-----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, D6+d+5ZhnBPed/r6AwfHqGSypPoEsZ0WnS34lv3uflRFv3HCUJX3N31NMVB0bInq IOeOJIYrh6lXlJZb9yqroQ== 0000950152-97-002166.txt : 19970326 0000950152-97-002166.hdr.sgml : 19970326 ACCESSION NUMBER: 0000950152-97-002166 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK NATIONAL CORP /OH/ CENTRAL INDEX KEY: 0000805676 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311179518 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13006 FILM NUMBER: 97562620 BUSINESS ADDRESS: STREET 1: 50 NORTH THIRD ST CITY: NEWARK STATE: OH ZIP: 43055 BUSINESS PHONE: 6143498451 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: NEWARK STATE: OH ZIP: 43058-3500 10-K 1 PARK NATIONAL CORPORATION 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File Number 1-13006 PARK NATIONAL CORPORATION (Exact name of Registrant as specified in its charter) Ohio 31-1179518 - -------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 50 North Third Street, Newark, Ohio 43055 - -------------------------------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (614) 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 (7,107,859 American Stock Exchange common shares outstanding on February 28, 1997) Securities registered pursuant to Section 12(g) of the Act: None ------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based upon the closing price reported on the American Stock Exchange on February 28, 1997, the aggregate market value of the Common Shares of the Registrant held by non-affiliates on that date was $219,890,188. Documents Incorporated by Reference: (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996, are incorporated by reference into Part II of this Annual Report on Form 10-K. (2) Portions of the Registrant's definitive Joint Proxy Statement/Prospectus for its Annual Meeting of Shareholders to be held on April 21, 1997, are incorporated by reference into Part III of this Annual Report on Form 10-K. Exhibit Index on Page 83 Page 1 of 131 Pages. 2 PART I ------ Item 1. Business. - --------------------- General ------- Park National Corporation, an Ohio corporation (the "Company"), is a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Company is also a savings and loan holding company, but is exempt from regulation by the Office of Thrift Supervision (the "OTS"), because the Company is regulated as a bank holding company. The executive offices of the Company are located in Newark, Ohio. Through its subsidiaries, The Park National Bank, Newark, Ohio, a national banking association ("PNB"), The Richland Trust Company, Mansfield, Ohio, an Ohio state-chartered bank ("Richland"), and Mutual Federal Savings Bank, Zanesville, Ohio, a federally-chartered stock savings association ("Mutual"), the Company is engaged in a general commercial banking and trust business, in eleven counties in central and southern Ohio. PNB operates through two banking divisions with the Park National Division headquartered in Newark, Ohio and the Fairfield National Division headquartered in Lancaster, Ohio. On December 6, 1996, Richland acquired five branch offices in Richland County, Ohio from Peoples National Bank, headquartered in Wooster, Ohio, pursuant to a Purchase and Assumption Agreement, dated August 28, 1996. In addition to the fixed assets of such branches, the purchase included approximately $98 million of deposits and approximately $31 million of loans. The banking business of the five branches has been consolidated into Richland's operations. On October 28, 1996, the Company entered into an Agreement and Plan of Merger with First-Knox Banc Corp., a bank holding company headquartered in Mount Vernon, Ohio ("First-Knox"), and on January 10, 1997, the Company and First-Knox entered into an Amendment to Agreement and Plan of Merger (collectively, the "Merger Agreement"). The Merger Agreement provides for the merger (the "Merger") of First-Knox with and into the Company. Under the terms of the Merger Agreement, each outstanding First-Knox common share, other than those owned directly by the Company, by First-Knox or by any of their wholly-owned subsidiaries, which will be canceled in the Merger, and other than First-Knox common shares as to which dissenter's rights have been perfected under the General Corporation Law of Ohio, will be converted into the right to receive common shares of the Company. The exact number of common shares of the Company to be received for each First-Knox common share (the "First-Knox Exchange Ratio") will be determined pursuant to a specified formula that is based upon certain variables, including the average closing sale price of a Company common share on the American Stock Exchange for the five "trading" days (meaning days on which actual trades of the Company's common shares occur) ending on the tenth business day immediately preceding the closing (the "First-Knox Closing") of the Merger and the aggregate of the amount of cash paid to First-Knox prior to the First-Knox Closing as a result of the exercise of stock options to purchase First-Knox common shares ("First-Knox Stock Options") and the exercise price of any First-Knox Stock Options which are not exercised prior to the First-Knox Closing. Management of the Company currently anticipates that the First-Knox Exchange Ratio will be approximately .5914 and -2- 3 that an aggregate of 2,345,000 common shares of the Company will be issued in connection with the Merger. Consummation of the Merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of the shareholders of First-Knox and of the Company, and other conditions to closing customary of a transaction of this type. The principal regulatory approvals required to be obtained are from the Federal Reserve Board and the Ohio Division of Financial Institutions (the "ODFI"). A bank holding company merger application and a change of bank control notice were submitted for filing to the Federal Reserve Board and the ODFI, respectively, on December 31, 1996. On February 14, 1997, the bank holding company merger application filed with the Federal Reserve Board was approved. Pursuant to the terms of such approval, the Merger could not be consummated before March 1, 1997 and must be consummated before May 14, 1997, unless such period is extended by the Federal Reserve Board. On March 10, 1997, the ODFI notified the Company that the ODFI had no objection to the proposed change in control of First-Knox's state-chartered subsidiary. The Company's Annual Meeting of Shareholders, at which the Merger is to be considered, has been scheduled for April 21, 1997, and the First-Knox Special Meeting of Shareholders, at which the Merger is to be considered, has been scheduled for April 23, 1997. The Merger is expected to be completed during the second quarter of 1997. Services Provided by the Company's Subsidiaries ----------------------------------------------- PNB, Richland and Mutual provide the following principal services: the acceptance of deposits for demand, savings and time accounts and the servicing of such accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards 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. The Company believes that the deposit mix of its subsidiaries is such that no material portion thereof has been obtained from a single customer and, consequently, the loss of any one customer of any subsidiary of the Company would not have a materially adverse effect on the business of that subsidiary or the Company. The Company's subsidiaries deal with a wide cross-section of businesses and corporations which are located primarily in Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Licking, Morgan, Muskingum, Perry and Richland Counties in Ohio. Few loans are made to borrowers outside these counties. Lending decisions at each of the Company's subsidiaries are made in accordance with written loan policies designed to maintain loan quality. Each of the Company's subsidiaries originates and retains for its own portfolio commercial and commercial real estate loans, variable rate residential real estate loans, home equity lines of credit, installment loans and credit card loans. Fixed rate residential real estate loans are also generated for the secondary market. The loans of each of the Company's subsidiaries are spread over a broad range of industrial classifications. The Company believes that its subsidiaries have no significant concentrations of loans to borrowers engaged in the same or similar industries and such subsidiaries do not have any loans to foreign entities. Commercial lending entails significant additional risks as compared with consumer lending -- i.e., single-family residential mortgage lending, installment lending, credit card loans and automobile leasing. In addition, the payment experience on commercial loans is typically dependent on adequate cash flow of a business and thus may be subject, to a greater extent, to adverse conditions in the economy generally or adverse conditions in a specific industry. At December 31, 1996, the Company's subsidiaries had outstanding approximately $345.1 million in commercial loans (including commercial real estate loans) and commercial leases, representing approximately 31.0% of their total aggregate loan portfolio as of that date. PNB's, Richland's and Mutual's regulatory limits for loans made to one borrower were $11.7 million, $4.0 million and $4.7 million, respectively, at December 31, 1996. However, participations in loans of amounts larger than $5.0 million are generally sold to other banks. Loan terms include amortization schedules commensurate with the purpose of each loan, the source of each repayment and the risk involved. Executive Committee approval is required for loans to borrowers whose aggregate total debt, including the principal amount of the proposed loan, exceeds $2.0 million. The primary analysis technique used in determining whether to grant a commercial loan is the review of a schedule of cash -3- 4 flows in order to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. Each of the Company's subsidiaries has a loan review program and each reevaluates annually all loans greater in amount than $100,000 so that effective and prompt action can be taken where deterioration occurs. Upon detection of a reduced ability of a borrower to service interest and/or principal on a loan, the loan is downgraded and placed on non-accrual status. The subsidiary then works with the borrower to develop a payment schedule which they anticipate will permit the principal and interest on the loan to be serviced by the borrower. Loans which deteriorate and show an inability of a borrower to repay principal and do not meet the subsidiary's standards are charged off quarterly. PNB also leases equipment under terms similar to its commercial lending policies. Park Leasing Company, a division of PNB, originates and services direct leases of equipment which PNB acquires with no outside financing. In addition, Scope Leasing, Inc., a wholly-owned subsidiary of PNB, specializes in the direct leasing of aircraft with no outside financing. At December 31, 1996, the Company's subsidiaries had outstanding consumer loans (including automobile leases and credit cards) in an aggregate amount of approximately $248.1 million constituting approximately 22.3% of their aggregate total loan portfolio. The Company's subsidiaries make installment credit available to customers and prospective customers in their primary market area of Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Licking, Morgan, Muskingum, Perry and Richland Counties, Ohio. In addition, the Company's subsidiaries are participants in an automobile installment loan program sponsored by an insurance company as a result of which automobile installment loans may be made to borrowers in other counties located in the State of Ohio. Credit approval for consumer loans requires demonstration of sufficiency of income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of the Company's subsidiaries to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring each subsidiary's performance in this area and for advising and updating loan personnel. The Company's subsidiaries make credit life insurance and health and accident insurance available to all qualified buyers, thus reducing their risk of loss when a borrower's income is terminated or interrupted. It is the policy of each of the Company's subsidiaries to review its consumer loan portfolio monthly and to charge off loans which do not meet that subsidiary's standards. Each subsidiary also offers VISA and MasterCard accounts through their consumer lending departments. These accounts are administered in accordance with the same standards as applied to other consumer loans and leases. Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of the collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower's continued financial stability, and thus are more likely to be adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. At December 31, 1996, there were approximately $519.4 million in residential real estate, home equity lines of credit and construction mortgages outstanding, representing approximately 46.7% of total loans outstanding. The market area for real estate lending by the Company's subsidiaries is concentrated in Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Licking, Morgan, -4- 5 Muskingum, Perry and Richland Counties, Ohio. The Company's subsidiaries generally require that the loan amount with respect to residential real estate loans be no more than 80% of the purchase price or the appraisal value of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower with respect to the percentage exceeding such 80%. Loans made for each subsidiary's portfolio in this lending category are generally one year adjustable rate, fully amortized mortgages. Each subsidiary also originates fixed rate real estate loans for the secondary market. The standards applicable to these loans permit a higher loan to value ratio and a longer loan term. These loans are generally sold immediately after closing. All real estate loans are secured by first mortgages with evidence of title in favor of the subsidiary in the form of an attorney's opinion of title or a title insurance policy. The Company's subsidiaries also require proof of hazard insurance with the appropriate subsidiary named as the mortgagee and as the loss payee. Independent appraisals are required in the case of loans in excess of $250,000. Home equity lines of credit are generally made as second mortgages by the Company's subsidiaries. The maximum amount of a home equity line of credit is generally limited to 80% of the appraised value of the property less the balance of the first mortgage. The home equity lines of credit are written with ten year terms but are subject to review and reappraisal every three years. A variable interest rate is generally charged on the home equity lines of credit. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, the Company's subsidiary making the loan may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the subsidiary may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment, should the borrower default. Competition ----------- The Company's subsidiaries compete for deposits and loans with other banks and savings associations, credit unions and other types of financial institutions. The primary factors in competing for loans are interest rates charged and overall services provided to borrowers. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and the convenience of office locations. Employees --------- As of December 31, 1996, the Company and its subsidiaries had 711 full-time equivalent employees. Supervision and Regulation -------------------------- The following is a summary of certain statutes and regulations affecting the Company and its subsidiaries. The summary is qualified in its entirety by reference to such statutes and regulations. -5- 6 The Company is a bank holding company under the Bank Holding Company Act of 1956, as amended, which restricts the activities of the Company and the acquisition by the Company of voting shares or assets of any bank, savings association or other company. The Company is also subject to the reporting requirements of, and examination and regulation by, the Federal Reserve Board. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof and the taking of such stock or securities as collateral for loans or extensions of credit to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the bank holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the bank holding company and other subsidiaries. Bank holding companies are prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve Board. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries. In addition, any savings association acquired by a bank holding company must conform its activities to those permissible for a bank holding company under the Bank Holding Company Act. The Company is also a savings and loan holding company, but because it is a bank holding company regulated by the Federal Reserve Board, it is not subject to any separate regulation as a savings and loan holding company. Transactions between a savings association subsidiary of a savings and loan holding company and an affiliate thereof are subject to the same restrictions imposed by the Federal Reserve Act on subsidiary banks of a bank holding company. As a national bank, PNB is supervised and regulated by the Comptroller of the Currency (the "Comptroller"). As an Ohio state-chartered bank, Richland is supervised and regulated by the ODFI and the FDIC. As a federally chartered savings association, Mutual is currently supervised and regulated by the OTS; however, Mutual has received approval from the Comptroller to convert to a national bank charter. Such conversion is expected to occur in early April of 1997 at which time Mutual's name will be changed to "Century National Bank". The deposits of PNB, Richland and Mutual are insured by the FDIC and those entities are subject to the applicable provisions of the Federal Deposit Insurance Act. See "Deposit Insurance Assessments and Recent Legislation". A subsidiary of a bank holding company or savings and loan holding company can be liable to reimburse the FDIC if the FDIC incurs or anticipates a loss because of a default of another FDIC-insured subsidiary of the bank holding company or savings and loan holding company or in connection with FDIC assistance provided to such subsidiary in danger of default. In addition, the holding company of any insured financial institution that submits a capital plan under the federal banking agencies' regulations on prompt corrective action guarantees a portion of the institution's capital shortfall, as discussed below. Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of PNB, Richland and Mutual including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit -6- 7 exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching. In general, Mutual can branch anywhere in the United States with OTS approval. Pursuant to recent federal legislation, PNB may branch across state lines, if permitted by the law of the other state. In addition, effective June 1997, such interstate branching by PNB will be authorized, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The minimum ratio of capital to weighted risk assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least 4.0 percentage points is to be comprised of common stockholders' equity (including retained earnings but excluding treasury stock), noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist, among other things, of mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of allowance for loan and lease losses. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 4% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 1.0-2.0% higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. National bank subsidiaries, such as PNB, are subject to similar capital requirements adopted by the Comptroller of the Currency, and state non-member bank subsidiaries, such as Richland, are subject to similar capital requirements adopted by the FDIC. Savings association subsidiaries, such as Mutual, are subject to comparable capital requirements adopted by the OTS. These OTS capital requirements include an additional interest rate risk component of the risk-based capital requirement, which requires additional capital if a savings association's interest rate risk exceeds levels deemed normal. Under an outstanding proposal of the Comptroller and the FDIC to also establish an interest rate risk component, PNB and Richland may be required to have additional capital if their interest rate risk exposure exceeds acceptable levels provided for in the regulation when adopted. The Company and its subsidiaries currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution or savings association to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC. The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks and savings associations. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized. -7- 8 The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects the Company to serve as a source of strength to PNB and Richland, which may require it to retain capital for further investment in the subsidiaries, rather than for dividends for shareholders of the Company. PNB, Richland and Mutual may not pay dividends to the Company if, after paying such dividends, they would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. PNB and Richland must have the approval of their respective regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of the current year's net profits and the retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by the bank subsidiaries may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for the bank. These provisions could have the effect of limiting the Company's ability to pay dividends on its outstanding common shares. Mutual will not be permitted to pay dividends on its capital stock or repurchase shares of its stock if its regulatory capital would be reduced below the amount required for the liquidation account established in its conversion from mutual stock form or if such payment of dividends or repurchase of shares would contravene the capital distribution regulations promulgated by the OTS. Current OTS regulations require a savings and loan holding company's savings association subsidiary to give to the OTS 30 days' advance notice of any proposed declaration of dividends to the holding company, and the OTS has the authority under its supervisory powers to prohibit the payment of dividends to the holding company. Prior to the enactment of the Small Business Jobs Protection Act (the "1996 Act") which was signed into law on August 21, 1996, earnings appropriated to bad debt reserves and deducted for federal income tax purposes could not be used by Mutual to pay cash dividends to the Company without the payment of federal income taxes by the Company at the then current income tax rate on the amount deemed distributed, which would include the amount of any federal income taxes attributable to the distribution. As a result of modifications enacted in the 1996 Act, pre-1988 bad debt reserves which are not otherwise recaptured as discussed below in "Deposit Insurance Assessments and Recent Legislation", may be recaptured if they are used for payment of cash dividends or other distributions to a shareholder. Thus, any dividends to the Company that would reduce amounts appropriated to Mutual's pre-1988 bad debt reserves and deducted for federal income tax purposes could create a significant tax liability for Mutual. The Company intends to make full use of the favorable tax treatment afforded to Mutual and the Company does not contemplate any distribution by Mutual in a manner which would create the above-mentioned federal tax liabilities. -8- 9 Deposit Insurance Assessments and Recent Legislation ---------------------------------------------------- The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the BIF and of the SAIF. PNB and Richland are members of the BIF and Mutual is a member of the SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Because of the differing reserve levels of the funds, deposit insurance assessments paid by healthy commercial banks were reduced significantly below the level paid by healthy savings associations effective in mid-1995. Assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in late 1995. Such excess equaled approximately $.23 per $100 in deposits beginning in 1996. This premium disparity had a negative competitive impact on Mutual and other institutions in the SAIF. Federal legislation, which became effective September 30, 1996, provided for the recapitalization of the SAIF by means of a special assessment of $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. Certain banks holding SAIF deposits must pay that special assessment on 80% of deposits at March 31, 1995. In addition, the cost of prior thrift failures will be shared by both the SAIF and the BIF. As a result of such cost sharing, BIF assessments for healthy banks in 1997 will be $.013 per $100 in deposits and SAIF assessments for healthy institutions in 1997 will be $.064 per $100 in deposits. Prior to the 1996 Act, savings associations, including Mutual, meeting certain requirements had been able to deduct from taxable income amounts designated as reserved for bad debts. Currently, if a savings association converts to a commercial bank charter, certain amounts of its bad debt reserve must be recaptured as taxable income over a six-year period, if the association has used the percentage of taxable income method to compute its reserve (the "Percentage Method"). As a result of the 1996 Act, the Percentage Method was eliminated effective with the first taxable year beginning after December 31, 1995. Savings associations that are treated as small banks are allowed to utilize the experience method applicable to such savings associations, while savings associations that are treated as large banks are required to use only the specific charge off method. A large bank is defined for this purpose as an institution which has total average assets in excess of $500,000,000 or is a member of a parent-subsidiary consolidated group and the average total assets of the group exceed $500,000,000. A savings association like Mutual which is required to change its method of computing reserves for bad debt will treat such change as a change in the method of accounting, initiated by the taxpayer and having been made with the consent of the Secretary of the Treasury, which will require certain amounts to be recaptured with respect to such change. Generally, the amounts to be recaptured will be determined solely with respect to the "applicable excess reserves" of the savings association. The amount of the applicable excess reserves will be taken into account ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement described below. In the case of a savings association like Mutual that is treated as a large -9- 10 bank, the amount of the savings association's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans (generally loans secured by improved real estate) and its reserve for losses on nonqualifying loans (all other types of loans) as of the close of its last taxable year beginning before January 1, 1996, over (ii) the balances of such reserve as of the close of its last taxable year beginning before January 1, 1988. For taxable years that begin after December 31, 1995, and before January 1, 1998, if a savings association meets the residential loan requirement for a tax year, the recapture of the applicable excess reserves otherwise required to be taken into account as an adjustment for the year will be suspended. A savings association meets the residential loan requirement if, for the tax year, the principal amount of residential loans made by the savings association during the year is not less than its base amount. The "base amount" generally is the average of the principal amounts of the residential loans made by the savings association during the six most recent tax years beginning before January 1, 1996. Mutual had $284 million in deposits in March 31, 1995. Mutual paid a special assessment of $1.8 million on November 27, 1996, which was accounted for and recorded as of September 30, 1996. This assessment is tax-deductible, but has reduced earnings for the year ended, and capital at, December 31, 1996. Monetary Policy and Economic Conditions --------------------------------------- The business of commercial banks and savings associations is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank and savings association borrowings and changes in reserve requirements against bank and savings association deposits. These policies and regulations significantly affect the overall growth and distribution of bank and savings association loans, investments and deposits and the interest rates charged on loans as well as the interest rates paid on deposits and accounts. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks and savings associations in the past and are expected to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels. Effect of Environmental Regulation ---------------------------------- Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Company and its subsidiaries. The Company believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. The Company, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. The Company's subsidiaries may be required to make capital expenditures for environmental control facilities related to -10- 11 properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable. Item 2. Properties. - ----------------------- The Company's principal executive offices are located at 50 North Third Street, Newark, Ohio 43055. The Company neither leases nor owns any physical property, real or personal. The principal offices of PNB are located in its two-story main office building at 50 North Third Street, Newark, Ohio 43055. PNB occupies all of this building. PNB's Operations Center is located in a three-story building owned by it at 21 South First Street, Newark, Ohio 43055. PNB occupies approximately 36,000 square feet of this building, with the remaining 4,000 square feet leased to outside tenants. PNB, in addition to having six offices in Newark (including the main office and the Operations Center), has offices in Granville, Heath (two offices), Hebron, Johnstown, Kirkersville and Utica in Licking County, an office in Columbus in Franklin County, an office in Cincinnati in Hamilton County and offices in Baltimore, Pickerington and Lancaster (four offices) in Fairfield County. The offices in Fairfield County comprise the Fairfield National Division. PNB also operates six stand-alone automatic banking center locations. The properties occupied by ten of PNB's Licking County offices (including the main office and the Operations Center) and by two Fairfield County offices are owned by PNB. The remaining three offices in Licking County, four offices in Fairfield County and PNB's Franklin County and Hamilton County offices are leased under leases with various expiration dates through 2006. Certain of the leases contain renewal options. PNB owes no mortgage debt on any of its property. The principal offices of Richland are located in its eight-story main office building located at 3 North Main Street, Mansfield, Ohio. Richland occupies 22,166 square feet out of the total 42,969 square feet of the building, with the remaining portion leased to tenants not affiliated with Richland. Richland, in addition to six offices in Mansfield (including the main office), has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland County. Richland also operates three stand-alone automatic banking center locations. Richland owns the property occupied by all of these offices, with the exception of one branch office in Mansfield which is leased through 2000. Richland owes no mortgage debt on any of its property. The principal offices of Mutual are located in a two-story building owned by it at 14 South Fifth Street, Zanesville, Ohio. Mutual occupies all of this building. Mutual, in addition to having four offices (including the main office) and a mortgage lending office in Zanesville, has offices in New Concord in Muskingum County, Malta in Morgan County, New Lexington in Perry County, Logan in Hocking County, Athens in Athens County and Coshocton in Coshocton County. Mutual also operates three stand-alone automatic banking center locations and a lending office in Dresden in Muskingum County. All of the properties occupied by Mutual's offices are owned by Mutual, with the exception of the office located in Coshocton which is leased under a lease which expires in November, 1999 and the lending office in Dresden which is leased month-to-month. Mutual owes no mortgage debt on any of its properties. -11- 12 Item 3. Legal Proceedings. - ------------------------------ There are no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings to which the Company's subsidiaries are parties incidental to their respective banking businesses. None of such proceedings are considered by the Company to be material. Item 4. Submission of Matters to a Vote of Security Holders. - ---------------------------------------------------------------- Not applicable. Executive Officers of the Registrant. - ------------------------------------- The following table lists the names and ages of the executive officers of the Company as of the date of this Annual Report on Form 10-K, the positions presently held by each such executive officer and the business experience of each such executive officer during the past five years. Unless otherwise indicated, each person has held his principal occupation(s) for more than five years. All executive officers serve at the pleasure of the Board of Directors of the Company.
Name Age Position(s) Held with the Company and its Principal - ---- --- Subsidiaries and Principal Occupation(s) ---------------------------------------- William T. McConnell 63 Chairman of the Board since 1994, Chief Executive Officer and Director since 1986, and President from 1986 to 1994, of the Company; Chairman of the Board since 1993, Chief Executive Officer since 1983, President from 1979 to 1993, and Director since 1977, of PNB; Director of Richland since 1987; Director of Mutual since 1990 C. Daniel DeLawder 47 President and Director of the Company since 1994; President since 1993, Executive Vice President from 1992 to 1993, and Director since 1992, of PNB; Chairman of Advisory Board since 1989, and President from 1985 to 1992, of the Fairfield National Division of PNB David C. Bowers 60 Secretary since 1987, Chief Financial Officer and Chief Accounting Officer since 1990, and Director from 1989 to 1990, of the Company; Senior Vice President since 1986, and Director since 1989, of PNB
-12- 13 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - ------------------------------------------------------------------------------- In accordance with General Instruction G(2), the information called for in this Item 5 is incorporated herein by reference to page 34 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. Item 6. Selected Financial Data. - --------------------------------- In accordance with General Instruction G(2), the information called for in this Item 6 is incorporated herein by reference to page 32 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operation. --------------------- In accordance with General Instruction G(2), the information called for in this Item 7 is incorporated herein by reference to pages 19 through 31 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- The Consolidated Balance Sheet of the Company and its subsidiaries at December 31, 1996 and December 31, 1995, the related Consolidated Statements of Income, of Stockholders' Equity and of Cash Flows for each of the fiscal years in the three-year period ended December 31, 1996, the related Notes to the Consolidated Financial Statements, and the Report of Independent Auditors, appearing on pages 36 through 60 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996, are incorporated herein by reference. Quarterly Financial Data set forth on page 33 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996 are also incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure. --------------------- No response required. PART III -------- Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ In accordance with General Instruction G(3), the information called for in this Item 10 is incorporated herein by reference to the Company's definitive Joint Proxy Statement/Prospective (the "Joint Proxy Statement"), filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 21, 1997, under the captions "ELECTION OF DIRECTORS--Nominees for Election" and "PRINCIPAL SHAREHOLDERS OF PARK--Section 16(a) Beneficial Ownership Reporting Compliance." In addition, certain information concerning the executive officers of the Company called for in this -13- 14 Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant" in accordance with General Instruction G(3). Item 11. Executive Compensation. - ---------------------------------- In accordance with General Instruction G(3), the information called for in this Item 11 is incorporated herein by reference to the Company's definitive Joint Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 21, 1997, under the captions "ELECTION OF PARK DIRECTORS--Compensation Committee Interlocks and Insider Participation," "ELECTION OF PARK DIRECTORS--Executive Compensation" and "ELECTION OF PARK DIRECTORS--Certain Matters Pertaining to the Park Board of Directors." Neither the report on executive compensation nor the performance graph included in the Company's definitive Joint Proxy Statement relating to the Company's Annual Meeting of Shareholders to be held on April 21, 1997, shall be deemed to be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. - -------------------------------------------------------------------------- In accordance with General Instruction G(3), the information called for in this Item 12 is incorporated herein by reference to the Company's definitive Joint Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 21, 1997, under the caption "PRINCIPAL SHAREHOLDERS OF PARK." Item 13. Certain Relationships and Related Transactions. - ---------------------------------------------------------- In accordance with General Instruction G(3), the information called for in this Item 13 is incorporated herein by reference to the Company's definitive Joint Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Company's Annual Meeting of Shareholders to be held on April 21, 1997, under the caption "ELECTION OF PARK DIRECTORS--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 20. -14- 15 (a)(2) Financial Statement Schedules. ------------------------------ All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits. --------- Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" beginning at page 83. The following table provides certain information concerning the executive compensation plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibit No. Description Location - ------- ----------- -------- 10(a) Certified Copy of Resolutions Adopted by Incorporated herein by reference to the Board of Directors of Park National Company's Annual Report on Form 10-K for the Corporation on July 17, 1995 Affecting Park fiscal year ended December 31, 1995 (File No. National Corporation Defined Benefit Pension 1-13006) (the "1995 Form 10-K") [Exhibit Plan and Trust 10(a)] 10(b) Park National Corporation Defined Benefit Incorporated herein by reference to the Pension Plan Company's 1995 Form 10-K [Exhibit 10(b)] 10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to the Salary Deferral Plan and Trust Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772) [Exhibit 10(d)] 10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to the National Corporation Company's Registration Statement on Form S-4, filed on January 24, 1997 (Registration No. 333-20417) (the "Company's Form S-4") [Exhibit 10(d)]
-15- 16
Exhibit No. Description Location - ------- ----------- -------- 10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: (a) the between William T. McConnell and The Park Company's Annual Report on Form 10-K for the National Bank; and Schedule A to Exhibit fiscal year ended December 31, 1993 (File No. 10(f) identifying other identical 0-18772) [Exhibit 10(f)]; and (b) the Split-Dollar Agreements between The Park Company's Annual Report on Form 10-K for the National Bank and executive officers of the fiscal year ended December 31, 1994 (File No. Company 1-13006) [Exhibit 10(g)] 10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a) the 1993, between Dominic C. Fanello and The Company's Annual Report on Form 10-K for the Richland Trust Company; and Schedule A to fiscal year ended December 31, 1993 (File No. Exhibit 10(f) identifying other identical 0-18772 [Exhibit 10(g)]; and (b) the Split-Dollar Agreements between directors of Company's Form S-4 [Exhibit 10(f)] the Company and The Park National Bank, The Richland Trust Company or Mutual Federal Savings Bank, as identified in such Schedule A 10(g) Park National Corporation 1995 Incentive Incorporated herein by reference to the Stock Option Plan Company's Registration Statement on Form S-8 filed May 9, 1995 (Registration No. 33-92060) [Exhibit 4(d)] 10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to the connection with the grant of options under Company's 1995 Form 10-K [Exhibit 10(i)] Park National Corporation 1995 Incentive Stock Option Plan 10(i) Description of Park National Corporation Incorporated herein by reference to the Supplemental Executive Retirement Plan Company's Form S-4 [Exhibit 10(i)]
(b) Reports on Form 8-K. -------------------- There were no Current Reports on Form 8-K filed during the fiscal quarter ended December 31, 1996. -16- 17 (c) Exhibits. --------- Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" beginning at page 83. (d) Financial Statement Schedules. ------------------------------ None -17- 18 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. PARK NATIONAL CORPORATION Date: March 24, 1997 By David C. Bowers, Secretary, Chief Financial Officer and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Date Capacity ---- ---- -------- *William T. McConnell * Chairman of the Board, Chief Executive Officer, Principal Executive Officer and Director *C. Daniel DeLawder * President and Director *David C. Bowers * Secretary, Chief Financial Officer and Chief Accounting Officer *Dominick C. Fanello * Director *R. William Geyer * Director *Tamala Longaberger Kaido * Director *Howard E. LeFevre * Director *Phillip T. Leitnaker * Director *By: David C. Bowers, Attorney-in-Fact
Date: March 24, 1997 -18- 19
Name Date Capacity ---- ---- -------- *John J. O'Neill * Director *William A. Phillips * Director *J. Gilbert Reese * Director *Rick R. Taylor * Director *John L. Warner * Director *By: David C. Bowers, Attorney-in-Fact
Date: March 24, 1997 -19- 20 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1996 INDEX TO FINANCIAL STATEMENTS -----------------------------
PAGE(S) DESCRIPTION IN FORM 10-K - ----------- ------------ Consolidated Balance Sheet at December 31, 1996 and 1995......................................... 58-59 Consolidated Statement of Income for the years ended December 31, 1996, 1995 and 1994..................................................................... 60-61 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994..................................................................... 62 Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994................................................................................ 63 Notes to the Consolidated Financial Statements................................................... 64-81 Report of Independent Auditors (Ernst & Young LLP)............................................... 82
-20- 21 FINANCIAL HIGHLIGHTS
PERCENT (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 CHANGE - ------------------------------------------------------------------------------------------------------------------- EARNINGS: Total interest income $ 122,291 $ 113,200 8.03% - ------------------------------------------------------------------------------------------------------------------- Total interest expense 49,332 46,848 5.30% - ------------------------------------------------------------------------------------------------------------------- Net interest income 72,959 66,352 9.96% - ------------------------------------------------------------------------------------------------------------------- Net income 25,664 22,120 16.02% - ------------------------------------------------------------------------------------------------------------------- PER SHARE: Net income $ 3.60 $ 3.09 16.50% - ------------------------------------------------------------------------------------------------------------------- Cash dividends declared 1.45 1.25 16.00% - ------------------------------------------------------------------------------------------------------------------- Book value (end of period) 20.89 19.12 9.26% - ------------------------------------------------------------------------------------------------------------------- AT YEAR-END: Total assets $1,614,767 $1,476,208 9.39% - ------------------------------------------------------------------------------------------------------------------- Deposits 1,336,617 1,206,540 10.78% - ------------------------------------------------------------------------------------------------------------------- Loans 1,112,603 1,024,727 8.58% - ------------------------------------------------------------------------------------------------------------------- Investment securities 396,967 328,730 20.76% - ------------------------------------------------------------------------------------------------------------------- Stockholders' equity 148,986 136,424 9.21% - ------------------------------------------------------------------------------------------------------------------- RATIOS: Return on average equity 18.38% 17.69% -- - ------------------------------------------------------------------------------------------------------------------- Return on average assets 1.73% 1.58% -- - -------------------------------------------------------------------------------------------------------------------
NET INCOME (millions) EARNINGS PER SHARE 1996 $25.7 1996 $3.60 1995 $22.1 1995 $3.09 1994 $20.0 1994 $2.80 1993 $19.0 1993 $2.69 1992 $16.5 1992 $2.33 RETURN ON AVERAGE EQUITY RETURN ON AVERAGE ASSETS 1996 18.4% 1996 1.73% 1995 17.7% 1995 1.58% 1994 18.1% 1994 1.52% 1993 19.0% 1993 1.53% 1992 18.6% 1992 1.37% 22 FINANCIAL REVIEW This financial review presents management's discussion and analysis of financial condition and results of operations for Park National Corporation ("Park" or the "Corporation"). This discussion should be read in conjunction with the consolidated financial statements and related footnotes and the five-year summary of selected financial data. OVERVIEW Net income for 1996 was $25.7 million, the highest in Park's nine year history as a bank holding company. This represents a 16.0% increase over net income of $22.1 million for 1995. Net income per share was $3.60 for 1996, an increase of 16.5% compared to $3.09 for 1995. Net income has increased at an annual compound growth rate of 11.2% over the last five years, and net income per share has grown at an annual compound growth rate of 11.1% over the same period. Effective with the fourth quarter of 1996, the quarterly cash dividend on common stock was increased to $.40 per share. The new annualized dividend of $1.60 per share is 14.3% greater than the dividend paid in 1995. The Corporation has paid quarterly dividends since becoming a holding company in early 1987. The annual compound growth rate for the Corporation's per share dividend for the last five years is 13.5% and the dividend payout to net income ratio has averaged 38.5% over that same period. The purchase of five Richland County, Ohio offices by Richland Trust Company, a subsidiary of Park, was completed during December, 1996. The banking business of the purchased branches has been consolidated into the branch operations of Richland Trust Company. As a result, the number of banking offices has increased by only two in a market not previously served by Richland Trust Company. In addition to the branch real estate and other fixed assets, the purchase included approximately $98.0 million of deposits and $31.0 million of loans which are included in the Corporation's year-end totals. See Footnote 2 to the financial statements. On October 28, 1996, Park entered into an Agreement and Plan of Merger with First-Knox Banc Corp. ("First-Knox"), a $574 million bank holding company headquartered in Mount Vernon, Ohio, providing for a merger of First-Knox into Park. Under the terms of that Agreement, the stockholders of First-Knox are expected to receive .5914 shares of Park common stock per share of First-Knox common stock in a tax-free exchange. Park expects to issue an aggregate of 2,345,000 shares of common stock to complete the merger, which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of the stockholders of First-Knox and Park, and other conditions to closing customary of a transaction of this type. The merger is expected to be completed during the second quarter of 1997. Park's business focus is geared toward maximizing the return to stockholders. The Corporation's common stock value has appreciated 17.7% annually on a compounded, total return basis for the last five years. The December 31, 1996 value of a $100 investment on December 31, 1991 would be $226, inclusive of the reinvestment of dividends in the Corporation's common stock. ABOUT OUR BUSINESS Through its banking and thrift subsidiaries, the Corporation is engaged in the general commercial banking and trust business. 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 avoiding activities such as foreign lending, nationally syndicated loans and investment banking operations, the Corporation attempts to meet the needs of its customers for commercial, real estate and consumer loans, and investment and deposit services. Familiarity with the local market, coupled with conservative loan underwriting standards, has allowed the Corporation to achieve solid financial results even in periods where there have been changes in economic conditions and the general level of interest rates. 19 23 The Corporation has produced performance ratios which compare favorably to other financial institutions in terms of equity and asset returns, capital adequacy and asset quality. Continued satisfactory results are contingent upon economic conditions in Ohio and competitive factors, among other things. The Corporation's subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. The Corporation and its subsidiaries operate forty-one full-service banking offices and a network of thirty-nine automatic teller machines in eleven central and southern Ohio counties. A table of financial data of the Corporation's affiliates for 1996, 1995, and 1994 is shown below: TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
1996 1995 1994 Average Net Average Net Average Net (IN THOUSANDS) Assets Income Assets Income Assets Income ---------------------------------------------------------------------------------------------------------------- Park National Division $ 672,374 $15,900 $ 637,211 $13,716 $ 608,321 $11,994 ------------------------------------------------------------------------------------------------------------------- Fairfield National Division 187,226 3,564 171,572 3,315 150,565 2,538 ------------------------------------------------------------------------------------------------------------------- Richland Trust Company 275,287 3,747 255,311 3,642 238,968 3,205 ------------------------------------------------------------------------------------------------------------------- Mutual Federal Savings Bank 346,512 3,401 329,848 2,016 318,244 2,652 ------------------------------------------------------------------------------------------------------------------- Parent Company, including consolidating entries 4,158 (948) 2,280 (569) 522 (372) ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED TOTALS $1,485,557 $25,664 $1,396,222 $22,120 $1,316,620 $20,017 -------------------------------------------------------------------------------------------------------------------
RETURN ON EQUITY The Corporation's primary financial goal is to achieve a superior, long-term return on stockholders' equity. The Corporation measures performance in its attempts to achieve this goal against its peers, defined as all U.S. bank holding companies between $1 billion and $3 billion in assets. At year-end 1996, there were approximately 121 peer bank holding companies. The Corporation's net income to average equity was 18.38%, 17.69% and 18.08% in 1996, 1995, and 1994, respectively. In the past five years, the Corporation's net income to average equity exceeded the mean and median return of the peer group by a substantial margin. HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY The return on average equity ratio has averaged 18.36% over the past five years. While net income has increased at an annual compound rate of 11.2% over this period, average equity has increased at a faster rate at 12.2%. Maximizing the Corporation's return on an ever increasing equity base is a continual challenge for management. BALANCE SHEET COMPOSITION Park National Corporation functions as a financial intermediary. The following section discusses the sources of funds and the manner in which management has invested these funds. 20 24 SOURCE OF FUNDS DEPOSITS: The Corporation's major source of funds is provided by core deposits from individuals, businesses, and local government units. These core deposits consist of all noninterest-bearing and interest-bearing deposits, excluding certificates of deposit of $100,000 and over which were less than 8.5% of total deposits for the last three years. In 1996, year-end total deposits increased by $130.1 million or 10.8% of which $98.0 million was from the purchase of branches in Richland County. In 1995, year-end total deposits increased by $128.2 million or 11.9%. The mix of core deposits shifted toward certificates of deposit, particularly in 1995, as more aggressive pricing and flexible withdrawal options were offered. In 1996, 1995, and 1994, core deposits were approximately 75% of total assets. Maturity of time certificates of deposit and other time deposits of $100,000 and over as of December 31, 1996 were: TABLE 2 - OVER $100,000 MATURITY SCHEDULE
TIME CERTIFICATES DECEMBER 31, 1996 (IN MILLIONS) OF DEPOSIT ------------------------------------------------------------------------------------------------------ 3 months or less $ 55.9 ------------------------------------------------------------------------------------------------------ Over 3 months through 6 months 27.8 ------------------------------------------------------------------------------------------------------ Over 6 months through 12 months 10.7 ------------------------------------------------------------------------------------------------------ Over 12 months 18.3 ------------------------------------------------------------------------------------------------------ TOTAL $112.7 ------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings include securities sold under agreements to repurchase, Federal Home Loan Bank advances and federal funds purchased. These funds are also used to manage the Corporation's liquidity needs and interest rate sensitivity risk. They are subject to short-term price swings as the Corporation's needs change or the overall market rates for short-term investment funds change. In 1996, average short-term borrowings were $114 million compared to $133 million in 1995 and $122 million in 1994. Average short-term borrowings were 7.7%, 9.5%, and 9.2% of average assets in 1996, 1995, and 1994, respectively. LONG-TERM DEBT: During the past three years, the Corporation incurred no long-term debt. STOCKHOLDERS' EQUITY: Average stockholders' equity to average assets increased to 9.40% in 1996 compared to 8.96% in 1995 and 8.41% in 1994. In accordance with Statement of Financial Accounting Standards No. 115, the Corporation reflects any unrealized holding gain/(loss) on available-for-sale securities, net of federal taxes, as an adjustment to the Corporation's equity. While the effect 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 $3.3, $5.9, and ($5.7) million in 1996, 1995, and 1994, respectively. INVESTMENT OF FUNDS LOANS: Average loans, net of unearned income and the loan loss allowance, were $1,014 million in 1996 compared to $981 million in 1995 and $901 million in 1994. The average yield on net loans was 9.74% in 1996 compared to 9.50% in 1995 and 8.46% in 1994. Approximately 75% of loan balances mature or reprice within one year. This results in the yield on the loan portfolio adjusting with changes in interest rates, but on a delayed basis. 21 25 Year-end loan balances, net of unearned income, increased by $88 million or 8.6% in 1996 and by $44 million or 4.4% in 1995. The growth in 1996, includes $31.0 million of loans acquired from the purchase of branches in Richland County. As a percentage of assets, year-end loan balances were 68.9%, 69.4%, and 72.0% in 1996, 1995, and 1994, respectively. Consumer loans increased by $30.5 million or 14.5% in 1996 and were unchanged in 1995 compared with 1994. The growth in consumer loans was principally due to an increase in the volume of automobile related installment loans. During 1995, net consumer loan growth was flat due to the Corporation selling $18 million of student loans as a result of anticipated difficulties in complying with new government servicing and reporting regulations. The Corporation continues to originate student loans to serve its market and sells them to a loan servicer. Table 3 reports year-end loan balances by type of loan for the past five years. TABLE 3 - LOANS BY TYPE
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------- Commercial, financial and agriculture $ 129,269 $ 118,225 $104,559 $109,531 $126,029 ------------------------------------------------------------------------------------------------------------------- Real estate - construction 52,443 40,871 34,880 32,037 23,276 ------------------------------------------------------------------------------------------------------------------- Real estate - residential 466,957 444,005 430,483 373,820 338,832 ------------------------------------------------------------------------------------------------------------------- Real estate - commercial 203,023 191,127 181,703 157,199 122,516 ------------------------------------------------------------------------------------------------------------------- Consumer, net 239,961 209,481 209,141 187,830 170,651 ------------------------------------------------------------------------------------------------------------------- Leases, net 20,950 21,018 20,374 11,971 12,705 ------------------------------------------------------------------------------------------------------------------- TOTAL LOANS $1,112,603 $1,024,727 $981,140 $872,388 $794,009 -------------------------------------------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
Over One Over One Year Through Five DECEMBER 31, 1996 (IN THOUSANDS) or Less Five Years Years TOTAL - ---------------------------------------------------------------------------------------------------------------------- Commercial, financial and agriculture $105,927 $18,596 $4,746 $129,269 - ---------------------------------------------------------------------------------------------------------------------- Real Estate - construction 46,725 5,718 -- 52,443 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $152,652 $24,314 $4,746 $181,712 - ---------------------------------------------------------------------------------------------------------------------- Total of these selected loans due after one year with: Fixed interest rate $ 23,527 - ---------------------------------------------------------------------------------------------------------------------- Floating interest rate 5,533 - ----------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to provide liquidity and contribute to earnings. The Corporation classifies approximately 95% of its securities as available-for-sale -- see Footnote 4 to the financial statements. These securities are carried on the books at the estimated fair value with the unrealized holding gain or loss, net of taxes, accounted for as an adjustment to the Corporation's equity. Management classifies a large portion of the securities portfolio as available-for-sale so that these securities will be available to be sold in future periods in carrying out the Corporation's investment strategies. The remaining securities are classified as held-to-maturity and are accounted for at amortized cost. 22 26 The Corporation's investment strategy is dynamic. As conditions change over time, the Corporation's overall interest rate risk, liquidity needs, and potential return on the investment portfolio will change. The Corporation regularly re-evaluates the securities in its portfolio based on circumstances as they evolve. Circumstances that may precipitate a sale of a security would be to better manage interest rate risk, to meet liquidity needs, or to improve the overall yield from the investment portfolio. Investment security losses were $1.3 million, $.6 million, and $3.3 million in 1996, 1995, and 1994, respectively. The Corporation's strategy has generally been to reinvest the proceeds from the sale of securities into higher yielding, longer maturity taxable investment securities. The Corporation's taxable investment securities portfolio was approximately 97% of the total investment securities portfolio at year-end 1996, 1995, and 1994. The average yield on taxable investment securities was 6.77%, 6.80%, and 6.16% for 1996, 1995, and 1994, respectively. The average maturity or repricing of the taxable investment portfolio was approximately 2.5 years at year-end 1996 compared to 3 years at year-end 1995 and 2.5 years at year-end 1994. The average tax-equivalent yield on the tax-exempt securities portfolio was 8.69%, 8.67%, and 9.62% for 1996, 1995, and 1994, respectively. The average maturity of the tax-exempt portfolio was approximately 3.3 years at year-end 1996 compared to 4.1 years at year-end 1995 and 3.8 years at year-end 1994. The following table sets forth the book value of investment securities at year-end: TABLE 5 - INVESTMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Treasury and other U.S. Government agencies $164,275 $157,056 $107,509 - --------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 9,784 9,566 10,898 - --------------------------------------------------------------------------------------------------------------------- U.S. Government asset-backed securities 212,464 150,680 146,886 - --------------------------------------------------------------------------------------------------------------------- Non U.S. Government asset-backed securities 2,510 3,909 5,679 - --------------------------------------------------------------------------------------------------------------------- Other securities 7,934 7,519 6,846 - --------------------------------------------------------------------------------------------------------------------- TOTAL $396,967 $328,730 $277,818 - ---------------------------------------------------------------------------------------------------------------------
EARNING RESULTS The Corporation's principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest-earning assets and interest-bearing liabilities in conjunction with the average rates earned and paid on them. The net yield on interest-earning assets improved to 5.35% for 1996 compared to 5.22% for 1995 and 5.01% in 1994. During 1996, the average yield on earning assets increased to 8.94% compared to 8.87% for 1995 while the average rate paid on interest-bearing liabilities was unchanged at 4.23%. In 1994 and for part of 1995, the overall level of interest rates increased. During 1995, the average yield on earning assets increased 95 basis points to 8.87% and the average rate paid on interest-bearing liabilities increased 89 basis points to 4.23% in 1995. For both 1996 and 1995, the increase in the net interest spread was the primary reason for the increase in the net yield on interest-earning assets. 23 27 TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 Daily Average Average Interest Rate - ---------------------------------------------------------------------------------------------------------------------- ASSETS INTEREST-EARNING ASSETS: Loans, net (1) (2) $1,013,719 $ 98,776 9.74% - ---------------------------------------------------------------------------------------------------------------------- Taxable investment securities 315,036 21,337 6.77% - ---------------------------------------------------------------------------------------------------------------------- Tax-exempt investment securities (3) 9,985 868 8.69% - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing deposits in banks -- -- -- - ---------------------------------------------------------------------------------------------------------------------- Federal funds sold 34,400 1,840 5.35% - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST-EARNING ASSETS 1,373,140 122,821 8.94% - ---------------------------------------------------------------------------------------------------------------------- NONINTEREST-EARNING ASSETS: Cash and due from banks 54,122 - ---------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 16,890 - ---------------------------------------------------------------------------------------------------------------------- Other assets 41,405 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $1,485,557 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS'EQUITY INTEREST-BEARING LIABILITIES: Transaction accounts $ 238,065 $ 5,509 2.31% - ---------------------------------------------------------------------------------------------------------------------- Savings deposits 243,470 7,028 2.89% - ---------------------------------------------------------------------------------------------------------------------- Time deposits 571,443 31,696 5.55% - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 114,187 5,099 4.47% - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST-BEARING LIABILITIES 1,167,165 49,332 4.23% - ---------------------------------------------------------------------------------------------------------------------- NONINTEREST-BEARING LIABILITIES: Demand deposits 160,173 - ---------------------------------------------------------------------------------------------------------------------- Other 18,581 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST-BEARING LIABILITIES 178,754 - ---------------------------------------------------------------------------------------------------------------------- Stockholders' equity 139,638 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $1,485,557 - ---------------------------------------------------------------------------------------------------------------------- Net interest earnings $ 73,489 - ---------------------------------------------------------------------------------------------------------------------- Net interest spread 4.71% - ---------------------------------------------------------------------------------------------------------------------- Net yield on interest-earning assets 5.35% - ----------------------------------------------------------------------------------------------------------------------
(1) Loan income includes net fee loan income of $1,639 in 1996, $1,327 in 1995 and $976 in 1994. Loan income also includes the effects of taxable equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The taxable equivalent adjustment was $265 in 1996, $272 in 1995 and $315 in 1994. (2) For purposes of this computation, non-accrual loans are included in the daily average loans outstanding. (3) Interest income on tax-exempt securities includes the effect of taxable equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The taxable equivalent adjustment was $265 in 1996, $282 in 1995 and $459 in 1994. 24 28 TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY (continued)
1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Daily Average Daily Average Average Interest Rate Average Interest Rate - ---------------------------------------------------------------------------------------------------------------------- $ 980,828 $ 93,144 9.50% $ 901,029 $76,261 8.46% - ---------------------------------------------------------------------------------------------------------------------- 278,149 18,905 6.80% 283,165 17,434 6.16% - ---------------------------------------------------------------------------------------------------------------------- 10,661 924 8.67% 15,834 1,524 9.62% - ---------------------------------------------------------------------------------------------------------------------- -- -- -- 2,249 210 9.34% - ---------------------------------------------------------------------------------------------------------------------- 13,257 781 5.89% 3,987 162 4.06% - ---------------------------------------------------------------------------------------------------------------------- 1,282,895 113,754 8.87% 1,206,264 95,591 7.92% - ---------------------------------------------------------------------------------------------------------------------- 56,463 54,704 - ---------------------------------------------------------------------------------------------------------------------- 16,933 16,407 - ---------------------------------------------------------------------------------------------------------------------- 39,931 39,245 - ---------------------------------------------------------------------------------------------------------------------- $1,396,222 $1,316,620 - ---------------------------------------------------------------------------------------------------------------------- $ 226,352 $ 5,348 2.36% $ 247,354 $ 5,475 2.21% - ---------------------------------------------------------------------------------------------------------------------- 250,611 7,461 2.98% 288,384 8,333 2.89% - ---------------------------------------------------------------------------------------------------------------------- 496,713 27,256 5.49% 395,164 16,969 4.29% - ---------------------------------------------------------------------------------------------------------------------- 132,839 6,783 5.11% 121,678 4,387 3.61% - ---------------------------------------------------------------------------------------------------------------------- 1,106,515 46,848 4.23% 1,052,580 35,164 3.34% - ---------------------------------------------------------------------------------------------------------------------- 149,383 141,786 - ---------------------------------------------------------------------------------------------------------------------- 15,282 11,513 - ---------------------------------------------------------------------------------------------------------------------- 164,665 153,299 - ---------------------------------------------------------------------------------------------------------------------- 125,042 110,741 - ---------------------------------------------------------------------------------------------------------------------- $1,396,222 $1,316,620 - ---------------------------------------------------------------------------------------------------------------------- $ 66,906 $60,427 - ---------------------------------------------------------------------------------------------------------------------- 4.64% 4.58% - ---------------------------------------------------------------------------------------------------------------------- 5.22% 5.01% - ----------------------------------------------------------------------------------------------------------------------
25 29 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 1995 to 1996 Change from 1994 to 1995 (IN THOUSANDS) Volume Rate Total Volume Rate Total - --------------------------------------------------------------------------------------------------------------------- Increase (decrease) in: Interest income: Total loans $3,212 $2,420 $5,632 $7,071 $9,812 $16,883 - ---------------------------------------------------------------------------------------------------------------------- Taxable investments 2,515 (83) 2,432 (314) 1,785 1,471 - ---------------------------------------------------------------------------------------------------------------------- Tax-exempt investments (58) 2 (56) (461) (139) (600) - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing deposits in banks -- -- -- (105) (105) (210) - ---------------------------------------------------------------------------------------------------------------------- Federal funds sold 1,137 (78) 1,059 519 100 619 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 6,806 2,261 9,067 6,710 11,453 18,163 - ---------------------------------------------------------------------------------------------------------------------- Interest expense: Transaction accounts 274 (113) 161 (483) 356 (127) - ---------------------------------------------------------------------------------------------------------------------- Savings accounts (211) (222) (433) (1,124) 252 (872) - ---------------------------------------------------------------------------------------------------------------------- Time deposits 4,139 301 4,440 4,927 5,360 10,287 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings (890) (794) (1,684) 433 1,963 2,396 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 3,312 (828) 2,484 3,753 7,931 11,684 - ---------------------------------------------------------------------------------------------------------------------- Net variance $3,494 $3,089 $6,583 $2,957 $3,522 $6,479 - ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME: Total other income, exclusive of security losses, increased by 6.8% to $14.5 million in 1996 and increased by 9.7% to $13.5 million in 1995 compared to $12.3 million for 1994. Income from fiduciary activities increased by 15.4% to $3.3 million in 1996 and increased by 21.3% to $2.9 million in 1995 compared to $2.4 million in 1994. This increase in both years was due to fees related to the growth in assets under management from new Trust Department customers. The Other subcategory increased in 1995 due to rental income from operating leases originated by Scope Leasing, Inc., acquired by the Corporation in May, 1994. Losses on sale of securities were $1.3 million in 1996 compared to $.6 million in 1995 and $3.3 million in 1994. The proceeds from the sale of securities were generally invested in higher yielding, longer maturity securities to take advantage of an upward sloping yield curve. During 1994, all off-balance sheet derivative investments either matured or were sold. At year end 1996, 1995, and 1994, the Corporation had no off-balance sheet derivative investments. OTHER EXPENSE: Total other expense increased by 3.8% to $43.2 million in 1996 and increased by 10% to $41.6 million in 1995 compared to $37.9 million in 1994. Salaries and employee benefits increased by 6.9% in 1996 and by 8.8% in 1995 compared to the prior years. The increase in both years was due to normal merit increases and staff increases to accommodate new banking offices, extended hours in selected banking offices, and annuity/mutual fund sales in order to provide the Corporation's customers with alternative investment products. Full-time equivalent employees at year-end were 711 in 1996, 688 in 1995 and 660 in 1994. Insurance expense decreased in 1996 and 1995 as the FDIC's bank deposit insurance premium rate was sharply reduced. The FDIC bank deposit insurance premium paid by the Corporation's bank subsidiaries decreased sharply in both 1996 and 1995 but the Corporation's thrift subsidiary continued to pay the same 26 30 FDIC thrift deposit rate in 1996 and 1995 and additionally incurred a one-time recapitalization expense in 1996. As a result, management expects the deposit insurance premium expense for the Corporation to decrease further in 1997. Fees and service charges increased by $.8 million during 1996 to $3.0 million. This increase was primarily due to one-time expenses in connection with the pending merger with First-Knox. The subcategory Other expense decreased by $1.1 million in 1996 and increased by $2.0 million in 1995. The decrease in expense in 1996 was primarily due to a decrease in depreciation expense from operating leases while the increase in 1995 was primarily due to an increase in depreciation expense from operating leases compared to the prior year. The operating leases pertain to leases originated by Scope Leasing, Inc. which was acquired in May, 1994. See Footnote 2 to the financial statements. INCOME TAXES: Federal income tax expense as a percentage of income before taxes was 33% in 1996 and 1995 and 31% in 1994. The lower tax percentage rate in 1994 was primarily due to a larger amount of tax-exempt interest income in 1994. The Corporation's federal tax rate was 35% for all three years. 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 anticipated future economic conditions. The following table summarizes the loan loss provision, charge-offs and recoveries for the last five years: TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,040,237 $1,004,016 $922,172 $829,323 $759,688 - ---------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR POSSIBLE LOAN LOSSES: Beginning balance $ 25,073 $ 21,562 $ 20,178 $ 18,402 $17,037 - ---------------------------------------------------------------------------------------------------------------------- Charge-offs: Commercial 712 247 949 926 1,145 - ---------------------------------------------------------------------------------------------------------------------- Real estate 185 471 48 336 881 - ---------------------------------------------------------------------------------------------------------------------- Consumer 2,548 1,640 1,330 1,376 1,387 - ---------------------------------------------------------------------------------------------------------------------- Lease financing 414 55 103 92 122 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CHARGE-OFFS 3,859 2,413 2,430 2,730 3,535 - ---------------------------------------------------------------------------------------------------------------------- RECOVERIES: Commercial 397 144 971 1,050 486 - ---------------------------------------------------------------------------------------------------------------------- Real estate 365 171 164 112 73 - ---------------------------------------------------------------------------------------------------------------------- Consumer 1,243 860 766 473 552 - ---------------------------------------------------------------------------------------------------------------------- Lease financing 63 85 73 61 85 - ---------------------------------------------------------------------------------------------------------------------- TOTAL RECOVERIES 2,068 1,260 1,974 1,696 1,196 - ---------------------------------------------------------------------------------------------------------------------- NET CHARGE-OFFS 1,791 1,153 456 1,034 2,339 - ---------------------------------------------------------------------------------------------------------------------- Provision charged to earnings 4,520 4,664 1,840 2,810 3,704 - ---------------------------------------------------------------------------------------------------------------------- ENDING BALANCE $ 27,802 $ 25,073 $ 21,562 $ 20,178 $ 18,402 - ---------------------------------------------------------------------------------------------------------------------- RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.17% 0.11% 0.05% 0.12% 0.31% - ---------------------------------------------------------------------------------------------------------------------- RATIO OF ALLOWANCE FOR POSSIBLE LOAN LOSSES TO END OF YEAR LOANS, NET OF UNEARNED INTEREST 2.50% 2.45% 2.20% 2.31% 2.32% - ----------------------------------------------------------------------------------------------------------------------
27 31 The following table summarizes the allocation of allowance for possible loan losses: TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Percent of Percent of Percent of Percent of (Dollars in Loans Per Loans Per Loans Per Loans Per thousands) Allowance Category Allowance Category Allowance Category Allowance Category - ------------------------------------------------------------------------------------------------------------------ Commercial $ 5,171 11.62% $ 4,729 11.54% $ 3,942 10.66% $ 4,134 12.56% - ------------------------------------------------------------------------------------------------------------------ Real estate 11,386 64.93% 11,701 65.97% 10,448 65.95% 10,332 64.54% - ------------------------------------------------------------------------------------------------------------------ Consumer 10,197 21.57% 7,855 20.44% 6,561 21.31% 5,437 21.53% - ------------------------------------------------------------------------------------------------------------------ Leases 1,048 1.88% 788 2.05% 611 2.08% 275 1.37% - ------------------------------------------------------------------------------------------------------------------ Total $27,802 100.00% $25,073 100.00% $21,562 100.00% $20,178 100.00% - ------------------------------------------------------------------------------------------------------------------
1992 --------------------- Percent of (Dollars in Loans Per thousands) Allowance Category - -------------------------------------- Commercial $ 4,420 15.87% - -------------------------------------- Real estate 9,077 61.04% - -------------------------------------- Consumer 4,622 21.49% - -------------------------------------- Leases 283 1.60% - -------------------------------------- Total $18,402 100.00% - ----------------------------------------
As of December 31, 1996, the Corporation had no significant concentrations of loans to borrowers engaged in the same or similar industries nor did the Corporation have any loans to foreign governments. NON-PERFORMING ASSETS: Non-performing loans include: 1) loans whose interest is accounted for on a non-accrual basis; 2) loans whose terms have been renegotiated; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue. Other real estate owned results from taking title to property used as collateral for a defaulted loan. The following is a summary of the non-accrual, past due and renegotiated loans and other real estate owned for the last five years: TABLE 10 - NON-PERFORMING ASSETS
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- Non-accrual loans $1,984 $2,228 $1,872 $2,244 $2,554 - ---------------------------------------------------------------------------------------------------------------------- Renegotiated loans 1,872 1,403 480 351 1,017 - ---------------------------------------------------------------------------------------------------------------------- Loans past due 90 days or more 1,059 778 633 821 691 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NON-PERFORMING LOANS 4,915 4,409 2,985 3,416 4,262 - ---------------------------------------------------------------------------------------------------------------------- Other real estate owned 237 91 262 1,386 3,664 - ---------------------------------------------------------------------------------------------------------------------- TOTAL NON-PERFORMING ASSETS $5,152 $4,500 $3,247 $4,802 $7,926 - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NON-PERFORMING LOANS TO LOANS, NET OF UNEARNED INTEREST 0.44% 0.43% 0.30% 0.39% 0.54% - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NON-PERFORMING ASSETS TO LOANS, NET OF UNEARNED INTEREST 0.46% 0.44% 0.33% 0.55% 1.00% - ---------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF NON-PERFORMING ASSETS TO TOTAL ASSETS 0.32% 0.30% 0.24% 0.37% 0.64% - ----------------------------------------------------------------------------------------------------------------------
Tax-equivalent interest income from loans of $98.8 million for 1996 would have increased by $54,000 if all loans had been current in accordance with their original terms. Interest income for the year ended December 31, 1996 in the approximate amount of $243,000 is included in interest income for those loans in accordance with their original terms. The Corporation had $9.2 million of loans included on the Corporation's watch list of potential problem loans at December 31, 1996 compared to $9.7 million at year-end 1995 and $13 million at year-end 1994. The existing conditions of these loans do not warrant classification as non-accrual. Management undertakes additional surveillance regarding a borrower's ability to comply with payment terms for watch list loans. 28 32 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. Liquidity is enhanced by assets maturing or repricing within one year. Assets maturing or repricing within one year were $931.8 million or 61.7% of interest-earning assets at year-end 1996. Liquidity is also enhanced by a significant amount of stable core deposits from a variety of customers in several Ohio markets served by the Corporation. An asset/liability committee monitors and forecasts rate-sensitive assets and liabilities and develops strategies and pricing policies to influence the acquisition of certain assets and liabilities. The purpose of these efforts is to guard the Corporation from adverse impacts of unforeseen swings in interest rates and to enhance the net income of the Corporation by accepting a limited amount of interest rate risk, based on interest rate projections. The following table shows interest rate sensitivity data for five different time intervals as of December 31, 1996: TABLE 11 - INTEREST RATE SENSITIVITY
0-3 3-12 1-3 3-5 Over 5 (DOLLARS IN THOUSANDS) Months Months Years Years Years TOTAL ----------------------------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVE ASSETS: Investment securities $ 57,619 $ 25,983 $179,333 $ 88,250 $ 45,782 $ 396,967 ----------------------------------------------------------------------------------------------------------------- Loans 405,335 442,826 162,217 53,996 48,229 1,112,603 ----------------------------------------------------------------------------------------------------------------- TOTAL INTEREST-EARNING ASSETS 462,954 468,809 341,550 142,246 94,011 1,509,570 ----------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Interest-bearing checking (1) 38,078 -- 114,234 -- -- 152,312 ----------------------------------------------------------------------------------------------------------------- Savings accounts (1) 125,705 -- 125,705 -- -- 251,410 ----------------------------------------------------------------------------------------------------------------- Money market checking 105,453 -- -- -- -- 105,453 ----------------------------------------------------------------------------------------------------------------- Time deposits 231,516 230,493 150,290 38,272 1,107 651,678 ----------------------------------------------------------------------------------------------------------------- Other 1,606 -- -- -- -- 1,606 ----------------------------------------------------------------------------------------------------------------- Total deposits 502,358 230,493 390,229 38,272 1,107 1,162,459 ----------------------------------------------------------------------------------------------------------------- Short-term borrowings 109,230 -- -- -- -- 109,230 ----------------------------------------------------------------------------------------------------------------- TOTAL INTEREST-BEARING LIABILITIES 611,588 230,493 390,229 38,272 1,107 1,271,689 ----------------------------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY GAP (148,634) 238,316 (48,679) 103,974 92,904 237,881 ----------------------------------------------------------------------------------------------------------------- CUMULATIVE RATE SENSITIVITY GAP (148,634) 89,682 41,003 144,977 237,881 -- ----------------------------------------------------------------------------------------------------------------- CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST-EARNING ASSETS - 9.85% 5.94% 2.72% 9.60% 15.76% -- -----------------------------------------------------------------------------------------------------------------
(1) 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. For the first three months, there was a cumulative excess of rate-sensitive liabilities over rate-sensitive assets while in the next period (three to twelve months), the reverse was true. For the year, rate-sensitive assets are greater than rate-sensitive liabilities, by 5.94% of interest-earning assets, which indicates that the Corporation's interest rate risk position is somewhat balanced. A positive one-year cumulative gap would suggest that the Corporation's net interest margin would increase, if interest rates were to rise. 29 33 The usefulness of the interest sensitivity gap analysis as a forecasting tool in projecting net interest income is limited. The gap analysis does not consider the magnitude by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of transaction and savings accounts that may not prove to be correct. Management supplements the interest 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 interest rate sensitivity gap analysis does provide a good overall picture of the Corporation's static interest rate risk position. The Corporation's current policy is that the one-year cumulative gap should not exceed fifteen percent of earning assets for three consecutive quarters. Trying to manage this gap within an acceptable percentage range of earning assets is a continual challenge in a changing interest rate environment and one of the objectives of the Corporation's Asset/Liability Committee. CAPITAL: The Corporation's primary means of maintaining capital adequacy is through net retained earnings. At December 31, 1996, the Corporation's equity capital was $149.0 million, an increase of 9.2% over the equity capital at December 31, 1995. Exclusive of the unrealized gain or loss on available- for-sale securities, equity capital increased 11.6% in 1996 compared to 1995. Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. The unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. The capital standard of risk-based capital to risk-based assets is 8.00% at December 31, 1996. At year-end 1996, the Corporation had a risk-based capital ratio of 14.04% or capital above the minimum required by $63.5 million. The capital standard of tier 1 capital to risk-based assets is 4% at December 31, 1996. Tier 1 capital includes stockholders' equity net of goodwill and any other intangible assets. At year-end 1996, the Corporation had a tier 1 capital to risk-based assets ratio of 12.78% or capital above the minimum required by $92.2 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 1996, the Corporation had a leverage capital ratio of 8.82% or capital above the minimum required by $73.4 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, 1996. The table below indicates the capital ratios for each subsidiary and the Corporation at December 31, 1996: TABLE 12 - CAPITAL RATIOS
TIER 1 Total DECEMBER 31, 1996 LEVERAGE RISK-BASED RISK-BASED ------------------------------------------------------------------------------------------------------------- Park National Bank 6.68% 9.59% 10.86% --------------------------------------------------------------------------------------------------------------- Richland Trust Company 7.22% 10.25% 11.52% --------------------------------------------------------------------------------------------------------------- Mutual Federal Savings Bank 7.44% 12.50% 13.76% --------------------------------------------------------------------------------------------------------------- Park National Corporation 8.82% 12.78% 14.04% --------------------------------------------------------------------------------------------------------------- Minimum Capital Ratio 4.00% 4.00% 8.00% --------------------------------------------------------------------------------------------------------------- Well Capitalized Ratio 5.00% 6.00% 10.00% ---------------------------------------------------------------------------------------------------------------
30 34 [ BAR-GRAPH OF RISK-BASED CAPITAL RATIOS December 31, 1996] AVERAGE STOCKHOLDERS' EQUITY (millions) 1996 $139.6 1995 $125.0 1994 $110.7 1993 $100.1 1992 $88.6 EFFECTS OF INFLATION: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth. Another significant weight on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is the Corporation's ability to align its asset/liability management program to react to changes in interest rates. 31 35 The following table summarizes five-year financial information: TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1996 1995 1994 1993 1992 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ---------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Interest income $ 122,291 $ 113,200 $ 94,817 $ 90,384 $ 95,811 - ---------------------------------------------------------------------------------------------------------------------- Interest expense 49,332 46,848 35,164 33,823 41,627 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 72,959 66,352 59,653 56,561 54,184 - ---------------------------------------------------------------------------------------------------------------------- Noninterest income 13,142 12,922 9,036 10,910 9,636 - ---------------------------------------------------------------------------------------------------------------------- Noninterest expense 43,239 41,643 37,867 39,132 36,697 - ---------------------------------------------------------------------------------------------------------------------- Provision for loan losses 4,520 4,664 1,840 2,810 3,704 - ---------------------------------------------------------------------------------------------------------------------- Income before extraordinary item and cumulative effect of a change in accounting principle 25,664 22,120 20,017 17,545 16,148 - ---------------------------------------------------------------------------------------------------------------------- Net income 25,664 22,120 20,017 19,045 16,520 - ---------------------------------------------------------------------------------------------------------------------- PER SHARE: Income before extraordinary item and cumulative effect of a change in accounting principle $3.60 $3.09 $2.80 $2.48 $2.28 - ---------------------------------------------------------------------------------------------------------------------- Net income 3.60 3.09 2.80 2.69 2.33 - ---------------------------------------------------------------------------------------------------------------------- Cash dividends declared 1.45 1.25 0.98 1.05 0.88 - ---------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES: Loans, net $1,013,719 $ 980,828 $ 901,029 $ 809,245 $ 741,954 - ---------------------------------------------------------------------------------------------------------------------- Investment securities 325,021 288,810 298,999 330,736 340,578 - ---------------------------------------------------------------------------------------------------------------------- Money market instruments and other 34,400 13,257 6,236 11,500 34,206 - ---------------------------------------------------------------------------------------------------------------------- TOTAL EARNING ASSETS 1,373,140 1,282,895 1,206,264 1,151,481 1,116,738 - ---------------------------------------------------------------------------------------------------------------------- Noninterest-bearing deposits 160,173 149,383 141,786 129,621 115,751 - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing deposits 1,052,978 973,676 930,902 903,886 896,789 - ---------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,213,151 1,123,059 1,072,688 1,033,507 1,012,540 - ---------------------------------------------------------------------------------------------------------------------- Short-term borrowings 114,187 132,839 121,678 102,304 85,139 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt -- -- -- -- 5,160 - ---------------------------------------------------------------------------------------------------------------------- Stockholders' equity 139,638 125,042 110,741 100,081 88,629 - ---------------------------------------------------------------------------------------------------------------------- Total assets 1,485,557 1,396,222 1,316,620 1,246,903 1,202,449 - ---------------------------------------------------------------------------------------------------------------------- RATIOS: Return on average assets 1.73% 1.58% 1.52% 1.53% 1.37% - ---------------------------------------------------------------------------------------------------------------------- Return on average equity 18.38% 17.69% 18.08% 19.03% 18.64% - ---------------------------------------------------------------------------------------------------------------------- Net interest margin (1) 5.35% 5.22% 5.01% 5.00% 4.98% - ---------------------------------------------------------------------------------------------------------------------- Noninterest expense to net revenue (1) 49.91% 52.17% 54.51% 57.10% 56.21% - ---------------------------------------------------------------------------------------------------------------------- Dividend payout ratio 40.34% 40.46% 35.08% 39.03% 37.55% - ---------------------------------------------------------------------------------------------------------------------- Average stockholders' equity to average total assets 9.40% 8.96% 8.41% 8.03% 7.37% - ---------------------------------------------------------------------------------------------------------------------- Leveraged capital 8.82% 8.91% 8.80% 8.08% 7.25% - ---------------------------------------------------------------------------------------------------------------------- Tier 1 capital 12.78% 13.35% 13.19% 13.24% 12.17% - ---------------------------------------------------------------------------------------------------------------------- Risk-based capital 14.04% 14.61% 14.45% 14.51% 13.44% - ----------------------------------------------------------------------------------------------------------------------
32 (1) Computed on a fully taxable equivalent basis 36 The following table is a summary of selected quarterly results of operations for the years ended December 31, 1996 and 1995. Certain quarterly amounts have been reclassified to conform to the year-end financial statement presentation. TABLE 14 - QUARTERLY FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31 - ---------------------------------------------------------------------------------------------------------------------- 1996: Interest income $29,903 $29,916 $30,660 $31,812 - ---------------------------------------------------------------------------------------------------------------------- Interest expense 12,319 12,087 12,289 12,637 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 17,584 17,829 18,371 19,175 - ---------------------------------------------------------------------------------------------------------------------- Provision for loan losses 1,005 1,005 1,005 1,505 - ---------------------------------------------------------------------------------------------------------------------- Loss on the sale of securities (294) (401) (157) (458) - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes 8,982 10,060 10,901 8,399 - ---------------------------------------------------------------------------------------------------------------------- Net income 6,095 6,804 7,343 5,422 - ---------------------------------------------------------------------------------------------------------------------- Per share data: Net income 0.85 0.96 1.03 0.76 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average common stock equivalent 7,136,037 7,141,679 7,138,155 7,131,685 - ---------------------------------------------------------------------------------------------------------------------- 1995: Interest income $26,158 $27,816 $29,224 $30,002 - ---------------------------------------------------------------------------------------------------------------------- Interest expense 10,547 11,479 12,306 12,516 - ---------------------------------------------------------------------------------------------------------------------- Net interest income 15,611 16,337 16,918 17,486 - ---------------------------------------------------------------------------------------------------------------------- Provision for loan losses 910 1,000 1,540 1,214 - ---------------------------------------------------------------------------------------------------------------------- Loss on the sale of securities (614) -- -- -- - ---------------------------------------------------------------------------------------------------------------------- Income before income taxes 7,393 8,539 8,987 8,048 - ---------------------------------------------------------------------------------------------------------------------- Net income 5,016 5,713 6,006 5,385 - ---------------------------------------------------------------------------------------------------------------------- Per share data: Net income 0.70 0.79 0.84 0.76 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average common stock equivalent 7,189,650 7,178,028 7,151,101 7,144,940 - ----------------------------------------------------------------------------------------------------------------------
33 37 The Corporation's common stock (symbol:PRK) is traded on the American Stock Exchange (AMEX). At December 31, 1996, the Corporation had 1,375 stockholders of record. The following table sets forth the high, low and closing sale prices of, and dividends declared on, the common stock for each quarterly period for the years ended December 31, 1996 and 1995, as reported by AMEX. TABLE 15 - MARKET AND DIVIDEND INFORMATION
----------------------------------------------------------------------------------------------------------------- CASH DIVIDEND LAST DECLARED HIGH LOW PRICE PER SHARE ----------------------------------------------------------------------------------------------------------------- 1996: First Quarter $50 1/4 $47 3/8 $48 3/8 $0.35 ----------------------------------------------------------------------------------------------------------------- Second Quarter 49 1/2 46 3/8 49 1/2 0.35 ----------------------------------------------------------------------------------------------------------------- Third Quarter 49 5/8 47 7/8 48 1/4 0.35 ----------------------------------------------------------------------------------------------------------------- Fourth Quarter 53 48 53 0.40 ----------------------------------------------------------------------------------------------------------------- 1995: First Quarter $54 1/4 $43 3/8 $43 3/4 $0.30 ----------------------------------------------------------------------------------------------------------------- Second Quarter 48 3/4 43 7/8 48 5/8 0.30 ----------------------------------------------------------------------------------------------------------------- Third Quarter 49 1/4 44 7/8 45 5/8 0.30 ----------------------------------------------------------------------------------------------------------------- Fourth Quarter 48 45 47 3/4 0.35 -----------------------------------------------------------------------------------------------------------------
[GRAPH OF TEN-YEAR RETURN (December 31, 1986 - December 31, 1996)] Assumes initial investment of $1,000 with reinvestment of dividends in the comon stock of Park 34 38 STOCKHOLDERS' INFORMATION STOCK LISTING: AMEX Symbol - PRK CUSIP #700658107 GENERAL STOCKHOLDER INQUIRIES: Park National Corporation David C. Bowers, Secretary 50 North Third Street Post Office Box 3500 Newark, Ohio 43058-3500 614/349-3708 DIVIDEND REINVESTMENT PLAN: The Corporation offers a plan whereby participating stockholders can purchase additional shares of Park National Corporation common stock through automatic reinvestment of their regular quarterly cash dividends. All commissions and fees connected with the purchase and safekeeping of the shares are paid by the Corporation. Details of the Plan and an enrollment card can be obtained by contacting the Secretary as indicated above. STOCK TRANSFER AGENT AND REGISTRAR: Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 800/368-5948 FORM 10-K: Copies of Park National Corporation's Form 10-K for 1996 may be obtained, without cost, by contacting the Secretary as indicated above. INTERNET ADDRESS: http://www.parknationalbank.com E-MAIL: main@parknationalbank.com 35 39 CONSOLIDATED BALANCE SHEET PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1996 and 1995 (Dollars in thousands) ASSETS
1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 61,454 $ 92,752 - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES: Securities available-for-sale, at fair value (amortized cost of $381,117 and $308,298 at December 31, 1996 and 1995) 386,187 317,414 - ------------------------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $11,217 and $11,917 at December 31, 1996 and 1995) 10,780 11,316 - ------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 396,967 328,730 - ------------------------------------------------------------------------------------------------------------------------- Loans 1,123,615 1,036,274 - ------------------------------------------------------------------------------------------------------------------------- Unearned loan interest (11,012) (11,547) - ------------------------------------------------------------------------------------------------------------------------- TOTAL LOANS 1,112,603 1,024,727 - ------------------------------------------------------------------------------------------------------------------------- Allowance for possible loan losses (27,802) (25,073) - ------------------------------------------------------------------------------------------------------------------------- LOANS, NET 1,084,801 999,654 - ------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Premises and equipment, net 16,812 17,161 - ------------------------------------------------------------------------------------------------------------------------- Accrued interest receivable 8,543 9,114 - ------------------------------------------------------------------------------------------------------------------------- Other 46,190 28,797 - ------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 71,545 55,072 - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,614,767 $1,476,208 - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 36 40 CONSOLIDATED BALANCE SHEET (continued) PARK NATIONAL CORPORATION AND SUBSIDIARIES for the years ended December 31, 1996 and 1995 (Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ DEPOSITS: Noninterest-bearing $ 174,158 $ 190,014 - ------------------------------------------------------------------------------------------------------------------------ Interest-bearing 1,162,459 1,016,526 - ------------------------------------------------------------------------------------------------------------------------ TOTAL DEPOSITS 1,336,617 1,206,540 - ------------------------------------------------------------------------------------------------------------------------ Short-term borrowings 109,230 113,992 - ------------------------------------------------------------------------------------------------------------------------ OTHER LIABILITIES: Accrued interest payable 3,860 3,749 - ------------------------------------------------------------------------------------------------------------------------ Other 16,074 15,503 - ------------------------------------------------------------------------------------------------------------------------ TOTAL OTHER LIABILITIES 19,934 19,252 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 1,465,781 1,339,784 - ------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY: Common stock, no par value (authorized shares of 20,000,000 and 10,000,000 at December 31, 1996 and 1995, respectively; 7,222,610 shares issued in 1996 and 1995) 26,857 26,819 - ------------------------------------------------------------------------------------------------------------------------ Unrealized holding gain on available-for-sale securities, net 3,296 5,926 - ------------------------------------------------------------------------------------------------------------------------ Retained earnings 121,818 106,508 - ------------------------------------------------------------------------------------------------------------------------ Less: Treasury stock (89,426 shares in 1996 and 87,388 shares in 1995) (2,985) (2,829) - ------------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 148,986 136,424 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,614,767 $1,476,208 - ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 37 41 CONSOLIDATED STATEMENT OF INCOME for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except share data)
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME: Interest and fees on loans $ 98,511 $ 92,872 $75,946 - ------------------------------------------------------------------------------------------------------------------------ Interest and dividends on: Obligations of U.S. Government, its agencies and other securities 21,337 18,905 17,434 - ------------------------------------------------------------------------------------------------------------------------ Obligations of states and political subdivisions 603 642 1,065 - ------------------------------------------------------------------------------------------------------------------------ Other interest income 1,840 781 372 - ------------------------------------------------------------------------------------------------------------------------ TOTAL INTEREST INCOME 122,291 113,200 94,817 - ------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE: Interest on deposits: Demand and savings deposits 12,537 12,809 13,808 - ------------------------------------------------------------------------------------------------------------------------ Time deposits 31,696 27,256 16,969 - ------------------------------------------------------------------------------------------------------------------------ Interest on short-term borrowings 5,099 6,783 4,387 - ------------------------------------------------------------------------------------------------------------------------ TOTAL INTEREST EXPENSE 49,332 46,848 35,164 - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME 72,959 66,352 59,653 - ------------------------------------------------------------------------------------------------------------------------ Provision for loan losses 4,520 4,664 1,840 - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 68,439 61,688 57,813 - ------------------------------------------------------------------------------------------------------------------------ OTHER INCOME: Income from fiduciary activities 3,325 2,881 2,375 - ------------------------------------------------------------------------------------------------------------------------ Service charges on deposit accounts 4,611 4,188 4,449 - ------------------------------------------------------------------------------------------------------------------------ Loss on sales of securities (1,310) (614) (3,306) - ------------------------------------------------------------------------------------------------------------------------ Other service income 2,293 2,220 2,129 - ------------------------------------------------------------------------------------------------------------------------ Other 4,223 4,247 3,389 - ------------------------------------------------------------------------------------------------------------------------ TOTAL OTHER INCOME $ 13,142 $ 12,922 $ 9,036 - ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 38 42 CONSOLIDATED STATEMENT OF INCOME (continued) for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except share data)
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ OTHER EXPENSE: Salaries and employee benefits $21,808 $20,395 $18,745 - ------------------------------------------------------------------------------------------------------------------------ Data processing fees 3,370 3,072 2,636 - ------------------------------------------------------------------------------------------------------------------------ Fees and service charges 3,010 2,242 2,229 - ------------------------------------------------------------------------------------------------------------------------ Net occupancy expense of bank premises 2,195 2,012 1,986 - ------------------------------------------------------------------------------------------------------------------------ Amortization of intangibles 380 363 571 - ------------------------------------------------------------------------------------------------------------------------ Furniture and equipment expense 2,236 2,056 1,838 - ------------------------------------------------------------------------------------------------------------------------ Insurance 1,671 1,882 2,713 - ------------------------------------------------------------------------------------------------------------------------ Marketing 1,518 1,409 1,275 - ------------------------------------------------------------------------------------------------------------------------ Postage and telephone 1,901 1,846 1,643 - ------------------------------------------------------------------------------------------------------------------------ State taxes 1,326 1,468 1,379 - ------------------------------------------------------------------------------------------------------------------------ Other 3,824 4,898 2,852 - ------------------------------------------------------------------------------------------------------------------------ TOTAL OTHER EXPENSE 43,239 41,643 37,867 - ------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE FEDERAL INCOME TAXES 38,342 32,967 28,982 - ------------------------------------------------------------------------------------------------------------------------ Federal income taxes 12,678 10,847 8,965 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME $25,664 $22,120 $20,017 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME PER SHARE: NET INCOME PER SHARE $3.60 $3.09 $2.80 - ------------------------------------------------------------------------------------------------------------------------ Weighted-average common shares outstanding 7,136,889 7,165,930 7,154,796 - ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 39 43 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except share data)
UNREALIZED HOLDING GAIN/(LOSS) ON COMMON STOCK AVAILABLE- TREASURY STOCK ------------------ FOR-SALE ----------------- SHARES SECURITIES, RETAINED ISSUED AMOUNT NET EARNINGS SHARES AMOUNT TOTAL - ------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 1, 1994 7,118,048 $25,420 $3,422 $80,343 32,960 $(255) $108,930 - ------------------------------------------------------------------------------------------------------------------------ Acquisition of Scope Leasing 104,562 1,370 -- -- -- -- 1,370 - ------------------------------------------------------------------------------------------------------------------------ Net income -- -- -- 20,017 -- -- 20,017 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends: Corporation at $0.98 per share -- -- -- (7,022) -- -- (7,022) - ------------------------------------------------------------------------------------------------------------------------ Unrealized net holding loss on available-for-sale securities -- -- (9,136) -- -- -- (9,136) - ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 7,222,610 26,790 (5,714) 93,338 32,960 (255) 114,159 - ------------------------------------------------------------------------------------------------------------------------ Treasury stock purchased -- -- -- -- 58,726 (2,749) (2,749) - ------------------------------------------------------------------------------------------------------------------------ Treasury stock reissued primarily for stock options exercised -- 29 -- -- (4,298) 175 204 - ------------------------------------------------------------------------------------------------------------------------ Net income -- -- -- 22,120 -- -- 22,120 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends: Corporation at $1.25 per share -- -- -- (8,950) -- -- (8,950) - ------------------------------------------------------------------------------------------------------------------------ Unrealized net holding gain on available-for-sale securities -- -- 11,640 -- -- -- 11,640 - ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1995 7,222,610 26,819 5,926 106,508 87,388 (2,829) 136,424 - ------------------------------------------------------------------------------------------------------------------------ Treasury stock purchased -- -- -- -- 13,000 (640) (640) - ------------------------------------------------------------------------------------------------------------------------ Treasury stock reissued primarily for stock options exercised -- 38 -- -- (10,962) 484 522 - ------------------------------------------------------------------------------------------------------------------------ Net income -- -- -- 25,664 -- -- 25,664 - ------------------------------------------------------------------------------------------------------------------------ Cash dividends: Corporation at $1.45 per share -- -- -- (10,354) -- -- (10,354) - ------------------------------------------------------------------------------------------------------------------------ Unrealized net holding loss on available-for-sale securities -- -- (2,630) -- -- -- (2,630) - ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1996 7,222,610 $26,857 $3,296 $121,818 89,426 $(2,985) $148,986 - ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 40 44 CONSOLIDATED STATEMENT OF CASHFLOWS for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands)
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 25,664 $ 22,120 $ 20,017 - ------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,520 4,664 1,840 - ------------------------------------------------------------------------------------------------------------------------- Amortization of loan costs and fees, net (476) (124) 164 - ------------------------------------------------------------------------------------------------------------------------- Provision for depreciation and amortization 2,027 1,925 1,700 - ------------------------------------------------------------------------------------------------------------------------- Amortization of the excess of cost over net assets of banks purchased 380 363 571 - ------------------------------------------------------------------------------------------------------------------------- Accretion of investment security discounts, net (1,323) (1,083) 541 - ------------------------------------------------------------------------------------------------------------------------- Deferred income taxes (170) (775) 371 - ------------------------------------------------------------------------------------------------------------------------- Realized investment security losses 1,310 614 3,306 - ------------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: Increase in other assets (5,183) (149) (1,328) - ------------------------------------------------------------------------------------------------------------------------- Increase in other liabilities 326 4,417 2,942 - ------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 27,075 31,972 30,124 - ------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of securities: Available-for-sale 71,355 31,363 131,314 - ------------------------------------------------------------------------------------------------------------------------- Proceeds from maturities of securities: Held-to-maturity 2,110 2,923 11,960 - ------------------------------------------------------------------------------------------------------------------------- Available-for-sale 67,594 40,264 107,527 - ------------------------------------------------------------------------------------------------------------------------- Purchase of securities: Held-to-maturity (1,575) (914) (15,043) - ------------------------------------------------------------------------------------------------------------------------- Available-for-sale (211,754) (106,172) (201,938) - ------------------------------------------------------------------------------------------------------------------------- Net decrease in interest-bearing deposits in banks -- -- 4,862 - ------------------------------------------------------------------------------------------------------------------------- Net increase in loans (58,436) (44,616) (100,985) - ------------------------------------------------------------------------------------------------------------------------- Purchase of loans (30,755) -- -- - ------------------------------------------------------------------------------------------------------------------------- Cash paid for branches (10,857) -- -- - ------------------------------------------------------------------------------------------------------------------------- Purchases of premises and equipment, net (1,254) (1,989) (2,526) - ------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (173,572) (79,141) (64,829) - ------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Purchase of deposits 97,928 -- -- - ------------------------------------------------------------------------------------------------------------------------- Net increase in deposits 32,149 128,234 19,878 - ------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in short-term borrowings (4,762) (41,274) 37,008 - ------------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (118) (2,545) -- - ------------------------------------------------------------------------------------------------------------------------- Cash dividends paid (9,998) (8,610) (8,054) - ------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 115,199 75,805 48,832 - ------------------------------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,298) 28,636 14,127 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 92,752 64,116 49,989 - ------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 61,454 $ 92,752 $ 64,116 - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 41 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Park National Corporation (the Corporation) and all of its subsidiaries. Material intercompany accounts and transactions have been eliminated. ORGANIZATION The Corporation is a multi-bank holding company headquartered in Newark, Ohio. Through its banking subsidiaries, Park National Bank (PNB) and Richland Trust Company (Richland) and its savings association subsidiary, Mutual Federal Savings Bank (Mutual), the Corporation is engaged in a general commercial banking and trust business, primarily in Central Ohio. PNB, Richland, and Mutual provide the following principal services: the acceptance of deposits for demand, savings, and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards, home equity lines of credit and commercial and auto leasing; trust services; cash management; safe deposit operations; electronic funds transfers; and a variety of additional banking-related services. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. INVESTMENT SECURITIES Investment securities are classified upon acquisition into one of three categories: Held-to-maturity, available-for-sale, or trading (see Note 4). Held-to-maturity securities are those securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the future in response to the Corporation's liquidity needs, changes in market interest rates, and asset-liability management strategies, among others. Available-for-sale securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of applicable taxes. At December 31, 1996 and 1995, 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. 42 46 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. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values. INVESTMENT SECURITIES: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential) are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook 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. 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. 43 47 PROVISION FOR LOAN LOSSES The provision for loan losses charged to operating expense is based upon each subsidiary's past loan loss experience and an evaluation of potential losses in the current loan portfolios. In management's opinion, the provision is sufficient to maintain the allowance for possible loan losses at a level that adequately provides for potential losses. LEASE FINANCING Leases of equipment, automobiles, and aircraft to customers generally are direct leases in which the Corporation's subsidiaries have acquired the equipment, automobiles, or aircraft with no outside financing. Such leases are accounted for as direct financing leases for financial reporting purposes. Under the direct financing method, a receivable is recorded for the total amount of the lease payments to be received. Unearned lease income, representing the excess of the sum of the aggregate rentals of the equipment, automobiles or aircraft over its cost is included in income over the term of the lease under the interest method. EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED The excess of cost over net assets of the banks purchased is being amortized, principally on the straight-line method, over periods ranging from seven to fifteen years. CONSOLIDATED STATEMENT OF CASH FLOWS Cash and cash equivalents include cash and cash items, amounts due from banks and federal funds sold. Generally federal funds are purchased and sold for one day periods. Net cash provided by operating activities reflects cash payments as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Interest paid on deposits and other borrowings $49,220 $45,443 $35,111 - ---------------------------------------------------------------------------------------------------------------------- Income taxes paid $13,800 $ 8,700 $ 8,415 - ----------------------------------------------------------------------------------------------------------------------
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. EARNINGS PER SHARE Per common share amounts have been calculated based upon the weighted average number of common shares outstanding in each period, as adjusted for the two-for-one stock split distributed in August 1994. The dilutive effects of unexercised stock options are not significant. 44 48 ACCOUNTING CHANGES Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," was released in June 1996 and is effective for transactions occurring after December 31, 1996. Early adoption of the Statement is not permitted. Under the provisions of SFAS No. 125, each party to a transaction recognizes only assets it controls and liabilities it has incurred, derecognizes assets only when control has been surrendered and derecognizes liabilities only when they have been extinguished. Transactions are to be separated into components and separate assets and liabilities may need to be recorded for the different components. The Corporation does not expect the adoption of this pronouncement to have a material impact on the financial statements. 2. ACQUISITIONS On May 2, 1994, the Corporation acquired all of the outstanding stock of Scope Leasing, Inc. (Scope) in exchange for 104,562 common shares of the Corporation. Scope, a Columbus, Ohio based company specializing in aircraft leasing, operates as a wholly-owned subsidiary of Park National Bank under the Scope name. At the time of acquisition, Scope had approximately $16 million in assets. The transaction was accounted for as a pooling-of-interests, but due to the immateriality of such acquisition, prior year financial statements were not restated. On December 6, 1996, Richland Trust Company acquired five branch offices in Richland County from Peoples National Bank. In addition to the fixed assets, the purchase included $98 million of deposits and $31 million of loans. The banking business of the five branches was consolidated into Richland Trust Company's operations. The excess of the cost over net assets purchased was $10 million and is being amortized using the straight-line method over seven years. On October 28, 1996, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement") with First-Knox Banc Corp. (First-Knox), a bank holding company headquartered in Mount Vernon, Ohio, providing for a merger of First-Knox into the Corporation. Under the terms of the Merger Agreement, the stockholders of First-Knox are expected to receive .5914 shares of the Corporation's common stock per share of First-Knox common stock in a tax free exchange. The Corporation expects to issue an aggregate of 2,345,000 shares of common stock to complete the merger which will be accounted for as a pooling-of-interests. Completion of the merger is subject to certain conditions, including the approval of bank regulators and other governmental agencies, the approval of stockholders of First-Knox and the Corporation, and other conditions to closing customary of a transaction of this type. The merger is expected to be completed during the second quarter of 1997. 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 $13,745,000 and $17,187,000 at December 31, 1996 and 1995, respectively. No other compensating balance arrangements were in existence at year end. 45 49 4. INVESTMENT SECURITIES The amortized cost and estimated fair values of investment securities at December 31 are as follows:
GROSS GROSS UNREALIZED UNREALIZED (IN THOUSANDS) AMORTIZED HOLDING HOLDING ESTIMATED COST GAINS LOSSES FAIR VALUE - ------------------------------------------------------------------------------------------------------------------------- 1996: SECURITIES AVAILABLE-FOR-SALE: Obligations of U.S. Treasury and other U.S. Government agencies $ 160,803 $ 3,481 $ 9 $ 164,275 - ------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities 210,981 1,754 271 212,464 - ------------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 1,863 9 30 1,842 - ------------------------------------------------------------------------------------------------------------------------- Other equity securities 7,470 136 -- 7,606 - ------------------------------------------------------------------------------------------------------------------------- TOTAL SECURITIES AVAILABLE-FOR-SALE $381,117 $ 5,380 $310 $386,187 - ------------------------------------------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY: Obligations of states and political subdivisions $ 9,784 $ 453 $ 8 $ 10,229 - ------------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 668 3 11 660 - ------------------------------------------------------------------------------------------------------------------------- Other securities 328 -- -- 328 - ------------------------------------------------------------------------------------------------------------------------- TOTAL SECURITIES HELD-TO-MATURITY $ 10,780 $ 456 $ 19 $ 11,217 - ------------------------------------------------------------------------------------------------------------------------- 1995: SECURITIES AVAILABLE-FOR-SALE: Obligations of U.S. Treasury and other U.S. Government agencies $ 150,234 $ 6,849 $ 27 $ 157,056 - ------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies' asset-backed securities 148,492 2,293 105 150,680 - ------------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 2,857 9 -- 2,866 - ------------------------------------------------------------------------------------------------------------------------- Other equity securities 6,715 97 -- 6,812 - ------------------------------------------------------------------------------------------------------------------------- Total Securities Available-for-Sale $ 308,298 $ 9,248 $ 132 $ 317,414 - ------------------------------------------------------------------------------------------------------------------------- SECURITIES HELD-TO-MATURITY: Obligations of states and political subdivisions $ 9,566 $ 622 $ 10 $ 10,178 - ------------------------------------------------------------------------------------------------------------------------- Other asset-backed securities 1,043 5 16 1,032 - ------------------------------------------------------------------------------------------------------------------------- Other securities 707 -- -- 707 - ------------------------------------------------------------------------------------------------------------------------- Total Securities Held-to-Maturity $ 11,316 $ 627 $ 26 $ 11,917 - -------------------------------------------------------------------------------------------------------------------------
46 50 The amortized cost and estimated fair value of investments in debt securities at December 31, 1996 are shown below (in thousands) by contractual maturity except for asset-backed securities which are shown based on expected maturities:
WEIGHTED AMORTIZED ESTIMATED AVERAGE AVERAGE COST FAIR VALUE MATURITY YIELD - ------------------------------------------------------------------------------------------------------------------------ SECURITIES AVAILABLE-FOR-SALE: U.S. Treasury and agencies' notes: Within one year $ 44,915 $ 44,906 .1 years 5.36% - ------------------------------------------------------------------------------------------------------------------------ One through five years 95,888 99,061 2.3 years 7.50% - ------------------------------------------------------------------------------------------------------------------------ Five through ten years 20,000 20,308 8.4 years 7.37% - ------------------------------------------------------------------------------------------------------------------------ Total $160,803 $164,275 2.4 years 6.89% - ------------------------------------------------------------------------------------------------------------------------ U.S. Government agencies' asset-backed securities: Within one year $ 39,176 $ 39,110 .7 years 5.80% - ------------------------------------------------------------------------------------------------------------------------ One through five years 168,893 170,376 3.5 years 6.82% - ------------------------------------------------------------------------------------------------------------------------ Five through ten years 2,912 2,978 5.2 years 7.13% - ------------------------------------------------------------------------------------------------------------------------ Total $210,981 $212,464 3.0 years 6.63% - ------------------------------------------------------------------------------------------------------------------------ Other asset-backed securities: One through five years $ 1,863 $ 1,842 4.1 years 7.07% - ------------------------------------------------------------------------------------------------------------------------ SECURITIES HELD-TO-MATURITY: Obligations of state and political subdivisions: Within one year $ 2,313 $ 2,330 .5 years 5.18% - ------------------------------------------------------------------------------------------------------------------------ One through five years 6,037 6,465 3.2 years 6.31% - ------------------------------------------------------------------------------------------------------------------------ Five through ten years 1,434 1,434 8.5 years 5.05% - ------------------------------------------------------------------------------------------------------------------------ Total $ 9,784 $ 10,229 3.3 years 5.86% - ------------------------------------------------------------------------------------------------------------------------ Other asset-backed securities: One through five years $ 668 $ 660 2.1 years 6.04% - ------------------------------------------------------------------------------------------------------------------------ Other securities: Within one year $ 10 $ 10 .2 years 5.50% - ------------------------------------------------------------------------------------------------------------------------ One through five years 318 318 4.4 years 6.54% - ------------------------------------------------------------------------------------------------------------------------ Total $ 328 $ 328 4.3 years 6.51% - ------------------------------------------------------------------------------------------------------------------------
Investment securities having a book value of $282,468,000 and $248,147,000 at December 31, 1996 and 1995, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements and to secure repurchase agreements sold. 47 51 Gross losses of approximately $1,310,000 and $614,000 were recognized during 1996 and 1995 on sales of available-for-sale securities, respectively. There were no gross gains from the sale of securities in 1996 or 1995. Gross gains and losses of approximately $4,000 and $3,310,000, respectively, were recognized during 1994 on sales of available-for-sale securities. Tax benefits related to securities losses were $459,000 in 1996, $215,000 in 1995 and $1,157,000 in 1994. The Corporation transferred $14,476,000 of securities classified as held-to-maturity to available-for-sale at December 31, 1995. An unrealized gain of $571,000 was recorded as an adjustment to stockholders' equity at the date of the transfer. The transfer was made pursuant to the Financial Accounting Standards Board's November, 1995 Special Report on SFAS No. 115 which permitted one time transfers of securities. The Corporation transferred all the U.S. Government agency asset-backed securities that were classified as held-to-maturity to available-for-sale. All U.S. Government agency securities are classified as available-for-sale at December 31, 1996 and 1995. 5. LOANS The composition of the loan portfolio is as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 129,269 $ 118,225 - ----------------------------------------------------------------------------------------------------------------------- Real estate - construction 52,443 40,871 - ----------------------------------------------------------------------------------------------------------------------- Real estate - residential 466,957 444,005 - ----------------------------------------------------------------------------------------------------------------------- Real estate - commercial 203,023 191,127 - ----------------------------------------------------------------------------------------------------------------------- Consumer, net 239,961 209,481 - ----------------------------------------------------------------------------------------------------------------------- Leases, net 20,950 21,018 - ----------------------------------------------------------------------------------------------------------------------- TOTAL $1,112,603 $1,024,727 - -----------------------------------------------------------------------------------------------------------------------
Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" (SFAS No. 114 and 118). SFAS No. 114 and 118 require that impaired loans be measured based on the present value of expected cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. 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. Non-accrual and restructured loans are summarized as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Impaired loans: Non-accrual $ 813 $ 717 - ----------------------------------------------------------------------------------------------------------------------- Restructured 1,872 1,403 - ----------------------------------------------------------------------------------------------------------------------- Total impaired loans 2,685 2,120 - ----------------------------------------------------------------------------------------------------------------------- Other non-accrual loans 1,171 1,511 - ----------------------------------------------------------------------------------------------------------------------- TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,856 $3,631 - -----------------------------------------------------------------------------------------------------------------------
48 52 The allowance for credit losses related to impaired loans at December 31, 1996 and 1995 was $403,000 and $318,000, respectively. All impaired loans for both periods were subject to a related allowance for credit losses. The average balance of impaired loans was $2,857,000 for 1996 and $2,624,000 for 1995. 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, 1996 and 1995, the Corporation recognized $337,000 and $279,000, respectively, of interest income on impaired loans, which included $324,000 and $276,000, respectively, of interest income recognized using the cash basis method of income recognition. Effective January 1, 1996, the Corporation adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," (SFAS No. 122), which requires the recognition of rights to service loans for others as separate assets, however those servicing rights are acquired. The adoption of SFAS No. 122 did not have a material impact on the Corporation's financial statements in 1996. Certain of the Corporation's executive officers, directors and their affiliates are loan customers of the Corporation's banking subsidiaries. As of December 31, 1996 and 1995, loans aggregating approximately $27,798,000 and $24,805,000, respectively, were outstanding to such parties. 6. ALLOWANCE FOR POSSIBLE LOAN LOSSES Activity in the allowance for possible loan losses is summarized as follows:
(IN THOUSANDS) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Balance, January 1 $25,073 $21,562 $20,178 - ----------------------------------------------------------------------------------------------------------------------- Provision for loan losses 4,520 4,664 1,840 - ----------------------------------------------------------------------------------------------------------------------- Losses charged to the reserve (3,859) (2,413) (2,430) - ----------------------------------------------------------------------------------------------------------------------- Recoveries 2,068 1,260 1,974 - ----------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $27,802 $25,073 $21,562 - -----------------------------------------------------------------------------------------------------------------------
7. INVESTMENT IN FINANCING LEASES The following is a summary of the components of the Corporation's affiliates' net investment in direct financing leases:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Total minimum payments to be received $25,014 $25,049 - ------------------------------------------------------------------------------------------------------------------------- Estimated unguaranteed residual value of leased property -- 13 - ------------------------------------------------------------------------------------------------------------------------- Less: unearned income (4,064) (4,044) - ------------------------------------------------------------------------------------------------------------------------- TOTAL $20,950 $21,018 - -------------------------------------------------------------------------------------------------------------------------
49 53 Minimum lease payments, in thousands, to be received as of December 31, 1996 are:
DECEMBER 31, (IN THOUSANDS) - --------------------------------------------------------------------------------- 1997 $ 6,731 - --------------------------------------------------------------------------------- 1998 5,381 - --------------------------------------------------------------------------------- 1999 4,317 - --------------------------------------------------------------------------------- 2000 2,978 - --------------------------------------------------------------------------------- 2001 5,607 - --------------------------------------------------------------------------------- TOTAL $ 25,014 - ---------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT The major categories of premises and equipment and accumulated depreciation are summarized as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Land $ 4,560 $ 4,543 - ------------------------------------------------------------------------------------------------------------------------ Buildings 15,929 15,639 - ------------------------------------------------------------------------------------------------------------------------ Equipment, furniture and fixtures 14,383 14,106 - ------------------------------------------------------------------------------------------------------------------------ Leasehold improvements 967 780 - ------------------------------------------------------------------------------------------------------------------------ TOTAL 35,839 35,068 - ------------------------------------------------------------------------------------------------------------------------ Less: accumulated depreciation and amortization (19,027) (17,907) - ------------------------------------------------------------------------------------------------------------------------ PREMISES AND EQUIPMENT, NET $ 16,812 $ 17,161 - ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense amounted to $2,027,000, $1,925,000 and $1,700,000 for the three years ended December 31, 1996, 1995 and 1994, respectively. The Corporation and its subsidiaries lease certain premises and equipment accounted for as operating leases. The following is a schedule at December 31, 1996 of the future minimum rental payments required for the next five years under such leases with initial terms in excess of one year:
DECEMBER 31, (IN THOUSANDS) - ---------------------------------------------------------------------------------- 1997 $ 353 - ---------------------------------------------------------------------------------- 1998 362 - ---------------------------------------------------------------------------------- 1999 367 - ---------------------------------------------------------------------------------- 2000 273 - ---------------------------------------------------------------------------------- 2001 191 - ---------------------------------------------------------------------------------- Thereafter 548 - ---------------------------------------------------------------------------------- TOTAL $2,094 - ----------------------------------------------------------------------------------
Rent expense amounted to $416,000, $382,000, and $296,000 for the three years ended December 31, 1996, 1995 and 1994, respectively. 50 54 9. STOCK OPTION PLAN The Park National Corporation 1995 Incentive Stock Option Plan (the "Plan") was adopted April 17, 1995. The 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 Plan is 200,000. Approximately 128,000 were available for future grants at December 31, 1996. Incentive stock options may be granted at a price not less than fair market value at the date of the grant for an option term of up to five years. No incentive stock options may be granted under the Plan after January 16, 2005. The Corporation's stock option activity and related information is summarized as follows:
DECEMBER 31, 1996 1995 - ---------------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE - ---------------------------------------------------------------------------------------------------------------- Outstanding at beginning of period 40,000 $47.67 -- $ -- - ---------------------------------------------------------------------------------------------------------------- Granted 28,581 47.97 43,550 47.68 - ---------------------------------------------------------------------------------------------------------------- Exercised (10,000) 47.71 (3,550) 47.75 - ---------------------------------------------------------------------------------------------------------------- Forfeited/Expired (400) 47.28 -- -- - ---------------------------------------------------------------------------------------------------------------- Outstanding at end of period 58,181 47.82 40,000 47.67 - ---------------------------------------------------------------------------------------------------------------- Exercisable at end of period 56,331 47.75 36,450 47.75 - ---------------------------------------------------------------------------------------------------------------- Weighted-average fair value of options granted during the year per option $10.41 -- $10.29 -- - ----------------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 1996 ranged from $45.50 to $53.00. The weighted-average remaining contractual life of these options is approximately 3.8 years. 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 Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," (SFAS No. 123) requires 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 for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.48% and 6.41%; a dividend yield of 2.50%, a volatility factor of the expected market price of the Corporation's common stock of .219, and a weighted-average expected option life of 4 years. 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, option 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 of 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. 51 55 Because the effect of applying SFAS No. 123's fair value method to the Corporation's stock options results in net income and earnings per share that are not materially different from amounts reported in the consolidated statements of income, pro forma information has not been provided. 10. SHORT-TERM BORROWINGS Short-term borrowings are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Securities sold under agreements to repurchase and federal funds purchased $107,345 $102,651 - ------------------------------------------------------------------------------------------------------------------------ Federal home loan bank advances -- 10,000 - ------------------------------------------------------------------------------------------------------------------------ Other short-term borrowings 1,885 1,341 - ------------------------------------------------------------------------------------------------------------------------ Total short-term borrowings $109,230 $113,992 - ------------------------------------------------------------------------------------------------------------------------
The outstanding balances for all short-term borrowings as of December 31, 1996, 1995 and 1994 (in thousands) and the weighted-average interest rates as of and paid during each of the years then ended are as follows:
REPURCHASE DEMAND AGREEMENTS FEDERAL NOTES AND FEDERAL HOME LOAN DUE U.S. FUNDS BANK TREASURY DECEMBER 31, (DOLLARS IN THOUSANDS) PURCHASED ADVANCES AND OTHER - ----------------------------------------------------------------------------------------------------------------------- 1996: ENDING BALANCE $107,345 $ -- $1,885 - ----------------------------------------------------------------------------------------------------------------------- HIGHEST MONTH-END BALANCE 131,672 10,000 2,786 - ----------------------------------------------------------------------------------------------------------------------- AVERAGE DAILY BALANCE 111,480 1,066 1,641 - ----------------------------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE INTEREST RATE: AS OF YEAR-END 4.42% -- 5.78% - ----------------------------------------------------------------------------------------------------------------------- PAID DURING THE YEAR 4.41% 6.29% 5.73% - ----------------------------------------------------------------------------------------------------------------------- 1995: Ending balance $102,651 $10,000 $1,341 - ----------------------------------------------------------------------------------------------------------------------- Highest month-end balance 149,556 10,000 3,144 - ----------------------------------------------------------------------------------------------------------------------- Average daily balance 121,057 9,699 2,083 - ----------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate: As of year-end 4.67% 5.94% 5.23% - ----------------------------------------------------------------------------------------------------------------------- Paid during the year 4.98% 6.21% 4.95% - ----------------------------------------------------------------------------------------------------------------------- 1994: Ending balance $141,475 $10,000 $3,791 - ----------------------------------------------------------------------------------------------------------------------- Highest month-end balance 141,475 20,000 3,791 - ----------------------------------------------------------------------------------------------------------------------- Average daily balance 112,956 6,773 1,963 - ----------------------------------------------------------------------------------------------------------------------- Weighted-average interest rate: As of year-end 5.04% 6.31% 6.20% - ----------------------------------------------------------------------------------------------------------------------- Paid during the year 3.50% 5.07% 4.45% - -----------------------------------------------------------------------------------------------------------------------
52 56 11. FEDERAL INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation's deferred tax assets and liabilities are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Allowance for loan losses $ 9,731 $ 8,775 - ------------------------------------------------------------------------------------------------------------------------ Deferred loan fees 328 455 - ------------------------------------------------------------------------------------------------------------------------ Deferred compensation 559 494 - ------------------------------------------------------------------------------------------------------------------------ Other 2,085 1,883 - ------------------------------------------------------------------------------------------------------------------------ TOTAL DEFERRED TAX ASSETS $ 12,703 $ 11,607 - ------------------------------------------------------------------------------------------------------------------------ Deferred tax liabilities: Lease revenue reporting $ 2,819 $ 2,681 - ------------------------------------------------------------------------------------------------------------------------ Unrealized holding gain on securities 1,775 3,191 - ------------------------------------------------------------------------------------------------------------------------ Fixed assets, principally due to depreciation 657 696 - ------------------------------------------------------------------------------------------------------------------------ Other 3,878 3,051 - ------------------------------------------------------------------------------------------------------------------------ TOTAL DEFERRED TAX LIABILITIES $ 9,129 $ 9,619 - ------------------------------------------------------------------------------------------------------------------------ DEFERRED TAX ASSETS, NET $ 3,574 $ 1,988 - ------------------------------------------------------------------------------------------------------------------------
The components of the provision for federal income taxes are shown below:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Currently payable $12,848 $11,622 $8,594 - ---------------------------------------------------------------------------------------------------------------------- Deferred (170) (775) 371 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $12,678 $10,847 $8,965 - ----------------------------------------------------------------------------------------------------------------------
The following is a reconcilement of federal income tax expense to the amount computed at the statutory rate of 35% for the years ended December 31, 1996, 1995 and 1994.
DECEMBER 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Statutory corporate tax rate 35.0% 35.0% 35.0% - ---------------------------------------------------------------------------------------------------------------------- Changes in rate resulting from: Tax-exempt interest income - 1.0% - 1.2% - 1.8% - ---------------------------------------------------------------------------------------------------------------------- Other - 0.9% - 0.9% - 2.3% - ---------------------------------------------------------------------------------------------------------------------- EFFECTIVE TAX RATE 33.1% 32.9% 30.9% - ----------------------------------------------------------------------------------------------------------------------
53 57 12. BENEFIT PLANS The Corporation has a noncontributory defined benefit pension plan covering substantially all of its employees. The plan provides benefits based on an employee's years of service and compensation. The Corporation's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions from those used for financial reporting purposes. Net pension cost included the following components:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 639 $ 599 $ 651 - ----------------------------------------------------------------------------------------------------------------------- Interest cost on projected benefit obligation 654 566 530 - ----------------------------------------------------------------------------------------------------------------------- Actual return on plan assets (1,748) (1,843) (221) - ----------------------------------------------------------------------------------------------------------------------- Net amortization and deferral 950 1,201 (369) - ----------------------------------------------------------------------------------------------------------------------- PENSION COST, NET $ 495 $ 523 $ 591 - ----------------------------------------------------------------------------------------------------------------------- The funded status of the plan and the accrued pension cost were as follows: DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $ 6,393 $ 6,012 $5,370 - ----------------------------------------------------------------------------------------------------------------------- Nonvested benefits 128 118 111 - ----------------------------------------------------------------------------------------------------------------------- ACCUMULATED BENEFIT OBLIGATION 6,521 6,130 5,481 - ----------------------------------------------------------------------------------------------------------------------- Impact of projected future salary increases 2,625 2,603 2,221 - ----------------------------------------------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION 9,146 8,733 7,702 - ----------------------------------------------------------------------------------------------------------------------- Plan assets at fair value 10,670 9,549 7,265 - ----------------------------------------------------------------------------------------------------------------------- PLAN ASSETS IN EXCESS OF/(LESS THAN) PROJECTED BENEFIT OBLIGATION 1,524 816 (437) - ----------------------------------------------------------------------------------------------------------------------- Items not yet recognized in income: Unrecognized net (gain)/loss from past experience different from that assumed and effects of changes in assumptions (1,756) (643) 330 - ----------------------------------------------------------------------------------------------------------------------- Unrecognized prior service cost (189) (208) (256) - ----------------------------------------------------------------------------------------------------------------------- Initial transition asset which is being amortized over 15.8 years (91) (107) (123) - ----------------------------------------------------------------------------------------------------------------------- ACCRUED PENSION COST INCLUDED IN CONSOLIDATED BALANCE SHEET $ (512) $ (142) $ (486) - -----------------------------------------------------------------------------------------------------------------------
The Corporation contributed approximately $125,000, $867,000, and $0 to the plan in 1996, 1995 and 1994, respectively. 54 58 The assumptions used in determining pension expense and funded status information presented above were as follows:
DECEMBER 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Weighted-average discount rate 7.50% 7.50% 7.50% - ---------------------------------------------------------------------------------------------------------------------- Rate of future salary increases 5.00% 5.00% 5.00% - ---------------------------------------------------------------------------------------------------------------------- Long-term rate of return on assets 8.00% 8.00% 8.00% - ----------------------------------------------------------------------------------------------------------------------
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 $400,000, $380,000 and $286,000 for 1996, 1995 and 1994, respectively. 13. DIVIDEND RESTRICTIONS Bank and thrift regulators limit the amount of dividends a subsidiary bank or thrift can declare in any calendar year without obtaining prior approval. At December 31, 1996, approximately $16,371,000 of the total stockholders' equity of the bank and thrift subsidiaries is available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities. 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Loan commitments $182,573 $151,665 - ------------------------------------------------------------------------------------------------------------------------ Unused credit card limits 79,657 67,668 - ------------------------------------------------------------------------------------------------------------------------ Standby letters of credit 5,666 5,741 - ------------------------------------------------------------------------------------------------------------------------
The Corporation was party to various interest rate swap agreements, which matured in 1994, for which it received a six month variable interest rate and paid a fixed interest rate with a notional amount of $16 million at December 31, 1993. The weighted-average of the variable interest rates was 3.38% at December 31, 1993 compared to weighted-average fixed rates of 12.50% at December 31, 1993. A portion of these swaps was matched to various tax-exempt securities with $5.4 million matched at December 31, 1993. Net interest expense resulting from these swaps was $18,000 in 1994 and is shown as a reduction in interest income on tax-exempt securities in the consolidated statement of income. 55 59 The Corporation was also party to an interest rate swap agreement for which it received a fixed rate of interest and paid a six month variable interest rate with a notional amount of $10 million at December 31, 1993. The fixed interest rate was 4.32% and the variable interest rate was 3.50% at December 31, 1993. This swap hedged a portion of the variable rate loan portfolio and was terminated in 1994. Net interest expense or income from this swap is included in interest income on loans in the consolidated statement of income. Net interest expense from this swap was $85,000 in 1994. At December 31, 1994, there were no deferred gains or losses from swap terminations. 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 debtors' ability to honor their contracts is dependent upon the economic conditions in each loan's respective location. 15. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair value of financial instruments at December 31, 1996 and 1995 is as follows:
1996 1995 CARRYING FAIR CARRYING FAIR DECEMBER 31, (IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL ASSETS: Cash and federal funds sold $ 61,454 $ 61,454 $ 92,752 $ 92,752 - ------------------------------------------------------------------------------------------------------------------------ Investment securities 396,967 397,404 328,730 329,331 - ------------------------------------------------------------------------------------------------------------------------ Loans: Commercial, financial and agricultural 129,269 129,269 118,225 118,225 - ------------------------------------------------------------------------------------------------------------------------ Real estate - construction 52,443 52,443 40,871 40,871 - ------------------------------------------------------------------------------------------------------------------------ Real estate - residential 466,957 476,488 444,005 452,345 - ------------------------------------------------------------------------------------------------------------------------ Real estate - commercial 203,023 202,948 191,127 190,803 - ------------------------------------------------------------------------------------------------------------------------ Consumer, net 239,961 241,462 209,481 211,199 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LOANS 1,091,653 1,102,610 1,003,709 1,013,443 - ------------------------------------------------------------------------------------------------------------------------ Allowance for loan losses (27,802) -- (25,073) -- - ------------------------------------------------------------------------------------------------------------------------ LOANS RECEIVABLE, NET $1,063,851 $1,102,610 $ 978,636 $1,013,443 - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL LIABILITIES: Noninterest-bearing checking $ 174,158 $ 174,158 $ 190,014 $ 190,014 - ------------------------------------------------------------------------------------------------------------------------ Interest-bearing checking 152,312 152,312 141,214 141,214 - ------------------------------------------------------------------------------------------------------------------------ Savings accounts 251,410 251,410 236,950 236,950 - ------------------------------------------------------------------------------------------------------------------------ Money market accounts 105,453 105,453 83,873 83,873 - ------------------------------------------------------------------------------------------------------------------------ Time deposits 651,678 655,155 552,866 557,308 - ------------------------------------------------------------------------------------------------------------------------ Other 1,606 1,606 1,623 1,623 - ------------------------------------------------------------------------------------------------------------------------ TOTAL DEPOSITS $1,336,617 $1,340,094 $1,206,540 $1,210,982 - ------------------------------------------------------------------------------------------------------------------------ Short-term borrowings $ 109,230 $ 109,230 $ 113,992 $ 113,992 - ------------------------------------------------------------------------------------------------------------------------ UNRECOGNIZED FINANCIAL INSTRUMENTS: Loan commitments -- $ (183) -- $ (152) - ------------------------------------------------------------------------------------------------------------------------ Standby letters of credit -- (29) -- (29) - ------------------------------------------------------------------------------------------------------------------------
56 60 16. STOCK SPLIT The Corporation's Board of Directors declared a two-for-one stock split at the July 18, 1994 Directors' meeting. The additional shares of 3,594,825 were distributed on August 12, 1994 to stockholders of record on July 29, 1994. All shares and per share data have been restated for the two-for-one stock split. 17. CAPITAL RATIOS The following table reflects various measures of capital at December 31, 1996 and December 31, 1995:
1996 1995 - ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, (DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO - ---------------------------------------------------------------------------------------------------------------------- Total equity (1) $148,986 9.23% $136,424 9.24% - ---------------------------------------------------------------------------------------------------------------------- Tier 1 capital (2) 134,291 12.78% 128,900 13.35% - ---------------------------------------------------------------------------------------------------------------------- Total risk-based capital (3) 147,612 14.04% 141,132 14.61% - ---------------------------------------------------------------------------------------------------------------------- Leverage (4) 134,291 8.82% 128,900 8.91% - ----------------------------------------------------------------------------------------------------------------------
(1) Computed in accordance with generally accepted accounting principles, including unrealized market value adjustment of securities available-for-sale. (2) Stockholders' equity less certain intangibles and the unrealized market value adjustment of securities available-for-sale; computed as a ratio to risk-adjusted assets as defined. (3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to risk-adjusted assets, as defined. (4) Tier 1 capital computed as a ratio to average total assets less certain intangibles. The Corporation's Tier 1, total risk-based capital and leverage ratios are well above both the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00%, and 5.00%, respectively. At December 31, 1996, 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. 18. 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 $627,000, $873,000 and $23,000 in 1996, 1995 and 1994, respectively. 57 61 18. PARENT COMPANY STATEMENTS (continued) At December 31, 1996 and 1995, stockholders' equity reflected in the Parent Company balance sheet includes $47.7 million and $40.6 million, respectively, of undistributed earnings of the Corporation's subsidiaries which are restricted from transfer as dividends to the Corporation. BALANCE SHEET for the years ended December 31, 1996 and 1995
DECEMBER 31, (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ ASSETS: Cash $ 15,322 $ 13,224 - ------------------------------------------------------------------------------------------------------------------------ Investment in subsidiaries 123,619 116,388 - ------------------------------------------------------------------------------------------------------------------------ Excess of cost over net assets of banks purchased, net 1,339 1,598 - ------------------------------------------------------------------------------------------------------------------------ Dividends receivable from subsidiaries 8,700 7,500 - ------------------------------------------------------------------------------------------------------------------------ Other assets 3,939 587 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $152,919 $139,297 - ------------------------------------------------------------------------------------------------------------------------ Liabilities: Other liabilities $ 3,933 $ 2,873 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 3,933 2,873 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity: TOTAL STOCKHOLDERS' EQUITY 148,986 136,424 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $152,919 $139,297 - ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME for the years ended December 31, 1996, 1995 and 1994
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Income: DIVIDENDS FROM SUBSIDIARIES $24,600 $21,500 $ 8,680 - ---------------------------------------------------------------------------------------------------------------------- Expense: Amortization of intangibles 259 259 259 - ---------------------------------------------------------------------------------------------------------------------- Other, net 1,014 687 363 - ---------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 1,273 946 622 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE FEDERAL TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 23,327 20,554 8,058 - ---------------------------------------------------------------------------------------------------------------------- Federal income tax benefit 475 525 403 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 23,802 21,079 8,461 - ---------------------------------------------------------------------------------------------------------------------- Equity in undistributed earnings of subsidiaries 1,862 1,041 11,556 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $25,664 $22,120 $20,017 - ----------------------------------------------------------------------------------------------------------------------
58 62 18. PARENT COMPANY STATEMENTS (continued) STATEMENT OF CASH FLOWS for the years ended December 31, 1996, 1995 and 1994
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 25,664 $ 22,120 $ 20,017 - ---------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Amortization 259 259 259 - ---------------------------------------------------------------------------------------------------------------------- Undistributed earnings of subsidiaries (1,862) (1,041) (11,556) - ---------------------------------------------------------------------------------------------------------------------- Increase in dividends receivable from subsidiaries (1,200) (990) (1,710) - ---------------------------------------------------------------------------------------------------------------------- (Increase) decrease in other assets (3,298) 105 (272) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in other liabilities 705 411 (631) - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 20,268 20,864 6,107 - ---------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital contribution to subsidiary (8,000) -- -- - ---------------------------------------------------------------------------------------------------------------------- Purchase of investment securities (54) (30) -- - ---------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (8,054) (30) -- - ---------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends paid (9,998) (8,610) (8,054) - ---------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (118) (2,545) -- - ---------------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (10,116) (11,155) (8,054) - ---------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH 2,098 9,679 (1,947) - ---------------------------------------------------------------------------------------------------------------------- Cash at beginning of year 13,224 3,545 5,492 - ---------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 15,322 $ 13,224 $ 3,545 - ----------------------------------------------------------------------------------------------------------------------
59 63 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, 1996 and 1995, 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, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park National Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG L.L.P. Columbus, Ohio January 21, 1997 64 PARK NATIONAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1996 --------------------------------------- INDEX TO EXHIBITS -----------------
Exhibit No. Description Page No. - ----------- ----------- -------- 2(a) Purchase and Assumption Agreement, dated Pages 87 through 113 August 28, 1996, between Richland Trust Company and Peoples National Bank 2(b) Agreement and Plan of Merger, dated as of Incorporated herein by reference to October 28, 1996, between Park National Registrant's Registration Statement on Corporation ("Registrant") and First-Knox Banc Form S-4, filed January 24, 1997 Corp. (Registration No. 333-20417) ("Registrant's Form S-4") [Exhibit 2(a)] 2(c) Amendment to Agreement and Plan of Merger, Incorporated herein by reference to dated as of January 10, 1997, between Registrant's Form S-4 [Exhibit 2(b)] Registrant and First-Knox Banc Corp. 3(a) Articles of Incorporation of Park National Incorporated herein by reference to Corporation as filed with the Ohio Secretary Registrant's Form 8-B, filed May 20, of State on March 24, 1992 1992 (File No. 0-18772) ("Registrant's Form 8-B") [Exhibit 3(a)] 3(b) Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Park National Corporation as Registrant's Annual Report on Form 10-K filed with the Ohio Secretary of State on for the fiscal year ended May 6, 1993 December 31, 1993 (File No. 0-18772) [Exhibit 3(b)]
-83- 65
Exhibit No. Description Page No. - ----------- ----------- -------- 3(c) Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Park National Corporation as Registrant's Quarterly Report on Form filed with the Ohio Secretary of State on 10-Q for the fiscal quarter ended April 16, 1996 March 31, 1996 (File No. 1-13006) ("Registrant's March 1996 Form 10-Q") [Exhibit 3(a)] 3(d) Articles of Incorporation of Park National Incorporated herein by reference to Corporation, as amended (current) Registrant's March 1996 Form 10-Q [Exhibit 3(b) 3(e) Regulations of Registrant Incorporated herein by reference to Registrant's Form 8-B [Exhibit 3(b)] 10(a) Certified Copy of Resolutions Adopted by Board Incorporated herein by reference to of Directors of Park National Corporation on Registrant's Annual Report on Form 10-K July 17, 1995 Affecting Park National for the fiscal year ended December 31, Corporation Defined Benefit Pension Plan and 1995 (File No. 1-13006) ("Registrant's Trust 1995 Form 10-K") [Exhibit 10(a)] 10(b) Park National Corporation Defined Benefit Incorporated herein by reference to Pension Plan Registrant's 1995 Form 10-K [Exhibit 10(b)] 10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to Salary Deferral Plan and Trust Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772) [Exhibit 10(d)] 10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to National Corporation Registrant's Form S-4 [Exhibit 10(d)]
-84- 66
Exhibit No. Description Page No. - ----------- ----------- -------- 10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: between William T. McConnell and The Park (a) Registrant's Annual Report on National Bank; and Schedule A to Exhibit 10(f) Form 10-K for the fiscal year ended identifying other identical Split-Dollar December 31, 1993 (File No. 0-18772) Agreements between The Park National Bank and [Exhibit 10(f)]; and (b) Registrant's executive officers of Registrant Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-13006) [Exhibit 10(g)] 10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a) 1993, between Dominic C. Fanello and The Registrant's Annual Report on Form 10-K Richland Trust Company; and Schedule A to for the fiscal year ended December 31, Exhibit 10(f) identifying other identical 1993 (File No. 0-18772) [Exhibit 10(g)]; Split-Dollar Agreements between directors of and (b) Registrant's Form S-4 [Exhibit Registrant and The Park National Bank, The 10(f)] Richland Trust Company or Mutual Federal Savings Bank, as identified in such Schedule A 10(g) Park National Corporation 1995 Incentive Stock Incorporated herein by reference to Option Plan Registrant's Registration Statement on Form S-8 filed May 9, 1995 (Registration No. 33-92060) [Exhibit 4(d)] 10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to connection with the grant of options under the Registrant's 1995 Form 10-K [Exhibit Park National Corporation 1995 Incentive Stock 10(i)] Option Plan 10(i) Description of Park National Corporation Incorporated herein by reference to Supplemental Executive Retirement Plan Registrant's Form S-4 [Exhibit 10(i)]
-85- 67
Exhibit No. Description Page No. - ----------- ----------- -------- 10(j) Employment Security Agreement, dated as of Incorporated by reference to July 12, 1996, between The First-Knox National Registrant's Form S-4 [Exhibit 10(j)] Bank of Mount Vernon, Ohio and Carlos E. Watkins (identical agreements were entered into with Gordon E. Yance and Ian Watson) [To be assumed by Registrant pursuant to Agreement and Plan of Merger and Amendment to Agreement and Plan of Merger with First-Knox Banc Corp. identified as Exhibits 2(a) and 2(b)] 13 Annual Report to Stockholders of Registrant Incorporated herein by reference to the for the fiscal year ended December 31, 1996 financial statements portion of this (Not deemed filed except for portions thereof Annual Report on Form 10-K beginning at which are specifically incorporated by page 20 reference into this Annual Report on Form 10-K) 21 Subsidiaries of Registrant Incorporated herein by reference to Registrant's Form S-4 [Exhibit 21] 23 Consent of Ernst & Young LLP Pages 114 and 115 24 Powers of Attorney Pages 116 through 129 27 Financial Data Schedule Pages 130 and 131
-86- EX-2.A 2 EXHIBIT 2.A 1 EXHIBIT 2(a) ------------ Purchase and Assumption Agreement, dated August 28, 1996, between Richland Trust Company and Peoples National Bank 2 PURCHASE AND ASSUMPTION AGREEMENT --------------------------------- THIS PURCHASE AND ASSUMPTION AGREEMENT ("Agreement") is entered into this 28th day of August, 1996, by and between Richland Trust Company, headquartered in Mansfield, Ohio, an Ohio corporation ("Buyer"), and Peoples National Bank, headquartered in Wooster, Ohio, a federally chartered commercial bank ("Seller"). W I T N E S S E T H WHEREAS, Buyer wishes to purchase certain assets and assume certain liabilities of all five of the Mansfield, Ohio and Shelby, Ohio branch offices of Seller (the "Branches"); and WHEREAS, Seller and Buyer intend to apply to all necessary and appropriate State and Federal regulatory authorities, and make such other applications that might be required by law and regulation for permission and approval for Buyer to purchase certain assets and assume certain deposit account liabilities of Seller, and to take over and service these liabilities and assets as those of Buyer, all in accordance with the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows: SECTION 1. PURCHASE AND SALE OF ASSETS Seller shall sell, convey, assign and transfer to Buyer and Buyer shall purchase from Seller at the Closing (as defined in Section 4.1) all of Seller's rights, title and interest in and to the following assets (paragraphs (a) through (h) below, the "Assets"): (a) The real estate located at Mansfield Downtown Office, 127 Park Avenue West, Mansfield, Ohio 44901; Shelby Downtown Office, 43 West Main Street, Shelby, Ohio 44875; and Shelby Mansfield Road Office, 155 Mansfield Avenue, Shelby, Ohio 44875 which locations now house the owned Branches; (b) The existing leases for the two leased Branches, copies of which are attached hereto as Exhibit A; (c) All right, title and interest of Seller in and to all furniture, trade fixtures (including without limitation, all leasehold improvements), and all tangible property owned by Seller, located and used at the Branches including but 1 3 not limited to that property described in Exhibit B (the "Personal Property"), subject only to those exceptions also noted in that Exhibit; (d) All right, title and interest of Seller in and to the safe deposit boxes and business located at the Branches and all contracts and other agreements related thereto as of the close of business on the Closing Date (subject to the allocation of the safe deposit box rental payments); (e) All loans, if any, described in Exhibit C (the "Loans") which are acceptable to Buyer as of the Closing Date, it being understood that listed Loans not rejected by Buyer in writing at or prior to the Closing shall be deemed accepted by Buyer (which transfer shall be made without any reserve for possible loan losses). The Loans are being transferred to Buyer without recourse to Seller, and Seller disclaims all warranties and representations with respect to the Loans not specifically set forth in this Agreement and which may be implied by law or otherwise, including without limitation, all warranties as to the credit-worthiness of the borrowers and any guarantors and the value of any collateral. Notwithstanding anything in the preceding sentence to the contrary, Seller represents and warrants to Buyer that with respect to each of the Loans, any signature of an obligor or guarantor on any note, evidence of indebtedness, security instrument or other document associated therewith is the true signature of such obligor or guarantor; that with respect to each such Loan, no defense of any party to the Loan or any note, evidence of indebtedness, security instrument or other document associated therewith is good against Seller, and that each such Loan is properly secured by the collateral indicated, if any, in the documents relating to such Loan. The representations and warranties of the preceding sentence shall be effective for a two-year period from the Closing Date. Seller has no knowledge of any bankruptcy or insolvency proceedings instituted or threatened with respect to any obligor or guarantor of the Loans. The non-recourse nature of such Loans is of the essence of this Agreement; (f) All Cash (U.S. currency and coin) on hand at the Branches as of the close of business on the Closing Date; (g) All of the books and records (or copies thereof) relating to the Branches which (i) are properly maintained in the ordinary course of business at the Branches, (ii) are reasonably required to comply with all applicable laws, regulations, rules and sound business practices, and (iii) are necessary for Buyer's ownership of the Assets and/or Accounts (the "Records"). In the event Buyer requests, after the Closing Date, in writing, that Seller provide to Buyer information contained in the Records which are retained by Seller insofar as they relate to the operations of the Branches, the Assets and/or 2 4 Accounts prior to the Closing Date, Seller shall provide such information as soon as reasonably practicable; and (h) All right, title and interest of Seller in and to all claims, causes of action, and demands, including warranties against contractors, manufacturers and suppliers relating to the Assets. SECTION 2. PURCHASE PRICE Buyer shall pay to Seller with respect to the Branches, in the manner specified in Section 4 hereof, a sum equal to 10.40 percent (the "Percentage") of the aggregate total of the Accounts as of the close of business on the Closing Date, excluding accrued interest on such Accounts. The dollar figure which is the product of the Percentage times the aggregate total of the Accounts as of the close of business on the Closing Date (less $720,000 if a special assessment has not been made by the Federal Deposit Insurance Corporation against SAIF-insured Accounts prior to Closing) is herein called the "Purchase Price", which Purchase Price shall be deemed to be a premium paid on and for the Accounts assumed by the Buyer hereunder. All physical Assets associated with the Branches, including certain banking equipment and office equipment listed in Exhibit B, shall be purchased by Buyer at book value according to the financial records of Seller. All commercial, equity line, and installment loans pertaining to the Branches totaling approximately $11 million as further described in Exhibit C shall be purchased by the Buyer at par plus accrued interest thereon unless the Buyer rejects a loan or loans in writing prior to Closing. All mortgage loans pertaining to the Branches, totaling approximately $19 million, will be sold to the Buyer at the following price: 97.518. Buyer shall have until September 6, 1996 to perform due diligence on the mortgage loans and inform Seller of its intent to purchase all or none of said mortgage loans. Buyer shall pay Seller 1.25% of the mortgage loan balances for the related loan servicing. The mortgage loans shall be purchased at the price determined above plus accrued interest thereon. However, Buyer will not buy delinquent interest of more than 90 days. Funding for this loan sale will take place at Closing. If this Agreement is terminated pursuant to Section 12, this entire section shall be null and void. SECTION 3. BUYER'S ACCEPTANCE AND ASSUMPTION 3.1 ACCEPTANCE AND ASSUMPTION. As of the close of business on the Closing Date, Buyer shall: (a) DEPOSIT LIABILITIES. Assume and thereafter discharge and pay in full, and perform all obligations and duties incidental thereto (including without limitation the clearance of checks and drafts drawn against the deposit liabilities), all deposit liabilities of every kind and description (including, without limitation, time and demand accounts, certificates of deposit and all other deposit liabilities) of the Branches, together with all interest 3 5 accrued thereon through the Closing Date, in accordance with the records of Seller relating to such Branches as of the close of business of the Closing Date (all such deposit liabilities, together with such accrued interest, the "Accounts"), provided, however, that Seller shall retain and Buyer shall not assume any deposit account liabilities with respect to the following: (i) accounts escheatable during calendar year 1996; (ii) public funds; (iii) 401(k) funds; (iv) deposit accounts with a negative balance on the Closing Date unless the parties otherwise agree; (v) accounts which are not, in Buyer's estimation, adequately or properly documented. In connection with Individual Retirement Accounts ("IRAs"), Buyer shall assume, in addition to the deposit liability, the plan pertaining thereto and the custodial arrangement in connection therewith; (b) SAFETY DEPOSIT BUSINESS. Assume and thereafter faithfully honor and fully and timely perform and discharge all of the duties and obligations of Seller arising from and after the Closing Date with respect to the safety deposit business of the Branches, including, but not limited to, the maintenance of all necessary facilities for the use of safety deposit boxes by the renters thereof during the periods for which such persons have paid rent thereof in advance to Seller; and (c) OTHER LIABILITIES. Fully and timely perform and discharge, as the same may be or become due, all additional liabilities and obligations of Seller, if any, including from real estate leases, but only to the extent attributable to the Assets sold, assigned or transferred to Buyer by Seller pursuant to this Agreement and only to the extent arising by reason of Buyer's use or ownership of such Assets from and after the Closing. 3.2 NOTICE TO CUSTOMERS. Seller shall provide Buyer with an intermediate customer list on the Accounts and safe deposit business to be assumed, together with a set of mailing labels containing such information as Buyer shall specify and data tapes thereof, as of the month-end prior to Buyer's scheduled mailing referred to below. On the date of Closing, Seller shall 4 6 provide a final customer list on the assumed accounts. On such date as the Buyer may reasonably specify (but in no case prior to receipt of all necessary regulatory approvals), Seller shall notify the holders of the Accounts and safe deposit business to be assumed and the Loans to be purchased, if any, that, subject to closing requirements, Buyer will be assuming the duties and liability of the Accounts and safe deposit business or responsibility for the asset being purchased. The notification will be based on the list and labels referred to in the preceding paragraph and a log maintained at the Branches of new Accounts opened since the date of said list. Seller shall provide Buyer with a copy of said log up to the date of Seller's mailing. Buyer shall send notifications to the same holders five (5) days following Seller's mailing, setting out the details of its administration of the Accounts to be assumed. Each party shall obtain the approval of the other on its notification letter(s) prior to mailing, which approvals shall not be unreasonably withheld or delayed. Holders of deposit Accounts opened following the notifications contemplated above and prior to the Closing will be given a copy of both the Buyer's and Seller's notification letters by Seller at the time the account is opened. 3.3 DIRECT DEPOSIT ACCOUNTS. Seller will provide to Buyer, within thirty (30) days prior to Closing, a list of its Automated Clearing House ("ACH") entries for electronic transfer accounts domiciled at the Branches. At Closing, Buyer will provide ACH originators with account number conversion tapes or other documentary information necessary to enable such ACH originators to direct transactions to Buyer. Seller shall continue to accept and forward to Buyer ACH entries and corresponding funds and reclamation notices received by Seller from ACH originators for a period of one hundred twenty (120) days following the Closing. Seller shall notify Buyer of receipt of any such ACH funds or reclamation notices on the day of receipt. Buyer shall be responsible for processing and responding to any reclamation requests and shall indemnify and hold harmless Seller from any liability therefore in accordance with Section 11 hereof but only to the extent that there were sufficient funds in the account in question to cover said reclamation request as of the date of Closing. After the one hundred twenty (120)-day period, and following notice to Buyer, Seller may discontinue accepting and forwarding ACH entries and funds and return them to the originators marked "Account Closed." Seller shall not be liable for any account overdrafts which may be thereby created. Commencing sixty (60) days prior to the date of the Closing, Seller may decline to accept requests from customers for new direct deposit or debit arrangements. 3.4 DATA PROCESSING RESPONSIBILITIES. (a) Seller's sole and exclusive responsibilities concerning the provision of data processing services to or for the Branches after the Closing shall be as set forth in this Section 3.4(a) . Within two (2) weeks following the date of this Agreement, Seller shall provide Buyer with applicable product functions and specifications relating to the data processing support required for the Loans and Accounts (and safety deposit business if such data processing support currently is provided with respect to such business) maintained at the Branches and to be transferred to Buyer hereunder (such Loans and Accounts and safety deposit business, if applicable, hereinafter called the "Purchased Accounts"). No later than two (2) weeks after the date of this Agreement, Seller shall provide to Buyer file formats relating to the Purchased Accounts. No later than four (4) weeks after the date of this 5 7 Agreement, Seller shall provide to Buyer test tapes relating to the Purchased Accounts formatted as defined by the file formats previously delivered. The data files defined by the file formats shall be extracts of current master files as they exist on the Seller's system. The number of files to be produced by Seller shall be three (3) versions of test file tapes (frequency not to be less than two (2) week intervals) and one (1) version of the production/divestiture file tapes and one (1) backup copy. As early as practicable on the day following the day on which the Closing occurs, Seller shall deliver to Buyer the production/divestiture file tapes and a trial balance of records of account containing the pertinent data and descriptive information relating to the Purchased Accounts which is then available to Seller and containing the ATM customer file via a paper listing or electronic media; Seller warrants and represents that the information contained on such tapes is accurate and correct in all material respects as of the time given. Seller shall have no responsibility for the difference, if any, between its methods of accrual of interest or other amounts payable with respect to Purchased Accounts and Buyer's methods of accrual of interest and other amounts payable with respect to deposit, loan, and safety deposit accounts and business. (b) Prior to the Closing Date, Seller shall cooperate with Buyer, at Buyer's expense and at no expense to Seller, in making Branch Employees available at reasonable times for whatever program of training Buyer deems advisable; provided, however, the Buyer shall conduct such training program in a manner that does not materially interfere with or prevent the performance of the normal duties and activities of such Branch Employees. (c) During the period following receipt of all necessary regulatory approvals for the transaction until Closing Date, but at least twenty-five (25) days prior to the Closing Date, Seller shall cooperate with and permit Buyer , at Buyer's option and expense and at no expense to Seller, to make provision for the installation of teller equipment in the Branches; provided, however, that Buyer shall arrange for the installation of such equipment at such times and in a manner that does not significantly interfere with the normal business activities and operation of Seller or the Branches. An Employee of FirstMerit shall be on-site during this terminal installation to provide assurance that the existing Branch network configuration is still functional. (d) Seller shall cooperate with Buyer in securing proper documentation of change in custodian for any IRAs which are included in the Accounts of the Branches. (e) At Seller's costs, Seller shall issue, as of the Closing Date, standard account statements for each statement savings, NOW, and checking account included in the Accounts. Passbook transaction information that has not been posted to a passbook will be passed by Seller to Buyer via paper report listings or magnetic tape. Buyer shall be responsible for posting on passbooks the transactions reflected on such paper report listings or magnetic tape for passbook accounts. 3.5 NOW AND CHECKING ACCOUNTS. Within seven (7) days prior to the Closing, Buyer shall provide to holders of accounts which may be accessed by negotiable orders of withdrawal 6 8 ("NOWs") or checks, new NOWs or checks, as the case may be, MICR encoded with Buyer's routing and transit numbers and Buyer's identification number. Seller shall batch and deliver to Buyer NOWs and checks received by it drawn on assumed accounts within the time prescribed by law for a period of ninety (90) days following the Closing. Buyer shall pay in accordance with the law and customary banking practices all properly drawn and presented checks, drafts, debits and withdrawal orders presented to Buyer by mail, over-the-counter, through electronic media, or through the check clearing system of the banking industry, by depositors of the Accounts assumed by the Buyer hereunder, whether drawn on checks, drafts, or withdrawal order forms provided by Seller or Buyer; and in all other respects discharge, in the usual course of the banking business, the duties and obligations of Seller with respect to the balances due and owing to the depositors whose Accounts are assumed by the Buyer hereunder. Seller shall give Buyer a daily accounting of debits and Buyer shall indemnify Seller from and against any claims resulting from a return of items not in accordance with the requirements of the Uniform Commercial Code or Regulation CC to its clearing account. Buyer shall immediately reimburse Seller for such debits. After the ninety (90)-day period, Seller shall return these items marked "Refer to Maker." Buyer shall indemnify and hold harmless Seller for any claim of wrongful dishonor based on such returns. 3.6 INTEREST REPORTING. With respect to the reporting requirements of federal and state tax laws, Seller shall report from January 1, 1996, through the Closing Date, and Buyer shall report from the day after the Closing Date through the end of the calendar year all interest credited to, interest withheld from and early withdrawal penalties charged to accounts domiciled at the Branches and assumed by Buyer pursuant to this Agreement. Said reports shall be made to the holders of these accounts and to the applicable federal and state taxing and/or regulatory authorities. No later than the date of Closing, Seller shall provide Buyer with a certification of tax identification numbers (TIN) for each Account and, to the extent that a TIN is not delivered or is inaccurate, Seller shall indemnify Buyer for any loss, cost or penalty incurred as a result thereof. 3.7 RETIREMENT ACCOUNTS. The parties acknowledge that Seller is acting as custodian and holds certain of the deposits for participants in IRAs and Keogh Accounts ("Retirement Accounts") and that Buyer desires to act as custodian thereof from and after the Closing Date, to the extent permitted under the applicable custodial agreements. The parties shall confer and determine at least thirty (30) days prior to the Closing Date which, if any, of the Retirement Accounts cannot be transferred to Buyer under this Agreement. Seller shall be responsible for federal and state income tax reporting of Retirement Accounts accepted by Buyer from January 1, 1996, through the Closing Date. Buyer shall be responsible for all federal and state income tax reporting commencing on the day after the Closing Date for the Retirement Accounts assumed by Buyer through the end of the calendar year. Seller shall deliver to Buyer all Records from January 1, 1996, through the Closing Date pertaining to the Retirement Accounts assumed hereunder. In connection with Retirement Accounts, Buyer shall assume, in addition to the deposit liability, the plan pertaining thereto and the custodial arrangement in connection therewith. 7 9 3.8 OTHER LIABILITIES. Buyer shall assume only those liabilities and obligations of the Seller that are provided for in this Agreement. This Agreement shall not be construed as creating rights or remedies against the Buyer by third parties other than with respect to those liabilities and obligations assumed hereunder. 3.9 BACK-UP WITHHOLDING. Any amounts required by any governmental agencies to be withheld from any of the deposits (the "Withholding Obligations") will be handled as follows: (a) Any Withholding Obligations required to be remitted to the appropriate governmental agency prior to the Closing will be withheld and remitted by Seller and Seller shall provide Buyer with satisfactory evidence thereof at Closing; (b) At the Closing, Seller will remit to Buyer all sums withheld by Seller pursuant to Withholding Obligations together with satisfactory detail thereof which funds are or may be required to be remitted to governmental agencies on or after the Closing Date. Any Withholding Obligations required to be remitted to the appropriate governmental agency on or after the Closing will be remitted by Buyer. Buyer and Seller shall mutually indemnify and hold harmless the other from and against any claim relating to Withholding Obligations which is the responsibility of the other hereunder. 3.10 OVERDRAFTS. Any overdrafts approved on the Closing Date with respect to the ledger date for the immediately preceding day and thereafter will be the responsibility and risk of the Buyer, since Buyer's criteria for approving or rejecting overdrafts will be put in effect on the day before the Closing Date. All overdrafts approved before the Closing Date will be the responsibility and risk of Seller. 3.11 SPECIAL SAIF ASSESSMENT. Buyer shall assume and pay in full any assessment made by the Federal Deposit Insurance Corporation against SAIF-insured deposits being assumed hereunder which is in addition to the current rate of assessment, if such extra assessment occurs on or after the Closing Date, without regard to the calculation date. If such assessment is made prior to the Closing Date, Seller shall be liable for such assessment. SECTION 4. TRANSFER OF ASSETS 4.1 THE CLOSING. Subject to the provisions of Sections 10 and 12 of this Agreement, the consummation of the transactions provided for herein (the "Closing") shall take place no later than December 6, 1996 (the "Closing Date"), or on such other date and at such other time as the parties may agree. The Closing shall take place at such location as the parties may agree. 8 10 4.2 MANNER OF PAYMENT. Subject to the terms and conditions hereof, the Seller shall pay Buyer in cash the net amount calculated on the Settlement Statement provided for in Subsection 4.4 hereof. Payment shall be made on the first business day following the Closing Date by wire transfer of immediately available funds to an account to be designated by the Buyer. Seller shall pay per diem interest on the net amount due Buyer commencing with the day after the Closing Date and continuing through the day prior to Buyer's receipt of funds, at a rate equal to the average weighted cost of deposits at the Branches on the Closing Date. 4.3 ALLOCATION OF CERTAIN INCOME AND EXPENSE ITEMS. All interest payable on Accounts and interest accrued and unpaid on the Loans shall be calculated as of midnight on the day preceding the Closing Date. All utilities, real estate taxes, assessments and other expenses directly related to the Branch shall be prorated as of midnight on the day preceding the Closing Date. Seller shall pay the following charges: all costs and expenses associated with title insurance including premiums and examination charges on the real property; deed preparation and conveyance fee. Seller shall also provide and pay for a location survey of the Branch premises currently owned by Seller. Buyer shall pay the costs of any environmental survey it elects to conduct. Buyer shall reimburse Seller in full for all prepayments made by Seller (including security deposits) with respect to any such item unless such prepayment will be returned to Seller. All rents under the safe deposit box leases shall be prorated between Buyer and Seller by allocating to Buyer an amount equal to one-half of the aggregate of all such rents in the most recent twelve (12)-month period preceding the Closing Date. All prorations shall be paid on the day following the Closing Date; provided, however, that in the event any prorations cannot be calculated on the Closing Date, a post-closing adjustment shall be made in the manner specified ln Section 7.1. 4.4 CLOSING SETTLEMENT STATEMENT. For each Branch, Seller shall prepare and deliver to Buyer on the first business day following the Closing Date a Settlement Statement supported by appropriate Exhibits (substantially in the form of the statement attached hereof, as Exhibit D) to show the computations of the net settlement amount, which is to be paid by wire transfer from Seller to the credit of an account designated by Buyer. The Settlement Statement will be signed by Buyer and by Seller to indicate their acceptance of such computations, and copies will thereafter be retained by both parties to evidence the settlement sum paid. 4.5 INSPECTION OF BRANCHES. Buyer will inspect the Assets and the Records prior to the Closing Date at its expense and at such times and in such manner as is reasonably acceptable to Seller. On or before the last day of this inspection period, Buyer shall give written notice to Seller of any defects or problems with the Assets and the Records. Seller shall have thirty (30) days from the receipt of a notice from Buyer to remedy any defects or problems to the reasonable satisfaction of Buyer. Failure of Seller to so remedy any material defect within that period shall give Buyer the right to exclude any Accounts to which the defective Records relate from the assumption contemplated by Section 3.1 hereof and to exclude the defective Assets, as appropriate, from the transfer contemplated by Section 1 hereof, and to adjust the Purchase Price accordingly. 9 11 SECTION 5. SELLER'S EMPLOYEES AT BRANCH 5.1 EMPLOYMENT OF EXISTING BRANCH EMPLOYEES. It is Buyer's intent, to the extent possible, to hire as many Branch employees ("Employees") of Seller that it considers necessary to staff the Branches. However, Buyer shall have no obligation to hire any of the Employees. Buyer will interview all Employees it wishes to consider for employment, and will make known its hiring decisions by the Closing Date. For any Employee not hired by Buyer, Seller will pay such Employee severance in accordance with its policy. All such Employees will also be entitled to any other benefits, if any, required by law. All Employees not hired by Buyer shall be given first consideration by Buyer for any employment openings subsequently arising at Buyer. However, Buyer shall not have any obligation to hire such Employees. If Buyer subsequently hires any Employee while such Employee is receiving severance payments from Seller, Buyer will immediately notify Seller of such hire, and Seller will terminate any subsequent severance payments to that Employee. 5.2 TERMS OF EMPLOYMENT. All Employees hired by Buyer at Closing shall be credited for years of service under the employment of Seller for purposes of determining eligibility only, with respect to all employee benefits (including, but not limited to, medical/dental coverage, 401(k) plan, and vacation benefits), and for the purpose of determining vesting rights under Buyer's pension plan. All such Employees shall be immediately eligible, on the Closing Date, to participate in Buyer's employee benefits as if they had been employed by Buyer since their hire date with Seller, subject to the entry dates for the 401(k) plan. If during the first 180 days after Closing, any Employee hired by Buyer is terminated for any reason other than "for cause", Buyer agrees to pay such Employee severance calculated as follows: Two weeks salary (net of required taxes) for each year of service (including time employed by Buyer) up to a maximum separation benefit equal to twenty-six (26) weeks of salary. Employees employed full-time by Seller and Buyer combined for less than one full year that are terminated during this 180-day period for reasons other than "for cause" shall receive two weeks' salary as severance. All such Employees will also be entitled to any other benefits, if any, required by law. However, notwithstanding the above, if Buyer is unable to gain regulatory approval of its Branch consolidation plan prior to Closing, Buyer shall provide a list to Seller of the Employees who will only be needed on a temporary basis by the Buyer, and upon any termination of any such Employees during the 100-day period after Closing, Seller shall pay severance in accordance with its policy. 10 12 SECTION 6. CONDUCT OF BUSINESS PRIOR TO CLOSING Between the date of this Agreement and the Closing, and without the prior written consent of the Buyer, which consent shall not be unreasonably withheld, Seller shall not: (a) Engage in any transaction related to the Branches, except in the ordinary course of business; (b) Change any of its deposit account practices at the Branches, except as required by changes in applicable law or industrywide practice; (c) Take any action that would materially affect Buyer's rights hereunder or the assets to be acquired or liabilities to be assumed hereunder; (d) Take any action to amend or otherwise adjust a contract to be assumed without Buyer's consent; (e) Materially change its deposit pricing policy at the Branches; (f) Materially amend any Loan being purchased without Buyer's consent. Seller shall use its best efforts to maintain records in the usual manner, and preserve the present relationships with all customers of the Branches. SECTION 7. POST-CLOSING ADJUSTMENTS 7.1 GENERAL. The parties hereto acknowledge that certain amounts referred to herein may not be finally determinable until after the Closing as a result of the processing of NOWs and checks, loan payments and other transactions on or shortly before the Closing Date and other activity occurring in the operation of the Branches. The parties shall cooperate in the prompt determination and settlement of such amounts within thirty-five (35) days after the Closing Date in the manner consistent with the terms of this Agreement. 7.2 RETURNED ITEMS. As a part of the post-Closing adjustments, and with respect to the Accounts, Buyer shall pay Seller the aggregate amount of all items accepted by Seller for deposit or cashed against Customers' accounts prior to the Closing and which are subsequently returned unpaid; provided, however, that if Seller shall fail to make or properly reflect in the information provided to Buyer any provisional credit or hold on any such account in respect of uncollected funds represented by any such item, Buyer's obligations under this subsection in respect of such items shall be limited to the amount of collected funds in the account. With respect to any item, if (a) the Buyer cannot recover from the accountholder an amount otherwise payable to the Seller pursuant to this paragraph, and (b) the Buyer has not permitted withdrawals prior to the 11 13 expiration of the period of time such deposits are not available for withdrawal as previously determined by Seller and communicated to Buyer at Closing, then Buyer shall not be obligated to reimburse Seller for such item hereunder. 7.3 PAYMENT. Post-Closing adjustments shall be paid daily by wire transfer of immediately available funds to an account to be designated by the party due payments hereunder. SECTION 8. PUBLIC ANNOUNCEMENTS The parties agree that any written or oral public announcement of this purchase in addition to those notices provided for in Section 3 of this Agreement shall be made only upon the consent of both parties, which consent shall not be unreasonably withheld or delayed; provided, however, that nothing in this Section 8 shall be deemed to prohibit any party hereto from making any press release which its legal counsel deems necessary in order to fulfill such party's disclosure obligations imposed by law. SECTION 9. REPRESENTATIONS AND WARRANTIES 9.1 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: (a) ORGANIZATION AND AUTHORITY. Buyer is an Ohio corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio, with full power and authority to carry on its business as now being conducted and to own and operate the properties which it now owns and operates. The execution, delivery and performance by Buyer of this Agreement are within Buyer's corporate power, have been duly authorized by all necessary corporate action and do not contravene or constitute a default under any provision of applicable law or regulations or of Buyer's charter or by-laws or any judgment, injunction, order, decree, material agreement or material instrument binding upon Buyer and this Agreement is a valid and binding obligation of Buyer. Buyer is, and shall remain through the Closing Date, an insured institution, as defined in the Federal Deposit Insurance Act and applicable regulations thereunder. (b) LITIGATION. There is no action, suit or proceeding pending against Buyer, or to the knowledge of Buyer, threatened against or affecting Buyer, before any court or arbitrator or any governmental body, agency or official which could materially adversely affect the ability of Buyer to perform its obligations under this Agreement or which in any manner questions the validity of this Agreement. 12 14 (c) GOVERNMENTAL NOTICES. Buyer has not received any notice from any federal, state or other governmental agency indicating that such agency would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated hereby. (d) REGULATORY APPROVALS. The information furnished or to be furnished by Buyer to Seller for the purpose of enabling Seller to complete and file applications, if any, with appropriate regulators is or will be true and complete as of the date so furnished. (e) CONSENTS. Buyer has or will obtain prior to the Closing Date all consents, approvals or authorizations of all governmental authorities or agencies required for the execution, delivery and performance by it of this Agreement and the consummation by it of any transactions contemplated hereby. (f) NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker, person or firm acting on behalf of or under authority of Buyer or any of its affiliates is or will be entitled to any broker's or finder's fee or any other commission or similar fee directly or indirectly in connection with any of the transactions contemplated herein. 9.2 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: (a) ORGANIZATION AND AUTHORITY. Seller is a commercial bank duly organized, validly existing, and in good standing under the laws of the United States. The execution, delivery and performance by Seller of this Agreement are within Seller's corporate power, have been duly authorized by all necessary corporate action and do not contravene or constitute a default under any provision of applicable law or regulation of the charter or by-laws of Seller or any judgment, injunction, order, decree, material agreement or material instrument binding upon Seller or affecting any of the assets to be transferred hereby and this Agreement is a valid and binding obligation of Seller. Seller is and shall remain through the Closing Date, an insured bank, as defined in the Federal Deposit Insurance Act and applicable regulations thereunder. (b) COMPLIANCE WITH LAW. Seller holds all licenses, franchises, permits and authorizations necessary for the lawful conduct of its business at the Branches, and has not violated, and is not in violation of, any applicable statutes, laws, ordinances, rules, and regulations of all federal, state, and local governmental authorities having jurisdiction over the Branches or over any part of its operations. 13 15 (c) LITIGATION. There is no action, suit or proceeding pending against Seller, or to the knowledge of Seller threatened against or affecting Seller, before any court or arbitrator or any governmental body, agency or official which could materially adversely affect the ability of Seller to perform its obligations under this Agreement, which impacts the Seller's Richland County assets or the operations of the Branches, or which in any manner questions the validity of this Agreement. (d) TITLE TO ASSETS. Seller is the lawful owner of and has good and marketable title to the Assets to be conveyed hereunder, free and clear of all encumbrances, except for Permitted Exceptions as to the real estate conveyed. "Permitted Exceptions" shall mean (1) those standard printed exceptions appearing as Schedule B items in a standard ALTA owner's policy; (2) statutory liens for current taxes or assessments not yet due, or if due not yet delinquent, or the validity of which is being contested in good faith by appropriate proceedings; and (3) such other liens, imperfections in title, charges, easements, restrictions, and encumbrances which, individually and in the aggregate, are not substantial in amount and do not materially detract from the value of the property. (e) GOVERNMENTAL NOTICES. Seller has received no notice from any federal, state or other governmental agency indicating that such agency would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated hereby. (f) REGULATORY APPROVALS. The information furnished or to be furnished by Seller to Buyer for the purpose of enabling Buyer to complete and file applications with the appropriate regulators is or will be true and complete as of the date so furnished. (g) CONSENTS. Seller has or will obtain prior to the Closing Date all consents, approvals and authorizations of all governmental authorities or agencies required for the execution, delivery and performance by Seller of this Agreement and the consummation by it of any transactions contemplated hereby. (h) NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker, person or firm acting on behalf of or under authority of Seller or any of its affiliates is or will be entitled to any broker's or finder's fee or any other commission or similar fee directly or indirectly in connection with any of the transactions contemplated herein. (i) CONDITION OF REAL PROPERTY. As of the date of this Agreement: (1) Seller has received no notice of any pending or threatened condemnation 14 16 proceeding against the Branches; (2) Seller has not entered into any agreement regarding the Branches which would bind Buyer or materially affect Buyer's use and enjoyment of the Branches; and (3) Seller has not received any notice of any uncorrected violations of building codes relating to the Branches. SECTION 10. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES 10.1 CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations of Buyer hereunder are subject to the satisfaction or waiver on or before Closing Date of the following conditions: (a) FORM OF TRANSFER INSTRUMENTS. The validity of the form, substance and legal enforceability of all instruments of transfer and other documentation hereunder shall be subject to the reasonable approval of Buyer and its counsel and shall have been duly authorized by all necessary corporate action of Seller. (b) PERFORMANCE OF SELLER'S OBLIGATIONS. Seller shall have complied with all of its obligations and covenants hereunder and the representations and warranties of Seller hereunder shall continue to be true and correct as of Closing. (c) ACCESS TO INFORMATION. Seller shall have permitted Buyer, and its respective authorized representatives and agents, to have reasonable access, after the execution hereof, to all Records of Seller related to the assets and liabilities to be transferred pursuant to this Agreement. (d) ABSENCE OF LITIGATION. No action or proceeding shall have been instituted or threatened on or before the Closing Date pertaining to the transactions contemplated hereby or otherwise, the result of which could be materially adverse to the assumption, service and operation by Buyer of the liabilities assumed and the assets purchased hereunder. (e) APPLICATION FOR REGULATORY APPROVAL(S). To the extent that applicable laws or regulations require Seller so to act, Seller shall have made application within fifteen (15) calendar days following the mutual execution of this Agreement for all regulatory approval(s) necessary to validly consummate the transactions contemplated by this Agreement. (f) REGULATORY APPROVALS. Buyer and Seller shall have obtained all necessary regulatory approvals of the transaction contemplated hereby and all applicable waiting periods shall have passed. 15 17 (g) INSURANCE PROCEEDS AND CONDEMNATION PAYMENTS. In the event of any damage, destruction or condemnation, between the date hereof and the time of the Closing, of any property included in the Assets sold, transferred and assigned to Buyer hereunder, Seller shall have delivered to Buyer funds in an amount equal to the amount of proceeds from such condemnation or the cost of repairing, replacing or restoring the damaged or destroyed property to substantially the same condition prior to such damage or destruction, whether from insurance proceeds or otherwise together with a valid assignment of all of Seller's rights and claims against any third party by reason thereof. In the case of damage or destruction, Seller shall have the option to diligently proceed to restore, repair or replace the damaged or destroyed property so as to place such property in a condition, or provide replacements therefor, substantially the same as that prior to the damage or destruction. (h) OTHER AGREEMENTS. Seller shall have executed and delivered to the Buyer each of the following agreements relative to each Branch: (1) Warranty deeds transferring the owned Branch premises from Seller to Buyer; (2) The Bill of Sale in substantially the form of Exhibit E attached hereto (the "Bill of Sale"); (3) The Assignment and Assumption of IRAs and Keoghs in substantially the form of Exhibit F attached hereto (the "Assignment and Assumption of IRAs and Keoghs"); and (4) The Instrument of Assignment and Assumption in substantially the form of Exhibit G attached hereto (the "Instrument of Assignment and Assumption"). (5) The Assignments of Leases in substantially the form of Exhibit H attached hereto (the "Assignment of Lease") (i) Seller's Board shall have taken all corporate action necessary to effectuate this Agreement and Seller shall furnish Buyer with a certified copy of such resolution adopted by the Board of Directors evidencing the same. 10.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER. The obligations of Seller hereunder are subject to the satisfaction on or before the Closing Date of the following conditions: 16 18 (a) ABSENCE OF LITIGATION. No action or proceeding shall have been instituted or threatened on or before the Closing Date pertaining to the transactions contemplated hereby. (b) APPLICATION FOR REGULATORY APPROVAL(S). Buyer shall have made application within fifteen (15) calendar days following the mutual execution of this Agreement for all regulatory approval(s) necessary to validly consummate the transactions contemplated by this Agreement. (c) REGULATORY APPROVALS. Buyer and Seller shall have obtained all necessary regulatory approvals of the transaction contemplated hereby and all applicable waiting periods shall have passed. (d) PERFORMANCE OF BUYER'S OBLIGATIONS. Buyer shall have complied with all of its obligations and covenants hereunder and the representations and warranties of Buyer hereunder shall continue to be true and correct as of the Closing Date. (e) Other Agreements. Buyer shall have executed each of the following agreements to which it is a party: (1) The Assignment and Assumption of IRAs and Keoghs; and (2) The Instrument of Assignment and Assumption. (f) Buyer's Board shall have taken all corporate action necessary to effectuate this Agreement and Buyer shall furnish Seller with a certified copy of such resolution adopted by the Board of Directors evidencing the same. SECTION 11. INDEMNIFICATION 11.1 INDEMNIFICATION BY THE SELLER. From and after the Closing, Seller shall defend, indemnify and hold harmless Buyer for any claim, losses, liabilities, demands and obligations (including reasonable attorneys fees and expenses) asserted by any third party arising out of the acts or omissions of Seller, its officers and employees, related to the deposit accounts or contracts assumed by Buyer under this Agreement, or the assets transferred to Buyer by Seller as set forth in Section 1 or the operation of the Branches, where the act or omission giving rise to the claim occurred prior to the Closing Date or in connection with the performance by Seller of any of its post-Closing obligations under this Agreement. 11.2 INDEMNIFICATION BY THE BUYER. From and after the Closing, Buyer shall defend, indemnify and hold harmless Seller for any claim, losses, liabilities, demands and obligations (including reasonable attorneys fees and expenses) asserted by any third party arising out of the 17 19 acts or omissions of Buyer, its officers and employees, related to the deposit accounts or contracts assumed by Buyer under this Agreement, or the assets transferred to Buyer by Seller as set forth in Section 1 or the operation of the Branches, where the act or omission giving rise to the claim occurred on or subsequent to the Closing Date or in connection with the performance by Buyer of its post-Closing obligations under this Agreement. 11.3 NOTICE OF CLAIMS AND ASSUMPTIONS OF DEFENSE. With respect to any claim for indemnification under this Agreement, the indemnified party shall supply the indemnifying party with notice of any loss, damage or claim which if true could result in loss or damage subject to indemnification hereunder. All notices required by the preceding sentence shall be given as soon as possible but in no event later than fourteen (14) days of the receipt by the indemnified party of any such process or pleadings or any written notice of the assertion of any such claims, demands, losses or liabilities. The indemnifying party shall have the right to pay, settle or compromise any such claim. If the indemnifying party litigates the claim, the indemnifying party shall pay all costs of litigating the claim and any awards or judgments related to the claim which resulted from actions or inactions for which it is obligated to indemnify the indemnified party under this Agreement. If the indemnifying party fails to defend the indemnified party, or fails to pay, settle or compromise the claim within a reasonable period of time after notice, then the indemnified party shall be entitled to pay, settle or compromise the claim, or pay any award or judgment (after giving the indemnifying party notice of its intention to do so) and the indemnified party shall be entitled to receive reimbursement therefor from the indemnifying party upon demand, including costs of litigation and reasonable attorney's fees (whether the matter is litigated, settled or compromised). The obligations of each party to indemnify any other party shall not apply to any notice supplied by the indemnified party to the indemnifying party after three (3) years from the date hereof. 11.4 FINDER'S FEES. Each party shall defend and indemnify the other party against claims for brokerage fees, finder's fees, commissions or other similar fees of compensation (and related expenses) incurred by such party in connection with this Agreement or the transactions contemplated hereby. SECTION 12. TERMINATION This Agreement shall terminate and be of no further force or effect between the parties hereto, and the parties shall be released from all further obligations hereunder (except with respect to any liability for breach of any duty or obligation arising prior to the date of termination), upon the occurrence of any of the following: (a) Termination by mutual agreement as evidenced by a writing executed by the parties; (b) Upon the expiration of thirty (30) days after the State or the OCC or any other governmental agency issues a decision denying or refusing to grant 18 20 the approvals or consents required to be obtained pursuant to this Agreement, unless within said thirty (30)-day period, Seller and Buyer agree to submit an application to or appeal the decision of the regulatory authority which has denied or refused to grant said approval; (c) Immediately upon the expiration of thirty (30) days from the date that either party hereto has given notice to the other party hereto of the other party's breach or misrepresentation of any condition, warranty, representation or covenant herein; provided, however, that no such termination shall take effect if within said thirty (30)-day period the party so notified shall have fully and completely corrected the ground for termination as specified in the aforementioned notice; or (d) Upon failure to consummate the transaction provided for herein prior to December 6, 1996, unless such time is extended by mutual agreement of the parties. Nothing contained in this Section 12 shall be construed to permit either party hereto to terminate this Agreement due to its default or the immaterial default of the other party, and no termination hereunder shall relieve either party from any liability for its own breach of this Agreement. SECTION 13. NOTICES Any notice or other communication required or permitted hereunder shall be sufficiently given if delivered in person, by facsimile transmission or if sent by registered or certified mail, postage prepaid, addressed as follows: If to Seller: With a copy to: Peoples National Bank FirstMerit Corporation 121 North Market Street III Cascade Plaza Wooster, Ohio 44691 Akron, Ohio 44308 Attn: Carrie Tolstedt Attn: Gene Gottfried President & Chief Executive Officer and, if to Buyer: Richland Trust Company Park National Corporation 3 North Main Street 50 North Third Street Post Office Box 355 P. O. Box 3500 19 21 Mansfield, Ohio 44901-0355 Newark, Ohio 43058-3500 Attn: William P. Jilek Attn: William T. McConnell President Chairman Park National Corporation 21 S. First Street P. O. Box 3500 Newark, Ohio 43058-3500 Attn: David C. Bowers Secretary or to such other address as may be furnished in writing by either party to the other for such purpose. Such notice or communication shall be deemed to have been given as of three (3) business days after the date so mailed, or if delivered in person or by facsimile, when so delivered. SECTION 14. MISCELLANEOUS PROVISIONS 14.1 GOVERNING LAW. This Agreement is being delivered and is intended to be performed in the State of Ohio and shall be construed and enforced in accordance with the laws of such state. 14.2 SUCCESSORS AND ASSIGNS. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective transferees, successors and assigns, but this Agreement may not be assigned by either party without the prior written consent of the other. 14.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. 14.4 FURTHER ASSURANCES. Each of the parties hereto agrees to use its best efforts to obtain and will cooperate with the other in obtaining all approvals, consents and permissions required to be obtained by the terms hereof and to cause the satisfaction of all other conditions or its obligations. Seller and Buyer agree to execute and deliver any and all instruments, agreements and the documents reasonably necessary to effect the transactions contemplated by this Agreement. 14.5 EXPENSES. Except as expressly provided in this Agreement, each party hereto shall pay its own expenses. Buyer shall pay all sales taxes, if any, which may be assessed as a result 20 22 of the sale of the Branches pursuant to this Agreement. The provisions of this Section are of the essence and shall survive the termination of this Agreement. 14.6 CONFIDENTIALITY. Except to the extent disclosure may be required by law, Buyer will maintain the confidentiality of all information obtained from Seller which is not publicly available and will use such information only for purposes reasonably related to the performance of this Agreement and the consummation of the transactions contemplated hereby. The covenants of Buyer contained in this Section 14.6 are of the essence and shall survive any termination of this Agreement, but shall terminate at the Closing if it occurs, with respect to any information that is limited solely to the activities and transactions of the Branches; provided, however, that Buyer shall not be deemed to have violated covenants set forth in this Section 14.6 if Buyer shall in good faith disclose any of such confidential information in compliance with any legal process, order or decree issued by any court of competent jurisdiction or agency of government. 14.7 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, letters of intent and understandings of the parties concerning this subject matter and not incorporated herein. All schedules, exhibits and appendices to this Agreement are incorporated into this Agreement by reference and are made a part thereof. 14.8 AMENDMENTS; WAIVERS. No modification of this Agreement shall be binding unless contained in a writing executed by Seller and Buyer. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall any such waiver constitute a continuing waiver. 14.9 SEVERABILITY. In the event that any one or more provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. 14.10 HEADINGS. Section and paragraph headings are for convenience of reference only, and are not intended to be full or accurate descriptions of the contents of any section or paragraph. 14.11 INFORMATION AFTER CLOSING. For a period of seven (7) years following the Closing, Seller and Buyer mutually agree to provide each other, upon written request, with reasonable access to, or copies of, information and records relating to the Branches, including, without limitation, customer files which are in the possession or control of Buyer or Seller reasonably necessary to permit Seller or Buyer or any of their subsidiaries or affiliates to comply with or contest any applicable legal, tax, banking, accounting, or regulatory policies or requirements, any legal or regulatory proceedings or inquiries by customers. 14.12 SURVIVAL OF COVENANTS; REPRESENTATIONS AND WARRANTIES. The respective covenants, representations and warranties of Seller and Buyer contained or referred to in this Agreement or 21 23 any Certificate, Schedule, exhibit or other instrument delivered or to be delivered pursuant to this Agreement shall survive the Closing without limitation as to time. 14.13 RESTRICTION ON NEW BRANCHES. Neither Seller nor any of its existing affiliates shall open a new deposit taking office or loan origination office within Richland County for a period of five (5) years from the date of this Agreement. For a period of one (1) year following the Closing Date, Seller will not solicit any resident of Richland County to induce such person to shift its deposit, loan or other banking business to Seller; provided, however, that the foregoing shall not restrict, in any manner, (a) general media or other advertising not directed at a specific customer or (b) accepting a customer of the Branch who has requested a banking relationship for any reason other than the solicitation prohibited by the first clause of this Paragraph. It is expressly agreed that the foregoing restriction shall not prohibit Seller or any of its affiliates from acquiring, purchasing or merging with another financial institution or financial services company located within, having offices within or doing business within Richland County or continuing to maintain customer relationships that may exist with customers of other Peoples National Bank offices or FirstMerit affiliates that happen to live in Richland County. This Agreement does not prohibit any FirstMerit affiliates from participating in loans where either the collateral is located or the borrower resides or the originating lender has a presence in Richland County. SECTION 15. REGULATORY APPROVALS Buyer shall deliver to Seller copies of all applications, filings and registrations with any federal or state regulatory authority, and all supplements and amendments thereto, except for any confidential information contained therein at the sole discretion of Buyer, promptly upon the delivery of same to such authority. Buyer shall deliver to Seller promptly on receipt all material comments, requests for additional information and other correspondence relating to such applications, filings and registrations promptly on receipt. Buyer shall notify Seller of the receipt of all regulatory approvals and consents by telephone as soon as practical, but no later than three (3) business days following receipt by Buyer of written notice of such approvals and consents and shall promptly deliver copies of such consent or approval to Seller. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. RICHLAND TRUST COMPANY By: William P. Jilek ------------------------------ Title: President & C.E.O. ---------------------------- PEOPLES NATIONAL BANK By: Carrie Tolstedt ------------------------------ Title: President & CEO ---------------------------- 22 24 List of Exhibits to Purchase and Assumption Agreement, dated August 28, 1996, between Richland Trust Company and Peoples National Bank ------------------------------------------------
Exhibit Description ------- ----------- A Copies of Leases B 1-5 Description of Assets by Branch C Loans D Closing Settlement Statement E Bill of Sale F Assignment and Assumption of IRAs and KEOGHs G Instrument of Assumption of Certain Liabilities H Lease Assignments
The above-described Exhibits are not being filed herewith. Park National Corporation agrees to furnish supplementally a copy of any omitted Exhibit to the Securities and Exchange Commission upon request. -113- EX-23 3 EXHIBIT 23 1 EXHIBIT 23 ---------- Consent of Ernst & Young LLP -114- 2 Exhibit 23 [ERNST & YOUNG LETTERHEAD] CONSENT OF INDEPENDENT AUDITORS ------------------------------- We consent to the incorporation by reference in this Annual Report on Form 10-K of Park National Corporation for the year ended December 31, 1996, of our report dated January 21, 1997, with respect to the consolidated financial statements of Park National Corporation included in the Company's Report to Stockholders for the fiscal year ended December 31, 1996. We also consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 33-92060) dated March 5, 1995 of our report dated January 21, 1997, 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, 1996. /s/ ERNST & YOUNG LLP March 24, 1997 EX-24 4 EXHIBIT 24 1 EXHIBIT 24 ---------- Powers of Attorney -116- 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ William T. McConnell ------------------------ William T. McConnell 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ C. Daniel DeLawder ---------------------- C. Daniel DeLawder 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ David C. Bowers ------------------- David C. Bowers 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Park National Corporation, an Ohio corporation (the "Company"), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ Dominick C. Fanello ----------------------- Dominic C. Fanello 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ R. William Geyer -------------------- R. William Geyer 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 21st day of January, 1997. /s/ Tamala Longaberger Kaido ---------------------------- Tamala Longaberger Kaido 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ Howard E. LeFevre --------------------- Howard E. LeFevre 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ Phillip T. Leitnaker ------------------------ Phillip T. Leitnaker 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ John J. O'Neill ------------------- John J. O'Neill 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ William A. Phillips ----------------------- William A. Phillips 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ J. Gilbert Reese -------------------- J. Gilbert Reese 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ Rick R. Taylor ------------------ Rick R. Taylor 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, 1996, hereby constitutes and appoints William T. McConnell, C. Daniel DeLawder, and David C. Bowers as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of January, 1997. /s/ John L. Warner ------------------ John L. Warner EX-27 5 EXHIBIT 27
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 61,454 0 0 0 386,187 10,780 11,217 1,112,603 27,802 1,614,767 1,336,617 109,230 19,934 0 26,857 0 0 122,129 1,614,767 98,511 21,940 1,840 122,291 44,233 49,332 72,959 4,520 (1,310) 43,239 38,342 25,664 0 0 25,664 3.60 3.60 5.35 1,984 1,059 1,872 0 25,073 3,859 2,068 27,802 27,802 0 0
-----END PRIVACY-ENHANCED MESSAGE-----