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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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-13006
PARK NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Ohio 31-1179518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 North Third Street, P.O. Box 3500, Newark, Ohio 43058-3500
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 349-8451
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares, without par value American Stock Exchange LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
----- -----
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the Registrant's most recently completed second fiscal
quarter: $1,598,518,504 as of June 30, 2004 (the common shares represent the
only common equity of the Registrant -- for the purpose of this computation,
common shares held by the Registrant's banking subsidiaries in fiduciary
accounts are not considered to be held by affiliates).
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 14,335,205 common shares,
without par value, as of February 22, 2005.
Documents Incorporated by Reference:
(1) Portions of the Registrant's 2004 Annual Report to Shareholders are
incorporated by reference into Parts I and II of this Annual Report on
Form 10-K.
(2) Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held on April 18, 2005, are incorporated
by reference into Part III of this Annual Report on Form 10-K.
Exhibit Index on Page E-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Park National Corporation ("Park") is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"). Park was incorporated under Ohio law in 1992. Park's principal
executive offices are located at 50 North Third Street, Newark, Ohio 43055, and
its telephone number is (740) 349-8451. Park's common shares are listed on the
American Stock Exchange LLC ("AMEX") under the symbol "PRK."
Park maintains an Internet website at www.parknationalcorp.com (this
uniform resource locator, or URL, is an inactive textual reference only and is
not intended to incorporate Park's website into this Annual Report on Form
10-K). Park makes available free of charge on or through its website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as soon as reasonably practicable after Park electronically files such
material with, or furnishes it to, the Securities and Exchange Commission (the
"SEC").
Park's principal business consists of owning and supervising its
subsidiaries. Although Park directs the overall policies of its subsidiaries,
including lending policies and financial resources, most day-to-day affairs are
managed by their respective offices.
BANKING SUBSIDIARIES
Through its banking subsidiaries:
- The Park National Bank ("Park National Bank"), a national banking
association with its main office in Newark, Ohio and financial service
offices in Clermont, Delaware, Fairfield, Franklin, Hamilton, Licking
and Montgomery Counties;
- The Richland Trust Company ("Richland Trust Company"), an Ohio
state-chartered bank with its main office in Mansfield, Ohio and
financial service offices in Richland County;
- Century National Bank, a national banking association with its main
office in Zanesville, Ohio and financial service offices in Athens,
Coshocton, Hocking, Muskingum, Perry and Tuscarawas Counties;
- The First-Knox National Bank of Mount Vernon ("First-Knox National
Bank"), a national banking association with its main office in Mount
Vernon, Ohio and financial service offices in Ashland, Holmes, Knox,
Morrow and Richland Counties;
- United Bank, N.A. ("United Bank"), a national banking association with
its main office in Bucyrus, Ohio and financial service offices in
Crawford and Marion Counties;
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- Second National Bank, a national banking association with its main
office in Greenville, Ohio and offices in Darke and Mercer Counties;
- The Security National Bank and Trust Co. ("Security National Bank"), a
national banking association with its main office in Springfield, Ohio
and financial service offices in Clark, Fayette, Greene and Miami
Counties; and
- The Citizens National Bank of Urbana ("Citizens National Bank"), a
national banking association with its main office in Urbana, Ohio and
financial service offices in Champaign and Madison Counties,
Park engages in a general commercial banking and trust business in small and
medium population Ohio communities.
Park National Bank operates through three banking divisions with the Park
National Division headquartered in Newark, Ohio; the Fairfield National Division
headquartered in Lancaster, Ohio; and the First Clermont Division headquartered
in Milford, Ohio. First-Knox National Bank operates through two banking
divisions with the First-Knox National Division headquartered in Mount Vernon,
Ohio and the Farmers and Savings Division headquartered in Loudonville, Ohio.
Security National Bank also operates through two banking divisions with the
Security National Division headquartered in Springfield, Ohio and the Unity
National Division (formerly The Third Savings and Loan Company) headquartered in
Piqua, Ohio.
Park's banking subsidiaries and their respective divisions comprise Park's
segments. Financial information about Park's reportable segments is included in
Note 20 of the Notes to Consolidated Financial Statements located on pages 56
and 57 of Park's 2004 Annual Report to Shareholders. That financial information
is incorporated herein by reference.
At December 31, 2004, Park's banking subsidiaries operated 117 financial
service offices and a network of 124 automated teller machines. With the January
3, 2005 acquisition of First Clermont Bank, described below under "RECENT
ACQUISITIONS," Park's banking subsidiaries operated 124 financial service
offices and a network of 131 automated teller machines as of the date of this
Annual Report on Form 10-K. These financial service offices span 28 Ohio
counties -- Ashland, Athens, Champaign, Clark, Clermont, Coshocton, Crawford,
Darke, Delaware, Fairfield, Fayette, Franklin, Greene, Hamilton, Hocking,
Holmes, Knox, Licking, Madison, Marion, Mercer, Miami, Montgomery, Morrow,
Muskingham, Perry, Richland and Tuscarawas.
Consolidated Computer Center, a division of Park National Bank, handles the
data processing needs of Park's subsidiaries.
CONSUMER FINANCE SUBSIDIARY
Guardian Financial Services Company ("Guardian Finance"), an Ohio consumer
finance company based in Hilliard, Ohio, also operates as a separate subsidiary
of Park. Guardian Finance provides consumer finance services in the central Ohio
area. As of the date of this Annual Report on Form 10-K, Guardian Finance had
eight financial service offices spanning seven counties, including Clark,
Delaware, Fairfield, Franklin, Licking, Montgomery and Richland.
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LEASING SUBSIDIARIES
Scope Leasing, Inc., a subsidiary of Park National Bank, specializes in
aircraft financing. Scope Leasing's customers include small businesses and
entrepreneurs intending to use the aircraft for business or pleasure.
Another subsidiary of Park National Bank, Park Leasing Company ("Park
Leasing"), was formed in 2001 for the purpose of participating in an automobile
leasing program with a major national insurance company. However, that program
was terminated during the fourth quarter of 2004 and Park Leasing is winding
down its operations.
INSURANCE AGENCY SUBSIDIARY
Park National Bank also has an insurance agency subsidiary, Park Insurance
Group, Inc. Park Insurance Group was formed in 2002 and offers life insurance
and other insurance products through licensed representatives who work for
Park's banking subsidiaries. However, Park Insurance Group's results to date
have not been material.
TITLE AGENCY SUBSIDIARY
Park National Bank holds 80% of the voting membership interest of Park
Title Agency, LLC. Park Title Agency is a traditional title agency serving the
central Ohio area.
OTHER SUBSIDIARIES
Park Investments, Inc., a subsidiary of Park National Bank; Richland
Investments, Inc., a subsidiary of Richland Trust Company; and MFS Investments,
Inc., a subsidiary of Century National Bank, operate as asset management
companies. Their operations are not significant to the consolidated entity.
Park Capital Investments, Inc., a subsidiary of Park ("Park Capital"); Park
National Capital LLC, whose members are Park Capital and Park National Bank;
First-Knox National Capital LLC, whose members are Park Capital and First-Knox
National Bank; and Security National Capital LLC, whose members are Park Capital
and Security National Bank, operate as capital management companies. Their
operations are also not significant to the consolidated entity.
The remaining subsidiaries are inactive.
RECENT ACQUISITIONS
On December 31, 2004, Park acquired First Federal Bancorp, Inc. ("First
Federal"), a savings and loan holding company headquartered in Zanesville, Ohio,
through the merger of a newly-formed subsidiary of Park with and into First
Federal in an all cash transaction, immediately followed by the merger of the
surviving corporation into Park. Following those merger transactions, Century
National Bank, a subsidiary of Park, merged into First Federal Savings Bank of
Eastern Ohio, which had been a subsidiary of First Federal, and First Federal
Savings Bank of Eastern Ohio changed its name to "Century National Bank." Park
paid a total of $46.6 million to the shareholders of First Federal in connection
with the acquisition. The Roseville, Ohio office of
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First Federal Savings Bank of Eastern Ohio was subsequently sold on February 11,
2005 to The Peoples National Bank of New Lexington, Ohio.
On January 3, 2005, Park acquired all of the stock of First Clermont Bank
("First Clermont") of Milford, Ohio for $52.5 million in an all cash
transaction. Immediately following Park's stock acquisition, First Clermont
merged with Park National Bank and is operated as the First Clermont Division.
SERVICES PROVIDED BY PARK'S SUBSIDIARIES
All of Park's banking subsidiaries and their respective divisions provide
the following principal services:
- the acceptance of deposits for demand, savings and time accounts and
the servicing of those accounts;
- commercial, industrial, consumer and real estate lending, including
installment loans, credit cards, home equity lines of credit and
commercial and auto leasing;
- trust services;
- cash management;
- safe deposit operations;
- electronic funds transfers;
- online Internet banking with bill pay service; and
- a variety of additional banking-related services tailored to the needs
of individual customers.
Park believes that the deposit mix of its banking subsidiaries is such that
no material portion has been obtained from a single customer and, consequently,
the loss of any one customer of any banking subsidiary would not have a
materially adverse effect on the business of that banking subsidiary or Park.
Guardian Finance also provides consumer finance services.
LENDING ACTIVITIES
Park's banking subsidiaries deal with consumers as well as with a wide
cross-section of businesses and corporations located primarily in the 28 Ohio
counties served by their financial service offices. Relatively few loans are
made to borrowers outside these counties. Each banking subsidiary makes lending
decisions in accordance with the written loan policy adopted by Park which is
designed to maintain loan quality. Each banking subsidiary originates and
retains for its own portfolio commercial and commercial real estate loans,
variable rate residential real estate
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loans, home equity lines of credit, installment loans and credit card loans.
Each banking subsidiary also generates fixed rate residential real estate loans
for the secondary market.
Guardian Finance originates and retains for its own portfolio consumer
installment loans. Guardian Finance also makes lending decisions in accordance
with the written loan policy adopted by Park.
There are certain risks inherent in making loans. These risks include
interest rate changes over the time period in which the loans may be repaid,
risks resulting from changes in the economy, risks inherent in dealing with
borrowers and, in the case of loans secured by collateral, risks resulting from
uncertainties about the future value of the collateral.
COMMERCIAL LOANS. At December 31, 2004, Park's banking subsidiaries had
approximately $1,253.1 million in commercial loans outstanding (including
commercial real estate loans) and commercial leases, representing approximately
40.2% of their total aggregate loan portfolio as of that date. Of this amount,
approximately $469.4 million represented commercial loans, $752.4 million
represented commercial real estate loans and $31.3 million represented
commercial leases.
Commercial loans are made for a wide variety of general corporate purposes,
including financing for industrial and commercial properties, financing for
equipment, inventories and accounts receivable and acquisition financing as well
as commercial leasing. The term of each commercial loan varies by its purpose.
Repayment terms are structured such that commercial loans will be repaid within
the economic useful life of the underlying asset. Information concerning the
loan maturity distribution within the commercial loan portfolio is provided in
Table 4 included in the section of Park's 2004 Annual Report to Shareholders
captioned "FINANCIAL REVIEW," on page 29, and is incorporated herein by
reference.
The commercial loan portfolio includes loans to a wide variety of
corporations and businesses across many industrial classifications in the 28
counties throughout Ohio where Park's banking subsidiaries operate. The primary
industries represented by these customers include commercial real estate
leasing, commercial real estate construction, manufacturing, finance and
insurance, health care and other services.
Commercial loans are evaluated for the adequacy of repayment sources at the
time of approval and are regularly reviewed for any possible deterioration in
the ability of the borrower to repay the loan. The credit information required
generally includes fully completed financial statements, two years of federal
income tax returns and a current credit report. Loan terms include amortization
schedules commensurate with the purpose of each loan, the source of each
repayment and the risk involved. In certain instances, collateral is required to
provide an additional source of repayment in the event of default by a
commercial borrower. The structure of the collateral package, including the type
and amount of the collateral, varies from loan to loan depending on the
financial strength of the borrower, the amount and terms of the loan, and the
collateral available to be pledged by the borrower. Most often, the collateral
is inventory, machinery, accounts receivable or real estate. The guarantee of
the principals will generally be required on loans made to closely held business
entities.
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Commercial real estate loans include mortgage loans to developers and
owners of commercial real estate. The lending policy for commercial real estate
loans is the same as that for the commercial loan portfolio. The collateral for
these loans is the underlying commercial real estate. Each banking subsidiary
generally requires that the commercial real estate loan amount be no more than
85% of the purchase price or the appraised value of the real estate securing the
loan. Commercial real estate loans made for each banking subsidiary's portfolio
generally have a variable interest rate although occasionally a commercial real
estate loan may be made with a fixed interest rate for a term generally not
exceeding five years.
The regulatory limits for loans made to one borrower by Park National Bank,
Richland Trust Company, Century National Bank, First-Knox National Bank, United
Bank, Second National Bank, Security National Bank and Citizens National Bank
were $19.7 million, $5.4 million, $8.2 million, $9.3 million, $2.3 million, $4.6
million, $11.0 million and $2.4 million, respectively, at December 31, 2004.
However, participations in loans of amounts larger than $20.0 million are
generally sold to other banks or financial institutions.
Park has a loan review program which evaluates annually all loans with an
outstanding balance greater than $250,000. If deterioration has occurred, the
lender subsidiary takes effective and prompt action designed to increase the
likelihood of payment of the loan. Upon detection of the reduced ability of a
borrower to service interest and/or principal on a loan, the subsidiary may
downgrade the loan and, under certain circumstances, place it on non-accrual
status. The subsidiary then works with the borrower to develop a payment
schedule which they anticipate will permit service of the principal and interest
on the loan by the borrower. Loans which deteriorate and show the inability of a
borrower to repay principal and do not meet the subsidiary's standards are
charged off quarterly.
Commercial loans are generally viewed as having a higher credit risk than
residential real estate or consumer loans because commercial loans usually
involve larger loan balances to a single borrower and are more susceptible to a
risk of default during an economic downturn. The total indebtedness of the
largest single borrower within the commercial portfolio was $19.6 million at
December 31, 2004. Since commercial loans generally have variable interest
rates, an increase in interest rates increases the debt service requirement for
the borrowing. Credit risk for commercial loans arises from borrowers lacking
the ability or willingness to pay principal or interest, and in the case of
secured loans, by a shortfall in the collateral value in relation to the
outstanding loan balance in the event of a default and subsequent liquidation of
collateral. In the case of loans secured by accounts receivable, the
availability of funds for the repayment of these loans may be substantially
dependent on the ability of the borrower to collect amounts due from its
customers. Other collateral securing loans may depreciate over time, may be
difficult to appraise and may fluctuate in value based on success of the
business. Information concerning the loan loss experience and allowance for loan
losses related to the commercial loan portfolio and commercial real estate
portfolio is provided in Tables 8 and 9 included in the section of Park's 2004
Annual Report to Shareholders captioned "FINANCIAL REVIEW," on pages 32 and 33,
and is incorporated herein by reference.
Park National Bank also leases equipment under terms similar to the
commercial lending policies described above. Park Commercial Leasing, a division
of Park National Bank, originates and services direct leases of equipment which
it acquires with no outside financing. Commercial leases are primarily secured
by equipment and have little residual risk since the residual values are
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generally ten percent or less of the financed amount. The estimated residual
values of equipment leases are established at inception by determining the
estimated residual value for the equipment from the appropriate industry leasing
guide. Management re-evaluates the estimated residual values of equipment leases
on a quarterly basis from a review of the industry leasing guides.
AIRCRAFT FINANCING. Scope Leasing specializes in aircraft financing. Scope
Leasing's customers include small businesses and entrepreneurs intending to use
the aircraft for business or pleasure. The lending officers of Scope Leasing are
experienced in the aircraft financing industry and rely upon that experience and
industry guides in determining whether to grant an aircraft loan or lease. At
December 31, 2004, Scope Leasing had outstanding approximately $49.5 million in
loans secured by aircraft (which are included in the commercial loan portfolio)
and $6.9 million in aircraft operating leases. The estimated residual values of
aircraft leases are established at inception using published used aircraft value
references. Management re-evaluates the estimated residual values of aircraft
leases on a quarterly basis using published used aircraft value references.
CONSUMER LOANS. At December 31, 2004, Park's banking subsidiaries, Park
Leasing and Guardian Finance had outstanding consumer loans (including
automobile leases and credit cards) in an aggregate amount of approximately
$521.9 million, constituting approximately 16.7% of their aggregate total loan
portfolio. Of this amount, approximately $505.1 million represented consumer
loans and $16.8 million represented automobile leases. These subsidiaries make
installment credit available to customers and prospective customers in their
primary market area of central and southern Ohio. Park Leasing had participated
in an automobile leasing program with a major national insurance company.
However, that program was terminated during the fourth quarter of 2004 and
automobile lease lending is not emphasized. Park Leasing had approximately $7.7
million of automobile leases outstanding at December 31, 2004.
Credit approval for consumer loans requires demonstration of sufficient
income to repay principal and interest due, stability of employment, a positive
credit record and sufficient collateral for secured loans. It is the policy of
Park's subsidiaries to adhere strictly to all laws and regulations governing
consumer lending. A qualified compliance officer is responsible for monitoring
each subsidiary's performance in this area and for advising and updating loan
personnel. Each subsidiary reviews its consumer loan portfolio monthly and
charges off loans which do not meet that subsidiary's standards. Each banking
subsidiary (other than the First Clermont Division of Park National Bank) also
offers credit card accounts through its consumer lending department. These
accounts are administered under the same standards as other consumer loans and
leases.
Consumer loans generally have a higher risk of default than real estate
mortgage loans. Consumer loans typically have shorter terms and lower balances
with higher yields as compared to real estate mortgage loans, but generally
carry higher risks of default. Consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount that can be recovered on these loans. Information concerning
the loan loss experience and allowance for loan losses related to the consumer
loan portfolio is provided in Tables 8 and 9 included in the section of Park's
2004 Annual Report to Shareholders captioned "FINANCIAL REVIEW," on pages 32 and
33, and is incorporated herein by reference.
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RESIDENTIAL REAL ESTATE AND CONSTRUCTION LOANS. At December 31, 2004,
Park's banking subsidiaries had outstanding approximately $1,345.6 million in
residential real estate, home equity lines of credit and construction mortgages,
representing approximately 43.1% of total loans outstanding. Of this amount,
approximately $987.1 million represented residential real estate loans, $203.2
million represented home equity lines of credit and $155.3 million represented
construction loans. The market area for real estate lending by the banking
subsidiaries is concentrated in central and southern Ohio.
Credit approval for residential real estate loans requires demonstration of
sufficient income to repay the principal and interest and the real estate taxes
and insurance, stability of employment, a positive credit record and the
appropriate appraised value of the real estate securing the loan.
Each banking subsidiary generally requires that the residential real estate
loan amount be no more than 80% of the purchase price or the appraised value of
the real estate securing the loan, unless private mortgage insurance is obtained
by the borrower. Loans made for each banking subsidiary's portfolio in this
lending category are generally adjustable rate, fully amortized mortgages. Each
banking subsidiary also originates fixed rate real estate loans for the
secondary market. These loans are generally sold immediately after closing. All
real estate loans are secured by first mortgages with evidence of title in favor
of the banking subsidiary in the form of an attorney's opinion of title or a
title insurance policy. Each banking subsidiary also requires proof of hazard
insurance with the banking subsidiary named as the mortgagee and as the loss
payee. Independent appraisals are generally obtained for consumer real estate
loans.
Home equity lines of credit are generally made as second mortgages by
Park's banking subsidiaries. The maximum amount of a home equity line of credit
is generally limited to 85% of the appraised value of the property less the
balance of the first mortgage. The home equity lines of credit are written with
ten-year terms. A variable interest rate is generally charged on the home equity
lines of credit.
Information concerning the loan loss experience and allowance for loan
losses related to the residential real estate portfolio is provided in Tables 8
and 9 included in the section of Park's 2004 Annual Report to Shareholders
captioned "FINANCIAL REVIEW," on pages 32 and 33, and is incorporated herein by
reference.
Construction loans include commercial construction loans as well as
residential construction loans. Construction loans may be in the form of a
permanent loan or a short-term construction loan, depending on the needs of the
individual borrower. Generally, the permanent construction loans have a variable
interest rate although occasionally a permanent construction loan may be made
with a fixed interest rate for a term generally not exceeding five years.
Short-term construction loans are made with variable interest rates. Information
concerning the loan maturity distribution within the construction financing
portfolio is provided in Table 4 included in the section of Park's 2004 Annual
Report to Shareholders captioned "FINANCIAL REVIEW," on page 29, and is
incorporated herein by reference.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan depends largely upon the accuracy of the initial
estimate of the property's value at completion of
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construction and the estimated cost (including interest) of construction. If the
estimate of construction cost proves to be inaccurate, the banking subsidiary
making the loan may be required to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value proves
inaccurate, the banking subsidiary may be confronted, at or prior to the
maturity of the loan, with a project having a value insufficient to assure full
repayment, should the borrower default. In the event a default on a construction
loan occurs and foreclosure follows, the banking subsidiary must take control of
the project and attempt either to arrange for completion of construction or
dispose of the unfinished project. Additional risk exists with respect to loans
made to developers who do not have a buyer for the property, as the developer
may lack funds to pay the loan if the property is not sold upon completion.
Park's banking subsidiaries attempt to reduce such risks on loans to developers
by requiring personal guarantees and reviewing current personal financial
statements and tax returns as well as other projects undertaken by the
developer. Information concerning the loan loss experience and allowance for
loan losses related to the construction financing portfolio is provided in
Tables 8 and 9 included in the section of Park's 2004 Annual Report to
Shareholders captioned "FINANCIAL REVIEW," on pages 32 and 33, and is
incorporated herein by reference.
INSURANCE AGENCY
Park Insurance Group offers life insurance and other insurance products to
its customers through licensed representatives who work for Park's banking
subsidiaries. Park Insurance Group's customers include current customers of
Park's banking subsidiaries and other residents in the 28 Ohio counties served
by those subsidiaries. Park Insurance Group's results to date have not been
material.
TITLE AGENCY
Park Title Agency is a traditional title agency serving the central Ohio
area. Customers include residential and commercial customers seeking title
insurance for purchases, construction and refinancing of real estate. Park Title
Agency's customers include current customers of Park's banking subsidiaries and
other residents primarily in the 28 Ohio counties served by those subsidiaries.
COMPETITION
The financial services industry is highly competitive. Park's subsidiaries
compete with other local, regional and national service providers, including
banks, savings associations, credit unions and other types of financial
institutions, finance companies, insurance agencies and title agencies. Other
competitors include securities dealers, brokers, mortgage bankers, investment
advisors, insurance companies and financial services subsidiaries of commercial
and manufacturing companies. Many of these competitors enjoy the benefits of
advanced technology, fewer regulatory constraints and lower cost structures.
Many of the newer competitors offer one-stop financial services to their
customers that may include services that banks and their subsidiaries may not
have been able or legally permitted to offer their customers in the past. The
primary factors in competing for loans are interest rates charged and overall
services provided to borrowers. The primary factors in competing for deposits
are interest rates paid on deposits, account liquidity, convenience and hours of
office locations as well as having trained and competent staff to deliver
services.
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EMPLOYEES
As of December 31, 2004, Park and its subsidiaries had 1,749 full-time
equivalent employees.
SUPERVISION AND REGULATION
Park, its banking subsidiaries and many of its non-banking subsidiaries are
subject to extensive regulation by federal and state agencies. The regulation of
bank holding companies and their subsidiaries is intended primarily for the
protection of depositors, federal deposit insurance funds and the banking system
as a whole and not for the protection of shareholders.
As a bank holding company, Park is subject to regulation under the Bank
Holding Company Act and to inspection, examination and supervision by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Park
is also under the jurisdiction of the SEC and certain state securities
commissions related to the offering and sale of its securities. Park is subject
to the disclosure and regulatory requirements of the Securities Act of 1933, as
amended, and the Exchange Act, as administered by the SEC. Park's common shares
are listed on AMEX under the trading symbol "PRK," and Park is subject to the
AMEX rules for listed companies.
Park National Bank, Century National Bank, First-Knox National Bank, United
Bank, Second National Bank, Security National Bank and Citizens National Bank,
as national banking associations, are subject to regulation, supervision and
examination primarily by the Office of the Comptroller of the Currency ("OCC")
and secondarily by the Federal Deposit Insurance Corporation ("FDIC").
Richland Trust Company, as an Ohio state-chartered bank, is subject to
regulation, supervision and examination primarily by the Ohio Division of
Financial Institutions and secondarily the FDIC.
Guardian Finance, as an Ohio state-chartered consumer finance company, is
subject to regulation, supervision and examination by the Ohio Division of
Financial Institutions.
Park Insurance Group, as an Ohio state-chartered insurance agency, and Park
Title Agency, as an Ohio state-chartered title agency, are subject to
regulation, supervision and examination by the Ohio Department of Insurance.
The following information describes selected federal and Ohio statutory and
regulatory provisions and is qualified in its entirety by reference to the full
text of the particular statutory or regulatory provisions. These statutes and
regulations are continually under review by Congress and state legislatures and
federal and state regulatory agencies. A change in statutes, regulations or
regulatory policies applicable to Park and its subsidiaries could have a
material effect on their respective businesses.
REGULATION OF BANK HOLDING COMPANIES
Park is registered with the Federal Reserve Board as a bank holding company
under the Bank Holding Company Act. Bank holding companies and their activities
are subject to extensive
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regulation by the Federal Reserve Board. Bank holding companies are required to
file reports with the Federal Reserve Board and such additional information as
the Federal Reserve Board may require, and are subject to regular examinations
by the Federal Reserve Board.
The Federal Reserve Board also has extensive enforcement authority over
bank holding companies, including, among other things, the ability to:
- assess civil money penalties;
- issue cease and desist or removal orders; and
- require that a bank holding company divest subsidiaries (including its
banking subsidiaries).
In general, the Federal Reserve Board may initiate enforcement actions for
violations of laws and regulations and unsafe or unsound practices.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each subsidiary bank and to commit
resources to support those subsidiary banks. Under this policy, the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The Bank Holding Company Act requires the prior approval of the Federal
Reserve Board in any case where a bank holding company proposes to:
- acquire direct or indirect ownership or control of more than 5% of the
voting shares of any bank that is not already majority-owned by it;
- acquire all or substantially all of the assets of another bank or bank
holding company; or
- merge or consolidate with any other bank holding company.
Section 4 of the Bank Holding Company Act also prohibits a bank holding
company, with certain exceptions, from acquiring more than 5% of the voting
shares of any company that is not a bank and from engaging in any business other
than banking or managing or controlling banks. The primary exception allows the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board had determined as of November 19, 1999 to be so
closely related to banking as to be a proper incident thereto. The Federal
Reserve Board by regulation had determined that the following activities, among
others, were so closely related to banking:
- operating a savings association, mortgage company, finance company,
credit card company or factoring company;
- performing certain data processing operations;
- providing investment and financial advice; and
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- acting as an insurance agent for certain types of credit-related
insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on the maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, investments in the stock or other securities of the bank holding
company or its subsidiaries and the taking of such stock or securities as
collateral for loans to any borrower. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of any services. Various consumer laws and regulations also affect the
operations of these subsidiaries.
TRANSACTIONS WITH AFFILIATES, DIRECTORS, EXECUTIVE OFFICERS AND SHAREHOLDERS
Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board
Regulation W restrict transactions by banks and their subsidiaries with their
affiliates. An affiliate of a bank is any company or entity which controls, is
controlled by or is under common control with the bank.
Generally, Sections 23A and 23B and Regulation W:
- limit the extent to which a bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to
10% of that bank's capital stock and surplus (i.e., tangible capital);
- limit the extent to which a bank or its subsidiaries may engage in
"covered transactions" with all affiliates to 20% of that bank's
capital stock and surplus; and
- require that all such transactions be on terms substantially the same,
or at least as favorable to the bank or subsidiary, as those provided
to a non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and other similar types of transactions.
A bank's authority to extend credit to executive officers, directors and
greater than 10% shareholders, as well as entities such persons control, is
subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated thereunder by the Federal Reserve Board. Among other things, these
loans must be made on terms substantially the same as those offered to
unaffiliated individuals or be made as part of a benefit or compensation program
and on terms widely available to employees, and must not involve a greater than
normal risk of repayment. In addition, the amount of loans a bank may make to
these persons is based, in part, on the bank's capital position, and specified
approval procedures must be followed in making loans which exceed specified
amounts.
REGULATION OF NATIONALLY-CHARTERED BANKS
As national banking associations, Park National Bank, Century National
Bank, First-Knox National Bank, United Bank, Second National Bank, Security
National Bank and Citizens National Bank are subject to regulation under the
National Banking Act and are periodically examined by the
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OCC. Furthermore, they are subject, as member banks, to the rules and
regulations of the Federal Reserve Board. Each is an insured institution. Park
National Bank, First-Knox National Bank, United Bank, Second National Bank,
Security National Bank and Citizens National Bank are members of the Bank
Insurance Fund, and Century National Bank is a member of the Savings Association
Insurance Fund. As a result, they are subject to regulation by the FDIC. In
addition, the establishment of branches by each of Park National Bank, Century
National Bank, First-Knox National Bank, United Bank, Second National Bank,
Security National Bank and Citizens National Bank is subject to prior approval
of the OCC.
REGULATION OF OHIO STATE-CHARTERED BANKS AND CONSUMER FINANCE COMPANIES
The FDIC is the primary federal regulator of Richland Trust Company. The
FDIC issues regulations governing the operations of Richland Trust Company and
examines Richland Trust Company. The FDIC may initiate enforcement actions
against insured depository institutions and persons affiliated with them for
violations of laws and regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the FDIC may appoint a
conservator or a receiver for a nonmember bank.
As a bank incorporated under Ohio law, Richland Trust Company is subject to
regulation and supervision by the Ohio Division of Financial Institutions.
Division regulation and supervision affects the internal organization of
Richland Trust Company, as well as its savings, mortgage lending and other
investment activities. The Division of Financial Institutions may initiate
supervisory measures or formal enforcement actions against Ohio commercial
banks. Ultimately, if the grounds provided by law exist, the Division of
Financial Institutions may place an Ohio bank in conservatorship or
receivership. Whenever the Superintendent of Financial Institutions considers it
necessary or appropriate, the Superintendent may also examine the affairs of any
holding company or any affiliate or subsidiary of an Ohio bank.
As a consumer finance company incorporated under Ohio law, Guardian Finance
is also subject to regulation and supervision by the Division of Financial
Institutions. Division regulation and supervision affect the lending activities
of Guardian Finance. If grounds provided by law exist, the Division of Financial
Institutions may suspend or revoke an Ohio consumer finance company's ability to
make loans.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits, up to
prescribed statutory limits, of federally-insured banks and savings associations
and safeguards the safety and soundness of the financial institution industry.
Two separate insurance funds are maintained and administered by the FDIC. In
general, banking institutions are members of the "BIF", and savings associations
are "SAIF" members. The insurance fund conversion provisions do not prohibit a
SAIF member from either converting to a bank charter, as long as the resulting
bank remains a SAIF member (as First Federal Savings Bank of Eastern Ohio did
when it converted to a national bank charter in December 2004 prior to its
merger with Century National Bank), or merging with a bank, as long as the bank
continues to pay the SAIF insurance assessments on the deposits acquired. Exit
and entrance fees must be paid to the FDIC in full conversions.
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INSURANCE PREMIUMS. Insurance premiums for SAIF and BIF members are
determined during each semi-annual assessment period based upon the members'
respective categorization as well capitalized, adequately capitalized or
undercapitalized. The FDIC assigns banks to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which a bank is assigned
is based on a supervisory evaluation provided to the FDIC by the bank's primary
federal regulator and information which the FDIC determines to be relevant to
the bank's financial condition and the risk posed to the deposit insurance funds
(which may include, if applicable, information provided by the bank's state
supervisor). A bank's assessment rate depends on the capital category and
supervisory category to which it is assigned.
Since January 1, 2000, the BIF assessment rate and the SAIF assessment rate
have been the same. This assessment (which includes the FICO assessment)
currently ranges from 1.44 to 28.44 cents per $100 of domestic deposits. Each of
Park's banking subsidiaries is currently paying an assessment rate of 1.44 cents
per $100 of domestic deposits. An increase in this assessment rate could have a
material adverse effect on the earnings of the affected banks, depending on the
amount of the increase.
Insurance of deposits may be terminated by the FDIC upon a finding that the
insured institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition enacted or imposed by the bank's regulatory
agency.
DEPOSITOR PREFERENCE. The Federal Deposit Insurance Act provides that, in
the event of the "liquidation or other resolution" of a bank, the claims of
depositors of the bank, including the claims of the FDIC as subrogee of insured
depositors, and certain claims for administrative expenses of the FDIC as a
receiver will have priority over other general unsecured claims against the
bank. If a bank fails, insured and uninsured depositors, along with the FDIC,
will have priority in payment ahead of unsecured, non-depositor creditors.
LIABILITY OF COMMONLY CONTROLLED BANKS. Under the Federal Deposit Insurance
Act, a bank is generally liable for any loss incurred, or reasonably expected to
be incurred, by the FDIC in connection with (a) the default of a commonly
controlled bank or (b) any assistance provided by the FDIC to a commonly
controlled bank in danger of default. "Default" means generally the appointment
of a conservator or receiver. "In danger of default" means generally the
existence of conditions indicating that a default is likely to occur in the
absence of regulatory assistance.
FEDERAL HOME LOAN BANK
The Federal Home Loan Banks ("FHLBs") provide credit to their members in
the form of advances. As a member of the FHLB of Cincinnati, each of the banking
subsidiaries of Park must maintain an investment in the capital stock of the
FHLB of Cincinnati. Each of Park's banking subsidiaries is in compliance with
this requirement, with the following investments in the capital stock of the
FHLB of Cincinnati at December 31, 2004: Park National Bank - $8.0 million;
Richland Trust Company - $4.4 million; Century National Bank - $11.0 million;
First-Knox National Bank - $10.9 million; United Bank - $1.2 million; Second
National Bank - $2.7 million; Security National Bank - $7.5 million; and
Citizens National Bank - $1.4 million.
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Upon the origination or renewal of a loan or advance, each FHLB is required
by law to obtain and maintain a security interest in collateral in one or more
of the following categories: fully-disbursed, whole first mortgage loans on
improved residential property not more than 90 days delinquent or securities
representing a whole interest in such loans; securities issued, insured or
guaranteed by the United States Government or an agency thereof; deposits in any
FHLB; or other real estate related collateral acceptable to the applicable FHLB,
if such collateral has a readily ascertainable value and the FHLB can perfect
its security interest in the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLB. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance.
REGULATORY CAPITAL
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies and state member banks. The OCC and the FDIC have adopted
risk-based capital guidelines for national banks and state non-member banks,
respectively. The guidelines provide a systematic analytical framework which
makes regulatory capital requirements sensitive to differences in risk profiles
among banking organizations, takes off-balance sheet exposures expressly into
account in evaluating capital adequacy, and minimizes disincentives to holding
liquid, low-risk assets. Capital levels as measured by these standards are also
used to categorize financial institutions for purposes of certain prompt
corrective action regulatory provisions.
The minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance sheet items such as standby letters of
credit) is 8%. This total risk-based capital ratio must be at least 10% for a
bank holding company to be considered well capitalized. At least half of the
minimum total risk-based capital ratio (4%) must be composed of common
shareholders' equity, minority interests in the equity accounts of consolidated
subsidiaries, a limited amount of qualifying preferred stock, less goodwill and
certain other deductions, including the unrealized net gains and losses, after
applicable taxes, on available-for-sale securities carried at fair value
(commonly known as "Tier 1" risk-based capital). To be considered well
capitalized, the Tier 1 risk-based capital ratio must be at least 6%. The
remainder of total risk-based capital (commonly known as "Tier 2" risk-based
capital) may consist of certain amounts of mandatory convertible debt,
subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and
lease loss allowance and net unrealized gains, after applicable taxes, on
available-for-sale equity securities with readily determinable fair values, all
subject to limitations established by the guidelines.
Under the guidelines, capital is compared to the relative risk related to
the balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and
off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
The Federal Reserve Board has established minimum leverage ratio guidelines
for bank holding companies. The Federal Reserve Board guidelines provide for a
minimum ratio of Tier 1
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risk-based capital to average assets (excluding the loan and lease loss
allowance, goodwill and certain other intangibles), or "leverage ratio," of 3%
for bank holding companies that meet certain criteria, including having the
highest regulatory rating, and 4% for all other bank holding companies. To be
considered well capitalized, the leverage ratio for a bank holding company must
be at least 5%. The guidelines further provide that bank holding companies
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels. The OCC and the FDIC have each also
adopted minimum leverage ratio guidelines for national banks and for state
non-member banks, respectively.
The federal banking agencies have established a system of prompt corrective
action to resolve certain of the problems of undercapitalized institutions. This
system is based on five capital level categories for insured depository
institutions: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
The federal banking agencies may (or in some cases must) take certain
supervisory actions depending upon a bank's capital level. For example, the
banking agencies must appoint a receiver or conservator for a bank within 90
days after it becomes "critically undercapitalized" unless the bank's primary
regulator determines, with the concurrence of the FDIC, that other action would
better achieve regulatory purposes. Banking operations otherwise may be
significantly affected depending on a bank's capital category. For example, a
bank that is not "well capitalized" generally is prohibited from accepting
brokered deposits and offering interest rates on deposits higher than the
prevailing rate in its market, and the holding company of any undercapitalized
depository institution must guarantee, in part, specific aspects of the bank's
capital plan for the plan to be acceptable.
Park is in compliance with the current applicable capital guideline ratios.
As of December 31, 2004, Park had a total risk-based capital ratio of 16.43%,
Tier 1 risk-based capital ratio of 15.16% and a leverage ratio of 10.10%. Park's
management believes that each of its subsidiary banks is "well capitalized"
according to the guidelines described above. See Note 19 of the Notes to
Consolidated Financial Statements located on page 56 of Park's 2004 Annual
Report to Shareholders, which is incorporated herein by reference.
FISCAL AND MONETARY POLICIES
The business and earnings of Park are affected significantly by the fiscal
and monetary policies of the Federal Government and its agencies. Park is
particularly affected by the policies of the Federal Reserve Board, which
regulates the supply of money and credit in the United States. These policies
are used in varying degrees and combinations to directly affect the availability
of bank loans and deposits, as well as the interest rates charged on loans and
paid on deposits.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
There are various legal limitations on the extent to which subsidiary banks
may finance or otherwise supply funds to their parent holding companies. Under
federal and Ohio law, subsidiary banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, their bank holding companies. Subsidiary banks are also subject
to collateral security requirements for any loans or extension of credit
permitted by such exceptions.
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None of the Park banking subsidiaries may pay dividends out of its surplus
if, after paying these dividends, it would fail to meet the required minimum
levels under the risk-based capital guidelines and minimum leverage ratio
requirements established by the OCC and the FDIC. In addition, each bank must
have the approval of its regulatory authority if a dividend in any year would
cause the total dividends for that year to exceed the sum of the bank's current
year's "net profits" (or net income, less dividends declared during the period
based on regulatory accounting principles) and the retained net profits for the
preceding two years, less required transfers to surplus. Payment of dividends by
any of the Park banking subsidiaries may be restricted at any time at the
discretion of its regulatory authorities, if such regulatory authorities deem
such dividends to constitute unsafe and/or unsound banking practices or if
necessary to maintain adequate capital.
The ability of Park to obtain funds for the payment of dividends and for
other cash requirements is largely dependent on the amount of dividends which
may be declared by its subsidiary banks. However, the Federal Reserve Board
expects Park to serve as a source of strength to its subsidiary banks, which may
require Park to retain capital for further investment in its subsidiary banks,
rather than pay dividends to the Park shareholders. Payment of dividends by one
of Park's banking subsidiaries may be restricted at any time at the discretion
of its applicable regulatory authorities, if they deem such dividends to
constitute an unsafe and/or unsound banking practice. These provisions could
have the effect of limiting Park's ability to pay dividends on its common
shares.
FINANCIAL ACTIVITIES PERMITTED
Bank holding companies may become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized,
is well managed, and has at least a satisfactory rating under the Community
Reinvestment Act, by filing a declaration that the bank holding company wishes
to become a financial holding company. No regulatory approval will be required
for a financial holding company to acquire a company, other than a bank or
savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the
Federal Reserve Board.
"Financial in nature" is defined to include:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking activities; and
- activities that the Federal Reserve Board has determined to be closely
related to banking.
-19-
A national bank also may engage, subject to limitations on investment, in
activities that are financial in nature (other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment) through a financial subsidiary of the bank, if the bank is well
capitalized and well managed, has at least a satisfactory Community Reinvestment
Act rating and has received the prior approval of the OCC to engage in such
activities. Subsidiary banks of a financial holding company or national banks
with financial subsidiaries must continue to be well capitalized and well
managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions, which could include
divestiture of the financial-in-nature subsidiary or subsidiaries. In addition,
a financial holding company or a bank may not acquire a company that is engaged
in activities that are financial in nature unless each of the subsidiary banks
of the financial holding company or the bank has a Community Reinvestment Act
rating of satisfactory or better.
As of the date of this Annual Report on Form 10-K, Park had not elected to
become a financial holding company.
PRIVACY PROVISIONS OF GRAMM-LEACH-BLILEY ACT
Under the Gramm-Leach-Bliley Act, federal banking regulators were required
to adopt rules that limit the ability of banks and other financial institutions
to disclose non-public information about consumers to nonaffiliated third
parties. These limitations require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent disclosure of certain
personal information to a nonaffiliated third party.
FUTURE LEGISLATION
Various legislation affecting financial institutions and the financial
industry is from time to time introduced in Congress. Such legislation may
change banking statutes and the operating environment of Park and its
subsidiaries in substantial and unpredictable ways, and could increase or
decrease the cost of doing business, limit or expand permissible activities or
affect the competitive balance among banks, savings associations, credit unions
and other financial institutions. Park cannot predict whether any of this
potential legislation will be enacted, and, if enacted, the effect that it, or
any implementing regulations, would have on the financial condition or results
of operations of Park or any of its subsidiaries.
SARBANES-OXLEY ACT OF 2002 AND RELATED RULES AFFECTING CORPORATE GOVERNANCE
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The stated goals of the Sarbanes-Oxley Act are
to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws. The changes are intended to
allow shareholders to monitor the performance of companies and directors more
easily and efficiently.
The Sarbanes-Oxley Act addresses, among other matters: increased
responsibilities of audit committees; corporate responsibility for financial
reports; a requirement that chief executive and chief financial officers forfeit
certain bonuses and profits if their companies issue an accounting restatement
as a result of misconduct; a prohibition on insider trading during pension fund
blackout
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periods; disclosure of off-balance sheet transactions; conditions for the use of
pro forma financial information; a prohibition on personal loans to directors
and executive officers (excluding loans by insured depository institutions that
are subject to the insider lending restrictions of the Federal Reserve Act);
expedited filing requirements for stock transaction reports by officers and
directors; the formation of the Public Company Accounting Oversight Board;
auditor independence; and various increased criminal penalties for violations of
securities laws.
As mandated by the Sarbanes-Oxley Act, the SEC has adopted rules and
regulations governing, among other issues, corporate governance, auditing and
accounting, executive compensation and enhanced and timely disclosure of
corporate information. AMEX has also adopted corporate governance rules. The
Board of Directors of Park has taken a series of actions to strengthen and
improve Park's already strong corporate governance practices in light of the
rules of the SEC and AMEX. At its January 20, 2004 meeting, the Board of
Directors created the Compensation Committee and the Nominating Committee, each
of which is comprised of directors who qualify as independent under the
applicable sections of AMEX Company Guide. The Board of Directors has adopted
charters for the Audit Committee, the Compensation Committee and the Nominating
Committee and a Code of Business Conduct and Ethics governing the directors,
officers and associates of Park and its affiliates. In addition, Park has
implemented a "whistleblower" hotline called the "PRK Improvement Line." Calls
that relate to accounting, internal accounting controls or auditing matters or
that relate to possible wrongdoing by associates of Park or one of its
affiliates can be made anonymously through this hotline. The calls are received
by an independent third party service and forwarded directly to the Chair of the
Audit Committee and the Head of Internal Audit. The PRK Improvement Line number
is 1-800-418-6423, Ext. PRK (775).
The text of each of the Audit Committee Charter, the Nominating Committee
Charter, the Compensation Committee Charter and the Code of Business Conduct and
Ethics is posted on the "Governance Documents (Corporate Governance)" page of
Park's website located at www.parknationalcorp.com. Interested persons may also
obtain copies of these documents, without charge, by writing to the President of
Park at Park National Corporation, 50 North Third Street, P.O. Box 3500, Newark,
Ohio 43058-3500, Attention: David L. Trautman.
STATISTICAL DISCLOSURE
The statistical disclosure relating to Park and its subsidiaries required
under the SEC's Industry Guide 3, "Statistical Disclosure by Bank Holding
Companies," is included in the section of Park's 2004 Annual Report to
Shareholders captioned "FINANCIAL REVIEW," on pages 26 through 36, and in Note 1
of the Notes to Consolidated Financial Statements located on pages 46 and 47 of
Park's 2004 Annual Report to Shareholders, Note 4 of the Notes to Consolidated
Financial Statements located on pages 49 and 50 of Park's 2004 Annual Report to
Shareholders and Note 9 of the Notes to Consolidated Financial Statements
located on pages 51 and 52 of Park's 2004 Annual Report to Shareholders. This
statistical disclosure is incorporated herein by reference.
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a
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material effect upon the capital expenditures, earnings or competitive position
of Park and its subsidiaries. Park believes the nature of the operations of its
subsidiaries has little, if any, environmental impact. Park, therefore,
anticipates no material capital expenditures for environmental control
facilities for its current fiscal year or for the foreseeable future.
Park believes its primary exposure to environmental risk is through the
lending activities of its subsidiaries. In cases where management believes
environmental risk potentially exists, Park's subsidiaries mitigate their
environmental risk exposures by requiring environmental site assessments at the
time of loan origination to confirm collateral quality as to commercial real
estate parcels posing higher than normal potential for environmental impact, as
determined by reference to present and past uses of the subject property and
adjacent sites. Environmental assessments are typically required prior to any
foreclosure activity involving non-residential real estate collateral.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Annual Report on Form 10-K which are
not statements of historical fact constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, the statements specifically identified as forward-looking
statements within this document. In addition, certain statements in future
filings by Park with the SEC, in press releases, and in oral and written
statements made by or with the approval of Park which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Examples of forward-looking statements
include: (i) projections of income or expense, earnings per share, the payment
or non-payment of dividends, capital structure and other financial items; (ii)
statements of plans and objectives of Park or its management or Board of
Directors, including those relating to products or services; (iii) statements of
future economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes", "anticipates", "expects", "intends",
"targeted", and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying those statements.
Forward-looking statements involve risks and uncertainties. Actual results
may differ materially from those predicted by the forward-looking statements
because of various factors and possible events, including the following:
- the costs of providing compensation and benefits to employees of Park
and its subsidiaries increase;
- the costs or difficulties related to the integration of Park's recent
acquisitions is greater than expected or the cost savings or any
revenue synergies of the combined entities are lower or take longer to
realize than expected;
- competitive pressures among depository institutions increase
significantly;
- consolidation in the financial services industry continues;
- general economic conditions, either national or in the geographic
areas in which Park's subsidiaries do business, are less favorable
than expected;
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- prepayment speeds, loan origination and sale volumes, charge-offs and
loan loss provisions are less favorable than expected;
- technological changes are more difficult or expensive to implement
than anticipated;
- changes in the interest rate environment reduce interest margins;
- legislative or regulatory changes adversely affect financial services
companies;
- changes in Park's accounting policies or procedures are required by
the Public Company Accounting Oversight Board or other regulatory
agencies;
- there are adverse changes in the securities markets; and
- Park suffers the loss of key personnel.
There is also the risk that Park's management or Board of Directors
incorrectly analyzes these risks and forces, or that the strategies Park
develops to address them are unsuccessful.
Forward-looking statements speak only as of the date on which they are
made, and, except as may be required by law, Park undertakes no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made to reflect unanticipated events. All
subsequent written and oral forward-looking statements attributable to Park or
any person acting on our behalf are qualified by the cautionary statements in
this section.
ITEM 2. PROPERTIES.
Park's principal executive offices are located at 50 North Third Street,
Newark, Ohio 43055. Park does not lease or own any physical property, real or
personal.
PARK NATIONAL BANK
As of December 31, 2004, Park National Bank had six financial service
offices (including its main office) and its operations center in Newark (Licking
County). Park National Bank also had financial service offices in Granville,
Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala and Utica in
Licking County, financial service offices in Canal Winchester, Columbus, Gahanna
and Worthington in Franklin County, a financial service office in Cincinnati in
Hamilton County, a financial service office in Dayton in Montgomery County, a
financial service office in Delaware in Delaware County and financial service
offices in Baltimore, Pickerington (two offices) and Lancaster (seven offices)
in Fairfield County. The financial service offices in Canal Winchester and
Fairfield County comprise the Fairfield National Division. Park National Bank
also operated eight off-site automated teller machines, three of which are
operated by the Fairfield National Division.
With the January 3, 2005 acquisition of First Clermont Bank, Park National
Bank added seven financial service offices located in Amelia, Cincinnati (two
offices), Milford (two offices), New Richmond and Owensville in Clermont County
and three off-site automated teller machines. These financial service offices
comprise the First Clermont Division. Accordingly, as of the date of
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this Annual Report on Form 10-K, Park National Bank and its divisions have a
total of 38 financial service offices and ten off-site automated teller
machines, three of which are operated by the Fairfield National Division and two
of which are operated by the First Clermont Division. Of these financial service
offices, 17 are leased and the remainder are owned.
RICHLAND TRUST COMPANY
As of the date of this Annual Report on Form 10-K, Richland Trust Company
has eight financial service offices in Mansfield (including its main office) as
well as financial service offices in Butler, Lexington, Ontario and Shelby (two
offices) in Richland County. Of these financial service offices, three are
leased and the remainder are owned. Richland Trust Company also operates two
off-site automated teller machines.
CENTURY NATIONAL BANK
As of the date of this Annual Report on Form 10-K, Century National Bank
has eight financial service offices (including its main office) and a mortgage
lending office in Zanesville (Muskingum County). Century National Bank also has
financial service offices in New Concord and Dresden in Muskingum County, a
financial service office in New Lexington in Perry County, a financial service
office in Logan in Hocking County, a financial service office in Athens in
Athens County, two financial service offices in Coshocton in Coshocton County
and a financial service office in Newcomerstown in Tuscarawas County. Of these
financial service offices, three are leased and the remainder are owned. Century
National Bank also operates three off-site automated teller machines.
FIRST-KNOX NATIONAL BANK
As of the date of this Annual Report on Form 10-K, First-Knox National Bank
has three financial service offices (including its main office) and its
operations center in Mount Vernon (Knox County). First-Knox National Bank also
has financial service offices in Ashland, Loudonville and Perrysville in Ashland
County, two financial service offices in Millersburg in Holmes County, financial
service offices in Centerburg, Danville and Fredericktown in Knox County, two
financial service offices in Mount Gilead in Morrow County and a financial
service office in Bellville in Richland County. The financial service offices in
Ashland County comprise the Farmers and Savings Division. Of these financial
service offices, two are leased and the remainder are owned. First-Knox National
Bank also operates 11 off-site automated teller machines, one of which is
operated by the Farmers and Savings Division.
UNITED BANK
As of the date of this Annual Report on Form 10-K, United Bank has its main
office in Bucyrus and financial service offices in Crestline and Galion in
Crawford County and financial service offices in Caledonia, Marion (two
offices), Prospect and Waldo in Marion County. Of these financial service
offices, three are leased and the remainder are owned. United Bank also operates
one off-site automated teller machine.
-24-
SECOND NATIONAL BANK
As of the date of this Annual Report on Form 10-K, Second National Bank has
five financial service offices (including its main office) in Greenville (Darke
County). Second National Bank also has two financial service offices in Arcanum
(two offices) and Versailles in Darke County and a financial service office in
Fort Recovery in Mercer County. Of these financial service offices, two are
leased and the remainder are owned.
SECURITY NATIONAL BANK
As of the date of this Annual Report on Form 10-K, Security National Bank
has six financial service offices (including its main office) in Springfield
(Clark County). Security National Bank also has financial service offices in
Enon, Medway, New Carlisle (two offices) and South Charleston in Clark County,
financial service offices in Jamestown (two offices) and Xenia (two offices) in
Greene County, a financial service office in Jeffersonville in Fayette County
and financial service offices in Piqua (three offices including an
administrative building), Tipp City and Troy (two offices) in Miami County. The
financial service offices in Miami County comprise the Unity National Division.
Of these financial service offices, three are leased and the remainder are
owned. Security National Bank also operates four off-site automated teller
machines.
CITIZENS NATIONAL BANK
As of the date of this Annual Report on Form 10-K, Citizens National Bank
has two financial service offices (including its main office) in Urbana
(Champaign County). In addition, Citizens National Bank has financial service
offices in Mechanicsburg and North Lewisburg in Champaign County and a financial
service office in Plain City in Madison County. All of Citizens National Bank's
financial service offices are owned. Citizens National Bank also operates two
off-site automated teller machines.
GUARDIAN FINANCE
As of the date of this Annual Report on Form 10-K, Guardian Finance has its
main office in Hilliard and a financial service office in Columbus in Franklin
County, a financial service office in Mansfield in Richland County where it
leases space from Richland Trust Company, a financial service office in
Lancaster in Fairfield County where it leases space from the Fairfield National
Division of Park National Bank, a financial service office in Heath in Licking
County, a financial service office in Springfield in Clark County, a financial
service office in Delaware in Delaware County, and a financial service office in
Centerville in Montgomery County. All of Guardian Finance's financial service
offices are leased.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which Park or any of its
subsidiaries is a party or to which any of their property is subject, except
routine legal proceedings to which Park's banking subsidiaries are parties
incidental to their respective banking businesses. Park considers none of those
proceedings to be material.
-25-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders of Park
during the fourth quarter of the fiscal year ended December 31, 2004.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names and ages of the executive officers of
Park as of February 22, 2005, the positions presently held by those individuals
with Park and its principal subsidiaries and their individual business
experience during the past five years.
Positions Held with Park and its
Name Age Principal Subsidiaries and Principal Occupation
- ---- --- -----------------------------------------------
C. Daniel DeLawder 55 Chairman of the Board since January 1, 2005, Chief
Executive Officer since 1999, President from 1994
until December 31, 2004, and a Director since 1994,
of Park; Chairman of the Board since January 1, 2005,
Chief Executive Officer since January 1999, President
from 1993 until December 31, 2004, Executive Vice
President from 1992 to 1993, and a Director since
1992, of Park National Bank; Member of Advisory Board
since 1985, Chairman of Advisory Board from 1989 to
2003, and President from 1985 to 1992, of the
Fairfield National Division of Park National Bank; a
Director of Richland Trust Company since 1997; a
Director of Second National Bank since 2000
David L. Trautman 43 President since January 1, 2005, Secretary since July
2002, and a Director since January 1, 2005, of Park;
President since January 1, 2005, Executive Vice
President from February 2002 until December 31, 2004,
Vice President from 1993 to May 1997, and a Director
since February 2002, of Park National Bank; Chairman
of the Board since March 2001, President and Chief
Executive from May 1997 to February 2002, and a
Director since May 1997, of First-Knox National Bank;
a Director of United Bank, N.A. since 2000
John W. Kozak 49 Chief Financial Officer of Park since 1998 (became an
executive officer of Park on July 22, 2002); Senior
Vice President and Chief Financial Officer since
1998, and Vice President from 1991 to 1998, of Park
National Bank; Chief Financial Officer from 1980 to
1991, and a Director since 1988, of Century National
Bank
The executive officers serve at the pleasure of the Board of Directors of
Park.
-26-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The information called for in this Item 5 by Items 201(a) through (c) of
SEC Regulation S-K is incorporated herein by reference from the section of
Park's 2004 Annual Report to Shareholders captioned "FINANCIAL REVIEW," on page
36.
No purchases of common shares were made by or on behalf of Park, or any
"affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act
during the fiscal quarter ended December 31, 2004.
On November 18, 2002, Park announced a stock repurchase program under which
up to an aggregate of 500,000 common shares may be repurchased from time to time
over the three-year period ending November 17, 2005. These repurchases may be
made in open market transactions or through privately negotiated transactions.
As of December 31, 2004, Park had the authority to still repurchase an aggregate
of 488,300 common shares under this stock repurchase program.
The Park National Corporation 1995 Incentive Stock Option Plan (the "1995
Plan") was initially approved by the shareholders of Park on April 7, 1995 and
200,000 common shares were authorized for delivery upon the exercise of
incentive stock options granted under the 1995 Plan. The shareholders approved
an amendment to the 1995 Plan on April 20, 1998 to increase the number of common
shares of Park available for delivery under the 1995 Plan to 735,000 common
shares (after adjustment for stock dividends) and another amendment on April 16,
2001 to increase the number of common shares available for delivery under the
1995 Plan to 1,200,000 common shares. In connection with the 5% stock dividend
distributed on December 15, 2004, this number was adjusted to 1,260,000 common
shares. Pursuant to the terms of the 1995 Plan, all of the common shares
delivered upon the exercise of incentive stock options granted under the 1995
Plan are to be treasury shares. No incentive stock options may be granted under
the 1995 Plan after January 16, 2005. As of December 31, 2004, incentive stock
options covering 695,348 common shares were outstanding and 394,358 common
shares were available for future grants; however, no further grants were made
prior to January 16, 2005.
Upon recommendation by the Compensation Committee, on January 18, 2005, the
Board of Directors of Park adopted, subject to shareholder approval, the Park
National Corporation 2005 Incentive Stock Option Plan (the "2005 Plan"). The
Board of Directors of Park is proposing the 2005 Plan for consideration and
approval by the shareholders at the Annual Meeting of Shareholders to be held on
April 18, 2005. If the 2005 Plan is approved by the shareholders, 1,500,000
common shares will be authorized for delivery upon the exercise of incentive
stock options granted in the future under the 2005 Plan. Pursuant to the terms
of the 2005 Plan, all of the common shares delivered upon the exercise of
incentive stock options granted under the 2005 Plan are to be treasury shares.
-27-
At December 31, 2004, 844,875 common shares were held as treasury shares
for purposes of Park's stock option plans, including the 1995 Plan and, if
approved by Park's shareholders, the 2005 Plan.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for in this Item 6 is incorporated herein by
reference from the section of Park's 2004 Annual Report to Shareholders
captioned "FINANCIAL REVIEW," on page 35.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information called for in this Item 7 is incorporated herein by
reference from the section of Park's 2004 Annual Report to Shareholders
captioned "FINANCIAL REVIEW," on pages 26 through 36.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As noted in Note 1 of the Notes to Consolidated Financial Statements under
the caption "Derivative Instruments" on page 48 of Park's 2004 Annual Report to
Shareholders, Park and its subsidiaries did not use any derivative instruments
in 2004 or 2003. The discussion of interest rate sensitivity included in the
section of Park's 2004 Annual Report to Shareholders captioned "FINANCIAL REVIEW
- - Liquidity and Interest Rate Sensitivity Management," on pages 33 and 34, is
incorporated herein by reference. In addition, the discussion of Park's
commitments, contingent liabilities and off-balance sheet arrangements included
on page 35 of Park's 2004 Annual Report to Shareholders under the caption
"FINANCIAL REVIEW - Commitments, Contingent Liabilities, and Off-Balance Sheet
Arrangements," and in Note 17 of the Notes to Consolidated Financial Statements
included on pages 54 and 55 of Park's 2004 Annual Report to Shareholders, is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of Park and its subsidiaries at December
31, 2004 and 2003, the related Consolidated Statements of Income, of Changes in
Stockholders' Equity and of Cash Flows for each of the fiscal years in the
three-year period ended December 31, 2004, the related Notes to Consolidated
Financial Statements, and the Report of Independent Registered Public Accounting
Firm appearing on pages 39 through 58 of Park's 2004 Annual Report to
Shareholders, are incorporated herein by reference. Quarterly Financial Data
included in the section of Park's 2004 Annual Report to Shareholders captioned
"FINANCIAL REVIEW," on page 36, are also incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
-28-
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
With the participation of the Chairman of the Board and Chief Executive
Officer (the principal executive officer) and the Chief Financial Officer (the
principal financial officer) of Park, Park's management has evaluated the
effectiveness of Park's disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the fiscal year covered by this Annual Report on Form
10-K. Based on that evaluation, Park's Chairman of the Board and Chief Executive
Officer and Park's Chief Financial Officer have concluded that:
- information required to be disclosed by Park in this Annual Report on
Form 10-K and the other reports that Park files or submits under the
Exchange Act would be accumulated and communicated to Park's
management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding
required disclosure;
- information required to be disclosed by Park in this Annual Report on
Form 10-K and the other reports that Park files or submits under the
Exchange Act would be recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms; and
- Park's disclosure controls and procedures are effective as of the end
of the fiscal year covered by this Annual Report on Form 10-K to
ensure that material information relating to Park and its consolidated
subsidiaries is made known to them, particularly during the period for
which the periodic reports of Park, including this Annual Report on
Form 10-K, are being prepared.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The "MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING" on
page 37 of Park's 2004 Annual Report to Shareholders is incorporated herein by
reference.
ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
The "REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" on page 38 of
Park's 2004 Annual Report to Shareholders is incorporated herein by reference.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in Park's internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) that occurred during
Park's fiscal quarter ended December 31, 2004, that have materially affected, or
are reasonably likely to materially affect, Park's internal control over
financial reporting.
-29-
ITEM 9B. OTHER INFORMATION.
No response required.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning (a) directors of Park, (b) the Board of
Directors' determination that Park has an "audit committee financial expert"
serving on its Audit Committee, (c) the Audit Committee of Park's Board of
Directors and (d) the procedures by which shareholders of Park may recommend
nominees to Park's Board of Directors required by Item 401 of SEC Regulation S-K
is incorporated herein by reference from Park's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 18, 2005
("Park's 2005 Proxy Statement"), under the caption "ELECTION OF DIRECTORS (Item
1 on Proxy)".
The information concerning the executive officers of Park required by Item
401 of SEC Regulation S-K is set forth in the portion of Part I of this Annual
Report on Form 10-K entitled "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE
REGISTRANT."
The information required by Item 405 of SEC Regulation S-K is incorporated
herein by reference from Park's 2005 Proxy Statement under the caption
"PRINCIPAL SHAREHOLDERS OF PARK - Section 16(a) Beneficial Ownership Reporting
Compliance."
Park's Board of Directors has adopted charters for each of the Audit
Committee, the Nominating Committee and the Compensation Committee.
In accordance with the requirements of Section 807 of the AMEX Company
Guide, the Board of Directors of Park has adopted a Code of Business Conduct and
Ethics covering the directors, officers and employees of Park and its
affiliates, including Park's Chairman of the Board and Chief Executive Officer
(the principal executive officer) and Park's Chief Financial Officer (the
principal financial officer and principal accounting officer). Park intends to
disclose the following on the "Governance Documents (Corporate Governance)" page
of its website located at www.parknationalcorp.com within the required four
business days following their occurrence: (A) the date and nature of any
amendment to a provision of its Code of Business Conduct and Ethics that (i)
applies to Park's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, (ii) relates to any element of the code of ethics definition
enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical,
administrative or other non-substantive amendment; and (B) a description of any
waiver (including the nature of the waiver, the name of the person to whom the
waiver was granted and the date of the waiver), including an implicit waiver,
from a provision of the Code of Business Conduct and Ethics granted to Park's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions that relates to
one or more of the elements of the code of ethics definition set forth in Item
406(b) of SEC Regulation S-K. In addition, Park will disclose any waivers of the
Code of Business Conduct and Ethics granted to a director or an executive
officer of Park in a current report on Form 8-K within four business days.
-30-
The text of each of the Code of Business Conduct and Ethics, the Audit
Committee Charter, the Nominating Committee Charter and the Compensation
Committee Charter is posted on the "Governance Documents (Corporate Governance)"
page of Park's website located at www.parknationalcorp.com. Interested persons
may also obtain copies of the Code of Business Conduct and Ethics, the Audit
Committee Charter, the Nominating Committee Charter and the Compensation
Committee Charter, without charge, by writing to the President of Park at Park
National Corporation, 50 North Third Street, P.O. Box 3500, Newark, Ohio
43058-3500, Attention: David L. Trautman. In addition, Park's Code of Business
Conduct and Ethics is incorporated by reference in Exhibit 14 to this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for in this Item 11 is incorporated herein by
reference from Park's 2005 Proxy Statement, under the captions "ELECTION OF
DIRECTORS (Item 1 on Proxy) - Compensation of Directors", "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION", and "COMPENSATION OF EXECUTIVE
OFFICERS." Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of SEC
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information called for in this Item 12 regarding the security ownership
of certain beneficial owners and management is incorporated herein by reference
from Park's 2005 Proxy Statement, under the caption "PRINCIPAL SHAREHOLDERS OF
PARK."
The information called for in this Item 12 regarding securities authorized
for issuance under equity compensation plans is incorporated herein by reference
from Park's 2005 Proxy Statement, under the caption "COMPENSATION OF EXECUTIVE
OFFICERS - Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in this Item 13 is incorporated herein by
reference from Park's 2005 Proxy Statement, under the captions "ELECTION OF
DIRECTORS (Item 1 on Proxy) ," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION," and "TRANSACTIONS INVOLVING MANAGEMENT."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information called for in this Item 14 is incorporated herein by
reference from Park's 2005 Proxy Statement, under the captions "AUDIT COMMITTEE
MATTERS - Pre-Approval of Services Performed by Independent Registered Public
Accounting Firm" and "AUDIT COMMITTEE MATTERS - Fees of Independent Registered
Public Accounting Firm."
-31-
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(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 35.
(a)(2) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions
or are inapplicable and have been omitted.
(a)(3) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the Index to Exhibits
beginning at page E-1.
(b) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the Index to Exhibits
beginning at page E-1.
(c) Financial Statement Schedules.
None
-32-
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 11, 2005 By: /s/ C. Daniel DeLawder
-------------------------------------------------
C. DanielDeLawder,
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 11th day of March, 2005.
Name Capacity
---- --------
/s/ C. Daniel DeLawder Chairman of the Board,
- -------------------------------------- Chief Executive Officer and Director
C. Daniel DeLawder
/s/ David L. Trautman President and Director
- --------------------------------------
David L. Trautman
/s/ John W. Kozak Chief Financial Officer and
- -------------------------------------- Principal Accounting Officer
John W. Kozak
* Director
- --------------------------------------
Maureen Buchwald
* Director
- --------------------------------------
James J. Cullers
* Director
- --------------------------------------
Harry O. Egger
* Director
- --------------------------------------
F. William Englefield IV
-33-
Name Capacity
---- --------
* Director
- --------------------------------------
R. William Geyer
* Director
- --------------------------------------
William T. McConnell
* Director
- --------------------------------------
Michael J. Menzer
* Director
- --------------------------------------
John J. O'Neill
* Director
- --------------------------------------
William A. Phillips
* Director
- --------------------------------------
J. Gilbert Reese
* Director
- --------------------------------------
Rick R. Taylor
* Director
- --------------------------------------
Leon Zazworsky
- ----------
* By C. Daniel DeLawder pursuant to Powers of Attorney executed by the
directors listed above, which Powers of Attorney have been filed with the
Securities and Exchange Commission.
/s/ C. Daniel DeLawder
- --------------------------------------
C. Daniel DeLawder
Chairman of the Board and
Chief Executive Officer
-34-
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2004
INDEX TO FINANCIAL STATEMENTS
PAGE(S) IN
2004 ANNUAL
REPORT TO
DESCRIPTION SHAREHOLDERS
- ----------- ------------
Report of Independent Registered Public Accounting Firm
(Ernst & Young LLP) .................................................... 39
Consolidated Balance Sheets at December 31, 2004
and 2003 ............................................................... 40-41
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002 ....................................... 42-43
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 2004, 2003 and 2002 ............ 44
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 ....................................... 45
Notes to Consolidated Financial Statements ................................ 46-58
-35-
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2004
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
3.1 Articles of Incorporation of Park National Corporation ("Park") as
filed with the Ohio Secretary of State on March 24, 1992
(incorporated herein by reference to Exhibit 3(a) to Park's Form
8-B, filed on May 20, 1992 (File No. 0-18772) ("Park's Form 8-B"))
3.2 Certificate of Amendment to the Articles of Incorporation of Park
as filed with the Ohio Secretary of State on May 6, 1993
(incorporated herein by reference to Exhibit 3(b) to Park's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
(File No. 0-18772))
3.3 Certificate of Amendment to the Articles of Incorporation of Park
as filed with the Ohio Secretary of State on April 16, 1996
(incorporated herein by reference to Exhibit 3(a) to Park's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1996 (File No. 1-13006))
3.4 Certificate of Amendment by Shareholders to the Articles of
Incorporation of Park as filed with the Ohio Secretary of State on
April 22, 1997 (incorporated herein by reference to Exhibit
3(a)(1) to Park's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 (File No. 1-13006)("Park's June 1997
Form 10-Q"))
3.5 Articles of Incorporation of Park (reflecting amendments through
April 22, 1997) [for SEC reporting compliance purposes only - not
filed with Ohio Secretary of State] (incorporated herein by
reference to Exhibit 3(a)(2) to Park's June 1997 Form 10-Q)
3.6 Regulations of Park (incorporated herein by reference to Exhibit
3(b) to Park's Form 8-B)
3.7 Certified Resolution regarding adoption of amendment to Subsection
2.02(A) of the Regulations of Park by Shareholders on April 22,
1997 (incorporated herein by reference to Exhibit 3(b)(1) to
Park's June 1997 Form 10-Q)
3.8 Regulations of Park (reflecting amendments through April 22, 1997)
[for SEC reporting compliance purposes only] (incorporated herein
by reference to Exhibit 3(b)(2) to Park's June 1997 Form 10-Q)
4 Agreement to furnish instruments defining rights of holders of
long-term debt **
E-1
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
*10.1 Summary of Base Salaries for Executive Officers of Park National
Corporation**
*10.2 Summary of Incentive Compensation Plan of Park National
Corporation**
*10.3 Split-Dollar Agreement, dated May 17, 1993, between William T.
McConnell and The Park National Bank (incorporated herein by
reference to Exhibit 10(f) to Park's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 0-18772));
and Schedule A to Exhibit 10.3 identifying other identical
Split-Dollar Agreements between subsidiaries of Park and executive
officers of such subsidiaries who are directors or executive
officers of Park **
*10.4 Split-Dollar Agreement, dated September 3, 1993, between Leon
Zazworsky and The Park National Bank (incorporated herein by
reference to Exhibit 10.3 to Park's Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 (File No. 1-13006)
("Park's 2003 Form 10-K")); and Schedule A to Exhibit 10.4
identifying other identical Split-Dollar Agreements between
directors of Park and The Park National Bank, The Richland Trust
Company, Century National Bank or The First-Knox National Bank of
Mount Vernon as identified in such Schedule A **
*10.5 Park National Corporation 1995 Incentive Stock Option Plan
(reflects amendments and share dividends through December 15,
2004)**
*10.6 Form of Stock Option Agreement executed in connection with the
grant of options under the Park National Corporation 1995
Incentive Stock Option Plan, as amended (incorporated herein by
reference to Exhibit 10(i) to Park's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No. 1-13006))
*10.7 Description of Park National Corporation Supplemental Executive
Retirement Plan **
*10.8 Security Banc Corporation 1987 Stock Option Plan, which was
assumed by Park (incorporated herein by reference to Exhibit 10(a)
to Park's Registration Statement on Form S-8 filed April 23, 2001
(Registration No. 333-59378))
*10.9 Security Banc Corporation 1995 Stock Option Plan, which was
assumed by Park (incorporated herein by reference to Exhibit 10(b)
to Park's Registration Statement on Form S-8 filed April 23, 2001
(Registration No. 333-59378))
*10.10 Security Banc Corporation 1998 Stock Option Plan, which was
assumed by Park (incorporated herein by reference to Exhibit 10(c)
to Park's Registration Statement on Form S-8 filed April 23, 2001
(Registration No. 333-59378))
E-2
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
*10.11 Employment Agreement, made and entered into as of December 22,
1999, and the Amendment thereto, dated March 23, 2001, between The
Security National Bank and Trust Co. (also known as Security
National Bank and Trust Co.) and Harry O. Egger (incorporated
herein by reference to Exhibit 10(e) to Park's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2001 (File No.
1-13006))
*10.12 First-Knox Banc Corp. 1990 Non-Qualified Stock Option and Stock
Appreciation Rights Plan, which was assumed by Park (incorporated
herein by reference to Exhibit A to Exhibit 23 to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 of
First-Knox Banc Corp. (File No. 0-13161))
*10.13 Resolution Regarding Amendment to First-Knox Banc Corp. 1990
Non-Qualified Stock Option and Stock Appreciation Rights Plan on
May 14, 1996, which was assumed by Park (incorporated herein by
reference to Exhibit 10(h) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 of First-Knox Banc Corp.
(File No. 0-13161))
*10.14 Park National Corporation Stock Plan for Non-Employee Directors of
Park National Corporation and Subsidiaries (incorporated herein by
reference to Exhibit 10 to Park's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2004 (File No. 1-13006))
*10.15 Summary of Compensation for Directors of Park National
Corporation**
*10.16 Security National Bank and Trust Co. Amended and Restated 1988
Deferred Compensation Plan **
13 2004 Annual Report to Shareholders (not deemed filed except for
portions thereof which are specifically incorporated by reference
in this Annual Report on Form 10-K) (incorporated by reference to
the financial statements portion of this Annual Report on Form
10-K beginning at page 35) **
14 Code of Business Conduct and Ethics (incorporated herein by
reference to Exhibit 14 to Park's 2003 Form 10-K)
21 Subsidiaries of Park National Corporation**
23 Consent of Ernst & Young LLP **
24 Powers of Attorney of Directors and Executive Officers of Park **
31.1 Rule 13a-14(a)/15d-14(a) Certification -- Principal Executive
Officer**
31.2 Rule 13a-14(a)/15d-14(a) Certification -- Principal Financial
Officer**
E-3
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
32 Section 1350 Certification -- Principal Executive Officer and
Principal Financial Officer**
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* Management contract or compensatory plan or arrangement
** Filed herewith
E-4