the caption "ELECTION OF DIRECTORS (PROPOSAL NO. 1)." In addition, certain information concerning the executive officers of Park is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant." No information is required to be disclosed under Item 405 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION. The information called for in this Item 11 is incorporated herein by reference to Park's definitive proxy statement relating to the annual meeting of shareholders to be held on April 16, 2001, under the captions "ELECTION OF DIRECTORS--Compensation of Directors," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "COMPENSATION OF EXECUTIVE OFFICERS." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for in this Item 12 is incorporated herein by reference to Park's definitive proxy statement relating to the annual meeting of shareholders to be held on April 16, 2001, 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's definitive proxy statement relating to the annual meeting of shareholders to be held on April 16, 2001, 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 24. (a)(2) Financial Statement Schedules. ----------------------------- All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and have been omitted. (a)(3) Exhibits. -------- Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see the Index to Exhibits beginning at page E-1. -20- 21 (b) Reports on Form 8-K. ------------------- On December 21, 2000, Park filed a Current Report on Form 8-K, dated that same date, for the purpose of including supplemental consolidated financial statements which gave retroactive effect to the mergers of U.B. Bancshares, Inc. and SNB Corp. into Park, effective April 30, 2000. Each merger was accounted for as a pooling-of-interests. Considered together, U.B. Bancshares, Inc. and SNB Corp. were not significant pursuant to Rule 11-01(b) of Regulation S-X promulgated by the SEC. The supplemental consolidated financial statements filed included the Report of Ernst & Young LLP, Supplemental Consolidated Balance Sheets at December 31, 1999 and 1998, Supplemental Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997, Supplemental Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997, Supplemental Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997, and Notes to Supplemental Consolidated Financial Statements. (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 20, 2001 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 indicated on the 20th day of March, 2001. Name Capacity ---- -------- * - ------------------------------ William T. McConnell Chairman of the Board and Director /s/ C. Daniel DeLawder President, Chief Executive Officer and - ------------------------------ Director C. Daniel DeLawder /s/ John W. Kozak Chief Financial Officer and Principal - ------------------------------ Accounting Officer John W. Kozak * Director - ------------------------------ 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 - ------------------------------ James A. McElroy -22- 23 * Director - ------------------------------ John J. O'Neill * Director - ------------------------------ William A. Phillips * Director - ------------------------------ J. Gilbert Reese * Director - ------------------------------ Rick R. Taylor * Director - ------------------------------ John L. Warner - ------------- By C. Daniel DeLawder pursuant to Powers of Attorney executed by the directors and executive officers listed above, which Powers of Attorney have been filed with the Securities and Exchange Commission. /s/ C. Daniel DeLawder - ------------------------------------ C. Daniel DeLawder President and Chief Executive Officer -23- 24 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2000 INDEX TO FINANCIAL STATEMENTS -----------------------------
PAGE(S) IN 2000 ANNUAL REPORT TO DESCRIPTION SHAREHOLDERS - ----------- ------------ Report of Independent Auditors (Ernst & Young LLP)........................................ 31 Consolidated Balance Sheets at December 31, 2000 and 1999................................. 32-33 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998......................................................................... 34-35 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998................................................. 36 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.................................................................... 37 Notes to Consolidated Financial Statements................................................ 38-48
-24- 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2000 INDEX TO EXHIBITS EXHIBIT DESCRIPTION OF EXHIBIT ------- ---------------------- NO. --- 2.1 Agreement and Plan of Merger (excluding exhibits and schedules), dated as of December 17, 1999, by and between Park National Corporation ("Park") and SNB Corp. (incorporated herein by reference to Exhibit 2.1 to Park'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 and SNB Corp. (incorporated herein by reference to Exhibit 2.2 to Park's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 20, 2000 (Registration No. 333-31810)) 2.3 Amendment No. 2 to Agreement and Plan of Merger, dated as of April 25, 2000, by and between Park and SNB Corp. (incorporated herein by reference to Exhibit 2.3 to Park's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. 1-13006)) 2.4 Agreement and Plan of Merger (excluding exhibits and schedules), dated as of December 14, 1999, by and between Park and U.B. Bancshares, Inc. (incorporated herein by reference to Exhibit 2.1 to Park's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 13, 2000 (Registration No. 333-30858)) 2.5 Amendment to Agreement and Plan of Merger, dated as of February 14, 2000, by and between Park and U.B. Bancshares, Inc. (incorporated herein by reference to Exhibit 2.2 to Park's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed March 13, 2000 (Registration No. 333-30858)) 2.6 Agreement and Plan of Merger (excluding exhibits and schedules), dated as of November 20, 2000, by and between Park and Security Banc Corporation (incorporated herein by reference to Exhibit 2.1 to Park's Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 filed January 29, 2001 (Registration No. 333-53038)) E-1 26 EXHIBIT DESCRIPTION OF EXHIBIT ------- ---------------------- NO. --- 3.1 Articles of Incorporation of Park as filed with the Ohio Secretary of State on March 24, 1992 (incorporated herein by reference to Exhibit 3(a) to Park's Form 8-B, filed on May 20, 1992 (File No. 0-18772) ("Park's Form 8-B")) 3.2 Certificate of Amendment to the Articles of Incorporation of Park as filed with the Ohio Secretary of State on May 6, 1993 (incorporated herein by reference to Exhibit 3(b) to Park's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) 3.3 Certificate of Amendment to the Articles of Incorporation of Park as filed with the Ohio Secretary of State on April 16, 1996 (incorporated herein by reference to Exhibit 3(a) to Park'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 as filed with the Ohio Secretary of State on April 22, 1997 (incorporated herein by reference to Exhibit 3(a)(1) to Park's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-13006)("Park's June 1997 Form 10-Q")) 3.5 Articles of Incorporation of Park (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's June 1997 Form 10-Q) 3.6 Regulations of Park (incorporated herein by reference to Exhibit 3(b) to Park's Form 8-B) 3.7 Certified Resolution regarding adoption of amendment to Subsection 2.02(A) of the Regulations of Park by Shareholders on April 22, 1997 (incorporated herein by reference to Exhibit 3(b)(1) to Park's June 1997 Form 10-Q) 3.8 Regulations of Park (reflecting amendments through April 22, 1997) [for SEC reporting compliance purposes only] (incorporated herein by reference to Exhibit 3(b)(2) to Park's June 1997 Form 10-Q) *10.1 Summary of Incentive Bonus Plan of Park (incorporated herein by reference to Exhibit 10.1 to Park's Registration Statement on Form S-4 filed February 22, 2000 (Registration No. 333-30858)) E-2 27 EXHIBIT DESCRIPTION OF EXHIBIT ------- ---------------------- NO. --- *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'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 and executive officers of such subsidiaries who are directors or executive officers of Park (incorporated herein by reference to Exhibit 10.2 to Park's Registration Statement on Form S-4 filed February 22, 2000 Registration No. 333-30858)) *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'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 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's Registration Statement on Form S-4 filed December 29, 2000 (Registration No. 333-53038)) *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'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'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'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, 2000 (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 24) 21 Subsidiaries of Park (incorporated herein by reference to Exhibit 21 to Park's Registration Statement on Form S-4 filed December 29, 2000 (Registration No. 333-53038)) E-3 28 EXHIBIT - ------- NO. DESCRIPTION OF EXHIBIT ---- ------------------------ **23 Consent of Ernst & Young LLP **24 Powers of Attorney of Directors and Executive Officers of Park - -------------- * Management contract or compensatory plan or arrangement ** Filed herewith E-4 EX-13 2 l86956aex13.txt EXHIBIT 13 1 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 Park's ability to execute its business plans. Although Park believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Park does not undertake any obligation to publicly update any forward-looking statement. OVERVIEW On April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million bank holding company headquartered in Bucyrus, Ohio. Park issued approximately 325,000 shares of common stock to the stockholders of U.B. Bancshares, Inc. based upon an exchange ratio of .577209 shares of Park common stock for each outstanding share of U.B. Bancshares, Inc. common stock. United Bank, N.A., the wholly owned subsidiary of U.B. Bancshares, Inc. is being operated by Park as a separate banking subsidiary. Park also merged with SNB Corp., a $300 million bank holding company headquartered in Greenville, Ohio on April 30, 2000. Park issued approximately 835,000 shares of common stock to the stockholders of SNB Corp. based upon an exchange ratio of 5.367537 shares of Park common stock for each outstanding share of SNB Corp. common stock. Second National Bank, the wholly owned subsidiary of SNB Corp., is being operated as a separate banking subsidiary by Park. Both merger transactions were accounted for as pooling-of-interests and as a result the historical financial statements of Park have been restated to show U.B. Bancshares, SNB Corp., and Park on a combined basis. Net income for 2000 was $55.4 million, the highest in Park's fourteen year history as a bank holding company. This represents an 18.4% increase over net income of $46.8 million for 1999. Earnings per share were $5.10 for 2000, up by 19.2% over the $4.28 earnings per share for 1999. These large increases for 2000 can be misleading as 1999 results have been restated to reflect the two merger transactions discussed above. We have summarized below the originally reported financial results for Park and have shown U.B. Bancshares, Inc. and SNB Corp. on a combined basis. The earnings per share information for U.B. Bancshares, Inc. and SNB Corp. has been converted to Park share equivalents using the exchange ratios for the respective merger transactions. - -------------------------------------------------------------------------------- ORIGINAL PARK RESULTS MERGERS RESTATED PARK RESULTS NET INCOME DILUTED EPS NET INCOME DILUTED EPS NET INCOME DILUTED EPS - -------------------------------------------------------------------------------- 1999 $45,747 $4.67 $1,040 $ .91 $46,787 $4.28 1998 41,572 4.22 5,436 5.19 47,008 4.28 1997 37,693 3.81 5,348 5.00 43,041 3.91 1996 31,700 3.22 5,083 4.66 36,783 3.34 1995 27,829 2.81 4,512 4.09 32,341 2.93 - -------------------------------------------------------------------------------- Net income for U.B. Bancshares, Inc. and SNB Corp. on a combined basis decreased by $4.4 million in 1999 compared to 1998. This large decrease was primarily due to a large increase in the loan loss provision, payment for merger expenses and losses from the sale of securities. The combined loan loss provision for U.B. Bancshares, Inc. and SNB Corp. increased by $4.1 million as net loan charge-offs increased by $3.5 million. Approximately $3 million of the net loan charge-offs related to one commercial loan. Merger expenses, paid primarily to investment bankers, totaled approximately $1 million and security losses were $1.2 million. Earnings per share of $5.10 for 2000 represents an increase of 9.2% compared to Park's originally reported earnings per share of $4.67 for 1999. This is a better indication of the improvement in earnings for 2000. Net income has increased at an annual compound growth rate of 11.4% over the last five years and net income per share has grown at an annual compound growth of 11.7% 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 2000, the quarterly cash dividend on common stock was increased to $.71 per share. The new annualized cash dividend of $2.84 per share is 9.2% greater than the cash dividend paid in 2000. The Corporation has paid quarterly dividends since becoming a holding company in 1987. The annual compound growth rate for the Corporation's per share dividend for the last five years is 17.5%. Park's business strategy is geared toward maximizing the long-term return to stockholders. The Corporation's common stock value has appreciated 17.3% annually on a compounded, total return basis for the last five years and 22.4% annually for the past ten years. The December 31, 2000 value of a $1,000 investment on December 31, 1995 and a $1,000 investment on December 31, 1990 would be $2,222 and $7,522, respectively, inclusive of the reinvestment of dividends in the Corporation's stock. PENDING ACQUISITIONS On November 20, 2000, Park entered into an Agreement and Plan of Merger (the "Merger Agreement") with Security Banc Corporation (Security), a bank holding company headquartered in Springfield, Ohio providing for the merger of Security into Park. Under the terms of the Merger Agreement, the stockholders of Security are expected to receive .2844 shares of Park's common stock for each share of Security common stock in a tax free exchange. Park expects to issue an aggregate of 3,350,000 common shares to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of Security and Park, and other conditions to closing customary of a transaction of this type. Management expects the merger to be completed during the first quarter of 2001. 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 of economic weakness. 21 2 FINANCIAL REVIEW 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 seventy-eight financial service offices and a network of eighty-six automatic teller machines in twenty Ohio counties. A table of financial data of the Corporation's affiliates for 2000, 1999, and 1998 is shown below. See Note 19 to the financial statements for additional financial information on the Corporation's affiliates. TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 AVERAGE NET Average Net Average Net (IN THOUSANDS) ASSETS INCOME Assets Income Assets Income - -------------------------------------------------------------------------------------------------------------------- Park National Bank: Park National Division $ 963,176 $ 22,111 $ 883,680 $ 20,411 $ 812,688 $ 18,333 Fairfield National Division 288,477 4,777 281,893 4,209 263,729 4,254 Richland Trust Company 448,029 5,667 415,528 5,085 405,646 5,006 Century National Bank 399,814 7,023 388,616 5,688 359,774 6,332 First-Knox National Bank: First-Knox National Division 541,570 9,755 509,143 8,765 477,663 7,541 Farmers and Savings National Division 69,084 1,363 63,160 903 62,955 960 United Bank N.A 179,495 851 178,973 621 166,128 1,534 Second National Bank 303,110 2,915 299,278 1,400 283,221 3,974 Parent Company, including consolidating entries (31,149) 943 (25,569) (295) (45,140) (926) - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED TOTALS $ 3,161,606 $ 55,405 $ 2,994,702 $ 46,787 $ 2,786,664 $ 47,008 - --------------------------------------------------------------------------------------------------------------------
[GRAPH] HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY Park Peer Mean 1996 16.27% 14.39% 1997 17.18% 14.13% 1998 17.12% 13.40% 1999 16.18% 13.75% 2000 18.82% 15.48%* *as of 09/30/2000 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 attempt to achieve this goal against its peers, defined as all U.S. bank holding companies between $3 billion and $10 billion in assets. At year-end 2000 there were approximately 66 bank holding companies in this peer group. The Corporation's net income to average equity ratio (ROE) was 18.82%, 16.18% and 17.12% in 2000, 1999, and 1998, respectively. In the past five years, the Corporation's ROE exceeded the mean and median return of the peer group by a substantial margin. The return on equity ratio has averaged 17.08% over the past five years. 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. SOURCES OF FUNDS DEPOSITS: The Corporation's major source of funds is provided by core deposits from individuals, businesses, and local government units. These core deposits consist of all noninterest bearing and interest bearing deposits, excluding certificates of deposit of $100,000 and over which were less than 16% of total deposits for each of the last three years. In 2000, year-end total deposits increased by only $8 million or .3% compared to an increase of $76 million or 3.2% for 1999. Approximately $15 million of the 1999 increase resulted from the purchase of a bank branch office in Utica, Ohio in September 1999. The small increase in deposits for 2000 was primarily due to time deposits growing by only $2 million compared to growth of $73 million in 1999. Park chose not to match some of the higher rates being paid on time deposits by competitors during 2000 and as a result experienced little growth. Management expects that with the decline in market interest rates during the fourth quarter of 2000 Park will be more competitive with deposit pricing in 2001 and as a result will experience growth comparable to prior years. 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, 2000 were: TABLE 2 - OVER $100,000 MATURITY SCHEDULE - ------------------------------------------------------------------ DECEMBER 31, 2000 TIME CERTIFICATE (IN THOUSANDS) OF DEPOSIT - ------------------------------------------------------------------ 3 months or less $123,257 Over 3 months through 6 months 80,079 Over 6 months through 12 months 78,424 Over 12 months 33,698 - ------------------------------------------------------------------ TOTAL $315,458 - ------------------------------------------------------------------ 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 5.59%, 4.76% and 4.75% for 2000, 1999 and 1998, respectively. By comparison, the average federal funds rate was 6.24%, 4.97% and 5.35% for 2000, 1999 and 1998, respectively. In 2000, average short-term borrowings were $269 million compared to $299 million in 1999 and $209 million in 1998. The increase in average short-term borrowings in 1999 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 11% 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 increased by $165 million to $182 million at year-end 2000. The new long-term debt of $165 million reprices monthly based on the one month LIBOR rate. Long-term debt was increased to reduce dependence on short-term borrowings and assist in funding the increase in loans. 22 3 FINANCIAL REVIEW STOCKHOLDERS' EQUITY: Average stockholders' equity to average total assets was 9.31% in 2000, 9.65% in 1999 and 9.86% in 1998. In accordance with Statement of Financial Accounting Standards No. 115, the Corporation reflects any unrealized holding gain/(loss) on available-for-sale securities, net of federal taxes as accumulated other comprehensive income which is part of the Corporation's equity. While the 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 $5.7, $(9.2), and $8.6 million at year-end 2000, 1999 and 1998, respectively. INVESTMENT OF FUNDS LOANS: Average loans, net of unearned income, were $2,204 million in 2000 compared to $1,984 million in 1999 and $1,857 million in 1998. The average yield on loans was 9.07% in 2000 compared to 8.80% in 1999 and 9.19% in 1998. The average prime lending rate in 2000 was 9.19% compared to 7.99% in 1999 and 8.35% in 1998. Approximately 68% 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 $151 million or 7.1% in 2000 and by $226 million or 11.9% in 1999. Consumer loans decreased by $12 million or 2.7% to $436 million at year-end 2000 compared to an increase of $80 million or 21.6% for 1999. Total lease outstandings increased by $18 million or 14.8% to $138 million at year-end 2000 compared to an increase of $57 million or 89.9% for 1999. These large increases in 1999 were primarily due to strong demand for automobile loans and leases. Loan demand slowed during 2000 and is expected to be at this slower pace for 2001. As a percentage of assets, year-end loan balances were 70.9%, 67.9% and 64.6% in 2000, 1999 and 1998, respectively. Table 3 reports year-end loan balances by type of loan for the past five years. TABLE 3 - LOANS BY TYPE - -------------------------------------------------------------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 (IN THOUSANDS) - -------------------------------------------------------------------------------- Commercial, financial and agricultural $ 319,592 $ 291,746 $ 268,627 $ 263,672 $ 272,768 Real estate - construction 75,526 78,969 81,380 73,578 75,741 Real estate - residential 932,458 812,542 783,211 814,996 719,732 Real estate - commercial 376,519 375,485 335,787 309,161 266,215 Consumer, net 436,154 448,478 368,886 350,070 358,715 Leases, net 137,937 120,205 63,315 36,938 25,429 - -------------------------------------------------------------------------------- Total Loans $2,278,186 $ 2,127,425 $1,901,206 $1,848,415 $1,718,600 - -------------------------------------------------------------------------------- TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION Over One Over DECEMBER 31, 2000 One Year Through Five (IN THOUSANDS) or Less Five Years Years TOTAL Commercial, financial and agricultural $140,650 $92,023 $86,919 $319,592 Real estate - construction 34,223 7,832 33,471 75,526 - -------------------------------------------------------------------------------- TOTAL $174,873 $99,855 $120,390 $395,118 - -------------------------------------------------------------------------------- Total of these selected loans due after one year with: Fixed interest rate $ 65,788 Floating interest rate $154,457 - -------------------------------------------------------------------------------- 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 Note 4 to the financial statements. These securities are carried on the books at their estimated fair value with the unrealized holding gain or loss, net of taxes, accounted for as 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 improve the overall yield from the investment portfolio. Park realized security losses of $889,000 in 2000 compared to a loss of $4.8 million in 1999 and a gain of $97,000 in 1998. Interest rates on U.S. Treasury securities with a five year maturity were 4.99% at December 31, 2000 compared to 6.36% at December 31, 1999 and 4.56% at December 31, 1998. The increase in interest rates during 1999 and the first half of 2000 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 6.77%, 6.55%, and 6.78% for 2000, 1999, and 1998, respectively. The average maturity or repricing of the taxable investment portfolio was approximately 3.4 years at year-end 2000 compared to 5.1 years at year-end 1999 and 3.1 years at year-end 1998. 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. With interest rates declining during the fourth quarter of 2000, the average estimated maturity of the callable U.S. Agency securities shortened to their call dates and as a result the overall estimated maturity of the taxable portfolio decreased to 3.4 years. The Corporation's tax-exempt securities portfolio was approximately 19% of the total securities portfolio at year-end 2000 compared to 20% at year-end 1999 and 21% at year-end 1998. The average tax-equivalent yield on tax-exempt securities was 6.84%, 6.94% and 7.11% for 2000, 1999 and 1998, respectively. The average maturity of the tax-exempt portfolio was 5.4 years at year-end 2000 compared to 6.7 years at year-end 1999 and 5.7 years at year-end 1998. Total year-end investment securities decreased by $39 million or 5.0% in 2000 and decreased by $51 million or 6.1% in 1999. The investment security portfolio was reduced in 2000 and 1999 to assist in funding the growth in the loan portfolio. 23 4 FINANCIAL REVIEW The following table sets forth the book value of investment securities at year end: TABLE 5 - INVESTMENT SECURITIES - -------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 - -------------------------------------------------------------------------------- Obligations of U.S. Treasury and other U.S. Government agencies $275,471 $284,580 $262,213 Obligations of states and political subdivisions 142,707 153,963 172,054 U.S. Government asset-backed securities and other asset-backed securities 296,065 318,230 376,223 Other securities 29,579 26,118 23,315 - -------------------------------------------------------------------------------- Total $743,822 $782,891 $833,805 ================================================================================ 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 $6.1 million or 4.6% to $138.9 million for 2000 compared to an increase of $9.2 million or 7.4% to $132.8 million for 1999. The net yield on interest earning assets declined to 4.77% for 2000 compared to 4.90% for both 1999 and 1998. Similarly, the net interest rate spread -- the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities declined to 4.06% for 2000 compared to 4.27% for 1999 and 4.21% for 1998. The increase in net interest income for both 2000 and 1999 was primarily due to the growth in average interest earning assets. The yield on average interest earning assets was 8.47% in 2000 compared to 8.16% in 1999 and 8.51% in 1998. The average prime lending rate was approximately 9.19% for 2000 compared to 7.99% for 1999 and 8.35% for 1998. Market interest rates decreased during the fourth quarter of 2000 and the Federal Reserve Board reduced the federal funds rate by .50% to 6.00% on January 3, 2001 which in turn led to a reduction in the prime lending rate by .50% to 9.00%. Short-term interest rates are expected to continue to decline during 2001. About one-third of the Corporation's loan portfolio is indexed to the prime lending rate and as a result, the average yield on interest earning assets is expected to decrease in 2001. Average interest earning assets increased by $186 million or 6.6% to $2,988 million in 2000 compared to an increase of $205 million or 7.9% to $2,801 million in 1999. TABLE 6 - DISTRIBUTION OF ASSETS,LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 2000 1999 1998 (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) $2,203,626 $199,917 9.07% $1,983,660 $174,618 8.80% $1,856,595 $170,618 9.19% Taxable investment securities 634,171 42,953 6.77% 647,817 42,449 6.55% 580,129 39,349 6.78% Tax-exempt investment securities (3) 147,355 10,073 6.84% 162,265 11,259 6.94% 140,807 10,017 7.11% Federal funds sold 2,524 152 6.02% 7,721 368 4.77% 18,479 966 5.23% TOTAL INTEREST EARNING ASSETS 2,987,676 253,095 8.47% 2,801,463 228,694 8.16% 2,596,010 220,950 8.51% Noninterest earning assets: Allowance for possible loan losses (46,907) (43,333) (40,910) Cash and due from banks 96,282 102,987 95,728 Premises and equipment,net 31,413 32,661 32,885 Other assets 93,142 100,924 102,951 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $3,161,606 $2,994,702 $2,786,664 ==================================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST BEARING LIABILITIES: Transaction accounts $ 487,026 $ 10,337 2.12% $ 463,607 $ 8,778 1.89% $ 426,146 $ 9,825 2.31% Savings deposits 359,713 7,847 2.18% 381,123 8,278 2.17% 371,960 10,075 2.71% Time deposits 1,231,370 67,053 5.45% 1,193,507 59,238 4.96% 1,149,434 62,571 5.44% TOTAL INTEREST BEARING DEPOSITS 2,078,109 85,237 4.10% 2,038,237 76,294 3.74% 1,947,540 82,471 4.23% Short-term borrowings 268,964 15,048 5.59% 298,872 14,225 4.76% 209,335 9,938 4.75% Long-term debt 156,446 10,152 6.49% 17,714 1,035 5.84% 24,976 1,459 5.84% - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INTEREST BEARING LIABILITIES 2,503,519 110,437 4.41% 2,354,823 91,554 3.89% 2,181,851 93,868 4.30% - ------------------------------------------------------------------------------------------------------------------------------------ Noninterest bearing liabilities: Demand deposits 332,231 323,671 291,261 Other 31,453 27,120 38,936 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL NONINTEREST BEARING LIABILITIES 363,684 350,791 330,197 - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 294,403 289,088 274,616 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $3,161,606 $2,994,702 $2,786,664 ==================================================================================================================================== Net interest earnings $142,658 $137,140 $127,082 Net interest spread 4.06% 4.27% 4.21% Net yield on interest earning assets 4.77% 4.90% 4.90% - ------------------------------------------------------------------------------------------------------------------------------------ (1) Loan income includes net fee loan income/(expense) of $(285) in 2000, $(25) in 1999 and $1,233 in 1998. Loan income also includes the effects of taxable equivalent adjustments using a 65% rate in 2000, 1999, 1998. The taxable equivalent adjustment was $926 in 2000, $896 in 1999 and $675 in 1998. (2) For purposes of this computation, nonaccrual loans are 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 2000, 1999 and 1998. The taxable equivalent adjustment was $2,837 in 2000, $3,382 in 1999 and $2,829 in 1998.
24 5 FINANCIAL REVIEW The average rate paid on average interest bearing liabilities was 4.41% in 2000 compared to 3.89% in 1999 and 4.30% in 1998. The average rate paid on deposits was 4.10% for 2000 compared to 3.74% for 1999 and 4.23% for 1998. The Corporation decreased certain deposit rates during the fourth quarter of 2000 as a result of the decrease in market interest rates and the average rate paid on short-term and long-term borrowings is also expected to decrease in 2001 with the decline in short-term market interest rates. Average interest bearing liabilities increased by $149 million or 6.3% to $2,504 million in 2000 compared to an increase of $173 million or 7.9% to $2,355 million in 1999. Average interest bearing deposits as a percentage of average interest bearing liabilities were 83.0% in 2000, 86.6% in 1999, and 89.3% in 1998. 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 1999 TO 2000 Change from 1998 to 1999 (IN THOUSANDS) VOLUME RATE TOTAL Volume Rate Total - ---------------------------------------------------------------------------------------------------------- Increase (decrease) in: Interest income: - ---------------------------------------------------------------------------------------------------------- TOTAL LOANS $ 19,816 $ 5,483 $ 25,299 $ 11,408 $ (7,408) $ 4,000 - ---------------------------------------------------------------------------------------------------------- Taxable investments (904) 1,408 504 4,469 (1,369) 3,100 Tax-exempt investments (1,025) (161) (1,186) 1,487 (245) 1,242 Federal funds sold (294) 78 (216) (520) (78) (598) - ---------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 17,593 6,808 24,401 16,844 (9,100) 7,744 - ---------------------------------------------------------------------------------------------------------- Interest expense: Transaction accounts 457 1,102 1,559 825 (1,872) (1,047) Savings accounts (469) 38 (431) 244 (2,041) (1,797) Time deposits 1,900 5,915 7,815 2,333 (5,666) (3,333) Short-term borrowings (1,509) 2,332 823 4,266 21 4,287 Long-term debt 8,989 128 9,117 (424) 0 (424) - ---------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 9,368 9,515 18,883 7,244 (9,558) (2,314) NET VARIANCE $ 8,225 $ (2,707) $ 5,518 $ 9,600 $ 458 $ 10,058 - ----------------------------------------------------------------------------------------------------------
OTHER INCOME: Total other income, exclusive of security gains or losses, increased by $2.2 million or 7.8% to $30.6 million in 2000 and increased by $2.0 million or 7.6% to $28.4 million in 1999 compared to $26.4 million for 1998. Service charges on deposit accounts increased by $1.2 million or 14.4% in 2000 and by $855,000 or 11.4% in 1999 due to both fee increases and increases in the number of transaction accounts. Income from fiduciary activities increased by $564,000 or 10.0% in 2000 and by $581,000 or 11.4% in 1999 due primarily to increases in assets under management for new trust department customers. The subcategory of other increased by $494,000 or 5.2% in 2000 and increased by $1.8 million or 22.6% in 1999 due primarily to increased fees from check card and ATM services. The increased fee income is primarily due to an increase in the usage of these electronic card-based services 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 $1.2 million or 19.6% due primarily to the decrease in fixed rate mortgage loan originations. Fixed rate mortgage loan volume is greatly dependent on the level of interest rates and the slope of the yield curve. With the decrease in long-term interest rates during the fourth quarter of 2000, fixed rate mortgage loan originations and the related fee income is expected to significantly increase in 2001. Losses on sale of securities were $889,000 in 2000 and $4.8 million in 1999 compared to a gain of $97,000 in 1998. The proceeds from the sales of securities in 2000 and 1999 were generally invested in higher yielding, longer maturity securities. Lower overall interest rates and a flat yield curve prevented sales for losses and related reinvestments in 1998. During 2000, 1999, and 1998, the Corporation had no investment in off-balance sheet derivative instruments. OTHER EXPENSE: Total other expense increased by $3.0 million or 3.8% to $82.9 million in 2000 and increased by $4.6 million or 6.1% to $79.9 million in 1999 compared to $75.3 million for 1998. Salaries and employee benefits increased by $3.0 million or 7.3% in 2000 compared to an increase of $3.4 million or 9.1% in 1999. Full-time equivalent employees at year-end were 1,218 in 2000, and 1,211 in 1999. Data processing fees increased by $871,000 or 15.9% in 2000 compared to an increase of $896,000 or 19.5% in 1999. The increase in data processing expense was primarily due to an upgrade in the mainframe equipment in 1999 which is being depreciated over three years and to increases in fees paid to external service providers for the processing of credit and debit cards. Furniture and equipment expense decreased by $696,000 or 12.3% in 1999. The 1998 expense of $5.7 million includes $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 written-off in 1998. INCOME TAXES: Federal income tax expense as a percentage of income before taxes was 28.0% in 2000, 28.2% in 1999 and 30.6% in 1998. 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 and low income housing tax credits. 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 current economic conditions. The allowance for loan losses at December 31, 2000 totaled $48.9 million and represented 2.15% of total loans outstanding at December 31, 2000 compared to $45.2 million or 2.12% of total loans outstanding at December 31, 1999 and $41.2 million or 2.17% of total loans outstanding at December 31, 1998. The provision for loan losses was $8.7 million for 2000 compared to $11.3 million for 1999 and $7.0 million for 1998. Net charge-offs were $5.0 million for 2000 compared to $7.3 million for 1999 and $4.5 million for 1998. Net charge-offs in 1999 include $3 million related to one commercial loan. Management believes that the allowance for loan losses at year-end 2000 is adequate to absorb estimated credit losses in the loan portfolio. See Note 1 to the financial statements for additional information on management's evaluation of the adequacy of the allowance for loan losses. 25 6 FINANCIAL REVIEW 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) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- AVERAGE LOANS (NET OF UNEARNED INTEREST) $2,203,626 $1,983,660 $1,856,595 $1,776,090 $1,612,316 ALLOWANCE FOR POSSIBLE LOAN LOSSES: Beginning balance $ 45,176 $ 41,215 $ 38,764 $ 35,525 $ 32,412 CHARGE-OFFS: Commercial 1,180 4,508 738 1,471 894 Real estate 989 1,882 1,578 1,302 185 Consumer 6,095 4,426 5,158 3,806 3,229 Lease financing 933 268 184 144 414 - ---------------------------------------------------------------------------------------------------------- TOTAL CHARGE-OFFS 9,197 11,084 7,658 6,723 4,722 - ---------------------------------------------------------------------------------------------------------- RECOVERIES: Commercial 744 375 437 458 506 Real estate 542 1,477 1,008 696 372 Consumer 2,694 1,812 1,595 1,298 1,511 Lease financing 239 112 91 226 63 - ---------------------------------------------------------------------------------------------------------- TOTAL RECOVERIES 4,219 3,776 3,131 2,678 2,452 - ---------------------------------------------------------------------------------------------------------- NET CHARGE-OFFS 4,978 7,308 4,527 4,045 2,270 - ---------------------------------------------------------------------------------------------------------- Provision charged to earnings 8,729 11,269 6,978 7,284 5,383 - ---------------------------------------------------------------------------------------------------------- ENDING BALANCE $ 48,927 $ 45,176 $ 41,215 $ 38,764 $ 35,525 - ---------------------------------------------------------------------------------------------------------- RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.23% 0.37% 0.24% 0.23% 0.14% RATIO OF ALLOWANCE FOR POSSIBLE LOAN LOSSES TO END OF YEAR LOANS,NET OF UNEARNED INTEREST 2.15% 2.12% 2.17% 2.10% 2.07% - ----------------------------------------------------------------------------------------------------------
The following table summarizes the allocation of allowance for possible loan losses: TABLE 9 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 $11,665 14.03% $10,532 13.71% $10,208 14.13% $10,020 14.26% $10,238 15.87% Real estate 16,787 60.77% 14,788 59.56% 13,811 63.14% 13,264 64.80% 10,417 61.78% Consumer 16,820 19.14% 16,853 21.08% 14,793 19.40% 14,082 18.94% 13,932 20.87% Leases 3,655 6.06% 3,003 5.65% 2,403 3.33% 1,398 2.00% 938 1.48% - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $48,927 100.00% $45,176 100.00% $41,215 100.00% $38,764 100.00% $35,525 100.00% - ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000, the Corporation had no significant concentrations of loans to borrowers engaged in the same or similar industries nor did the Corporation have any loans to foreign governments. NONPERFORMING ASSETS: Nonperforming loans include: l) loans whose interest is accounted for on a nonaccrual basis; 2) loans whose terms have been renegotiated; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue. Other real estate owned results from taking title to property used as collateral for a defaulted loan. The following is a summary of the nonaccrual, past due and renegotiated loans and other real estate owned for the last five years: TABLE 10 - NONPERFORMING ASSETS
- -------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Nonaccrual loans $ 3,824 $ 4,284 $ 3,452 $ 2,673 $ 2,882 Renegotiated loans 5,429 429 492 1,642 2,348 Loans past due 90 days or more 3,676 2,637 2,926 3,433 3,459 - -------------------------------------------------------------------------------- TOTAL NONPERFORMING LOANS 12,929 7,350 6,870 7,748 8,689 - -------------------------------------------------------------------------------- Other real estate owned 343 558 238 300 329 - -------------------------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $13,272 $ 7,908 $ 7,108 $ 8,048 $ 9,018 - -------------------------------------------------------------------------------- PERCENTAGE OF NONPERFORMING LOANS TO LOANS, NET OF UNEARNED INTEREST 0.57% 0.35% 0.36% 0.42% 0.51% PERCENTAGE OF NONPERFORMING ASSETS TO LOANS, NET OF UNEARNED INTEREST 0.58% 0.37% 0.37% 0.44% 0.52% PERCENTAGE OF NONPERFORMING ASSETS TO TOTAL ASSETS 0.41% 0.25% 0.24% 0.30% 0.35% - --------------------------------------------------------------------------------
Tax equivalent interest income from loans of $142.7 million for 2000 would have increased by $226,000 if all loans had been current in accordance with their original terms. Interest income for the year ended December 31, 2000 in the approximate amount of $757,000 is included in interest income for those loans in accordance with original terms. The Corporation had $61.6 million of loans included on the Corporation's watch list of potential problem loans at December 31, 2000 compared to $42.6 million at year-end 1999 and $36.2 million at year-end 1998. The existing conditions of these loans do not warrant classification as nonaccrual. Management undertakes additional surveillance regarding a borrower's ability to comply with payment terms for watch list loans. 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 decreased by $15.7 million during 2000 to $110 million at year end. Cash provided by operating activities was $58.2 million in 2000, $66.1 million in 1999, and $49.1 million in 1998. Net income was the primary source of cash for operating activities during each year. Cash used in investing activities was $96.3 million in 2000, $207.8 million in 1999, and $236.7 million in 1998. 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 $154.9 million in 2000, $232.5 million in 1999, and $53.5 million in 1998. Cash of $2.6 million and $5.4 million was used in 1999 and 1998, respectively, to purchase branch offices. 26 7 FINANCIAL REVIEW 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 $61.5 million of cash in 2000, provided $30.8 million of cash in 1999 and used $170.2 million in 1998. Cash provided by financing activities was $22.4 million in 2000, $140.5 million in 1999, and $198.4 million in 1998. A major source of cash for financing activities is the net increase in deposits. Cash provided from the net increase in deposits was $7.5 million in 2000, $60.8 million in 1999 and $97.6 million in 1998. The purchase of deposits with the branch offices in 1999 and 1998 provided cash of $14.9 million and $45.5 million, respectively. Changes in short-term borrowings or long-term debt is a major source or use of cash for financing activities. The net decrease in short-term borrowings used cash of $109.8 million in 2000. The net increase in short-term borrowings provided cash of $95.0 million in 1999 and $100.2 million in 1998. Cash was provided by the net increase in long-term debt of $164.6 million in 2000 and was used to reduce long-term debt by $6.4 million in 1999 and by $15.7 million in 1998. 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 $1,650 million or 54.6% of interest earning assets at year-end 2000. Liquidity is also enhanced by a significant amount of stable core deposits from a variety of customers in several Ohio markets served by the Corporation. An asset/liability committee monitors and forecasts rate-sensitive assets and liabilities and develops strategies and pricing policies to influence the acquisition of certain assets and liabilities. The purpose of these efforts is to guard the Corporation from adverse impacts of unforeseen swings in interest rates and to enhance the net income of the Corporation by accepting a limited amount of interest rate risk, based on interest rate projections. The following table shows interest sensitivity data for five different time intervals as of December 31, 2000: 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 EARNING ASSETS: Investment securities (1) $ 30,636 $ 72,416 $ 260,762 $ 153,037 $ 226,971 $ 743,822 Loans (1) 719,780 827,456 583,353 112,363 35,234 2,278,186 - --------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EARNING ASSETS 750,416 899,872 844,115 265,400 262,205 3,022,008 - --------------------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES: Interest bearing checking (2) 75,904 - 227,711 - - 303,615 Savings accounts (2) 167,589 - 167,588 - - 335,177 Money market checking 183,608 - - - - 183,608 Time deposits 342,609 618,388 231,286 39,945 1,397 1,233,625 Other 1,534 - - - - 1,534 - --------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 771,244 618,388 626,585 39,945 1,397 2,057,559 - --------------------------------------------------------------------------------------------------------------- Short-term borrowings 254,456 - - - - 254,456 Long-term debt 165,600 1,800 5,270 8,834 74 181,578 - --------------------------------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 1,191,300 620,188 631,855 48,779 1,471 2,493,593 - --------------------------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY GAP (440,884) 279,684 212,260 216,621 260,734 528,415 CUMULATIVE RATE SENSITIVITY GAP (440,884) (161,200) 51,060 267,681 528,415 CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST EARNING ASSETS -14.59% -5.33% 1.69% 8.86% 17.49% - ---------------------------------------------------------------------------------------------------------------
(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 5.33% to a negative 18.41%. 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, 2000, the cumulative interest bearing liabilities maturing or repricing within twelve months were $1,811 million compared to the cumulative interest earning assets maturing or repricing within twelve months of $1,650 million. For the twelve months, rate sensitive liabilities exceed rate sensitive assets by $161 million or 5.3% 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 prove to be incorrect. 27 8 FINANCIAL REVIEW The cumulative twelve month interest rate sensitivity gap position at December 31, 1999 was a negative $179 million or 7.3% of interest earning assets compared to a negative $161million or a negative 5.3% of interest earning assets at December 31, 2000. This change in the cumulative twelve month interest rate sensitivity gap of a positive $18 million was primarily due to an increase in the percentage of loans repricing or maturing in one year to 67.9% at year-end 2000 compared to 66.4% at year-end 1999. The cumulative interest bearing liabilities maturing or repricing within one year as a percentage of total interest earning assets was 59.9% at both December 31, 2000 and December 31, 1999. 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, 2000, the earnings simulation model projected that net income would decrease by 1.5% using a rising interest rate scenario and increase by 1.1% using a declining interest rate scenario over the next year. 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 and 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. During the past two years, Park's balance sheet has become more liability sensitive so that now 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, 2000, the Corporation's equity capital was $319.8 million, an increase of 10.2% over the equity capital at December 31, 1999. Stockholders' equity at December 31, 2000 was 9.96% of total assets compared to 9.26% of total assets at December 31, 1999. 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 was 8.00% at December 31, 2000. At year-end 2000, the Corporation had a risk-based capital ratio of 15.61% or capital above the minimum required by $159.2 million. The capital standard of tier l capital to risk-based assets was 4.00% at December 31, 2000. Tier l capital includes stockholders' equity net of goodwill and other intangible assets. At year-end 2000, the Corporation had a tier l capital to risk-based assets ratio of 14.35% or capital above the minimum required by $216.5 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 2000, the Corporation had a leverage capital ratio of 9.41% or capital above the minimum required by $172.6 million. Regulatory guidelines also establish capital ratio requirements for "well capitalized" bank holding companies. The capital ratios are 10% for risk-based capital, 6% for tier 1 capital to risk-based assets and 5% for tier 1 capital to total assets. The Corporation exceeds these higher capital standards and therefore is classified as "well capitalized." The financial institution subsidiaries of the Corporation each met the well capitalized capital ratio guidelines at December 31, 2000. The table below indicates the capital ratios for each subsidiary and the Corporation at December 31, 2000: TABLE 12 - CAPITAL RATIOS - ------------------------------------------------------------------------------- TIER 1 TOTAL DECEMBER 31, 2000 LEVERAGE RISK-BASED RISK-BASED - ------------------------------------------------------------------------------- Park National Bank 5.58% 7.56% 10.96% Richland Trust Company 6.04% 10.21% 11.47% Century National Bank 5.65% 9.43% 11.93% First-Knox National Bank 5.64% 8.35% 11.93% United Bank N.A. 5.88% 9.65% 10.91% Second National Bank 5.70% 8.41% 12.11% Park National Corporation 9.41% 14.35% 15.61% 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, 2001) Park Well Capitalized Regulatory Minimum AVERAGE STOCKHOLDERS' EQUITY (millions) 2000 $294.4 1999 $289.1 1987 $274.6 1997 $250.5 1996 $226.0 28 9 FINANCIAL REVIEW EFFECTS OF INFLATION: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth. Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is the Company's ability to align its asset/liability management program to react to changes in interest rates. The following table summarizes five-year financial information. 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, 2000 1999 1998 1997 1996 EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Interest income $ 249,332 $ 224,316 $ 217,446 $ 209,217 $ 190,409 Interest expense 110,437 91,554 93,868 90,779 81,963 Net interest income 138,895 132,762 123,578 118,438 108,446 Gain/(loss) on sale of securities (889) (4,809) 97 (10) (1,324) Noninterest income 30,580 28,373 26,358 22,545 19,970 Noninterest expense 82,919 79,912 75,323 71,910 68,523 Provision for loan losses 8,729 11,269 6,978 7,284 5,383 Net income 55,405 46,787 47,008 43,041 36,783 PER SHARE: Net income - basic 5.11 4.30 4.31 3.93 3.36 Net income - diluted 5.10 4.28 4.28 3.91 3.34 Cash dividends declared 2.66 2.36 1.94 1.60 1.38 AVERAGE BALANCES: Loans $ 2,203,626 $ 1,983,660 $ 1,856,595 $ 1,776,090 $ 1,612,316 Investment securities 781,526 810,082 720,936 664,572 583,184 Money market instruments and other 2,524 7,721 18,479 16,671 44,152 - ------------------------------------------------------------------------------------------------------------- TOTAL EARNING ASSETS 2,987,676 2,801,463 2,596,010 2,457,333 2,239,652 - ------------------------------------------------------------------------------------------------------------- Noninterest bearing deposits 332,231 323,671 291,261 259,193 231,018 Interest bearing deposits 2,078,109 2,038,237 1,947,540 1,843,953 1,701,461 - ------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 2,410,340 2,361,908 2,238,801 2,103,146 1,932,479 - ------------------------------------------------------------------------------------------------------------- Short-term borrowings 268,964 298,872 209,335 177,615 141,813 Long-term debt 156,446 17,714 24,976 58,429 46,797 Stockholders' equity 294,403 289,088 274,616 250,540 226,021 Total assets 3,161,606 2,994,702 2,786,664 2,615,542 2,382,411 RATIOS: Return on average assets 1.75% 1.56% 1.69% 1.65% 1.54% Return on average equity 18.82% 16.18% 17.12% 17.18% 16.27% Net interest margin (1) 4.77% 4.90% 4.90% 4.94% 4.98% Noninterest expense to net revenue (1) 47.86% 48.28% 49.09% 49.98% 52.09% Dividend payout ratio 51.97% 53.21% 43.70% 39.70% 38.09% Average stockholders' equity to average total assets 9.31% 9.65% 9.85% 9.58% 9.49% Leveraged capital 9.41% 9.17% 9.10% 9.22% 9.04% Tier 1 capital 14.35% 13.44% 13.95% 13.84% 13.53% Risk-based capital 15.61% 14.70% 15.22% 15.08% 14.77% - -------------------------------------------------------------------------------------------------------------
(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, 2000 and 1999. 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 - ---------------------------------------------------------------------------------------------- 2000: Interest income $ 59,123 $ 61,509 $ 63,662 $ 65,038 Interest expense 25,134 26,938 28,934 29,431 Net interest income 33,989 34,571 34,728 35,607 Provision for loan losses 1,709 2,039 2,102 2,879 Loss on sale of securities -- -- -- (889) Income before income taxes 19,337 19,900 19,710 17,991 Net income 13,864 14,438 14,116 12,987 Per share data: Net income - basic 1.28 1.33 1.30 1.20 Net income - diluted 1.27 1.33 1.30 1.20 Weighted-average common stock outstanding - basic 10,876,808 10,841,387 10,822,140 10,795,087 Weighted-average common stock equivalent - diluted 10,931,651 10,865,114 10,846,882 10,826,565 - ---------------------------------------------------------------------------------------------- 1999: Interest income $ 54,300 $ 54,868 $ 56,413 $ 58,735 Interest expense 22,251 21,972 23,072 24,259 Net interest income 32,049 32,896 33,341 34,476 Provision for loan losses 1,620 2,109 1,690 5,850 Loss on sale of securities -- (236) (708) (3,865) Income before income taxes 18,139 18,540 18,337 10,129 Net income 12,857 13,273 13,088 7,569 Per share data: Net income - basic 1.18 1.22 1.20 0.70 Net income - diluted 1.18 1.21 1.20 0.69 Weighted-average common stock outstanding - basic 10,872,747 10,885,967 10,878,524 10,874,945 Weighted-average common stock equivalent - diluted 10,927,320 10,935,006 10,931,174 10,943,311 - ----------------------------------------------------------------------------------------------
The Corporation's common stock (symbol:PRK) is traded on the American Stock Exchange (AMEX). At December 31, 2000, the Corporation had 3,220 stockholders of record. The following table sets forth the high, low and last sale prices of, and dividends declared on the common stock for each quarterly period for the years ended December 31, 2000 and 1999, 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 - --------------------------------------------------------------- 2000: First Quarter $103.88 $88.00 $88.00 $0.65 Second Quarter 95.06 78.50 90.75 0.65 Third Quarter 96.19 83.00 96.00 0.65 Fourth Quarter 100.00 88.00 89.69 0.71 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- 29 10 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, 2000 and 1999, 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, 2000. These consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park National Corporation and Subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/Ernst & Young LLP January 16, 2001 31 11 CONSOLIDATED BALANCE SHEETS PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31,2000 and 1999 (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------- ASSETS 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 109,870 $ 123,975 Federal funds sold - 1,550 INVESTMENT SECURITIES: Securities available-for-sale,at fair value (amortized cost of $732,106 and $792,626 at December 31,2000 and 1999,respectively) 740,924 778,570 Securities held-to-maturity,at amortized cost (fair value of $2,945 and $4,451 at December 31,2000 and 1999,respectively) 2,898 4,321 - ----------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 743,822 782,891 - ----------------------------------------------------------------------------------------------------------------------- Loans 2,292,981 2,144,187 Unearned loan interest (14,795) (16,762) - ----------------------------------------------------------------------------------------------------------------------- TOTAL LOANS 2,278,186 2,127,425 - ----------------------------------------------------------------------------------------------------------------------- Allowance for loan losses (48,927) (45,176) - ----------------------------------------------------------------------------------------------------------------------- NET LOANS 2,229,259 2,082,249 - ----------------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Premises and equipment,net 31,056 32,468 Accrued interest receivable 21,373 18,798 Other 75,688 91,432 - ----------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 128,117 142,698 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $3,211,068 $3,133,363 - ----------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of the financial statements.
32 12 CONSOLIDATED BALANCE SHEETS (CONTINUED) PARK NATIONAL CORPORATION AND SUBSIDIARIES at December 31,2000 and 1999 (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- DEPOSITS: Noninterest bearing $ 358,016 $ 342,680 Interest bearing 2,057,559 2,065,382 - ---------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 2,415,575 2,408,062 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 254,456 364,258 Long-term debt 181,578 16,993 OTHER LIABILITIES: Accrued interest payable 11,469 9,797 Other 28,238 44,192 - ---------------------------------------------------------------------------------------------------------------------- TOTAL OTHER LIABILITIES 39,707 53,989 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,891,316 2,843,302 - ---------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock,no par value (20,000,000 shares authorized; 11,191,729 shares issued in 2000 and 11,251,598 issued in 1999) 76,869 79,108 Accumulated other comprehensive income,net 5,732 (9,161) Retained earnings 270,100 243,488 Less:Treasury stock (412,747 shares in 2000 and 359,190 shares in 1999) (32,949) (23,374) - ---------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 319,752 290,061 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,211,068 $3,133,363 - ---------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of the financial statements.
33 13 CONSOLIDATED STATEMENTS OF INCOME PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 2000, 1999 and 1998 (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ INTEREST INCOME: Interest and fees on loans $198,991 $173,722 $169,943 Interest and dividends on: Obligations of U.S. Government, its agencies and other securities 42,953 42,449 39,349 Obligations of states and political subdivisions 7,236 7,777 7,188 Other interest income 152 368 966 - ------------------------------------------------------------------------------------------------------------ TOTAL INTEREST INCOME 249,332 224,316 217,446 - ------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE: Interest on deposits: Demand and savings deposits 18,184 17,056 19,900 Time deposits 67,053 59,238 62,570 Interest on short-term borrowings 15,048 14,225 9,938 Interest on long-term debt 10,152 1,035 1,460 - ------------------------------------------------------------------------------------------------------------ TOTAL INTEREST EXPENSE 110,437 91,554 93,868 - ------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME 138,895 132,762 123,578 - ------------------------------------------------------------------------------------------------------------ Provision for loan losses 8,729 11,269 6,978 - ------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 130,166 121,493 116,600 - ------------------------------------------------------------------------------------------------------------ OTHER INCOME: Income from fiduciary activities 6,226 5,662 5,081 Service charges on deposit accounts 9,556 8,355 7,500 Gain/(loss) on sales of securities (889) (4,809) 97 Other service income 4,784 4,836 6,013 Other 10,014 9,520 7,764 - ------------------------------------------------------------------------------------------------------------ TOTAL OTHER INCOME $ 29,691 $ 23,564 $ 26,455 - ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 34 14 CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 2000, 1999 and 1998 (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ OTHER EXPENSE: Salaries and employee benefits $43,523 $40,550 $37,182 Data processing fees 6,355 5,484 4,588 Fees and service charges 4,928 5,620 3,663 Net occupancy expense of bank premises 4,294 4,233 3,978 Amortization of intangibles 3,308 3,073 3,462 Furniture and equipment expense 4,705 4,972 5,668 Insurance 875 927 988 Marketing 2,719 2,598 2,461 Postage and telephone 3,563 3,674 3,417 State taxes 2,005 2,288 2,241 Other 6,644 6,493 7,675 - ------------------------------------------------------------------------------------------------------------ TOTAL OTHER EXPENSE 82,919 79,912 75,323 - ------------------------------------------------------------------------------------------------------------ INCOME BEFORE FEDERAL INCOME TAXES 76,938 65,145 67,732 Federal income taxes 21,533 18,358 20,724 - ------------------------------------------------------------------------------------------------------------ NET INCOME $55,405 $46,787 $47,008 - ------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: BASIC $5.11 $4.30 $4.31 DILUTED $5.10 $4.28 $4.28 - ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 35 15 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 2000, 1999 and 1998 (Dollars in thousands, except per share data) - --------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED ---------------- OTHER SHARES RETAINED COMPREHENSIVE OUTSTANDING AMOUNT EARNINGS INCOME - -------------------------------------------------------------------------------------------------------------------------- BALANCE,JANUARY 1,1998 10,962,602 $ 75,269 $195,130 $ 7,574 - -------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (144,754) - - - Treasury stock reissued primarily for stock options exercised 39,495 - - - Shares issued for dividend reinvestment plan and stock options 2,314 81 - - Tax benefit from exercise of stock options - 42 - - Issuance of stock by U.B.Bancshares prior to merger 2,699 362 - - Net income - - 47,008 - Other comprehensive income,net of tax: Unrealized net holding gain on securities available-for-sale,net of income taxes of $536 1,020 - -------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income Cash dividends: Corporation at $1.94 per share - - (19,057) - Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - - (1,484) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE,DECEMBER 31,1998 10,862,356 75,754 221,597 8,594 - -------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (57,825) - - - Treasury stock reissued primarily for stock options exercised 39,723 (39) - - Shares issued for stock options 652 29 - - Tax benefit from exercise of stock options - 14 - - Issuance of stock by U.B.Bancshares prior to merger 48,096 3,401 - - Cash payment for fractional shares in 5% stock dividend (594) (51) - - Net income - - 46,787 - Other comprehensive income,net of tax: Unrealized net holding loss on securities available-for-sale,net of income taxes of $(9,498) (17,755) - -------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income Cash dividends: Corporation at $2.36 per share - - (23,061) - Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - - (1,835) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE,DECEMBER 31,1999 10,892,408 $ 79,108 $243,488 $ (9,161) - -------------------------------------------------------------------------------------------------------------------------- Treasury stock purchased (140,325) - - - Treasury stock reissued primarily for stock options exercised 20,408 - - - Shares issued for stock options 6,897 46 - - Retire treasury stock from U.B.Bancshares and SNB Corp.mergers - (2,246) - - Cash payment for fractional shares in U.B.Bancshares and SNB Corp.mergers (406) (39) - - Net income - - 55,405 - Other comprehensive income,net of tax: Unrealized net holding loss on securities available-for-sale,net of income taxes of $7,981 14,893 - -------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income Cash dividends: Corporation at $2.66 per share - - (28,074) - Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - - (719) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE,DECEMBER 31,2000 10,778,982 $ 76,869 $270,100 $ 5,732 - -------------------------------------------------------------------------------------------------------------------------- TREASURY STOCK TOTAL - ------------------------------------------------------------------------------------------------ BALANCE,JANUARY 1,1998 $ (9,874) $ 268,099 - ------------------------------------------------------------------------------------------------ Treasury stock purchased (12,581) (12,581) Treasury stock reissued primarily for stock options exercised 2,247 2,247 Shares issued for dividend reinvestment plan and stock options - 81 Tax benefit from exercise of stock options - 42 Issuance of stock by U.B.Bancshares prior to merger - 362 Net income - 47,008 Other comprehensive income,net of tax: Unrealized net holding gain on securities available-for-sale,net of income taxes of $536 1,020 - ------------------------------------------------------------------------------------------------ Total other comprehensive income 1,020 - ------------------------------------------------------------------------------------------------ Comprehensive income 48,028 Cash dividends: Corporation at $1.94 per share - (19,057) Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - (1,484) - ------------------------------------------------------------------------------------------------ BALANCE,DECEMBER 31,1998 (20,208) 285,737 - ------------------------------------------------------------------------------------------------ Treasury stock purchased (5,285) (5,285) Treasury stock reissued primarily for stock options exercised 2,119 2,080 Shares issued for stock options - 29 Tax benefit from exercise of stock options - 14 Issuance of stock by U.B.Bancshares prior to merger - 3,401 Cash payment for fractional shares in 5% stock dividend - (51) Net income - 46,787 Other comprehensive income,net of tax: Unrealized net holding loss on securities available-for-sale,net of income taxes of $(9,498) (17,755) - ------------------------------------------------------------------------------------------------ Total other comprehensive income (17,755) - ------------------------------------------------------------------------------------------------ Comprehensive income 29,032 Cash dividends: Corporation at $2.36 per share - (23,061) Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - (1,835) - ------------------------------------------------------------------------------------------------ BALANCE,DECEMBER 31,1999 $ (23,374) $ 290,061 - ------------------------------------------------------------------------------------------------ Treasury stock purchased (13,131) (13,131) Treasury stock reissued primarily for stock options exercised 1,310 1,310 Shares issued for stock options - 46 Retire treasury stock from U.B.Bancshares and SNB Corp.mergers 2,246 - Cash payment for fractional shares in U.B.Bancshares and SNB Corp.mergers - (39) Net income - 55,405 Other comprehensive income,net of tax: Unrealized net holding loss on securities available-for-sale,net of income taxes of $7,981 14,893 - ------------------------------------------------------------------------------------------------ Total other comprehensive income 14,893 - ------------------------------------------------------------------------------------------------ Comprehensive income 70,298 Cash dividends: Corporation at $2.66 per share - (28,074) Cash dividends declared at SNB Corp.and U.B.Bancshares prior to merger - (719) - ------------------------------------------------------------------------------------------------ BALANCE,DECEMBER 31,2000 $(32,949) $ 319,752 - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 36 16 CONSOLIDATED STATEMENTS OF CASH FLOWS PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31,2000,1999 and 1998 (Dollars in thousands)
- -------------------------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 55,405 $ 46,787 $ 47,008 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 8,729 11,269 6,978 Amortization of loan costs and fees,net (809) (1,069) (796) Provision for depreciation and amortization 4,306 4,302 5,182 Amortization of the excess of cost over net assets of banks purchased 3,308 3,103 3,462 (Accretion) amortization of investment securities (470) 176 (931) Deferred income taxes 3,181 4,487 755 Realized investment security losses (gains) 889 4,809 (97) Changes in assets and liabilities: (Increase) in other assets (1,301) (8,979) (13,170) (Decrease) increase in other liabilities (14,998) 1,212 715 - -------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 58,240 66,097 49,106 - -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of available-for-sale securities 44,251 162,013 51,839 Proceeds from maturities of securities: Held-to-maturity 1,422 31,017 11,821 Available-for-sale 114,358 193,905 168,251 Purchase of securities: Held-to-maturity - (965) (21,654) Available-for-sale (98,507) (355,202) (380,481) Net increase in loans (154,930) (232,458) (53,531) Purchase of loans - - (2,991) Cash paid for branches - (2,587) (5,354) Purchases of premises and equipment,net (2,894) (3,490) (4,560) - -------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (96,300) (207,767) (236,660) - -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Purchase of deposits - 14,887 45,524 Net increase in deposits 7,513 60,797 97,639 Net (decrease) increase in short-term borrowings (109,802) 95,050 100,156 Cash payment for fractional shares of common stock (39) (51) - Exercise of stock options 46 4 123 Purchase of treasury stock,net (11,821) (3,166) (10,334) Proceeds from issuance of common stock - 3,401 362 Proceeds from long-term debt 165,000 2,300 14,796 Repayment of long-term debt (415) (8,709) (30,534) Cash dividends paid (28,077) (24,023) (19,359) - -------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 22,405 140,490 198,373 - -------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,655) (1,180) 10,819 Cash and cash equivalents at beginning of year 125,525 126,705 115,886 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 109,870 $ 125,525 $ 126,705 - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 37 17 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. 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, 2000 and 1999, 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 LOAN LOSSES The allowance for 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 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. 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. 38 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net cash provided by operating activities reflects cash payments as follows: - -------------------------------------------------------------------------------- DECEMBER 31, 2000 1999 1998 (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- Interest paid on deposits and other borrowings $108,765 $91,148 $93,539 Income taxes paid $ 16,000 $19,326 $21,297 - -------------------------------------------------------------------------------- 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 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. The Corporation did not use any derivative instruments in 2000 and 1999 and as a result does not expect that adoption of this statement will have any impact of the Corporation's financial position, results of operations and cash flows. 2. ORGANIZATION AND ACQUISITIONS Park National 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), The First-Knox National Bank of Mount Vernon (FKNB), United Bank N.A. (UB), and Second National Bank (SNB). Park is engaged in a general commercial banking and trust business, primarily in Central Ohio. A new wholly owned subsidiary of Park, Guardian Finance Company (GFC) began operating in May 1999. GFC is a consumer finance company located in Central Ohio. PNB operates through two banking divisions with the Park National Division (PND) headquartered in Newark, Ohio and the Fairfield National Division (FND) headquartered in Lancaster, Ohio. FKNB also operates through two banking divisions with the First-Knox National Division (FKND) headquartered in Mount Vernon, Ohio and the Farmers and Savings Division (FSD) headquartered in Loudonville, Ohio. All of the banking subsidiaries and their respective divisions provide the following principal services: the acceptance of deposits for demand, savings, and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards, home equity lines of credit and commercial and auto leasing; trust services; cash management; safe deposit operations; electronic funds transfers; and a variety of additional banking-related services. See Note 19 for financial information on the Corporation's banking subsidiaries. On November 20, 2000, Park entered into an Agreement and Plan of Merger (the "Merger Agreement") with Security Banc Corporation (Security), a bank holding company headquartered in Springfield, Ohio providing for a merger of Security into Park. Under the terms of the Merger Agreement, the stockholders of Security are expected to receive .2844 shares of Park's common stock per share of Security common stock in a tax free exchange. Park expects to issue an aggregate of 3,350,000 shares to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of Security and Park, and other conditions to closing customary of a transaction of this type. Management expects the merger to be completed during the first quarter of 2001. On April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million one bank holding company headquartered in Bucyrus, Ohio in a transaction accounted for as a pooling-of-interests. Park issued approximately 325,000 shares of common stock to the stockholders of U.B. Bancshares, Inc. based upon an exchange ratio of .577209 shares of Park common stock for each outstanding share of U.B. Bancshares, Inc. common stock. United Bank, N.A., the wholly owned subsidiary of U.B. Bancshares, Inc. is being operated as a separate banking subsidiary by Park. Park also merged with SNB Corp., a $300 million one bank holding company headquartered in Greenville, Ohio, on April 30, 2000 in a transaction accounted for as a pooling-of-interests. Park issued approximately 835,000 shares of common stock to the stockholders of SNB Corp. based upon an exchange ratio of 5.367537 shares of Park common stock for each outstanding share of SNB Corp. common stock. Second National Bank, the wholly owned subsidiary of SNB Corp., is being operated as a separate banking subsidiary by Park. The historical financial statements of the Corporation have been restated to show U.B. Bancshares, SNB Corp., and Park on a combined basis. Separate results of operations for Park, U.B. Bancshares, Inc. and SNB Corp. follow: - -------------------------------------------------------------------------------- THREE MONTHS ENDED Twelve Months Ended March 31, December 31, (DOLLARS IN THOUSANDS) 2000 1999 1998 - -------------------------------------------------------------------------------- NET INTEREST INCOME Park $ 29,510 $ 115,857 $ 107,651 U.B. Bancshares, Inc. 1,706 6,431 5,584 SNB Corp. 2,773 10,474 10,343 - -------------------------------------------------------------------------------- COMBINED $ 33,989 $ 132,762 $ 123,578 - -------------------------------------------------------------------------------- NET INCOME Park $ 12,434 $ 45,747 $ 41,572 U.B. Bancshares, Inc. 427 246 1,433 SNB Corp. 1,003 794 4,003 - -------------------------------------------------------------------------------- COMBINED $ 13,864 $ 46,787 $ 47,008 - -------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE Park $ 1.28 $ 4.69 $ 4.24 U.B. Bancshares, Inc. .77 .46 3.07 SNB Corp. 6.44 5.20 26.02 - -------------------------------------------------------------------------------- COMBINED $ 1.28 $ 4.30 $ 4.31 - -------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE Park $ 1.27 $ 4.67 $ 4.22 U.B. Bancshares, Inc. .75 .44 2.92 SNB Corp. 6.44 5.20 25.83 - -------------------------------------------------------------------------------- COMBINED $ 1.27 $ 4.28 $ 4.28 - -------------------------------------------------------------------------------- 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 $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. 39 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On April 17, 1998, United Bank acquired two branch offices located in Galion and Caledonia, Ohio. In addition to the fixed assets, the purchase included $46 million of deposits and $3 million of loans. The excess of the cost over net assets purchased was $5 million and is being amortized using the straight-line method over seven years. 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 $25,191,000 and $24,418,000 at December 31, 2000 and 1999, 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:
- ------------------------------------------------------------------------------------ GROSS GROSS UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING ESTIMATED (IN THOUSANDS) COST GAINS LOSSES FAIR VALUE - ------------------------------------------------------------------------------------ 2000: SECURITIES AVAILABLE-FOR-SALE Obligations of U.S. Treasury and other U.S. Government agencies $272,917 $ 2,830 $ 276 $275,471 Obligations of states and political subdivisions 137,246 2,759 172 139,833 U.S. Government agencies' asset-backed securities and other asset-backed securities 292,624 3,486 69 296,041 Other equity securities 29,319 707 447 29,579 - ----------------------------------------------------------------------------------- TOTAL $732,106 $ 9,782 $ 964 $740,924 - ----------------------------------------------------------------------------------- 2000: SECURITIES HELD-TO-MATURITY Obligations of states and political subdivisions $ 2,874 $ 46 $ -- $ 2,920 Other asset-backed securities 24 1 -- 25 - ----------------------------------------------------------------------------------- TOTAL $ 2,898 $ 47 -- $ 2,945 - ----------------------------------------------------------------------------------- 1999: SECURITIES AVAILABLE-FOR-SALE Obligations of U.S. Treasury and other U.S. Government agencies $293,235 $ 158 $ 8,813 $284,580 Obligations of states and political subdivisions 151,810 804 2,941 149,673 U.S. Government agencies' asset-backed securities and other asset-backed securities 321,602 270 3,673 318,199 Other equity securities 25,979 377 238 26,118 - ----------------------------------------------------------------------------------- TOTAL $792,626 $ 1,609 $ 15,665 $778,570 - ----------------------------------------------------------------------------------- 1999: 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 - -----------------------------------------------------------------------------------
The amortized cost and estimated fair value of investments in debt securities at December 31, 2000 are shown below (in thousands) by contractual maturity except for asset-backed securities which are shown based on expected maturities. The average yield is computed on a tax equivalent basis using a 35 percent tax rate.
- ----------------------------------------------------------------------------------- WEIGHTED AMORTIZED ESTIMATED AVERAGE AVERAGE (DOLLARS IN THOUSANDS) COST FAIR VALUE MATURITY YIELD - ----------------------------------------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE U.S. Treasury and agencies' notes: Due within one year $ 20,382 $ 20,395 .8 years 6.38% Due one through five years 210,794 213,389 2.3 years 6.67% Due five through ten years 41,741 41,687 7.1 years 6.59% - ----------------------------------------------------------------------------------- TOTAL $272,917 $275,471 2.9 years 6.64% - ----------------------------------------------------------------------------------- Obligations of states and political subdivisions: Due within one year $ 10,485 $ 10,546 .6 years 7.55% Due one through five years 54,785 55,776 3.0 years 7.26% Due five through ten years 60,091 61,578 6.9 years 7.05% Due over ten years 11,885 11,933 13.1 years 6.99% - ----------------------------------------------------------------------------------- TOTAL $137,246 $139,833 5.4 years 7.17% - ----------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities and other asset-backed securities: Due within one year $ 13,709 $ 13,682 .3 years 6.08% Due one through five years 259,737 262,737 3.9 years 6.95% Due five through ten years 19,178 19,622 5.8 years 6.92% - ----------------------------------------------------------------------------------- TOTAL $292,624 $296,041 3.9 years 6.91% - ----------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY Obligations of state and political subdivisions: Due within one year $ 1,521 $ 1,567 .9 years 11.31% Due one through five years 688 688 3.3 years 7.86% Due five through ten years 665 665 8.0 years 7.55% - ----------------------------------------------------------------------------------- TOTAL $ 2,874 $ 2,920 3.1 years 9.61% - ----------------------------------------------------------------------------------- Other asset-backed securities: Due one through five years $ 24 $ 25 3.4 years 8.69% - -----------------------------------------------------------------------------------
Investment securities having a book value of $547,525,000 and $533,337,000 at December 31, 2000 and 1999, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements and to secure repurchase agreements sold. In 2000, 1999, and 1998, gross gains of $-0-, $343,000, and $159,000 and gross losses of $889,000, $5,152,000 and $62,000 were realized, respectively. Tax benefits related to net securities losses were $311,000 in 2000, and $1,674,000 in 1999. 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) 2000 1999 - -------------------------------------------------------------------------------- Commercial, financial and agricultural $319,592 $291,746 Real estate: Construction 75,526 78,969 Residential 932,458 812,542 Commercial 376,519 375,485 Consumer, net 436,154 448,478 Leases, net 137,937 120,205 - -------------------------------------------------------------------------------- TOTAL LOANS $2,278,186 $2,127,425 - -------------------------------------------------------------------------------- 40 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the Corporation's credit policies and practices, all non-accrual and restructured commercial, financial, agricultural, construction and commercial real estate loans meet the definition of impaired loans under SFAS No. 114 and 118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer loans, residential real estate loans and lease financing classified as non-accrual. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. Non-accrual and restructured loans are summarized as follows: - -------------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- Impaired loans: Non-accrual $3,824 $4,284 Restructured 5,429 429 Total impaired loans 9,253 4,713 Other non-accrual loans -- -- - -------------------------------------------------------------------------------- TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $9,253 $4,713 - -------------------------------------------------------------------------------- The allowance for credit losses related to impaired loans at December 31, 2000 and 1999 was $1,851,000 and $942,000, respectively. All impaired loans for both periods were subject to a related allowance for credit losses. The average balance of impaired loans was $10,571,000, $3,671,000 and $3,665,000 for 2000, 1999, and 1998, 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, 2000, 1999, and 1998, the Corporation recognized $781,000, $427,000 and $253,000, respectively, of interest income on impaired loans, which included $425,000, $413,000 and $225,000, 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, 2000 and 1999, loans aggregating approximately $72,155,000 and $54,043,000, respectively, were outstanding to such parties. 6. ALLOWANCE FOR LOAN LOSSES Activity in the allowance for possible loan losses is summarized as follows: - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance, January 1 $45,176 $41,215 $38,764 Provision for loan losses 8,729 11,269 6,978 Losses charged to the reserve (9,197) (11,084) (7,658) Recoveries 4,219 3,776 3,131 - -------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $48,927 $45,176 $41,215 - -------------------------------------------------------------------------------- 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) 2000 1999 - -------------------------------------------------------------------------------- Total minimum payments to be received $ 97,323 $ 88,600 Estimated unguaranteed residual value of leased property 53,214 44,843 Less unearned income (12,600) (13,238) - -------------------------------------------------------------------------------- TOTAL $ 137,937 $ 120,205 - --------------------------------------------------------------------------------
Minimum lease payments, in thousands, to be received as of December 31, 2000 are: - -------------------------------------------------------------------------------- (IN THOUSANDS) - -------------------------------------------------------------------------------- 2001 $41,727 2002 25,480 2003 15,928 2004 9,768 2005 3,585 Thereafter 835 - -------------------------------------------------------------------------------- TOTAL $97,323 - -------------------------------------------------------------------------------- 8. PREMISES AND EQUIPMENT The major categories of premises and equipment and accumulated depreciation are summarized as follows: - -------------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- Land $ 7,285 $ 7,279 Buildings 32,896 32,789 Equipment, furniture and fixtures 31,978 35,658 Leasehold improvements 1,370 1,204 - -------------------------------------------------------------------------------- TOTAL 73,529 76,930 - -------------------------------------------------------------------------------- Less accumulated depreciation and amortization (42,473) (44,462) - -------------------------------------------------------------------------------- PREMISES AND EQUIPMENT, NET $ 31,056 $ 32,468 - -------------------------------------------------------------------------------- Depreciation and amortization expense amounted to $4,306,000, $4,302,000 and $5,182,000 for the three years ended December 31, 2000, 1999 and 1998, 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) - -------------------------------------------------------------------------------- 2001 $626,079 2002 580,648 2003 571,515 2004 484,012 2005 306,102 Thereafter 392,635 - -------------------------------------------------------------------------------- TOTAL $2,960,991 - -------------------------------------------------------------------------------- Rent expense amounted to $752,000, $745,000 and $693,000, for the three years ended December 31, 2000, 1999 and 1998, respectively. 9. SHORT-TERM BORROWINGS Short-term borrowings are as follows: - -------------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase and federal funds purchased $195,206 $165,738 Federal Home Loan Bank advances 55,600 190,100 Other short-term borrowings 3,650 8,420 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM BORROWINGS $254,456 $364,258 - -------------------------------------------------------------------------------- 41 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The outstanding balances for all short-term borrowings as of December 31, 2000, 1999 and 1998 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 - -------------------------------------------------------------------------------- 2000: ENDING BALANCE $195,206 $ 55,600 $ 3,650 HIGHEST MONTH-END BALANCE 197,247 138,100 11,155 AVERAGE DAILY BALANCE 179,625 85,573 3,766 WEIGHTED-AVERAGE INTEREST RATE: AS OF YEAR-END 5.22% 6.56% 6.50% PAID DURING THE YEAR 5.15% 6.50% 6.37% - -------------------------------------------------------------------------------- 1999: Ending balance $165,738 $190,100 $ 8,420 Highest month-end balance 207,025 197,600 10,044 Average daily balance 161,556 133,418 3,898 Weighted-average interest rate: As of year-end 4.18% 5.82% 4.47% Paid during the year 4.40% 5.18% 5.07% - -------------------------------------------------------------------------------- 1998: Ending balance $179,665 $ 80,000 $ 9,543 Highest month-end balance 203,483 104,300 9,543 Average daily balance 173,959 29,356 6,020 Weighted-average interest rate: As of year-end 4.19% 6.00% 4.68% Paid during the year 4.54% 5.83% 5.13% - -------------------------------------------------------------------------------- At December 31, 2000, 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) 2000 1999 - -------------------------------------------------------------------------------- FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY PRINCIPAL AND INTEREST PAYMENTS: 6.32% Advance due February 2005 $ 259 $ 273 5.40% Advance due February 2006 66 95 5.50% Advance due December 2008 1,696 1,859 5.45% Advance due November 2013 1,802 1,896 6.00% Advance due April 2014 838 878 6.00% Advance due April 2014 1,304 1,366 6.25% Advance due March 2016 39 50 2.00% Advance due November 2027 37 38 2.00% Advance due January 2028 37 38 FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY INTEREST PAYMENTS: 5.91% Advance due April 2003 1,000 1,000 5.99% Advance due February 2005 3,000 3,000 5.96% Advance due June 2005 2,000 2,000 5.85% Advance due September 2005 3,000 3,000 5.65% Advance due December 2008 1,500 1,500 ADJUSTABLE RATE FEDERAL HOME LOAN BANK ADVANCES WITH MONTHLY INTEREST PAYMENTS: 6.71% Advance due July 2002 100,000 0 6.67% Advance due May 2002 65,000 0 - -------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT $181,578 $ 16,993 - -------------------------------------------------------------------------------- At December 31, 2000, 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, 2000, 327,453 options were available for future grants under this plan. Incentive stock options may be granted at a price not less than the fair market value at the date of the grant, and for an option term of up to five years. No incentive stock options may be granted under the Park Plan after January 16, 2005. The stock option plans of SNB Corp. and U.B. Bancshares, Inc. are included in Park's stock option activity and related information summarized below. All data has been restated, as applicable, for subsequent stock dividends.
- ---------------------------------------------------------------------------------- STOCK OPTIONS ------------------------------------- OUTSTANDING ----------- WEIGHTED AVERAGE EXERCISE PRICE PER NUMBER SHARE - -------------------------------------------------------------------------------- January 1, 1998 168,092 $47.88 Granted 95,759 87.79 Exercised (37,910) 51.57 Forfeited/Expired (6,832) 58.61 - -------------------------------------------------------------------------------- December 31, 1998 219,109 64.32 Granted 71,407 91.36 Exercised (36,442) 41.03 Forfeited/Expired (4,257) 84.91 - -------------------------------------------------------------------------------- December 31, 1999 249,817 75.10 Granted 100,195 94.75 Exercised (36,141) 44.71 Forfeited/Expired (7,434) 89.76 - -------------------------------------------------------------------------------- DECEMBER 31, 2000 306,437 $84.71 - -------------------------------------------------------------------------------- Range of exercise prices: $33.04 - $110.75 Weighted-average remaining contractual life: 3.3 Years Exerciseable at year end: 302,480 Weighted-average exercise price of exerciseable options: $84.62 - --------------------------------------------------------------------------------
The Corporation has elected to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for 2000, 1999 and 1998 respectively: risk-free interest rates of 6.15%, 5.50% and 5.25%; a dividend yield of 2.50%, a volatility factor 42 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of the expected market price of the Corporation's common stock of .195, .213 and .237 and a weighted-average expected option life of 4.0 years. The weighted-average fair value of options granted were $18.97, $18.04 and $18.52 for 2000, 1999 and 1998, 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, 2000 1999 1998 EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- Net income as reported $ 55,405 $ 46,787 $ 47,008 Pro-forma net income 53,579 45,398 45,175 Basic earnings per share as reported 5.11 4.30 4.31 Pro-forma basic earnings per share 4.95 4.17 4.14 Diluted earnings per share as reported 5.10 4.28 4.28 Pro-forma diluted earnings per share 4.93 4.15 4.12 - -------------------------------------------------------------------------------- 12. BENEFIT PLANS The Corporation has a noncontributory defined benefit pension plan covering substantially all of its employees. The plan provides benefits based on an employee's years of service and compensation. The Corporation's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions from those used for financial reporting purposes. The employees of SNB Corp. and U.B. Bancshares, Inc. joined the pension plan as new employees during 2000.
- -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 17,208 $ 17,497 Service cost 1,010 1,197 Interest cost 1,299 1,120 Actuarial (895) (1,535) Benefits paid (814) (1,071) BENEFIT OBLIGATION AT END OF YEAR 17,808 17,208 - -------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 19,617 17,135 Actual return on plan assets 1,509 2,951 Company contributions -- 602 Benefits paid (814) (1,071) FAIR VALUE OF PLAN ASSETS AT END OF YEAR 20,312 19,617 - -------------------------------------------------------------------------------- Funded status of the plan (underfunded) 2,504 2,409 Unrecognized net actuarial loss (gain) (3,597) (2,803) Unrecognized prior service cost 15 9 Unrecognized net transition asset (29) (93) Accrued benefit cost $ (1,107) $ (478) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS: Discount rate 7.83% 7.64% Expected return on plan assets 8.00% 8.00% Rate of compensation increase 5.00% 5.00% - ------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 1998 - ------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 1,010 $ 1,197 $ 1,055 Interest cost 1,299 1,120 1,189 Expected return on plan assets (1,611) (1,369) (1,555) Amortization of prior service cost (6) (6) (64) Recognized net actuarial loss (64) (64) (62) BENEFIT COST $ 628 $ 878 $ 563 - ---------------------------------------------------------------------------------------
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 $865,000, $949,000 and $906,000 for 2000, 1999 and 1998, 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, 2000 and 1999, the accrued benefit cost for this plan totaled $896,000 and $520,000, respectively. The expense for the Corporation was $420,000, $480,000, and $30,000 for 2000, 1999, and 1998, respectively. The Corporation has purchased life insurance contracts to fund the SERP. 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) 2000 1999 - -------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Allowance for loan losses $ 16,876 $ 15,478 Unrealized holding loss on securities -- 4,894 Intangible assets 2,001 1,461 Deferred compensation 942 779 Other 2,093 2,144 - -------------------------------------------------------------------------------- TOTAL DEFERRED TAX ASSETS 21,912 24,756 - -------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Lease revenue reporting 16,679 12,243 Unrealized holding gain on securities 3,086 -- Deferred investment income 3,980 2,997 Other 847 1,035 - -------------------------------------------------------------------------------- TOTAL DEFERRED TAX LIABILITIES 24,592 16,275 - -------------------------------------------------------------------------------- NET DEFERRED TAX (LIABILITY) ASSETS $ (2,680) $ 8,481 - -------------------------------------------------------------------------------- The components of the provision for federal income taxes are shown below: - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 1998 - -------------------------------------------------------------------------------- Currently payable $18,352 $13,871 $19,969 Deferred 3,181 4,487 755 - -------------------------------------------------------------------------------- TOTAL $21,533 $18,358 $20,724 - -------------------------------------------------------------------------------- 43 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a reconcilement of federal income tax expense to the amount computed at the statutory rate of 35% for the year ended December 31, 2000, 35% for the year ended December 31, 1999 and the weighted average statutory rate of 34.9% for the year ended December 31, 1998. - -------------------------------------------------------------------------------- DECEMBER 31 2000 1999 1998 - -------------------------------------------------------------------------------- Statutory corporate tax rate 35.00% 35.0% 34.9% Changes in rates resulting from: Tax-exempt interest income (3.7%) (4.5%) (3.7%) Tax credits (low income housing) (2.1%) (1.8%) (.9%) Other (1.2%) (.5%) .3% - -------------------------------------------------------------------------------- EFFECTIVE TAX RATE 28.0% 28.2% 30.6% - -------------------------------------------------------------------------------- The following is a summary of the income tax effect allocated to other comprehensive income.
- ---------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 BEFORE-TAX TAX NET-OF-TAX (IN THOUSANDS) AMOUNT EXPENSE AMOUNT - ---------------------------------------------------------------------------------- Unrealized gains on available-for-sale securities $ 21,985 $ 7,670 $ 14,315 Less: reclassification adjustment for losses realized in net income 889 311 578 - ---------------------------------------------------------------------------------- Other comprehensive income $ 22,874 $ 7,981 $ 14,893 - ---------------------------------------------------------------------------------- Year ended December 31, 1999 Unrealized losses on available-for-sale securities $(32,062) $(11,172) $(20,890) Less: reclassification adjustment for losses realized in net income 4,809 1,674 3,135 - ---------------------------------------------------------------------------------- Other comprehensive income $(27,253) $ (9,498) $(17,755) - ---------------------------------------------------------------------------------- Year ended December 31, 1998 Unrealized gains on available-for-sale securities $ 1,653 $ 570 $ 1,083 Less: reclassification adjustment for gains realized in net income (97) (34) (63) - ---------------------------------------------------------------------------------- Other comprehensive income $ 1,556 $ 536 $ 1,020 - ----------------------------------------------------------------------------------
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 2000 1999 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ---------------------------------------------------------------------------------------- NUMERATOR: Net income $ 55,405 $ 46,787 $ 47,008 DENOMINATOR: Basic earnings per share: Weighted-average shares 10,833,855 10,878,045 10,902,374 Effect of dilutive securities - stock options 33,698 56,158 68,539 Diluted earnings per share: Adjusted weighted-average shares and assumed conversions 10,867,553 10,934,203 10,970,913 EARNINGS PER SHARE: Basic earnings per share $ 5.11 $ 4.30 $ 4.31 Diluted earnings per share $ 5.10 $ 4.28 $ 4.28 - ----------------------------------------------------------------------------------------
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, 2000, approximately $13,928,000 of the total stockholders' equity of the bank subsidiaries is available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities. 16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk are as follows: - -------------------------------------------------------------------------------- DECEMBER 31 (DOLLARS IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- Loan commitments $292,497 $333,273 Unused credit card limits 100,507 102,518 Standby letters of credit 10,592 9,538 - -------------------------------------------------------------------------------- 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. 44 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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, 2000 and 1999 is as follows (in thousands):
- ------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 2000 1999 (IN THOUSANDS) CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------ FINANCIAL ASSETS: Cash and federal funds sold $ 109,870 $ 109,870 $ 125,525 $ 125,525 Investment securities 743,822 743,869 782,891 783,054 Loans: Commercial, financial and agricultural 319,592 319,592 291,746 291,746 Real estate: Construction 75,526 75,526 78,969 78,969 Residential 932,458 928,020 812,542 819,264 Commercial 376,519 374,452 375,485 373,678 Consumer, net 436,154 428,905 448,478 446,855 - ------------------------------------------------------------------------------------------------------------------ TOTAL LOANS 2,140,249 2,126,495 2,007,220 2,010,512 - ------------------------------------------------------------------------------------------------------------------ Allowance for loan losses (48,927) -- (45,176) -- - ------------------------------------------------------------------------------------------------------------------ LOANS RECEIVABLE, NET $ 2,091,322 $ 2,126,495 $ 1,962,044 $ 2,010,512 - ------------------------------------------------------------------------------------------------------------------ FINANCIAL LIABILITIES: Noninterest bearing checking $ 358,016 $ 358,016 $ 342,680 $ 342,680 Interest bearing checking 303,615 303,615 304,491 304,491 Savings 335,177 335,177 365,921 365,921 Money market accounts 183,608 183,608 161,245 161,245 Time deposits 1,233,625 1,226,297 1,232,116 1,233,193 Other 1,534 1,534 1,609 1,609 - ------------------------------------------------------------------------------------------------------------------ TOTAL DEPOSITS $ 2,415,575 $ 2,408,247 $ 2,408,062 $ 2,409,139 - ------------------------------------------------------------------------------------------------------------------ Short-term borrowings 254,456 254,456 364,258 364,258 Long-term debt 181,578 181,249 16,993 17,665 UNRECOGNIZED FINANCIAL INSTRUMENTS: Loan commitments -- (292) -- (333) Standby letters of credit -- (53) -- (48) - ------------------------------------------------------------------------------------------------------------------
18. CAPITAL RATIOS The following table reflects various measures of capital at December 31, 2000 and December 31, 1999:
- -------------------------------------------------------------------------------------- DECEMBER 31, 2000 1999 (DOLLARS IN THOUSANDS) AMOUNT RATIO Amount Ratio - -------------------------------------------------------------------------------------- Total equity (1) $319,752 9.96% $290,061 9.26% Tier 1 capital (2) 300,189 14.35% 282,466 13.44% Total risk-based capital (3) 326,623 15.61% 308,988 14.70% Leverage (4) 300,189 9.41% 282,466 9.17% - --------------------------------------------------------------------------------------
(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. 45 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2000, and 1999, 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 respec- tive divisions are monitored closely by senior management and each president of a subsidiary or division is held accountable for its results. Information about reportable segments is listed follows (in thousands). See Note 1 for a detailed description of individual banking subsidiaries and their respective divisions.
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS) PND FND RTC CNB FKND FSD SNB - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 43,369 $ 13,036 $ 18,118 $ 17,087 $ 23,181 $ 3,622 $ 11,314 Provision for loan losses 1,385 714 1,462 391 1,113 352 2,334 Other income 14,050 2,755 2,534 3,091 4,741 416 944 Depreciation and amortization 1,089 429 458 503 729 108 555 Other expense 23,400 7,579 10,205 9,073 12,262 1,645 5,737 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 31,545 7,069 8,527 10,211 13,818 1,933 3,632 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 9,434 2,292 2,860 3,188 4,063 570 717 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 22,111 $ 4,777 $ 5,667 $ 7,023 $ 9,755 $ 1,363 $ 2,915 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31,2000: Assets $1,013,120 $ 285,926 $ 452,209 $ 392,457 $ 541,965 $ 69,685 $ 314,548 Loans 742,924 180,192 269,971 293,071 409,657 69,595 215,880 Deposits 702,704 220,000 330,242 314,245 403,152 63,335 239,079 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31,1999 Net interest income $ 41,448 $ 12,734 $ 17,739 $ 16,520 $ 23,095 $ 3,211 $ 10,474 Provision for loan losses 710 755 1,039 1,410 2,353 646 3,200 Other income 12,290 2,081 1,261 2,280 4,213 343 61 Depreciation and amortization 1,092 406 483 489 814 103 457 Other expense 22,649 7,461 9,822 8,727 11,828 1,576 5,693 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 29,287 6,193 7,656 8,174 12,313 1,229 1,185 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 8,876 1,984 2,571 2,486 3,548 326 (215) - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 20,411 $ 4,209 $ 5,085 $ 5,688 $ 8,765 $ 903 $ 1,400 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31,1999: Assets $ 949,212 $ 280,451 $ 435,220 $ 393,733 $ 541,724 $ 62,474 $ 308,067 Loans 693,579 168,078 243,037 269,897 396,412 62,374 204,606 Deposits 691,356 219,598 354,521 316,702 394,084 57,598 233,873 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31, 1998 Net interest income $ 39,877 $ 11,586 $ 16,018 $ 15,510 $ 20,910 $ 2,827 $ 10,343 Provision for loan losses 2,880 600 1,602 480 1,116 120 130 Other income 11,468 2,349 2,972 3,079 3,833 268 1,086 Depreciation and amortization 1,119 354 558 648 1,513 149 418 Other expense 20,483 6,689 9,283 8,168 11,646 1,490 5,466 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 26,863 6,292 7,547 9,293 10,468 1,336 5,415 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 8,530 2,038 2,541 2,961 2,927 376 1,441 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,333 $ 4,254 $ 5,006 $ 6,332 $ 7,541 $ 960 $ 3,974 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31,1998: Assets $ 865,974 $ 277,482 $ 413,590 $ 385,150 $ 484,965 $ 62,303 $ 302,320 Loans 636,189 149,487 213,360 239,032 351,695 51,749 181,374 Deposits 641,618 219,907 337,964 310,769 394,470 55,789 233,402 - ----------------------------------------------------------------------------------------------------------------------------------- All UB Other Total - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 7,053 $ 2,115 $ 138,895 Provision for loan losses 880 98 8,729 Other income 559 601 29,691 Depreciation and amortization 273 162 4,306 Other expense 5,467 3,245 78,613 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 992 (789) 76,938 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 141 (1,732) 21,533 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 851 $ 943 $ 55,405 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31,2000: Assets $ 180,704 $ (39,546) $3,211,068 Loans 96,210 686 2,278,186 Deposits 152,618 (9,800) 2,415,575 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31,1999 Net interest income $ 6,455 $ 1,086 $ 132,762 Provision for loan losses 1,100 56 11,269 Other income 455 580 23,564 Depreciation and amortization 304 154 4,302 Other expense 4,990 2,864 75,610 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 516 (1,408) 65,145 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes (105) (1,113) 18,358 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 621 $ (295) $ 46,787 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31,1999: Assets $ 180,216 $ (17,734) $3,133,363 Loans 88,871 571 2,127,425 Deposits 159,042 (18,712) 2,408,062 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Results for the year ended December 31, 1998 Net interest income $ 5,584 $ 923 $ 123,578 Provision for loan losses 50 -- 6,978 Other income 1,336 64 26,455 Depreciation and amortization 273 150 5,182 Other expense 4,684 2,232 70,141 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 1,913 (1,395) 67,732 - ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 379 (469) 20,724 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 1,534 $ (926) $ 47,008 - ----------------------------------------------------------------------------------------------------------------------------------- Balances at December 31,1998: Assets $ 181,780 $ (28,685) $2,944,879 Loans 78,320 -- 1,901,206 Deposits 159,198 (20,739) 2,332,378 - -----------------------------------------------------------------------------------------------------------------------------------
46 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of financial information for the reportable segments to the Corporation's consolidated totals follows:
- ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST DEPRECIATION OTHER INCOME (IN THOUSANDS) INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS - ----------------------------------------------------------------------------------------------------------------------------------- 2000: Totals for reportable segments $ 136,780 $ 4,144 $ 75,368 $ 23,265 $ 3,250,614 $ 2,425,375 Elimination of intersegment items -- -- -- -- (56,827) (9,800) Parent Co.and GFC totals - not eliminated 2,115 12 3,245 (1,732) 17,281 -- Other items -- 150 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- TOTALS $ 138,895 $ 4,306 $ 78,613 $ 21,533 $ 3,211,068 $ 2,415,575 - ----------------------------------------------------------------------------------------------------------------------------------- 1999: Totals for reportable segments $ 131,676 $ 4,148 $ 72,746 $ 19,471 $ 3,151,097 $ 2,426,774 Elimination of intersegment items -- -- -- -- (40,904) (18,712) Parent Co.totals - not eliminated 1,086 4 2,864 (1,113) 23,170 -- Other items -- 150 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Totals $ 132,762 $ 4,302 $ 75,610 $ 18,358 $ 3,133,363 $ 2,408,062 - ----------------------------------------------------------------------------------------------------------------------------------- 1998: Totals for reportable segments $ 122,655 $ 5,032 $ 67,909 $ 21,193 $ 2,973,564 $ 2,353,117 Elimination of intersegment items -- -- -- -- (35,764) (20,739) Parent Co.totals - not eliminated 923 -- -- -- 7,079 -- Other items -- 150 2,232 (469) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Totals $ 123,578 $ 5,182 $ 70,141 $ 20,724 $ 2,944,879 $ 2,332,378 - -----------------------------------------------------------------------------------------------------------------------------------
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 $1,125,000, $657,000, and $53,000 in 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, stockholders' equity reflected in the Parent Company balance sheet includes $107.4 million and $112.3 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, 2000 and 1999 - ------------------------------------------------------------------------------------------ (IN THOUSANDS) 2000 1999 - ------------------------------------------------------------------------------------------ ASSETS: Cash $ 33,435 $ 37,822 Investment in subsidiaries 205,453 204,903 Debentures receivable from subsidiary banks 38,000 20,000 Other investments 1,707 1,298 Dividends receivable from subsidiaries 39,125 25,500 Other assets 10,370 9,426 - ------------------------------------------------------------------------------------------ TOTAL ASSETS $328,090 $298,949 - ------------------------------------------------------------------------------------------ LIABILITIES: Dividends payable $ 7,670 $ 6,954 Other liabilities 668 1,934 - ------------------------------------------------------------------------------------------ TOTAL LIABILITIES 8,338 8,888 TOTAL STOCKHOLDERS' EQUITY 319,752 290,061 - ------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $328,090 $298,949 - ------------------------------------------------------------------------------------------
STATEMENTS OF INCOME for the years ended December 31, 2000, 1999 and 1998 - ----------------------------------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- INCOME: Dividends from subsidiaries $ 68,747 $ 36,544 $ 37,697 Interest and dividends 1,565 960 923 Other 597 579 64 - ----------------------------------------------------------------------------------------------------- TOTAL INCOME 70,909 38,083 38,684 - ----------------------------------------------------------------------------------------------------- EXPENSE: Interest expense 0 24 -- Amortization of intangibles 0 -- 295 Other, net 2,824 2,695 1,937 - ----------------------------------------------------------------------------------------------------- TOTAL EXPENSE 2,824 2,719 2,232 - ----------------------------------------------------------------------------------------------------- INCOME BEFORE FEDERAL TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 68,085 35,364 36,452 Federal income tax benefit 1,739 1,085 469 - ----------------------------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 69,824 36,449 36,921 Equity in undistributed earnings of subsidiaries (14,419) 10,338 10,087 - ----------------------------------------------------------------------------------------------------- NET INCOME $ 55,405 $ 46,787 $ 47,008 - -----------------------------------------------------------------------------------------------------
47 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS for the years ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 55,405 $ 46,787 $ 47,008 Adjustments to reconcile net income to net cash provided by operating activities: Amortization -- -- 295 Undistributed earnings of subsidiaries 14,419 (10,338) (10,087) (Increase) decrease in dividends receivable from subsidiaries (13,002) (4,125) 10,325 Increase in other assets (1,528) (1,489) (1,224) Increase (decrease) in other liabilities (1,266) 1,244 (500) - --------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 54,028 32,079 45,817 - --------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: (Purchase) repayment of debenture from subsidiary bank (18,000) (10,000) 10,500 Repayment of note payable -- (3,500) -- Proceeds from note payable -- -- 3,500 Capital contribution to subsidiary -- (300) (3,631) Purchase of investment securities (524) (1,025) (423) Other,net -- 2,000 (42) - --------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (18,524) (12,825) 9,904 - --------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends paid (28,077) (24,023) (19,359) Proceeds from issuance of common stock 7 3,354 485 Purchase of treasury stock,net (11,821) (3,166) (10,334) - --------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (39,891) (23,835) (29,208) - --------------------------------------------------------------------------------------------------------------- (Decrease) increase in cash (4,387) (4,581) 26,513 Cash at beginning of year 37,822 42,403 15,890 - --------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 33,435 $ 37,822 $ 42,403 - ---------------------------------------------------------------------------------------------------------------
48 EX-23 3 l86956aex23.txt 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. 333-30858, and Registration Statement No. 333-53038, 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 16, 2001, 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, 2000 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Columbus, Ohio March 20, 2001 EX-24 4 l86956aex24.txt 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ James A. McElroy ----------------------------------------------- James A. McElroy 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ John J. O'Neill ----------------------------------------------- John J. O'Neill 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ William A. Phillips ----------------------------------------------- William A. Phillips 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ J. Gilbert Reese ----------------------------------------------- J. Gilbert Reese 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ Rick R. Taylor ----------------------------------------------- Rick R. Taylor 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, 2000, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his/her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 16th day of January 2001. /s/ John L. Warner ----------------------------------------------- John L. Warner -----END PRIVACY-ENHANCED MESSAGE-----