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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-13006
PARK NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Ohio 31-1179518
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
50 North Third Street, Newark, Ohio 43055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 349-8451
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares, without par value (7,107,859 American Stock Exchange
common shares outstanding on February 28, 1997)
Securities registered pursuant to Section 12(g) of the Act: None
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price reported on the American Stock Exchange on February
28, 1997, the aggregate market value of the Common Shares of the Registrant held
by non-affiliates on that date was $219,890,188.
Documents Incorporated by Reference:
(1) Portions of the Registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1996, are incorporated by
reference into Part II of this Annual Report on Form 10-K.
(2) Portions of the Registrant's definitive Joint Proxy
Statement/Prospectus for its Annual Meeting of Shareholders to
be held on April 21, 1997, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Exhibit Index on Page 83
Page 1 of 131 Pages.
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PART I
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Item 1. Business.
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General
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Park National Corporation, an Ohio corporation (the "Company"), is a
bank holding company under the Bank Holding Company Act of 1956, as amended, and
is subject to regulation by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). The Company is also a savings and loan holding
company, but is exempt from regulation by the Office of Thrift Supervision (the
"OTS"), because the Company is regulated as a bank holding company. The
executive offices of the Company are located in Newark, Ohio.
Through its subsidiaries, The Park National Bank, Newark, Ohio, a
national banking association ("PNB"), The Richland Trust Company, Mansfield,
Ohio, an Ohio state-chartered bank ("Richland"), and Mutual Federal Savings
Bank, Zanesville, Ohio, a federally-chartered stock savings association
("Mutual"), the Company is engaged in a general commercial banking and trust
business, in eleven counties in central and southern Ohio. PNB operates through
two banking divisions with the Park National Division headquartered in Newark,
Ohio and the Fairfield National Division headquartered in Lancaster, Ohio.
On December 6, 1996, Richland acquired five branch offices in Richland
County, Ohio from Peoples National Bank, headquartered in Wooster, Ohio,
pursuant to a Purchase and Assumption Agreement, dated August 28, 1996. In
addition to the fixed assets of such branches, the purchase included
approximately $98 million of deposits and approximately $31 million of loans.
The banking business of the five branches has been consolidated into Richland's
operations.
On October 28, 1996, the Company entered into an Agreement and Plan of
Merger with First-Knox Banc Corp., a bank holding company headquartered in Mount
Vernon, Ohio ("First-Knox"), and on January 10, 1997, the Company and First-Knox
entered into an Amendment to Agreement and Plan of Merger (collectively, the
"Merger Agreement"). The Merger Agreement provides for the merger (the "Merger")
of First-Knox with and into the Company. Under the terms of the Merger
Agreement, each outstanding First-Knox common share, other than those owned
directly by the Company, by First-Knox or by any of their wholly-owned
subsidiaries, which will be canceled in the Merger, and other than First-Knox
common shares as to which dissenter's rights have been perfected under the
General Corporation Law of Ohio, will be converted into the right to receive
common shares of the Company. The exact number of common shares of the Company
to be received for each First-Knox common share (the "First-Knox Exchange
Ratio") will be determined pursuant to a specified formula that is based upon
certain variables, including the average closing sale price of a Company common
share on the American Stock Exchange for the five "trading" days (meaning days
on which actual trades of the Company's common shares occur) ending on the tenth
business day immediately preceding the closing (the "First-Knox Closing") of the
Merger and the aggregate of the amount of cash paid to First-Knox prior to the
First-Knox Closing as a result of the exercise of stock options to purchase
First-Knox common shares ("First-Knox Stock Options") and the exercise price of
any First-Knox Stock Options which are not exercised prior to the First-Knox
Closing. Management of the Company currently anticipates that the First-Knox
Exchange Ratio will be approximately .5914 and
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that an aggregate of 2,345,000 common shares of the Company will be issued in
connection with the Merger. Consummation of the Merger is subject to certain
conditions, including the approval of bank regulators and other governmental
agencies, the approval of the shareholders of First-Knox and of the Company, and
other conditions to closing customary of a transaction of this type. The
principal regulatory approvals required to be obtained are from the Federal
Reserve Board and the Ohio Division of Financial Institutions (the "ODFI"). A
bank holding company merger application and a change of bank control notice were
submitted for filing to the Federal Reserve Board and the ODFI, respectively, on
December 31, 1996. On February 14, 1997, the bank holding company merger
application filed with the Federal Reserve Board was approved. Pursuant to the
terms of such approval, the Merger could not be consummated before March 1, 1997
and must be consummated before May 14, 1997, unless such period is extended by
the Federal Reserve Board. On March 10, 1997, the ODFI notified the Company that
the ODFI had no objection to the proposed change in control of First-Knox's
state-chartered subsidiary. The Company's Annual Meeting of Shareholders, at
which the Merger is to be considered, has been scheduled for April 21, 1997, and
the First-Knox Special Meeting of Shareholders, at which the Merger is to be
considered, has been scheduled for April 23, 1997. The Merger is expected to
be completed during the second quarter of 1997.
Services Provided by the Company's Subsidiaries
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PNB, Richland and Mutual provide the following principal services: the
acceptance of deposits for demand, savings and time accounts and the servicing
of such accounts; commercial, industrial, consumer and real estate lending,
including installment loans, credit cards and personal lines of credit; safe
deposit operations; trust services; cash management; electronic funds transfers;
and a variety of additional banking-related services tailored to the needs of
individual customers. The Company believes that the deposit mix of its
subsidiaries is such that no material portion thereof has been obtained from a
single customer and, consequently, the loss of any one customer of any
subsidiary of the Company would not have a materially adverse effect on the
business of that subsidiary or the Company.
The Company's subsidiaries deal with a wide cross-section of businesses
and corporations which are located primarily in Athens, Coshocton, Fairfield,
Franklin, Hamilton, Hocking, Licking, Morgan, Muskingum, Perry and Richland
Counties in Ohio. Few loans are made to borrowers outside these counties.
Lending decisions at each of the Company's subsidiaries are made in accordance
with written loan policies designed to maintain loan quality. Each of the
Company's subsidiaries originates and retains for its own portfolio commercial
and commercial real estate loans, variable rate residential real estate loans,
home equity lines of credit, installment loans and credit card loans. Fixed rate
residential real estate loans are also generated for the secondary market. The
loans of each of the Company's subsidiaries are spread over a broad range of
industrial classifications. The Company believes that its subsidiaries have no
significant concentrations of loans to borrowers engaged in the same or similar
industries and such subsidiaries do not have any loans to foreign entities.
Commercial lending entails significant additional risks as compared
with consumer lending -- i.e., single-family residential mortgage lending,
installment lending, credit card loans and automobile leasing. In addition, the
payment experience on commercial loans is typically dependent on adequate cash
flow of a business and thus may be subject, to a greater extent, to adverse
conditions in the economy generally or adverse conditions in a specific
industry.
At December 31, 1996, the Company's subsidiaries had outstanding
approximately $345.1 million in commercial loans (including commercial real
estate loans) and commercial leases, representing approximately 31.0% of their
total aggregate loan portfolio as of that date. PNB's, Richland's and Mutual's
regulatory limits for loans made to one borrower were $11.7 million, $4.0
million and $4.7 million, respectively, at December 31, 1996. However,
participations in loans of amounts larger than $5.0 million are generally sold
to other banks. Loan terms include amortization schedules commensurate with the
purpose of each loan, the source of each repayment and the risk involved.
Executive Committee approval is required for loans to borrowers whose aggregate
total debt, including the principal amount of the proposed loan, exceeds $2.0
million. The primary analysis technique used in determining whether to grant a
commercial loan is the review of a schedule of cash
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flows in order to evaluate whether anticipated future cash flows will be
adequate to service both interest and principal due.
Each of the Company's subsidiaries has a loan review program and each
reevaluates annually all loans greater in amount than $100,000 so that effective
and prompt action can be taken where deterioration occurs. Upon detection of a
reduced ability of a borrower to service interest and/or principal on a loan,
the loan is downgraded and placed on non-accrual status. The subsidiary then
works with the borrower to develop a payment schedule which they anticipate will
permit the principal and interest on the loan to be serviced by the borrower.
Loans which deteriorate and show an inability of a borrower to repay principal
and do not meet the subsidiary's standards are charged off quarterly.
PNB also leases equipment under terms similar to its commercial lending
policies. Park Leasing Company, a division of PNB, originates and services
direct leases of equipment which PNB acquires with no outside financing. In
addition, Scope Leasing, Inc., a wholly-owned subsidiary of PNB, specializes in
the direct leasing of aircraft with no outside financing.
At December 31, 1996, the Company's subsidiaries had outstanding
consumer loans (including automobile leases and credit cards) in an aggregate
amount of approximately $248.1 million constituting approximately 22.3% of their
aggregate total loan portfolio. The Company's subsidiaries make installment
credit available to customers and prospective customers in their primary market
area of Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking, Licking,
Morgan, Muskingum, Perry and Richland Counties, Ohio. In addition, the Company's
subsidiaries are participants in an automobile installment loan program
sponsored by an insurance company as a result of which automobile installment
loans may be made to borrowers in other counties located in the State of Ohio.
Credit approval for consumer loans requires demonstration of sufficiency of
income to repay principal and interest due, stability of employment, a positive
credit record and sufficient collateral for secured loans. It is the policy of
the Company's subsidiaries to adhere strictly to all laws and regulations
governing consumer lending. A qualified compliance officer is responsible for
monitoring each subsidiary's performance in this area and for advising and
updating loan personnel. The Company's subsidiaries make credit life insurance
and health and accident insurance available to all qualified buyers, thus
reducing their risk of loss when a borrower's income is terminated or
interrupted. It is the policy of each of the Company's subsidiaries to review
its consumer loan portfolio monthly and to charge off loans which do not meet
that subsidiary's standards. Each subsidiary also offers VISA and MasterCard
accounts through their consumer lending departments. These accounts are
administered in accordance with the same standards as applied to other consumer
loans and leases.
Consumer loans generally involve more risk as to collectibility than
mortgage loans because of the type and nature of the collateral and, in certain
instances, the absence of collateral. As a result, consumer lending collections
are dependent upon the borrower's continued financial stability, and thus are
more likely to be adversely affected by job loss, divorce or personal bankruptcy
and by adverse economic conditions.
At December 31, 1996, there were approximately $519.4 million in
residential real estate, home equity lines of credit and construction mortgages
outstanding, representing approximately 46.7% of total loans outstanding. The
market area for real estate lending by the Company's subsidiaries is
concentrated in Athens, Coshocton, Fairfield, Franklin, Hamilton, Hocking,
Licking, Morgan,
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Muskingum, Perry and Richland Counties, Ohio. The Company's subsidiaries
generally require that the loan amount with respect to residential real estate
loans be no more than 80% of the purchase price or the appraisal value of the
real estate securing the loan, unless private mortgage insurance is obtained by
the borrower with respect to the percentage exceeding such 80%. Loans made for
each subsidiary's portfolio in this lending category are generally one year
adjustable rate, fully amortized mortgages. Each subsidiary also originates
fixed rate real estate loans for the secondary market. The standards applicable
to these loans permit a higher loan to value ratio and a longer loan term.
These loans are generally sold immediately after closing. All real estate loans
are secured by first mortgages with evidence of title in favor of the
subsidiary in the form of an attorney's opinion of title or a title insurance
policy. The Company's subsidiaries also require proof of hazard insurance with
the appropriate subsidiary named as the mortgagee and as the loss payee.
Independent appraisals are required in the case of loans in excess of $250,000.
Home equity lines of credit are generally made as second mortgages by
the Company's subsidiaries. The maximum amount of a home equity line of credit
is generally limited to 80% of the appraised value of the property less the
balance of the first mortgage. The home equity lines of credit are written with
ten year terms but are subject to review and reappraisal every three years. A
variable interest rate is generally charged on the home equity lines of credit.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and the estimated cost (including interest) of construction. If the
estimate of construction cost proves to be inaccurate, the Company's subsidiary
making the loan may be required to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value proves
inaccurate, the subsidiary may be confronted, at or prior to the maturity of the
loan, with a project having a value which is insufficient to assure full
repayment, should the borrower default.
Competition
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The Company's subsidiaries compete for deposits and loans with other
banks and savings associations, credit unions and other types of financial
institutions. The primary factors in competing for loans are interest rates
charged and overall services provided to borrowers. The primary factors in
competing for deposits are interest rates paid on deposits, account liquidity
and the convenience of office locations.
Employees
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As of December 31, 1996, the Company and its subsidiaries had 711
full-time equivalent employees.
Supervision and Regulation
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The following is a summary of certain statutes and regulations
affecting the Company and its subsidiaries. The summary is qualified in its
entirety by reference to such statutes and regulations.
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The Company is a bank holding company under the Bank Holding Company
Act of 1956, as amended, which restricts the activities of the Company and the
acquisition by the Company of voting shares or assets of any bank, savings
association or other company. The Company is also subject to the reporting
requirements of, and examination and regulation by, the Federal Reserve Board.
Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on transactions with affiliates, including
any loans or extensions of credit to the bank holding company or any of its
subsidiaries, investments in the stock or other securities thereof and the
taking of such stock or securities as collateral for loans or extensions of
credit to any borrower; the issuance of guarantees, acceptances or letters of
credit on behalf of the bank holding company and its subsidiaries; purchases or
sales of securities or other assets; and the payment of money or furnishing of
services to the bank holding company and other subsidiaries. Bank holding
companies are prohibited from acquiring direct or indirect control of more than
5% of any class of voting stock or substantially all of the assets of any bank
holding company without the prior approval of the Federal Reserve Board. A bank
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with extensions of credit and/or the provision
of other property or services to a customer by the bank holding company or its
subsidiaries. In addition, any savings association acquired by a bank holding
company must conform its activities to those permissible for a bank holding
company under the Bank Holding Company Act.
The Company is also a savings and loan holding company, but because it
is a bank holding company regulated by the Federal Reserve Board, it is not
subject to any separate regulation as a savings and loan holding company.
Transactions between a savings association subsidiary of a savings and loan
holding company and an affiliate thereof are subject to the same restrictions
imposed by the Federal Reserve Act on subsidiary banks of a bank holding
company.
As a national bank, PNB is supervised and regulated by the Comptroller
of the Currency (the "Comptroller"). As an Ohio state-chartered bank, Richland
is supervised and regulated by the ODFI and the FDIC. As a federally chartered
savings association, Mutual is currently supervised and regulated by the OTS;
however, Mutual has received approval from the Comptroller to convert to a
national bank charter. Such conversion is expected to occur in early April of
1997 at which time Mutual's name will be changed to "Century National Bank".
The deposits of PNB, Richland and Mutual are insured by the FDIC and
those entities are subject to the applicable provisions of the Federal Deposit
Insurance Act. See "Deposit Insurance Assessments and Recent Legislation". A
subsidiary of a bank holding company or savings and loan holding company can be
liable to reimburse the FDIC if the FDIC incurs or anticipates a loss because of
a default of another FDIC-insured subsidiary of the bank holding company or
savings and loan holding company or in connection with FDIC assistance provided
to such subsidiary in danger of default. In addition, the holding company of any
insured financial institution that submits a capital plan under the federal
banking agencies' regulations on prompt corrective action guarantees a portion
of the institution's capital shortfall, as discussed below.
Various requirements and restrictions under the laws of the United
States and the State of Ohio affect the operations of PNB, Richland and Mutual
including requirements to maintain reserves against deposits, restrictions on
the nature and amount of loans which may be made and the interest that may be
charged thereon, restrictions relating to investments and other activities,
limitations on credit
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exposure to correspondent banks, limitations on activities based on capital and
surplus, limitations on payment of dividends, and limitations on branching. In
general, Mutual can branch anywhere in the United States with OTS approval.
Pursuant to recent federal legislation, PNB may branch across state lines, if
permitted by the law of the other state. In addition, effective June 1997, such
interstate branching by PNB will be authorized, unless the law of the other
state specifically prohibits the interstate branching authority granted by
federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies and for state member banks. The risk-based capital
guidelines include both a definition of capital and a framework for calculating
weighted risk assets by assigning assets and off-balance sheet items to broad
risk categories. The minimum ratio of capital to weighted risk assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least 4.0 percentage points is to be comprised of common stockholders' equity
(including retained earnings but excluding treasury stock), noncumulative
perpetual preferred stock, a limited amount of cumulative perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries,
less goodwill and certain other intangible assets ("Tier 1 capital"). The
remainder ("Tier 2 capital") may consist, among other things, of mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and a limited amount of allowance for loan and lease losses. The
Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to
total assets) of 4% for bank holding companies and state member banks that meet
certain specified conditions, including no operational, financial or supervisory
deficiencies, and including having the highest regulatory rating. The minimum
leverage ratio is 1.0-2.0% higher for other bank holding companies and state
member banks based on their particular circumstances and risk profiles and those
experiencing or anticipating significant growth. National bank subsidiaries,
such as PNB, are subject to similar capital requirements adopted by the
Comptroller of the Currency, and state non-member bank subsidiaries, such as
Richland, are subject to similar capital requirements adopted by the FDIC.
Savings association subsidiaries, such as Mutual, are subject to comparable
capital requirements adopted by the OTS. These OTS capital requirements include
an additional interest rate risk component of the risk-based capital
requirement, which requires additional capital if a savings association's
interest rate risk exceeds levels deemed normal. Under an outstanding proposal
of the Comptroller and the FDIC to also establish an interest rate risk
component, PNB and Richland may be required to have additional capital if their
interest rate risk exposure exceeds acceptable levels provided for in the
regulation when adopted.
The Company and its subsidiaries currently satisfy all capital
requirements. Failure to meet applicable capital guidelines could subject a
banking institution or savings association to a variety of enforcement remedies
available to federal and state regulatory authorities, including the termination
of deposit insurance by the FDIC.
The federal banking regulators have established regulations governing
prompt corrective action to resolve capital deficient banks and savings
associations. Under these regulations, institutions which become
undercapitalized become subject to mandatory regulatory scrutiny and
limitations, which increase as capital continues to decrease. Such institutions
are also required to file capital plans with their primary federal regulator,
and their holding companies must guarantee the capital shortfall up to 5% of the
assets of the capital deficient institution at the time it becomes
undercapitalized.
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The ability of a bank holding company to obtain funds for the payment
of dividends and for other cash requirements is largely dependent on the amount
of dividends which may be declared by its subsidiary banks and other
subsidiaries. However, the Federal Reserve Board expects the Company to serve as
a source of strength to PNB and Richland, which may require it to retain capital
for further investment in the subsidiaries, rather than for dividends for
shareholders of the Company. PNB, Richland and Mutual may not pay dividends to
the Company if, after paying such dividends, they would fail to meet the
required minimum levels under the risk-based capital guidelines and the minimum
leverage ratio requirements. PNB and Richland must have the approval of their
respective regulatory authorities if a dividend in any year would cause the
total dividends for that year to exceed the sum of the current year's net
profits and the retained net profits for the preceding two years, less required
transfers to surplus. Payment of dividends by the bank subsidiaries may be
restricted at any time at the discretion of the regulatory authorities, if they
deem such dividends to constitute an unsafe and/or unsound banking practice or
if necessary to maintain adequate capital for the bank. These provisions could
have the effect of limiting the Company's ability to pay dividends on its
outstanding common shares.
Mutual will not be permitted to pay dividends on its capital stock or
repurchase shares of its stock if its regulatory capital would be reduced below
the amount required for the liquidation account established in its conversion
from mutual stock form or if such payment of dividends or repurchase of shares
would contravene the capital distribution regulations promulgated by the OTS.
Current OTS regulations require a savings and loan holding company's savings
association subsidiary to give to the OTS 30 days' advance notice of any
proposed declaration of dividends to the holding company, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends to
the holding company.
Prior to the enactment of the Small Business Jobs Protection Act (the
"1996 Act") which was signed into law on August 21, 1996, earnings appropriated
to bad debt reserves and deducted for federal income tax purposes could not be
used by Mutual to pay cash dividends to the Company without the payment of
federal income taxes by the Company at the then current income tax rate on the
amount deemed distributed, which would include the amount of any federal income
taxes attributable to the distribution. As a result of modifications enacted in
the 1996 Act, pre-1988 bad debt reserves which are not otherwise recaptured as
discussed below in "Deposit Insurance Assessments and Recent Legislation", may
be recaptured if they are used for payment of cash dividends or other
distributions to a shareholder. Thus, any dividends to the Company that would
reduce amounts appropriated to Mutual's pre-1988 bad debt reserves and deducted
for federal income tax purposes could create a significant tax liability for
Mutual. The Company intends to make full use of the favorable tax treatment
afforded to Mutual and the Company does not contemplate any distribution by
Mutual in a manner which would create the above-mentioned federal tax
liabilities.
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Deposit Insurance Assessments and Recent Legislation
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The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and of the SAIF. PNB and Richland
are members of the BIF and Mutual is a member of the SAIF. The FDIC may increase
assessment rates for either fund if necessary to restore the fund's ratio of
reserves to insured deposits to its target level within a reasonable time and
may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy commercial banks were reduced significantly below
the level paid by healthy savings associations effective in mid-1995.
Assessments paid by healthy savings associations exceeded those paid by healthy
commercial banks by approximately $.19 per $100 in deposits in late 1995. Such
excess equaled approximately $.23 per $100 in deposits beginning in 1996. This
premium disparity had a negative competitive impact on Mutual and other
institutions in the SAIF.
Federal legislation, which became effective September 30, 1996,
provided for the recapitalization of the SAIF by means of a special assessment
of $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase
SAIF reserves to the level required by law. Certain banks holding SAIF deposits
must pay that special assessment on 80% of deposits at March 31, 1995. In
addition, the cost of prior thrift failures will be shared by both the SAIF and
the BIF. As a result of such cost sharing, BIF assessments for healthy banks in
1997 will be $.013 per $100 in deposits and SAIF assessments for healthy
institutions in 1997 will be $.064 per $100 in deposits.
Prior to the 1996 Act, savings associations, including Mutual, meeting
certain requirements had been able to deduct from taxable income amounts
designated as reserved for bad debts. Currently, if a savings association
converts to a commercial bank charter, certain amounts of its bad debt reserve
must be recaptured as taxable income over a six-year period, if the association
has used the percentage of taxable income method to compute its reserve (the
"Percentage Method"). As a result of the 1996 Act, the Percentage Method was
eliminated effective with the first taxable year beginning after December 31,
1995. Savings associations that are treated as small banks are allowed to
utilize the experience method applicable to such savings associations, while
savings associations that are treated as large banks are required to use only
the specific charge off method. A large bank is defined for this purpose as an
institution which has total average assets in excess of $500,000,000 or is a
member of a parent-subsidiary consolidated group and the average total assets of
the group exceed $500,000,000.
A savings association like Mutual which is required to change its
method of computing reserves for bad debt will treat such change as a change in
the method of accounting, initiated by the taxpayer and having been made with
the consent of the Secretary of the Treasury, which will require certain amounts
to be recaptured with respect to such change. Generally, the amounts to be
recaptured will be determined solely with respect to the "applicable excess
reserves" of the savings association. The amount of the applicable excess
reserves will be taken into account ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement described below. In the case of a savings
association like Mutual that is treated as a large
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bank, the amount of the savings association's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserve as of the close of its last taxable year
beginning before January 1, 1988.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a savings association meets the residential loan requirement
for a tax year, the recapture of the applicable excess reserves otherwise
required to be taken into account as an adjustment for the year will be
suspended. A savings association meets the residential loan requirement if, for
the tax year, the principal amount of residential loans made by the savings
association during the year is not less than its base amount. The "base amount"
generally is the average of the principal amounts of the residential loans made
by the savings association during the six most recent tax years beginning before
January 1, 1996.
Mutual had $284 million in deposits in March 31, 1995. Mutual paid a
special assessment of $1.8 million on November 27, 1996, which was accounted for
and recorded as of September 30, 1996. This assessment is tax-deductible, but
has reduced earnings for the year ended, and capital at, December 31, 1996.
Monetary Policy and Economic Conditions
---------------------------------------
The business of commercial banks and savings associations is affected
not only by general economic conditions, but also by the policies of various
governmental regulatory authorities, including the Federal Reserve Board. The
Federal Reserve Board regulates money and credit conditions and interest rates
in order to influence general economic conditions primarily through open market
operations in U.S. Government securities, changes in the discount rate on bank
and savings association borrowings and changes in reserve requirements against
bank and savings association deposits. These policies and regulations
significantly affect the overall growth and distribution of bank and savings
association loans, investments and deposits and the interest rates charged on
loans as well as the interest rates paid on deposits and accounts.
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks and savings
associations in the past and are expected to have significant effects in the
future. In view of the changing conditions in the economy and the money market
and the activities of monetary and fiscal authorities, no definitive predictions
can be made as to future changes in interest rates, credit availability or
deposit levels.
Effect of Environmental Regulation
----------------------------------
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a material effect upon the capital
expenditures, earnings or competitive position of the Company and its
subsidiaries. The Company believes that the nature of the operations of its
subsidiaries has little, if any, environmental impact. The Company, therefore,
anticipates no material capital expenditures for environmental control
facilities for its current fiscal year or for the foreseeable future. The
Company's subsidiaries may be required to make capital expenditures for
environmental control facilities related to
-10-
11
properties which they may acquire through foreclosure proceedings in the future;
however, the amount of such capital expenditures, if any, is not currently
determinable.
Item 2. Properties.
- -----------------------
The Company's principal executive offices are located at 50 North Third
Street, Newark, Ohio 43055. The Company neither leases nor owns any physical
property, real or personal.
The principal offices of PNB are located in its two-story main office
building at 50 North Third Street, Newark, Ohio 43055. PNB occupies all of this
building. PNB's Operations Center is located in a three-story building owned by
it at 21 South First Street, Newark, Ohio 43055. PNB occupies approximately
36,000 square feet of this building, with the remaining 4,000 square feet leased
to outside tenants. PNB, in addition to having six offices in Newark (including
the main office and the Operations Center), has offices in Granville, Heath (two
offices), Hebron, Johnstown, Kirkersville and Utica in Licking County, an office
in Columbus in Franklin County, an office in Cincinnati in Hamilton County and
offices in Baltimore, Pickerington and Lancaster (four offices) in Fairfield
County. The offices in Fairfield County comprise the Fairfield National
Division. PNB also operates six stand-alone automatic banking center locations.
The properties occupied by ten of PNB's Licking County offices (including the
main office and the Operations Center) and by two Fairfield County offices are
owned by PNB. The remaining three offices in Licking County, four offices in
Fairfield County and PNB's Franklin County and Hamilton County offices are
leased under leases with various expiration dates through 2006. Certain of the
leases contain renewal options. PNB owes no mortgage debt on any of its
property.
The principal offices of Richland are located in its eight-story main
office building located at 3 North Main Street, Mansfield, Ohio. Richland
occupies 22,166 square feet out of the total 42,969 square feet of the building,
with the remaining portion leased to tenants not affiliated with Richland.
Richland, in addition to six offices in Mansfield (including the main office),
has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland
County. Richland also operates three stand-alone automatic banking center
locations. Richland owns the property occupied by all of these offices, with the
exception of one branch office in Mansfield which is leased through 2000.
Richland owes no mortgage debt on any of its property.
The principal offices of Mutual are located in a two-story building
owned by it at 14 South Fifth Street, Zanesville, Ohio. Mutual occupies all of
this building. Mutual, in addition to having four offices (including the main
office) and a mortgage lending office in Zanesville, has offices in New Concord
in Muskingum County, Malta in Morgan County, New Lexington in Perry County,
Logan in Hocking County, Athens in Athens County and Coshocton in Coshocton
County. Mutual also operates three stand-alone automatic banking center
locations and a lending office in Dresden in Muskingum County. All of the
properties occupied by Mutual's offices are owned by Mutual, with the exception
of the office located in Coshocton which is leased under a lease which expires
in November, 1999 and the lending office in Dresden which is leased
month-to-month. Mutual owes no mortgage debt on any of its properties.
-11-
12
Item 3. Legal Proceedings.
- ------------------------------
There are no pending legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of their property is subject, except
routine legal proceedings to which the Company's subsidiaries are parties
incidental to their respective banking businesses. None of such proceedings are
considered by the Company to be material.
Item 4. Submission of Matters to a Vote of Security Holders.
- ----------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant.
- -------------------------------------
The following table lists the names and ages of the executive officers
of the Company as of the date of this Annual Report on Form 10-K, the positions
presently held by each such executive officer and the business experience of
each such executive officer during the past five years. Unless otherwise
indicated, each person has held his principal occupation(s) for more than five
years. All executive officers serve at the pleasure of the Board of Directors of
the Company.
Name Age Position(s) Held with the Company and its Principal
- ---- --- Subsidiaries and Principal Occupation(s)
----------------------------------------
William T. McConnell 63 Chairman of the Board since 1994, Chief Executive Officer and
Director since 1986, and President from 1986 to 1994, of the
Company; Chairman of the Board since 1993, Chief Executive
Officer since 1983, President from 1979 to 1993, and Director
since 1977, of PNB; Director of Richland since 1987; Director
of Mutual since 1990
C. Daniel DeLawder 47 President and Director of the Company since 1994; President
since 1993, Executive Vice President from 1992 to 1993, and
Director since 1992, of PNB; Chairman of Advisory Board since
1989, and President from 1985 to 1992, of the Fairfield
National Division of PNB
David C. Bowers 60 Secretary since 1987, Chief Financial Officer and Chief
Accounting Officer since 1990, and Director from 1989 to 1990,
of the Company; Senior Vice President since 1986, and Director
since 1989, of PNB
-12-
13
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- -------------------------------------------------------------------------------
In accordance with General Instruction G(2), the information called for
in this Item 5 is incorporated herein by reference to page 34 of the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996.
Item 6. Selected Financial Data.
- ---------------------------------
In accordance with General Instruction G(2), the information called for
in this Item 6 is incorporated herein by reference to page 32 of the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operation.
---------------------
In accordance with General Instruction G(2), the information called for
in this Item 7 is incorporated herein by reference to pages 19 through 31 of the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
The Consolidated Balance Sheet of the Company and its subsidiaries at
December 31, 1996 and December 31, 1995, the related Consolidated Statements of
Income, of Stockholders' Equity and of Cash Flows for each of the fiscal years
in the three-year period ended December 31, 1996, the related Notes to the
Consolidated Financial Statements, and the Report of Independent Auditors,
appearing on pages 36 through 60 of the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1996, are incorporated herein by
reference. Quarterly Financial Data set forth on page 33 of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1996 are also
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
---------------------
No response required.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
In accordance with General Instruction G(3), the information called for
in this Item 10 is incorporated herein by reference to the Company's definitive
Joint Proxy Statement/Prospective (the "Joint Proxy Statement"), filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the General
Rules and Regulations under the Securities Exchange Act of 1934, relating to the
Company's Annual Meeting of Shareholders to be held on April 21, 1997, under the
captions "ELECTION OF DIRECTORS--Nominees for Election" and "PRINCIPAL
SHAREHOLDERS OF PARK--Section 16(a) Beneficial Ownership Reporting Compliance."
In addition, certain information concerning the executive officers of the
Company called for in this
-13-
14
Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K
entitled "Executive Officers of the Registrant" in accordance with General
Instruction G(3).
Item 11. Executive Compensation.
- ----------------------------------
In accordance with General Instruction G(3), the information called for
in this Item 11 is incorporated herein by reference to the Company's definitive
Joint Proxy Statement, filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, relating to the Company's Annual Meeting of
Shareholders to be held on April 21, 1997, under the captions "ELECTION OF PARK
DIRECTORS--Compensation Committee Interlocks and Insider Participation,"
"ELECTION OF PARK DIRECTORS--Executive Compensation" and "ELECTION OF PARK
DIRECTORS--Certain Matters Pertaining to the Park Board of Directors." Neither
the report on executive compensation nor the performance graph included in the
Company's definitive Joint Proxy Statement relating to the Company's Annual
Meeting of Shareholders to be held on April 21, 1997, shall be deemed to be
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- --------------------------------------------------------------------------
In accordance with General Instruction G(3), the information called for
in this Item 12 is incorporated herein by reference to the Company's definitive
Joint Proxy Statement, filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, relating to the Company's Annual Meeting of
Shareholders to be held on April 21, 1997, under the caption "PRINCIPAL
SHAREHOLDERS OF PARK."
Item 13. Certain Relationships and Related Transactions.
- ----------------------------------------------------------
In accordance with General Instruction G(3), the information called for
in this Item 13 is incorporated herein by reference to the Company's definitive
Joint Proxy Statement, filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, relating to the Company's Annual Meeting of
Shareholders to be held on April 21, 1997, under the caption "ELECTION OF PARK
DIRECTORS--Transactions Involving Management."
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ----------------------------------------------------------------------------
(a)(1) Financial Statements.
---------------------
For a list of all financial statements included with this Annual Report
on Form 10-K, see "Index to Financial Statements" at page 20.
-14-
15
(a)(2) Financial Statement Schedules.
------------------------------
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have
been omitted.
(a)(3) Exhibits.
---------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits" beginning
at page 83. The following table provides certain information concerning
the executive compensation plans and arrangements required to be filed
as exhibits to this Annual Report on Form 10-K.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibit
No. Description Location
- ------- ----------- --------
10(a) Certified Copy of Resolutions Adopted by Incorporated herein by reference to the
Board of Directors of Park National Company's Annual Report on Form 10-K for the
Corporation on July 17, 1995 Affecting Park fiscal year ended December 31, 1995 (File No.
National Corporation Defined Benefit Pension 1-13006) (the "1995 Form 10-K") [Exhibit
Plan and Trust 10(a)]
10(b) Park National Corporation Defined Benefit Incorporated herein by reference to the
Pension Plan Company's 1995 Form 10-K [Exhibit 10(b)]
10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to the
Salary Deferral Plan and Trust Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (File No.
0-18772) [Exhibit 10(d)]
10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to the
National Corporation Company's Registration Statement on Form S-4,
filed on January 24, 1997 (Registration No.
333-20417) (the "Company's Form S-4")
[Exhibit 10(d)]
-15-
16
Exhibit
No. Description Location
- ------- ----------- --------
10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to: (a) the
between William T. McConnell and The Park Company's Annual Report on Form 10-K for the
National Bank; and Schedule A to Exhibit fiscal year ended December 31, 1993 (File No.
10(f) identifying other identical 0-18772) [Exhibit 10(f)]; and (b) the
Split-Dollar Agreements between The Park Company's Annual Report on Form 10-K for the
National Bank and executive officers of the fiscal year ended December 31, 1994 (File No.
Company 1-13006) [Exhibit 10(g)]
10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a) the
1993, between Dominic C. Fanello and The Company's Annual Report on Form 10-K for the
Richland Trust Company; and Schedule A to fiscal year ended December 31, 1993 (File No.
Exhibit 10(f) identifying other identical 0-18772 [Exhibit 10(g)]; and (b) the
Split-Dollar Agreements between directors of Company's Form S-4 [Exhibit 10(f)]
the Company and The Park National Bank, The
Richland Trust Company or Mutual Federal
Savings Bank, as identified in such Schedule A
10(g) Park National Corporation 1995 Incentive Incorporated herein by reference to the
Stock Option Plan Company's Registration Statement on Form S-8
filed May 9, 1995 (Registration No. 33-92060)
[Exhibit 4(d)]
10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to the
connection with the grant of options under Company's 1995 Form 10-K [Exhibit 10(i)]
Park National Corporation 1995 Incentive
Stock Option Plan
10(i) Description of Park National Corporation Incorporated herein by reference to the
Supplemental Executive Retirement Plan Company's Form S-4 [Exhibit 10(i)]
(b) Reports on Form 8-K.
--------------------
There were no Current Reports on Form 8-K filed during the fiscal
quarter ended December 31, 1996.
-16-
17
(c) Exhibits.
---------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits" beginning
at page 83.
(d) Financial Statement Schedules.
------------------------------
None
-17-
18
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PARK NATIONAL CORPORATION
Date: March 24, 1997 By David C. Bowers,
Secretary, Chief Financial Officer
and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Date Capacity
---- ---- --------
*William T. McConnell * Chairman of the Board, Chief Executive Officer,
Principal Executive Officer and Director
*C. Daniel DeLawder * President and Director
*David C. Bowers * Secretary, Chief Financial Officer and Chief
Accounting Officer
*Dominick C. Fanello * Director
*R. William Geyer * Director
*Tamala Longaberger Kaido * Director
*Howard E. LeFevre * Director
*Phillip T. Leitnaker * Director
*By: David C. Bowers,
Attorney-in-Fact
Date: March 24, 1997
-18-
19
Name Date Capacity
---- ---- --------
*John J. O'Neill * Director
*William A. Phillips * Director
*J. Gilbert Reese * Director
*Rick R. Taylor * Director
*John L. Warner * Director
*By: David C. Bowers,
Attorney-in-Fact
Date: March 24, 1997
-19-
20
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE(S)
DESCRIPTION IN FORM 10-K
- ----------- ------------
Consolidated Balance Sheet at December 31, 1996 and 1995......................................... 58-59
Consolidated Statement of Income for the years ended December 31,
1996, 1995 and 1994..................................................................... 60-61
Consolidated Statement of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994..................................................................... 62
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995
and 1994................................................................................ 63
Notes to the Consolidated Financial Statements................................................... 64-81
Report of Independent Auditors (Ernst & Young LLP)............................................... 82
-20-
21
FINANCIAL HIGHLIGHTS
PERCENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 CHANGE
- -------------------------------------------------------------------------------------------------------------------
EARNINGS:
Total interest income $ 122,291 $ 113,200 8.03%
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 49,332 46,848 5.30%
- -------------------------------------------------------------------------------------------------------------------
Net interest income 72,959 66,352 9.96%
- -------------------------------------------------------------------------------------------------------------------
Net income 25,664 22,120 16.02%
- -------------------------------------------------------------------------------------------------------------------
PER SHARE:
Net income $ 3.60 $ 3.09 16.50%
- -------------------------------------------------------------------------------------------------------------------
Cash dividends declared 1.45 1.25 16.00%
- -------------------------------------------------------------------------------------------------------------------
Book value (end of period) 20.89 19.12 9.26%
- -------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Total assets $1,614,767 $1,476,208 9.39%
- -------------------------------------------------------------------------------------------------------------------
Deposits 1,336,617 1,206,540 10.78%
- -------------------------------------------------------------------------------------------------------------------
Loans 1,112,603 1,024,727 8.58%
- -------------------------------------------------------------------------------------------------------------------
Investment securities 396,967 328,730 20.76%
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 148,986 136,424 9.21%
- -------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average equity 18.38% 17.69% --
- -------------------------------------------------------------------------------------------------------------------
Return on average assets 1.73% 1.58% --
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (millions) EARNINGS PER SHARE
1996 $25.7 1996 $3.60
1995 $22.1 1995 $3.09
1994 $20.0 1994 $2.80
1993 $19.0 1993 $2.69
1992 $16.5 1992 $2.33
RETURN ON AVERAGE EQUITY RETURN ON AVERAGE ASSETS
1996 18.4% 1996 1.73%
1995 17.7% 1995 1.58%
1994 18.1% 1994 1.52%
1993 19.0% 1993 1.53%
1992 18.6% 1992 1.37%
22
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of
financial condition and results of operations for Park National Corporation
("Park" or the "Corporation"). This discussion should be read in conjunction
with the consolidated financial statements and related footnotes and the
five-year summary of selected financial data.
OVERVIEW
Net income for 1996 was $25.7 million, the highest in Park's nine year history
as a bank holding company. This represents a 16.0% increase over net income of
$22.1 million for 1995. Net income per share was $3.60 for 1996, an increase of
16.5% compared to $3.09 for 1995. Net income has increased at an annual
compound growth rate of 11.2% over the last five years, and net income per
share has grown at an annual compound growth rate of 11.1% over the same period.
Effective with the fourth quarter of 1996, the quarterly cash dividend on
common stock was increased to $.40 per share. The new annualized dividend of
$1.60 per share is 14.3% greater than the dividend paid in 1995. The
Corporation has paid quarterly dividends since becoming a holding company in
early 1987. The annual compound growth rate for the Corporation's per share
dividend for the last five years is 13.5% and the dividend payout to net income
ratio has averaged 38.5% over that same period.
The purchase of five Richland County, Ohio offices by Richland Trust Company, a
subsidiary of Park, was completed during December, 1996. The banking business
of the purchased branches has been consolidated into the branch operations of
Richland Trust Company. As a result, the number of banking offices has
increased by only two in a market not previously served by Richland Trust
Company. In addition to the branch real estate and other fixed assets, the
purchase included approximately $98.0 million of deposits and $31.0 million of
loans which are included in the Corporation's year-end totals. See Footnote 2
to the financial statements.
On October 28, 1996, Park entered into an Agreement and Plan of Merger with
First-Knox Banc Corp. ("First-Knox"), a $574 million bank holding company
headquartered in Mount Vernon, Ohio, providing for a merger of First-Knox into
Park. Under the terms of that Agreement, the stockholders of First-Knox are
expected to receive .5914 shares of Park common stock per share of First-Knox
common stock in a tax-free exchange. Park expects to issue an aggregate of
2,345,000 shares of common stock to complete the merger, which will be accounted
for as a pooling-of-interests. Completion of the merger is subject to certain
conditions, including the approval of bank regulators and other governmental
agencies, the approval of the stockholders of First-Knox and Park, and other
conditions to closing customary of a transaction of this type. The merger is
expected to be completed during the second quarter of 1997.
Park's business focus is geared toward maximizing the return to stockholders.
The Corporation's common stock value has appreciated 17.7% annually on a
compounded, total return basis for the last five years. The December 31, 1996
value of a $100 investment on December 31, 1991 would be $226, inclusive of the
reinvestment of dividends in the Corporation's common stock.
ABOUT OUR BUSINESS
Through its banking and thrift subsidiaries, the Corporation is engaged in the
general commercial banking and trust business. Management believes there is a
significant number of consumers and businesses which seek long-term
relationships with community-based financial institutions of quality and
strength. While avoiding activities such as foreign lending, nationally
syndicated loans and investment banking operations, the Corporation attempts to
meet the needs of its customers for commercial, real estate and consumer loans,
and investment and deposit services. Familiarity with the local market, coupled
with conservative loan underwriting standards, has allowed the Corporation to
achieve solid financial results even in periods where there have been changes
in economic conditions and the general level of interest rates.
19
23
The Corporation has produced performance ratios which compare favorably to
other financial institutions in terms of equity and asset returns, capital
adequacy and asset quality. Continued satisfactory results are contingent upon
economic conditions in Ohio and competitive factors, among other things.
The Corporation's subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
The Corporation and its subsidiaries operate forty-one full-service banking
offices and a network of thirty-nine automatic teller machines in eleven
central and southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1996, 1995, and
1994 is shown below:
TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
1996 1995 1994
Average Net Average Net Average Net
(IN THOUSANDS) Assets Income Assets Income Assets Income
----------------------------------------------------------------------------------------------------------------
Park National Division $ 672,374 $15,900 $ 637,211 $13,716 $ 608,321 $11,994
-------------------------------------------------------------------------------------------------------------------
Fairfield National Division 187,226 3,564 171,572 3,315 150,565 2,538
-------------------------------------------------------------------------------------------------------------------
Richland Trust Company 275,287 3,747 255,311 3,642 238,968 3,205
-------------------------------------------------------------------------------------------------------------------
Mutual Federal Savings Bank 346,512 3,401 329,848 2,016 318,244 2,652
-------------------------------------------------------------------------------------------------------------------
Parent Company,
including consolidating
entries 4,158 (948) 2,280 (569) 522 (372)
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $1,485,557 $25,664 $1,396,222 $22,120 $1,316,620 $20,017
-------------------------------------------------------------------------------------------------------------------
RETURN ON EQUITY
The Corporation's primary financial goal is to achieve a superior, long-term
return on stockholders' equity. The Corporation measures performance in its
attempts to achieve this goal against its peers, defined as all U.S. bank
holding companies between $1 billion and $3 billion in assets. At year-end 1996,
there were approximately 121 peer bank holding companies. The Corporation's net
income to average equity was 18.38%, 17.69% and 18.08% in 1996, 1995, and 1994,
respectively. In the past five years, the Corporation's net income to average
equity exceeded the mean and median return of the peer group by a substantial
margin.
HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY
The return on average equity ratio has averaged 18.36% over the past five
years. While net income has increased at an annual compound rate of 11.2% over
this period, average equity has increased at a faster rate at 12.2%. Maximizing
the Corporation's return on an ever increasing equity base is a continual
challenge for management.
BALANCE SHEET COMPOSITION
Park National Corporation functions as a financial intermediary. The following
section discusses the sources of funds and the manner in which management has
invested these funds.
20
24
SOURCE OF FUNDS
DEPOSITS: The Corporation's major source of funds is provided by core deposits
from individuals, businesses, and local government units. These core deposits
consist of all noninterest-bearing and interest-bearing deposits, excluding
certificates of deposit of $100,000 and over which were less than 8.5% of total
deposits for the last three years. In 1996, year-end total deposits increased by
$130.1 million or 10.8% of which $98.0 million was from the purchase of branches
in Richland County. In 1995, year-end total deposits increased by $128.2 million
or 11.9%. The mix of core deposits shifted toward certificates of deposit,
particularly in 1995, as more aggressive pricing and flexible withdrawal options
were offered. In 1996, 1995, and 1994, core deposits were approximately 75% of
total assets.
Maturity of time certificates of deposit and other time deposits of $100,000
and over as of December 31, 1996 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
TIME CERTIFICATES
DECEMBER 31, 1996 (IN MILLIONS) OF DEPOSIT
------------------------------------------------------------------------------------------------------
3 months or less $ 55.9
------------------------------------------------------------------------------------------------------
Over 3 months through 6 months 27.8
------------------------------------------------------------------------------------------------------
Over 6 months through 12 months 10.7
------------------------------------------------------------------------------------------------------
Over 12 months 18.3
------------------------------------------------------------------------------------------------------
TOTAL $112.7
------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings include securities sold under
agreements to repurchase, Federal Home Loan Bank advances and federal funds
purchased. These funds are also used to manage the Corporation's liquidity needs
and interest rate sensitivity risk. They are subject to short-term price swings
as the Corporation's needs change or the overall market rates for short-term
investment funds change. In 1996, average short-term borrowings were $114
million compared to $133 million in 1995 and $122 million in 1994. Average
short-term borrowings were 7.7%, 9.5%, and 9.2% of average assets in 1996, 1995,
and 1994, respectively.
LONG-TERM DEBT: During the past three years, the Corporation incurred no
long-term debt.
STOCKHOLDERS' EQUITY: Average stockholders' equity to average assets increased
to 9.40% in 1996 compared to 8.96% in 1995 and 8.41% in 1994.
In accordance with Statement of Financial Accounting Standards No. 115, the
Corporation reflects any unrealized holding gain/(loss) on available-for-sale
securities, net of federal taxes, as an adjustment to the Corporation's equity.
While the effect of this accounting is not recognized for calculation of
regulatory capital adequacy ratios, it does impact the Corporation's equity as
reported in the audited financial statements. The unrealized holding
gain/(loss) on available-for-sale securities, net of federal taxes,
was $3.3, $5.9, and ($5.7) million in 1996, 1995, and 1994, respectively.
INVESTMENT OF FUNDS
LOANS: Average loans, net of unearned income and the loan loss allowance, were
$1,014 million in 1996 compared to $981 million in 1995 and $901 million in
1994. The average yield on net loans was 9.74% in 1996 compared to 9.50% in
1995 and 8.46% in 1994. Approximately 75% of loan balances mature or reprice
within one year. This results in the yield on the loan portfolio adjusting with
changes in interest rates, but on a delayed basis.
21
25
Year-end loan balances, net of unearned income, increased by $88 million or
8.6% in 1996 and by $44 million or 4.4% in 1995. The growth in 1996, includes
$31.0 million of loans acquired from the purchase of branches in Richland
County. As a percentage of assets, year-end loan balances were 68.9%, 69.4%,
and 72.0% in 1996, 1995, and 1994, respectively.
Consumer loans increased by $30.5 million or 14.5% in 1996 and were unchanged
in 1995 compared with 1994. The growth in consumer loans was principally due
to an increase in the volume of automobile related installment loans. During
1995, net consumer loan growth was flat due to the Corporation selling $18
million of student loans as a result of anticipated difficulties in complying
with new government servicing and reporting regulations. The Corporation
continues to originate student loans to serve its market and sells them to a
loan servicer.
Table 3 reports year-end loan balances by type of loan for the past five years.
TABLE 3 - LOANS BY TYPE
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
Commercial, financial and
agriculture $ 129,269 $ 118,225 $104,559 $109,531 $126,029
-------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 40,871 34,880 32,037 23,276
-------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 444,005 430,483 373,820 338,832
-------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 191,127 181,703 157,199 122,516
-------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 209,481 209,141 187,830 170,651
-------------------------------------------------------------------------------------------------------------------
Leases, net 20,950 21,018 20,374 11,971 12,705
-------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $1,112,603 $1,024,727 $981,140 $872,388 $794,009
-------------------------------------------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
Over One Over
One Year Through Five
DECEMBER 31, 1996 (IN THOUSANDS) or Less Five Years Years TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agriculture $105,927 $18,596 $4,746 $129,269
- ----------------------------------------------------------------------------------------------------------------------
Real Estate - construction 46,725 5,718 -- 52,443
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $152,652 $24,314 $4,746 $181,712
- ----------------------------------------------------------------------------------------------------------------------
Total of these selected loans due
after one year with:
Fixed interest rate $ 23,527
- ----------------------------------------------------------------------------------------------------------------------
Floating interest rate 5,533
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to
provide liquidity and contribute to earnings. The Corporation classifies
approximately 95% of its securities as available-for-sale -- see Footnote 4 to
the financial statements. These securities are carried on the books at the
estimated fair value with the unrealized holding gain or loss, net of taxes,
accounted for as an adjustment to the Corporation's equity. Management
classifies a large portion of the securities portfolio as available-for-sale so
that these securities will be available to be sold in future periods in carrying
out the Corporation's investment strategies. The remaining securities are
classified as held-to-maturity and are accounted for at amortized cost.
22
26
The Corporation's investment strategy is dynamic. As conditions change over
time, the Corporation's overall interest rate risk, liquidity needs, and
potential return on the investment portfolio will change. The Corporation
regularly re-evaluates the securities in its portfolio based on circumstances as
they evolve. Circumstances that may precipitate a sale of a security would be to
better manage interest rate risk, to meet liquidity needs, or to improve the
overall yield from the investment portfolio. Investment security losses were
$1.3 million, $.6 million, and $3.3 million in 1996, 1995, and 1994,
respectively. The Corporation's strategy has generally been to reinvest the
proceeds from the sale of securities into higher yielding, longer maturity
taxable investment securities.
The Corporation's taxable investment securities portfolio was approximately 97%
of the total investment securities portfolio at year-end 1996, 1995, and 1994.
The average yield on taxable investment securities was 6.77%, 6.80%, and 6.16%
for 1996, 1995, and 1994, respectively. The average maturity or repricing of the
taxable investment portfolio was approximately 2.5 years at year-end 1996
compared to 3 years at year-end 1995 and 2.5 years at year-end 1994.
The average tax-equivalent yield on the tax-exempt securities portfolio was
8.69%, 8.67%, and 9.62% for 1996, 1995, and 1994, respectively. The average
maturity of the tax-exempt portfolio was approximately 3.3 years at year-end
1996 compared to 4.1 years at year-end 1995 and 3.8 years at year-end 1994.
The following table sets forth the book value of investment securities at
year-end:
TABLE 5 - INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Treasury and other
U.S. Government agencies $164,275 $157,056 $107,509
- ---------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 9,784 9,566 10,898
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government asset-backed securities 212,464 150,680 146,886
- ---------------------------------------------------------------------------------------------------------------------
Non U.S. Government asset-backed securities 2,510 3,909 5,679
- ---------------------------------------------------------------------------------------------------------------------
Other securities 7,934 7,519 6,846
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $396,967 $328,730 $277,818
- ---------------------------------------------------------------------------------------------------------------------
EARNING RESULTS
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income results from average balances outstanding for interest-earning
assets and interest-bearing liabilities in conjunction with the average rates
earned and paid on them.
The net yield on interest-earning assets improved to 5.35% for 1996 compared to
5.22% for 1995 and 5.01% in 1994. During 1996, the average yield on earning
assets increased to 8.94% compared to 8.87% for 1995 while the average rate paid
on interest-bearing liabilities was unchanged at 4.23%. In 1994 and for part of
1995, the overall level of interest rates increased. During 1995, the average
yield on earning assets increased 95 basis points to 8.87% and the average rate
paid on interest-bearing liabilities increased 89 basis points to 4.23% in 1995.
For both 1996 and 1995, the increase in the net interest spread was the primary
reason for the increase in the net yield on interest-earning assets.
23
27
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996
Daily Average
Average Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
INTEREST-EARNING ASSETS:
Loans, net (1) (2) $1,013,719 $ 98,776 9.74%
- ----------------------------------------------------------------------------------------------------------------------
Taxable investment securities 315,036 21,337 6.77%
- ----------------------------------------------------------------------------------------------------------------------
Tax-exempt investment securities (3) 9,985 868 8.69%
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Federal funds sold 34,400 1,840 5.35%
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 1,373,140 122,821 8.94%
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 54,122
- ----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 16,890
- ----------------------------------------------------------------------------------------------------------------------
Other assets 41,405
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $1,485,557
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'EQUITY
INTEREST-BEARING LIABILITIES:
Transaction accounts $ 238,065 $ 5,509 2.31%
- ----------------------------------------------------------------------------------------------------------------------
Savings deposits 243,470 7,028 2.89%
- ----------------------------------------------------------------------------------------------------------------------
Time deposits 571,443 31,696 5.55%
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 114,187 5,099 4.47%
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 1,167,165 49,332 4.23%
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 160,173
- ----------------------------------------------------------------------------------------------------------------------
Other 18,581
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 178,754
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 139,638
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $1,485,557
- ----------------------------------------------------------------------------------------------------------------------
Net interest earnings $ 73,489
- ----------------------------------------------------------------------------------------------------------------------
Net interest spread 4.71%
- ----------------------------------------------------------------------------------------------------------------------
Net yield on interest-earning assets 5.35%
- ----------------------------------------------------------------------------------------------------------------------
(1) Loan income includes net fee loan income of $1,639 in 1996, $1,327 in
1995 and $976 in 1994. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The
taxable equivalent adjustment was $265 in 1996, $272 in 1995 and $315
in 1994.
(2) For purposes of this computation, non-accrual loans are included in the
daily average loans outstanding.
(3) Interest income on tax-exempt securities includes the effect of taxable
equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The
taxable equivalent adjustment was $265 in 1996, $282 in 1995 and $459
in 1994.
24
28
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
(continued)
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
$ 980,828 $ 93,144 9.50% $ 901,029 $76,261 8.46%
- ----------------------------------------------------------------------------------------------------------------------
278,149 18,905 6.80% 283,165 17,434 6.16%
- ----------------------------------------------------------------------------------------------------------------------
10,661 924 8.67% 15,834 1,524 9.62%
- ----------------------------------------------------------------------------------------------------------------------
-- -- -- 2,249 210 9.34%
- ----------------------------------------------------------------------------------------------------------------------
13,257 781 5.89% 3,987 162 4.06%
- ----------------------------------------------------------------------------------------------------------------------
1,282,895 113,754 8.87% 1,206,264 95,591 7.92%
- ----------------------------------------------------------------------------------------------------------------------
56,463 54,704
- ----------------------------------------------------------------------------------------------------------------------
16,933 16,407
- ----------------------------------------------------------------------------------------------------------------------
39,931 39,245
- ----------------------------------------------------------------------------------------------------------------------
$1,396,222 $1,316,620
- ----------------------------------------------------------------------------------------------------------------------
$ 226,352 $ 5,348 2.36% $ 247,354 $ 5,475 2.21%
- ----------------------------------------------------------------------------------------------------------------------
250,611 7,461 2.98% 288,384 8,333 2.89%
- ----------------------------------------------------------------------------------------------------------------------
496,713 27,256 5.49% 395,164 16,969 4.29%
- ----------------------------------------------------------------------------------------------------------------------
132,839 6,783 5.11% 121,678 4,387 3.61%
- ----------------------------------------------------------------------------------------------------------------------
1,106,515 46,848 4.23% 1,052,580 35,164 3.34%
- ----------------------------------------------------------------------------------------------------------------------
149,383 141,786
- ----------------------------------------------------------------------------------------------------------------------
15,282 11,513
- ----------------------------------------------------------------------------------------------------------------------
164,665 153,299
- ----------------------------------------------------------------------------------------------------------------------
125,042 110,741
- ----------------------------------------------------------------------------------------------------------------------
$1,396,222 $1,316,620
- ----------------------------------------------------------------------------------------------------------------------
$ 66,906 $60,427
- ----------------------------------------------------------------------------------------------------------------------
4.64% 4.58%
- ----------------------------------------------------------------------------------------------------------------------
5.22% 5.01%
- ----------------------------------------------------------------------------------------------------------------------
25
29
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
TABLE 7 - VOLUME/RATE VARIANCE ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------
Change from 1995 to 1996 Change from 1994 to 1995
(IN THOUSANDS) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in:
Interest income:
Total loans $3,212 $2,420 $5,632 $7,071 $9,812 $16,883
- ----------------------------------------------------------------------------------------------------------------------
Taxable investments 2,515 (83) 2,432 (314) 1,785 1,471
- ----------------------------------------------------------------------------------------------------------------------
Tax-exempt investments (58) 2 (56) (461) (139) (600)
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits
in banks -- -- -- (105) (105) (210)
- ----------------------------------------------------------------------------------------------------------------------
Federal funds sold 1,137 (78) 1,059 519 100 619
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 6,806 2,261 9,067 6,710 11,453 18,163
- ----------------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts 274 (113) 161 (483) 356 (127)
- ----------------------------------------------------------------------------------------------------------------------
Savings accounts (211) (222) (433) (1,124) 252 (872)
- ----------------------------------------------------------------------------------------------------------------------
Time deposits 4,139 301 4,440 4,927 5,360 10,287
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings (890) (794) (1,684) 433 1,963 2,396
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,312 (828) 2,484 3,753 7,931 11,684
- ----------------------------------------------------------------------------------------------------------------------
Net variance $3,494 $3,089 $6,583 $2,957 $3,522 $6,479
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME: Total other income, exclusive of security losses, increased by
6.8% to $14.5 million in 1996 and increased by 9.7% to $13.5 million in 1995
compared to $12.3 million for 1994. Income from fiduciary activities increased
by 15.4% to $3.3 million in 1996 and increased by 21.3% to $2.9 million in 1995
compared to $2.4 million in 1994. This increase in both years was due to fees
related to the growth in assets under management from new Trust Department
customers. The Other subcategory increased in 1995 due to rental income from
operating leases originated by Scope Leasing, Inc., acquired by the Corporation
in May, 1994.
Losses on sale of securities were $1.3 million in 1996 compared to $.6 million
in 1995 and $3.3 million in 1994. The proceeds from the sale of securities were
generally invested in higher yielding, longer maturity securities to take
advantage of an upward sloping yield curve. During 1994, all off-balance sheet
derivative investments either matured or were sold. At year end 1996, 1995, and
1994, the Corporation had no off-balance sheet derivative investments.
OTHER EXPENSE: Total other expense increased by 3.8% to $43.2 million in 1996
and increased by 10% to $41.6 million in 1995 compared to $37.9 million in
1994.
Salaries and employee benefits increased by 6.9% in 1996 and by 8.8% in 1995
compared to the prior years. The increase in both years was due to normal merit
increases and staff increases to accommodate new banking offices, extended
hours in selected banking offices, and annuity/mutual fund sales in order to
provide the Corporation's customers with alternative investment products.
Full-time equivalent employees at year-end were 711 in 1996, 688 in 1995 and
660 in 1994.
Insurance expense decreased in 1996 and 1995 as the FDIC's bank deposit
insurance premium rate was sharply reduced. The FDIC bank deposit insurance
premium paid by the Corporation's bank subsidiaries decreased sharply in both
1996 and 1995 but the Corporation's thrift subsidiary continued to pay the same
26
30
FDIC thrift deposit rate in 1996 and 1995 and additionally incurred a one-time
recapitalization expense in 1996. As a result, management expects the deposit
insurance premium expense for the Corporation to decrease further in 1997.
Fees and service charges increased by $.8 million during 1996 to $3.0 million.
This increase was primarily due to one-time expenses in connection with the
pending merger with First-Knox.
The subcategory Other expense decreased by $1.1 million in 1996 and increased
by $2.0 million in 1995. The decrease in expense in 1996 was primarily due to a
decrease in depreciation expense from operating leases while the increase in
1995 was primarily due to an increase in depreciation expense from operating
leases compared to the prior year. The operating leases pertain to leases
originated by Scope Leasing, Inc. which was acquired in May, 1994. See Footnote
2 to the financial statements.
INCOME TAXES: Federal income tax expense as a percentage of income before taxes
was 33% in 1996 and 1995 and 31% in 1994. The lower tax percentage rate in 1994
was primarily due to a larger amount of tax-exempt interest income in 1994. The
Corporation's federal tax rate was 35% for all three years.
CREDIT EXPERIENCE
PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to
the allowance for loan losses to absorb possible future loan charge-offs. The
amount of the loan loss provision is determined by management after reviewing
the risk characteristics of the loan portfolio, historical loan loss experience
and anticipated future economic conditions.
The following table summarizes the loan loss provision, charge-offs and
recoveries for the last five years:
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,040,237 $1,004,016 $922,172 $829,323 $759,688
- ----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning balance $ 25,073 $ 21,562 $ 20,178 $ 18,402 $17,037
- ----------------------------------------------------------------------------------------------------------------------
Charge-offs:
Commercial 712 247 949 926 1,145
- ----------------------------------------------------------------------------------------------------------------------
Real estate 185 471 48 336 881
- ----------------------------------------------------------------------------------------------------------------------
Consumer 2,548 1,640 1,330 1,376 1,387
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 414 55 103 92 122
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 3,859 2,413 2,430 2,730 3,535
- ----------------------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 397 144 971 1,050 486
- ----------------------------------------------------------------------------------------------------------------------
Real estate 365 171 164 112 73
- ----------------------------------------------------------------------------------------------------------------------
Consumer 1,243 860 766 473 552
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 63 85 73 61 85
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 2,068 1,260 1,974 1,696 1,196
- ----------------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 1,791 1,153 456 1,034 2,339
- ----------------------------------------------------------------------------------------------------------------------
Provision charged to earnings 4,520 4,664 1,840 2,810 3,704
- ----------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 27,802 $ 25,073 $ 21,562 $ 20,178 $ 18,402
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.17% 0.11% 0.05% 0.12% 0.31%
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF ALLOWANCE FOR POSSIBLE LOAN
LOSSES TO END OF YEAR LOANS, NET OF
UNEARNED INTEREST 2.50% 2.45% 2.20% 2.31% 2.32%
- ----------------------------------------------------------------------------------------------------------------------
27
31
The following table summarizes the allocation of allowance for possible loan
losses:
TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of
(Dollars in Loans Per Loans Per Loans Per Loans Per
thousands) Allowance Category Allowance Category Allowance Category Allowance Category
- ------------------------------------------------------------------------------------------------------------------
Commercial $ 5,171 11.62% $ 4,729 11.54% $ 3,942 10.66% $ 4,134 12.56%
- ------------------------------------------------------------------------------------------------------------------
Real estate 11,386 64.93% 11,701 65.97% 10,448 65.95% 10,332 64.54%
- ------------------------------------------------------------------------------------------------------------------
Consumer 10,197 21.57% 7,855 20.44% 6,561 21.31% 5,437 21.53%
- ------------------------------------------------------------------------------------------------------------------
Leases 1,048 1.88% 788 2.05% 611 2.08% 275 1.37%
- ------------------------------------------------------------------------------------------------------------------
Total $27,802 100.00% $25,073 100.00% $21,562 100.00% $20,178 100.00%
- ------------------------------------------------------------------------------------------------------------------
1992
---------------------
Percent of
(Dollars in Loans Per
thousands) Allowance Category
- --------------------------------------
Commercial $ 4,420 15.87%
- --------------------------------------
Real estate 9,077 61.04%
- --------------------------------------
Consumer 4,622 21.49%
- --------------------------------------
Leases 283 1.60%
- --------------------------------------
Total $18,402 100.00%
- ----------------------------------------
As of December 31, 1996, the Corporation had no significant concentrations of
loans to borrowers engaged in the same or similar industries nor did the
Corporation have any loans to foreign governments.
NON-PERFORMING ASSETS: Non-performing loans include: 1) loans whose interest is
accounted for on a non-accrual basis; 2) loans whose terms have been
renegotiated; and 3) loans which are contractually past due 90 days or more as
to principal or interest payments but whose interest continues to accrue. Other
real estate owned results from taking title to property used as collateral for a
defaulted loan.
The following is a summary of the non-accrual, past due and renegotiated loans
and other real estate owned for the last five years:
TABLE 10 - NON-PERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Non-accrual loans $1,984 $2,228 $1,872 $2,244 $2,554
- ----------------------------------------------------------------------------------------------------------------------
Renegotiated loans 1,872 1,403 480 351 1,017
- ----------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more 1,059 778 633 821 691
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 4,915 4,409 2,985 3,416 4,262
- ----------------------------------------------------------------------------------------------------------------------
Other real estate owned 237 91 262 1,386 3,664
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $5,152 $4,500 $3,247 $4,802 $7,926
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING LOANS TO
LOANS, NET OF UNEARNED INTEREST 0.44% 0.43% 0.30% 0.39% 0.54%
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
LOANS, NET OF UNEARNED INTEREST 0.46% 0.44% 0.33% 0.55% 1.00%
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
TOTAL ASSETS 0.32% 0.30% 0.24% 0.37% 0.64%
- ----------------------------------------------------------------------------------------------------------------------
Tax-equivalent interest income from loans of $98.8 million for 1996 would have
increased by $54,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1996 in the
approximate amount of $243,000 is included in interest income for those loans in
accordance with their original terms.
The Corporation had $9.2 million of loans included on the Corporation's watch
list of potential problem loans at December 31, 1996 compared to $9.7 million at
year-end 1995 and $13 million at year-end 1994. The existing conditions of these
loans do not warrant classification as non-accrual. Management undertakes
additional surveillance regarding a borrower's ability to comply with payment
terms for watch list loans.
28
32
CAPITAL RESOURCES
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT: The Corporation's objective
in managing its liquidity is to maintain the ability to continuously meet the
cash flow needs of customers, such as borrowings or deposit withdrawals, while
at the same time seeking higher yields from longer-term lending and investing
activities.
Liquidity is enhanced by assets maturing or repricing within one year. Assets
maturing or repricing within one year were $931.8 million or 61.7% of
interest-earning assets at year-end 1996. Liquidity is also enhanced by a
significant amount of stable core deposits from a variety of customers in
several Ohio markets served by the Corporation.
An asset/liability committee monitors and forecasts rate-sensitive assets and
liabilities and develops strategies and pricing policies to influence the
acquisition of certain assets and liabilities. The purpose of these efforts is
to guard the Corporation from adverse impacts of unforeseen swings in interest
rates and to enhance the net income of the Corporation by accepting a limited
amount of interest rate risk, based on interest rate projections.
The following table shows interest rate sensitivity data for five different
time intervals as of December 31, 1996:
TABLE 11 - INTEREST RATE SENSITIVITY
0-3 3-12 1-3 3-5 Over 5
(DOLLARS IN THOUSANDS) Months Months Years Years Years TOTAL
-----------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVE ASSETS:
Investment securities $ 57,619 $ 25,983 $179,333 $ 88,250 $ 45,782 $ 396,967
-----------------------------------------------------------------------------------------------------------------
Loans 405,335 442,826 162,217 53,996 48,229 1,112,603
-----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 462,954 468,809 341,550 142,246 94,011 1,509,570
-----------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-bearing checking (1) 38,078 -- 114,234 -- -- 152,312
-----------------------------------------------------------------------------------------------------------------
Savings accounts (1) 125,705 -- 125,705 -- -- 251,410
-----------------------------------------------------------------------------------------------------------------
Money market checking 105,453 -- -- -- -- 105,453
-----------------------------------------------------------------------------------------------------------------
Time deposits 231,516 230,493 150,290 38,272 1,107 651,678
-----------------------------------------------------------------------------------------------------------------
Other 1,606 -- -- -- -- 1,606
-----------------------------------------------------------------------------------------------------------------
Total deposits 502,358 230,493 390,229 38,272 1,107 1,162,459
-----------------------------------------------------------------------------------------------------------------
Short-term borrowings 109,230 -- -- -- -- 109,230
-----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 611,588 230,493 390,229 38,272 1,107 1,271,689
-----------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP (148,634) 238,316 (48,679) 103,974 92,904 237,881
-----------------------------------------------------------------------------------------------------------------
CUMULATIVE RATE SENSITIVITY GAP (148,634) 89,682 41,003 144,977 237,881 --
-----------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP AS A PERCENTAGE
OF TOTAL INTEREST-EARNING ASSETS - 9.85% 5.94% 2.72% 9.60% 15.76% --
-----------------------------------------------------------------------------------------------------------------
(1) Management considers interest-bearing checking accounts and savings
accounts to be core deposits and, therefore, not as rate sensitive as other
deposit accounts and borrowed money. Accordingly, only 25% of
interest-bearing checking accounts and 50% of savings accounts are
considered to reprice within one year.
For the first three months, there was a cumulative excess of rate-sensitive
liabilities over rate-sensitive assets while in the next period (three to twelve
months), the reverse was true. For the year, rate-sensitive assets are greater
than rate-sensitive liabilities, by 5.94% of interest-earning assets, which
indicates that the Corporation's interest rate risk position is somewhat
balanced. A positive one-year cumulative gap would suggest that the
Corporation's net interest margin would increase, if interest rates were to
rise.
29
33
The usefulness of the interest sensitivity gap analysis as a forecasting tool
in projecting net interest income is limited. The gap analysis does not
consider the magnitude by which assets or liabilities will reprice during a
period and also contains assumptions as to the repricing of transaction and
savings accounts that may not prove to be correct. Management supplements the
interest sensitivity gap analysis with periodic simulations of balance sheet
sensitivity under various interest rate and what-if scenarios to better
forecast and manage the net interest margin. The interest rate sensitivity gap
analysis does provide a good overall picture of the Corporation's static
interest rate risk position.
The Corporation's current policy is that the one-year cumulative gap should not
exceed fifteen percent of earning assets for three consecutive quarters. Trying
to manage this gap within an acceptable percentage range of earning assets is a
continual challenge in a changing interest rate environment and one of the
objectives of the Corporation's Asset/Liability Committee.
CAPITAL: The Corporation's primary means of maintaining capital adequacy is
through net retained earnings. At December 31, 1996, the Corporation's equity
capital was $149.0 million, an increase of 9.2% over the equity capital at
December 31, 1995. Exclusive of the unrealized gain or loss on available-
for-sale securities, equity capital increased 11.6% in 1996 compared to 1995.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts and bank holding companies. The unrealized gain or
loss on available-for-sale securities is not included in computing regulatory
capital. The capital standard of risk-based capital to risk-based assets is
8.00% at December 31, 1996. At year-end 1996, the Corporation had a risk-based
capital ratio of 14.04% or capital above the minimum required by $63.5 million.
The capital standard of tier 1 capital to risk-based assets is 4% at December
31, 1996. Tier 1 capital includes stockholders' equity net of goodwill and any
other intangible assets. At year-end 1996, the Corporation had a tier 1 capital
to risk-based assets ratio of 12.78% or capital above the minimum required by
$92.2 million. Bank regulators have also established a leverage capital ratio of
4%, consisting of tier 1 capital to total assets, not risk adjusted. At year-end
1996, the Corporation had a leverage capital ratio of 8.82% or capital above the
minimum required by $73.4 million. Regulatory guidelines also establish capital
ratio requirements for "well capitalized" bank holding companies. The capital
ratios are 10% for risk-based capital, 6% for tier 1 capital to risk-based
assets and 5% for tier 1 capital to total assets. The Corporation exceeds these
higher capital standards and, therefore, is classified as "well capitalized."
The financial institution subsidiaries of the Corporation each met the well
capitalized capital ratio guidelines at December 31, 1996. The table below
indicates the capital ratios for each subsidiary and
the Corporation at December 31, 1996:
TABLE 12 - CAPITAL RATIOS
TIER 1 Total
DECEMBER 31, 1996 LEVERAGE RISK-BASED RISK-BASED
-------------------------------------------------------------------------------------------------------------
Park National Bank 6.68% 9.59% 10.86%
---------------------------------------------------------------------------------------------------------------
Richland Trust Company 7.22% 10.25% 11.52%
---------------------------------------------------------------------------------------------------------------
Mutual Federal Savings Bank 7.44% 12.50% 13.76%
---------------------------------------------------------------------------------------------------------------
Park National Corporation 8.82% 12.78% 14.04%
---------------------------------------------------------------------------------------------------------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
---------------------------------------------------------------------------------------------------------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
---------------------------------------------------------------------------------------------------------------
30
34
[ BAR-GRAPH OF RISK-BASED CAPITAL RATIOS December 31, 1996]
AVERAGE STOCKHOLDERS' EQUITY (millions)
1996 $139.6
1995 $125.0
1994 $110.7
1993 $100.1
1992 $88.6
EFFECTS OF INFLATION: Balance sheets of financial institutions typically
contain assets and liabilities that are monetary in nature and, therefore,
differ greatly from most commercial and industrial companies which have
significant investments in premises, equipment and inventory. During periods of
inflation, financial institutions that are in a net positive monetary position
will experience a decline in purchasing power, which does have an impact on
growth. Another significant weight on internal equity growth is other expenses,
which tend to rise during periods of inflation.
Management believes the most significant impact on financial results is the
Corporation's ability to align its asset/liability management program to react
to changes in interest rates.
31
35
The following table summarizes five-year financial information:
TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1994 1993 1992
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Interest income $ 122,291 $ 113,200 $ 94,817 $ 90,384 $ 95,811
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 49,332 46,848 35,164 33,823 41,627
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 72,959 66,352 59,653 56,561 54,184
- ----------------------------------------------------------------------------------------------------------------------
Noninterest income 13,142 12,922 9,036 10,910 9,636
- ----------------------------------------------------------------------------------------------------------------------
Noninterest expense 43,239 41,643 37,867 39,132 36,697
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840 2,810 3,704
- ----------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of a change in
accounting principle 25,664 22,120 20,017 17,545 16,148
- ----------------------------------------------------------------------------------------------------------------------
Net income 25,664 22,120 20,017 19,045 16,520
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $3.60 $3.09 $2.80 $2.48 $2.28
- ----------------------------------------------------------------------------------------------------------------------
Net income 3.60 3.09 2.80 2.69 2.33
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends declared 1.45 1.25 0.98 1.05 0.88
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Loans, net $1,013,719 $ 980,828 $ 901,029 $ 809,245 $ 741,954
- ----------------------------------------------------------------------------------------------------------------------
Investment securities 325,021 288,810 298,999 330,736 340,578
- ----------------------------------------------------------------------------------------------------------------------
Money market instruments and other 34,400 13,257 6,236 11,500 34,206
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 1,373,140 1,282,895 1,206,264 1,151,481 1,116,738
- ----------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 160,173 149,383 141,786 129,621 115,751
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits 1,052,978 973,676 930,902 903,886 896,789
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,213,151 1,123,059 1,072,688 1,033,507 1,012,540
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 114,187 132,839 121,678 102,304 85,139
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt -- -- -- -- 5,160
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 139,638 125,042 110,741 100,081 88,629
- ----------------------------------------------------------------------------------------------------------------------
Total assets 1,485,557 1,396,222 1,316,620 1,246,903 1,202,449
- ----------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average assets 1.73% 1.58% 1.52% 1.53% 1.37%
- ----------------------------------------------------------------------------------------------------------------------
Return on average equity 18.38% 17.69% 18.08% 19.03% 18.64%
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin (1) 5.35% 5.22% 5.01% 5.00% 4.98%
- ----------------------------------------------------------------------------------------------------------------------
Noninterest expense to
net revenue (1) 49.91% 52.17% 54.51% 57.10% 56.21%
- ----------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 40.34% 40.46% 35.08% 39.03% 37.55%
- ----------------------------------------------------------------------------------------------------------------------
Average stockholders' equity to
average total assets 9.40% 8.96% 8.41% 8.03% 7.37%
- ----------------------------------------------------------------------------------------------------------------------
Leveraged capital 8.82% 8.91% 8.80% 8.08% 7.25%
- ----------------------------------------------------------------------------------------------------------------------
Tier 1 capital 12.78% 13.35% 13.19% 13.24% 12.17%
- ----------------------------------------------------------------------------------------------------------------------
Risk-based capital 14.04% 14.61% 14.45% 14.51% 13.44%
- ----------------------------------------------------------------------------------------------------------------------
32
(1) Computed on a fully taxable equivalent basis
36
The following table is a summary of selected quarterly results of operations
for the years ended December 31, 1996 and 1995. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation.
TABLE 14 - QUARTERLY FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ----------------------------------------------------------------------------------------------------------------------
1996:
Interest income $29,903 $29,916 $30,660 $31,812
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 12,319 12,087 12,289 12,637
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 17,584 17,829 18,371 19,175
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,005 1,005 1,005 1,505
- ----------------------------------------------------------------------------------------------------------------------
Loss on the sale of securities (294) (401) (157) (458)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,982 10,060 10,901 8,399
- ----------------------------------------------------------------------------------------------------------------------
Net income 6,095 6,804 7,343 5,422
- ----------------------------------------------------------------------------------------------------------------------
Per share data:
Net income 0.85 0.96 1.03 0.76
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average
common stock equivalent 7,136,037 7,141,679 7,138,155 7,131,685
- ----------------------------------------------------------------------------------------------------------------------
1995:
Interest income $26,158 $27,816 $29,224 $30,002
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 10,547 11,479 12,306 12,516
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 15,611 16,337 16,918 17,486
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 910 1,000 1,540 1,214
- ----------------------------------------------------------------------------------------------------------------------
Loss on the sale of securities (614) -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,393 8,539 8,987 8,048
- ----------------------------------------------------------------------------------------------------------------------
Net income 5,016 5,713 6,006 5,385
- ----------------------------------------------------------------------------------------------------------------------
Per share data:
Net income 0.70 0.79 0.84 0.76
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average
common stock equivalent 7,189,650 7,178,028 7,151,101 7,144,940
- ----------------------------------------------------------------------------------------------------------------------
33
37
The Corporation's common stock (symbol:PRK) is traded on the American Stock
Exchange (AMEX). At December 31, 1996, the Corporation had 1,375 stockholders of
record. The following table sets forth the high, low and closing sale prices of,
and dividends declared on, the common stock for each quarterly period for the
years ended December 31, 1996 and 1995, as reported by AMEX.
TABLE 15 - MARKET AND DIVIDEND INFORMATION
-----------------------------------------------------------------------------------------------------------------
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
-----------------------------------------------------------------------------------------------------------------
1996:
First Quarter $50 1/4 $47 3/8 $48 3/8 $0.35
-----------------------------------------------------------------------------------------------------------------
Second Quarter 49 1/2 46 3/8 49 1/2 0.35
-----------------------------------------------------------------------------------------------------------------
Third Quarter 49 5/8 47 7/8 48 1/4 0.35
-----------------------------------------------------------------------------------------------------------------
Fourth Quarter 53 48 53 0.40
-----------------------------------------------------------------------------------------------------------------
1995:
First Quarter $54 1/4 $43 3/8 $43 3/4 $0.30
-----------------------------------------------------------------------------------------------------------------
Second Quarter 48 3/4 43 7/8 48 5/8 0.30
-----------------------------------------------------------------------------------------------------------------
Third Quarter 49 1/4 44 7/8 45 5/8 0.30
-----------------------------------------------------------------------------------------------------------------
Fourth Quarter 48 45 47 3/4 0.35
-----------------------------------------------------------------------------------------------------------------
[GRAPH OF TEN-YEAR RETURN (December 31, 1986 - December 31, 1996)]
Assumes initial investment of $1,000 with reinvestment of dividends in the comon
stock of Park
34
38
STOCKHOLDERS' INFORMATION
STOCK LISTING:
AMEX Symbol - PRK
CUSIP #700658107
GENERAL STOCKHOLDER INQUIRIES:
Park National Corporation
David C. Bowers, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
614/349-3708
DIVIDEND REINVESTMENT PLAN:
The Corporation offers a plan whereby participating stockholders can
purchase additional shares of Park National Corporation common stock
through automatic reinvestment of their regular quarterly cash dividends.
All commissions and fees connected with the purchase and safekeeping of
the shares are paid by the Corporation. Details of the Plan and an
enrollment card can be obtained by contacting the Secretary as indicated
above.
STOCK TRANSFER AGENT AND REGISTRAR:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
800/368-5948
FORM 10-K:
Copies of Park National Corporation's Form 10-K for 1996 may be obtained,
without cost, by contacting the Secretary as indicated above.
INTERNET ADDRESS:
http://www.parknationalbank.com
E-MAIL:
main@parknationalbank.com
35
39
CONSOLIDATED BALANCE SHEET
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1996 and 1995 (Dollars in thousands)
ASSETS
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash and due from banks $ 61,454 $ 92,752
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value
(amortized cost of $381,117 and $308,298 at
December 31, 1996 and 1995) 386,187 317,414
- -------------------------------------------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized
cost (fair value approximates $11,217 and
$11,917 at December 31, 1996 and 1995) 10,780 11,316
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 396,967 328,730
- -------------------------------------------------------------------------------------------------------------------------
Loans 1,123,615 1,036,274
- -------------------------------------------------------------------------------------------------------------------------
Unearned loan interest (11,012) (11,547)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,112,603 1,024,727
- -------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (27,802) (25,073)
- -------------------------------------------------------------------------------------------------------------------------
LOANS, NET 1,084,801 999,654
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 16,812 17,161
- -------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 8,543 9,114
- -------------------------------------------------------------------------------------------------------------------------
Other 46,190 28,797
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 71,545 55,072
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,614,767 $1,476,208
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
36
40
CONSOLIDATED BALANCE SHEET (continued)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1996 and 1995 (Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
- ------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
Noninterest-bearing $ 174,158 $ 190,014
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing 1,162,459 1,016,526
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,336,617 1,206,540
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 109,230 113,992
- ------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES:
Accrued interest payable 3,860 3,749
- ------------------------------------------------------------------------------------------------------------------------
Other 16,074 15,503
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 19,934 19,252
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,465,781 1,339,784
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, no par value (authorized shares of 20,000,000
and 10,000,000 at December 31, 1996 and 1995, respectively;
7,222,610 shares issued in 1996 and 1995) 26,857 26,819
- ------------------------------------------------------------------------------------------------------------------------
Unrealized holding gain on
available-for-sale securities, net 3,296 5,926
- ------------------------------------------------------------------------------------------------------------------------
Retained earnings 121,818 106,508
- ------------------------------------------------------------------------------------------------------------------------
Less: Treasury stock (89,426 shares in 1996 and
87,388 shares in 1995) (2,985) (2,829)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 148,986 136,424
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,614,767 $1,476,208
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
37
41
CONSOLIDATED STATEMENT OF INCOME
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $ 98,511 $ 92,872 $75,946
- ------------------------------------------------------------------------------------------------------------------------
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 21,337 18,905 17,434
- ------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 603 642 1,065
- ------------------------------------------------------------------------------------------------------------------------
Other interest income 1,840 781 372
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 122,291 113,200 94,817
- ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand and savings deposits 12,537 12,809 13,808
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 31,696 27,256 16,969
- ------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 5,099 6,783 4,387
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 49,332 46,848 35,164
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 72,959 66,352 59,653
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 68,439 61,688 57,813
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 3,325 2,881 2,375
- ------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts 4,611 4,188 4,449
- ------------------------------------------------------------------------------------------------------------------------
Loss on sales of securities (1,310) (614) (3,306)
- ------------------------------------------------------------------------------------------------------------------------
Other service income 2,293 2,220 2,129
- ------------------------------------------------------------------------------------------------------------------------
Other 4,223 4,247 3,389
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 13,142 $ 12,922 $ 9,036
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
38
42
CONSOLIDATED STATEMENT OF INCOME (continued)
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE:
Salaries and employee benefits $21,808 $20,395 $18,745
- ------------------------------------------------------------------------------------------------------------------------
Data processing fees 3,370 3,072 2,636
- ------------------------------------------------------------------------------------------------------------------------
Fees and service charges 3,010 2,242 2,229
- ------------------------------------------------------------------------------------------------------------------------
Net occupancy expense of bank premises 2,195 2,012 1,986
- ------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 380 363 571
- ------------------------------------------------------------------------------------------------------------------------
Furniture and equipment expense 2,236 2,056 1,838
- ------------------------------------------------------------------------------------------------------------------------
Insurance 1,671 1,882 2,713
- ------------------------------------------------------------------------------------------------------------------------
Marketing 1,518 1,409 1,275
- ------------------------------------------------------------------------------------------------------------------------
Postage and telephone 1,901 1,846 1,643
- ------------------------------------------------------------------------------------------------------------------------
State taxes 1,326 1,468 1,379
- ------------------------------------------------------------------------------------------------------------------------
Other 3,824 4,898 2,852
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 43,239 41,643 37,867
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 38,342 32,967 28,982
- ------------------------------------------------------------------------------------------------------------------------
Federal income taxes 12,678 10,847 8,965
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $25,664 $22,120 $20,017
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
NET INCOME PER SHARE $3.60 $3.09 $2.80
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 7,136,889 7,165,930 7,154,796
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
39
43
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
UNREALIZED
HOLDING
GAIN/(LOSS) ON
COMMON STOCK AVAILABLE- TREASURY STOCK
------------------ FOR-SALE -----------------
SHARES SECURITIES, RETAINED
ISSUED AMOUNT NET EARNINGS SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1994 7,118,048 $25,420 $3,422 $80,343 32,960 $(255) $108,930
- ------------------------------------------------------------------------------------------------------------------------
Acquisition of
Scope Leasing 104,562 1,370 -- -- -- -- 1,370
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 20,017 -- -- 20,017
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$0.98 per share -- -- -- (7,022) -- -- (7,022)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
loss on available-for-sale
securities -- -- (9,136) -- -- -- (9,136)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,222,610 26,790 (5,714) 93,338 32,960 (255) 114,159
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased -- -- -- -- 58,726 (2,749) (2,749)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued
primarily for stock
options exercised -- 29 -- -- (4,298) 175 204
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 22,120 -- -- 22,120
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$1.25 per share -- -- -- (8,950) -- -- (8,950)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
gain on available-for-sale
securities -- -- 11,640 -- -- -- 11,640
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,222,610 26,819 5,926 106,508 87,388 (2,829) 136,424
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased -- -- -- -- 13,000 (640) (640)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued
primarily for stock
options exercised -- 38 -- -- (10,962) 484 522
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 25,664 -- -- 25,664
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$1.45 per share -- -- -- (10,354) -- -- (10,354)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
loss on available-for-sale
securities -- -- (2,630) -- -- -- (2,630)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 7,222,610 $26,857 $3,296 $121,818 89,426 $(2,985) $148,986
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
40
44
CONSOLIDATED STATEMENT OF CASHFLOWS
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands)
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 25,664 $ 22,120 $ 20,017
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,520 4,664 1,840
- -------------------------------------------------------------------------------------------------------------------------
Amortization of loan costs and fees, net (476) (124) 164
- -------------------------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 2,027 1,925 1,700
- -------------------------------------------------------------------------------------------------------------------------
Amortization of the excess of cost over net assets
of banks purchased 380 363 571
- -------------------------------------------------------------------------------------------------------------------------
Accretion of investment security discounts, net (1,323) (1,083) 541
- -------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (170) (775) 371
- -------------------------------------------------------------------------------------------------------------------------
Realized investment security losses 1,310 614 3,306
- -------------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities:
Increase in other assets (5,183) (149) (1,328)
- -------------------------------------------------------------------------------------------------------------------------
Increase in other liabilities 326 4,417 2,942
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,075 31,972 30,124
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available-for-sale 71,355 31,363 131,314
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from maturities of securities:
Held-to-maturity 2,110 2,923 11,960
- -------------------------------------------------------------------------------------------------------------------------
Available-for-sale 67,594 40,264 107,527
- -------------------------------------------------------------------------------------------------------------------------
Purchase of securities:
Held-to-maturity (1,575) (914) (15,043)
- -------------------------------------------------------------------------------------------------------------------------
Available-for-sale (211,754) (106,172) (201,938)
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in interest-bearing deposits in banks -- -- 4,862
- -------------------------------------------------------------------------------------------------------------------------
Net increase in loans (58,436) (44,616) (100,985)
- -------------------------------------------------------------------------------------------------------------------------
Purchase of loans (30,755) -- --
- -------------------------------------------------------------------------------------------------------------------------
Cash paid for branches (10,857) -- --
- -------------------------------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (1,254) (1,989) (2,526)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (173,572) (79,141) (64,829)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchase of deposits 97,928 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net increase in deposits 32,149 128,234 19,878
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in short-term borrowings (4,762) (41,274) 37,008
- -------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (118) (2,545) --
- -------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (9,998) (8,610) (8,054)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 115,199 75,805 48,832
- -------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,298) 28,636 14,127
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 92,752 64,116 49,989
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 61,454 $ 92,752 $ 64,116
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
41
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Park National
Corporation (the Corporation) and all of its subsidiaries. Material intercompany
accounts and transactions have been eliminated.
ORGANIZATION
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
Through its banking subsidiaries, Park National Bank (PNB) and Richland Trust
Company (Richland) and its savings association subsidiary, Mutual Federal
Savings Bank (Mutual), the Corporation is engaged in a general commercial
banking and trust business, primarily in Central Ohio. PNB, Richland, and Mutual
provide the following principal services: the acceptance of deposits for demand,
savings, and time accounts; commercial, industrial, consumer and real estate
lending, including installment loans, credit cards, home equity lines of credit
and commercial and auto leasing; trust services; cash management; safe deposit
operations; electronic funds transfers; and a variety of additional
banking-related services.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT SECURITIES
Investment securities are classified upon acquisition into one of three
categories: Held-to-maturity, available-for-sale, or trading (see Note 4).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available
to be sold in the future in response to the Corporation's liquidity needs,
changes in market interest rates, and asset-liability management strategies,
among others. Available-for-sale securities are reported at fair value, with
unrealized holding gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of applicable taxes. At December
31, 1996 and 1995, the Corporation did not hold any trading securities.
Gains and losses realized on the sale of investment securities have been
accounted for on the completed transaction method in the year of sale on an
"identified certificate" basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is generally provided on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lives of the respective leases or the estimated useful lives
of the improvements, whichever are the shorter periods. Upon the sale or other
disposal of the assets, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred while renewals and
improvements are capitalized.
42
46
OTHER REAL ESTATE OWNED
Other real estate owned is recorded at the lower of cost or fair market value
(which is not in excess of estimated net realizable value) and consists of
property acquired through foreclosure, loans in judgment and subject to
redemption, and real estate held for sale. Subsequent to acquisition, allowances
for losses are established if carrying values exceed fair value less estimated
costs to sell. Costs relating to development and improvement of such properties
are capitalized (not in excess of fair value less estimated costs to sell),
whereas costs relating to holding the properties are charged to expense.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counter parties' credit standing.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
INCOME RECOGNITION
Income earned by the Corporation and its subsidiaries is recognized principally
on the accrual basis of accounting. Loan origination fees are amortized over the
life of the loans using the interest method on a loan by loan basis, and
origination costs are deferred and amortized if material. Certain fees,
principally service, are recognized as income when billed or collected.
The Corporation's subsidiaries suspend the accrual of interest when, in
management's opinion, the collection of all or a portion of interest has become
doubtful. Generally, when a loan is placed on non-accrual, the Corporation's
subsidiaries charge all previously accrued and unpaid interest against income.
In future periods, interest will be included in income to the extent received
only if complete principal recovery is reasonably assured.
43
47
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operating expense is based upon each
subsidiary's past loan loss experience and an evaluation of potential losses in
the current loan portfolios. In management's opinion, the provision is
sufficient to maintain the allowance for possible loan losses at a level that
adequately provides for potential losses.
LEASE FINANCING
Leases of equipment, automobiles, and aircraft to customers generally are direct
leases in which the Corporation's subsidiaries have acquired the equipment,
automobiles, or aircraft with no outside financing.
Such leases are accounted for as direct financing leases for financial reporting
purposes. Under the direct financing method, a receivable is recorded for the
total amount of the lease payments to be received.
Unearned lease income, representing the excess of the sum of the aggregate
rentals of the equipment, automobiles or aircraft over its cost is included in
income over the term of the lease under the interest method.
EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED
The excess of cost over net assets of the banks purchased is being amortized,
principally on the straight-line method, over periods ranging from seven to
fifteen years.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash and cash equivalents include cash and cash items, amounts due from banks
and federal funds sold. Generally federal funds are purchased and sold for one
day periods.
Net cash provided by operating activities reflects cash payments as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Interest paid on deposits and other borrowings $49,220 $45,443 $35,111
- ----------------------------------------------------------------------------------------------------------------------
Income taxes paid $13,800 $ 8,700 $ 8,415
- ----------------------------------------------------------------------------------------------------------------------
INCOME TAXES
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
EARNINGS PER SHARE
Per common share amounts have been calculated based upon the weighted average
number of common shares outstanding in each period, as adjusted for the
two-for-one stock split distributed in August 1994. The dilutive effects of
unexercised stock options are not significant.
44
48
ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," was
released in June 1996 and is effective for transactions occurring after December
31, 1996. Early adoption of the Statement is not permitted. Under the provisions
of SFAS No. 125, each party to a transaction recognizes only assets it controls
and liabilities it has incurred, derecognizes assets only when control has been
surrendered and derecognizes liabilities only when they have been extinguished.
Transactions are to be separated into components and separate assets and
liabilities may need to be recorded for the different components. The
Corporation does not expect the adoption of this pronouncement to have a
material impact on the financial statements.
2. ACQUISITIONS
On May 2, 1994, the Corporation acquired all of the outstanding stock of Scope
Leasing, Inc. (Scope) in exchange for 104,562 common shares of the Corporation.
Scope, a Columbus, Ohio based company specializing in aircraft leasing, operates
as a wholly-owned subsidiary of Park National Bank under the Scope name. At the
time of acquisition, Scope had approximately $16 million in assets. The
transaction was accounted for as a pooling-of-interests, but due to the
immateriality of such acquisition, prior year financial statements were not
restated.
On December 6, 1996, Richland Trust Company acquired five branch offices in
Richland County from Peoples National Bank. In addition to the fixed assets, the
purchase included $98 million of deposits and $31 million of loans. The banking
business of the five branches was consolidated into Richland Trust Company's
operations. The excess of the cost over net assets purchased was $10 million and
is being amortized using the straight-line method over seven years.
On October 28, 1996, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with First-Knox Banc Corp. (First-Knox), a bank
holding company headquartered in Mount Vernon, Ohio, providing for a merger of
First-Knox into the Corporation. Under the terms of the Merger Agreement, the
stockholders of First-Knox are expected to receive .5914 shares of the
Corporation's common stock per share of First-Knox common stock in a tax free
exchange. The Corporation expects to issue an aggregate of 2,345,000 shares of
common stock to complete the merger which will be accounted for as a
pooling-of-interests. Completion of the merger is subject to certain conditions,
including the approval of bank regulators and other governmental agencies, the
approval of stockholders of First-Knox and the Corporation, and other conditions
to closing customary of a transaction of this type. The merger is expected to be
completed during the second quarter of 1997.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average required reserve balance was
approximately $13,745,000 and $17,187,000 at December 31, 1996 and 1995,
respectively. No other compensating balance arrangements were in existence at
year end.
45
49
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31 are as follows:
GROSS GROSS
UNREALIZED UNREALIZED
(IN THOUSANDS) AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------
1996:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 160,803 $ 3,481 $ 9 $ 164,275
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 210,981 1,754 271 212,464
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 1,863 9 30 1,842
- -------------------------------------------------------------------------------------------------------------------------
Other equity securities 7,470 136 -- 7,606
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE-FOR-SALE $381,117 $ 5,380 $310 $386,187
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 9,784 $ 453 $ 8 $ 10,229
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 668 3 11 660
- -------------------------------------------------------------------------------------------------------------------------
Other securities 328 -- -- 328
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD-TO-MATURITY $ 10,780 $ 456 $ 19 $ 11,217
- -------------------------------------------------------------------------------------------------------------------------
1995:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 150,234 $ 6,849 $ 27 $ 157,056
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 148,492 2,293 105 150,680
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 2,857 9 -- 2,866
- -------------------------------------------------------------------------------------------------------------------------
Other equity securities 6,715 97 -- 6,812
- -------------------------------------------------------------------------------------------------------------------------
Total Securities Available-for-Sale $ 308,298 $ 9,248 $ 132 $ 317,414
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 9,566 $ 622 $ 10 $ 10,178
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 1,043 5 16 1,032
- -------------------------------------------------------------------------------------------------------------------------
Other securities 707 -- -- 707
- -------------------------------------------------------------------------------------------------------------------------
Total Securities Held-to-Maturity $ 11,316 $ 627 $ 26 $ 11,917
- -------------------------------------------------------------------------------------------------------------------------
46
50
The amortized cost and estimated fair value of investments in debt securities at
December 31, 1996 are shown below (in thousands) by contractual maturity except
for asset-backed securities which are shown based on expected maturities:
WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
COST FAIR VALUE MATURITY YIELD
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and agencies' notes:
Within one year $ 44,915 $ 44,906 .1 years 5.36%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 95,888 99,061 2.3 years 7.50%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 20,000 20,308 8.4 years 7.37%
- ------------------------------------------------------------------------------------------------------------------------
Total $160,803 $164,275 2.4 years 6.89%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities:
Within one year $ 39,176 $ 39,110 .7 years 5.80%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 168,893 170,376 3.5 years 6.82%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 2,912 2,978 5.2 years 7.13%
- ------------------------------------------------------------------------------------------------------------------------
Total $210,981 $212,464 3.0 years 6.63%
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities:
One through five years $ 1,863 $ 1,842 4.1 years 7.07%
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of state and political subdivisions:
Within one year $ 2,313 $ 2,330 .5 years 5.18%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 6,037 6,465 3.2 years 6.31%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 1,434 1,434 8.5 years 5.05%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 9,784 $ 10,229 3.3 years 5.86%
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities:
One through five years $ 668 $ 660 2.1 years 6.04%
- ------------------------------------------------------------------------------------------------------------------------
Other securities:
Within one year $ 10 $ 10 .2 years 5.50%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 318 318 4.4 years 6.54%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 328 $ 328 4.3 years 6.51%
- ------------------------------------------------------------------------------------------------------------------------
Investment securities having a book value of $282,468,000 and $248,147,000 at
December 31, 1996 and 1995, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
47
51
Gross losses of approximately $1,310,000 and $614,000 were recognized during
1996 and 1995 on sales of available-for-sale securities, respectively. There
were no gross gains from the sale of securities in 1996 or 1995. Gross gains and
losses of approximately $4,000 and $3,310,000, respectively, were recognized
during 1994 on sales of available-for-sale securities. Tax benefits related to
securities losses were $459,000 in 1996, $215,000 in 1995 and $1,157,000 in
1994.
The Corporation transferred $14,476,000 of securities classified as
held-to-maturity to available-for-sale at December 31, 1995. An unrealized gain
of $571,000 was recorded as an adjustment to stockholders' equity at the date of
the transfer. The transfer was made pursuant to the Financial Accounting
Standards Board's November, 1995 Special Report on SFAS No. 115 which permitted
one time transfers of securities. The Corporation transferred all the U.S.
Government agency asset-backed securities that were classified as
held-to-maturity to available-for-sale. All U.S. Government agency securities
are classified as available-for-sale at December 31, 1996 and 1995.
5. LOANS
The composition of the loan portfolio is as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 129,269 $ 118,225
- -----------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 40,871
- -----------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 444,005
- -----------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 191,127
- -----------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 209,481
- -----------------------------------------------------------------------------------------------------------------------
Leases, net 20,950 21,018
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $1,112,603 $1,024,727
- -----------------------------------------------------------------------------------------------------------------------
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures" (SFAS No.
114 and 118). SFAS No. 114 and 118 require that impaired loans be measured based
on the present value of expected cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, financial, agricultural, construction, and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114 and
118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer
loans, residential real estate loans and lease financing classified as
non-accrual.
Non-accrual and restructured loans are summarized as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Impaired loans:
Non-accrual $ 813 $ 717
- -----------------------------------------------------------------------------------------------------------------------
Restructured 1,872 1,403
- -----------------------------------------------------------------------------------------------------------------------
Total impaired loans 2,685 2,120
- -----------------------------------------------------------------------------------------------------------------------
Other non-accrual loans 1,171 1,511
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,856 $3,631
- -----------------------------------------------------------------------------------------------------------------------
48
52
The allowance for credit losses related to impaired loans at December 31, 1996
and 1995 was $403,000 and $318,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,857,000 for 1996 and $2,624,000 for
1995.
Interest income on impaired loans is recognized after all past due and current
principal payments have been made, and collectibility is no longer doubtful. For
the years ended December 31, 1996 and 1995, the Corporation recognized $337,000
and $279,000, respectively, of interest income on impaired loans, which included
$324,000 and $276,000, respectively, of interest income recognized using the
cash basis method of income recognition.
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," (SFAS
No. 122), which requires the recognition of rights to service loans for others
as separate assets, however those servicing rights are acquired. The adoption of
SFAS No. 122 did not have a material impact on the Corporation's financial
statements in 1996.
Certain of the Corporation's executive officers, directors and their affiliates
are loan customers of the Corporation's banking subsidiaries. As of December 31,
1996 and 1995, loans aggregating approximately $27,798,000 and $24,805,000,
respectively, were outstanding to such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 1 $25,073 $21,562 $20,178
- -----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840
- -----------------------------------------------------------------------------------------------------------------------
Losses charged to the reserve (3,859) (2,413) (2,430)
- -----------------------------------------------------------------------------------------------------------------------
Recoveries 2,068 1,260 1,974
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $27,802 $25,073 $21,562
- -----------------------------------------------------------------------------------------------------------------------
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's affiliates'
net investment in direct financing leases:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Total minimum payments to be received $25,014 $25,049
- -------------------------------------------------------------------------------------------------------------------------
Estimated unguaranteed residual value of leased property -- 13
- -------------------------------------------------------------------------------------------------------------------------
Less: unearned income (4,064) (4,044)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $20,950 $21,018
- -------------------------------------------------------------------------------------------------------------------------
49
53
Minimum lease payments, in thousands, to be received as of December 31, 1996
are:
DECEMBER 31, (IN THOUSANDS)
- ---------------------------------------------------------------------------------
1997 $ 6,731
- ---------------------------------------------------------------------------------
1998 5,381
- ---------------------------------------------------------------------------------
1999 4,317
- ---------------------------------------------------------------------------------
2000 2,978
- ---------------------------------------------------------------------------------
2001 5,607
- ---------------------------------------------------------------------------------
TOTAL $ 25,014
- ---------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Land $ 4,560 $ 4,543
- ------------------------------------------------------------------------------------------------------------------------
Buildings 15,929 15,639
- ------------------------------------------------------------------------------------------------------------------------
Equipment, furniture and fixtures 14,383 14,106
- ------------------------------------------------------------------------------------------------------------------------
Leasehold improvements 967 780
- ------------------------------------------------------------------------------------------------------------------------
TOTAL 35,839 35,068
- ------------------------------------------------------------------------------------------------------------------------
Less: accumulated depreciation and amortization (19,027) (17,907)
- ------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 16,812 $ 17,161
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense amounted to $2,027,000, $1,925,000 and
$1,700,000 for the three years ended December 31, 1996, 1995 and 1994,
respectively.
The Corporation and its subsidiaries lease certain premises and equipment
accounted for as operating leases. The following is a schedule at December 31,
1996 of the future minimum rental payments required for the next five years
under such leases with initial terms in excess of one year:
DECEMBER 31, (IN THOUSANDS)
- ----------------------------------------------------------------------------------
1997 $ 353
- ----------------------------------------------------------------------------------
1998 362
- ----------------------------------------------------------------------------------
1999 367
- ----------------------------------------------------------------------------------
2000 273
- ----------------------------------------------------------------------------------
2001 191
- ----------------------------------------------------------------------------------
Thereafter 548
- ----------------------------------------------------------------------------------
TOTAL $2,094
- ----------------------------------------------------------------------------------
Rent expense amounted to $416,000, $382,000, and $296,000 for the three years
ended December 31, 1996, 1995 and 1994, respectively.
50
54
9. STOCK OPTION PLAN
The Park National Corporation 1995 Incentive Stock Option Plan (the "Plan") was
adopted April 17, 1995. The Plan is intended as an incentive to encourage stock
ownership by the key employees of the Corporation. The maximum number of common
shares with respect to which incentive stock options may be granted under the
Plan is 200,000. Approximately 128,000 were available for future grants at
December 31, 1996. Incentive stock options may be granted at a price not less
than fair market value at the date of the grant for an option term of up to five
years. No incentive stock options may be granted under the Plan after January
16, 2005.
The Corporation's stock option activity and related information is summarized as
follows:
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period 40,000 $47.67 -- $ --
- ----------------------------------------------------------------------------------------------------------------
Granted 28,581 47.97 43,550 47.68
- ----------------------------------------------------------------------------------------------------------------
Exercised (10,000) 47.71 (3,550) 47.75
- ----------------------------------------------------------------------------------------------------------------
Forfeited/Expired (400) 47.28 -- --
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of period 58,181 47.82 40,000 47.67
- ----------------------------------------------------------------------------------------------------------------
Exercisable at end of period 56,331 47.75 36,450 47.75
- ----------------------------------------------------------------------------------------------------------------
Weighted-average fair value
of options granted during the year
per option $10.41 -- $10.29 --
- ----------------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 1996 ranged from
$45.50 to $53.00. The weighted-average remaining contractual life of these
options is approximately 3.8 years.
The Corporation has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation," (SFAS
No. 123) requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.48%
and 6.41%; a dividend yield of 2.50%, a volatility factor of the expected market
price of the Corporation's common stock of .219, and a weighted-average expected
option life of 4 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
51
55
Because the effect of applying SFAS No. 123's fair value method to the
Corporation's stock options results in net income and earnings per share that
are not materially different from amounts reported in the consolidated
statements of income, pro forma information has not been provided.
10. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to
repurchase and federal funds purchased $107,345 $102,651
- ------------------------------------------------------------------------------------------------------------------------
Federal home loan bank advances -- 10,000
- ------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings 1,885 1,341
- ------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $109,230 $113,992
- ------------------------------------------------------------------------------------------------------------------------
The outstanding balances for all short-term borrowings as of December 31, 1996,
1995 and 1994 (in thousands) and the weighted-average interest rates as of and
paid during each of the years then ended are as follows:
REPURCHASE DEMAND
AGREEMENTS FEDERAL NOTES
AND FEDERAL HOME LOAN DUE U.S.
FUNDS BANK TREASURY
DECEMBER 31, (DOLLARS IN THOUSANDS) PURCHASED ADVANCES AND OTHER
- -----------------------------------------------------------------------------------------------------------------------
1996:
ENDING BALANCE $107,345 $ -- $1,885
- -----------------------------------------------------------------------------------------------------------------------
HIGHEST MONTH-END BALANCE 131,672 10,000 2,786
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE DAILY BALANCE 111,480 1,066 1,641
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE INTEREST RATE:
AS OF YEAR-END 4.42% -- 5.78%
- -----------------------------------------------------------------------------------------------------------------------
PAID DURING THE YEAR 4.41% 6.29% 5.73%
- -----------------------------------------------------------------------------------------------------------------------
1995:
Ending balance $102,651 $10,000 $1,341
- -----------------------------------------------------------------------------------------------------------------------
Highest month-end balance 149,556 10,000 3,144
- -----------------------------------------------------------------------------------------------------------------------
Average daily balance 121,057 9,699 2,083
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 4.67% 5.94% 5.23%
- -----------------------------------------------------------------------------------------------------------------------
Paid during the year 4.98% 6.21% 4.95%
- -----------------------------------------------------------------------------------------------------------------------
1994:
Ending balance $141,475 $10,000 $3,791
- -----------------------------------------------------------------------------------------------------------------------
Highest month-end balance 141,475 20,000 3,791
- -----------------------------------------------------------------------------------------------------------------------
Average daily balance 112,956 6,773 1,963
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 5.04% 6.31% 6.20%
- -----------------------------------------------------------------------------------------------------------------------
Paid during the year 3.50% 5.07% 4.45%
- -----------------------------------------------------------------------------------------------------------------------
52
56
11. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 9,731 $ 8,775
- ------------------------------------------------------------------------------------------------------------------------
Deferred loan fees 328 455
- ------------------------------------------------------------------------------------------------------------------------
Deferred compensation 559 494
- ------------------------------------------------------------------------------------------------------------------------
Other 2,085 1,883
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $ 12,703 $ 11,607
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Lease revenue reporting $ 2,819 $ 2,681
- ------------------------------------------------------------------------------------------------------------------------
Unrealized holding gain on securities 1,775 3,191
- ------------------------------------------------------------------------------------------------------------------------
Fixed assets, principally due to depreciation 657 696
- ------------------------------------------------------------------------------------------------------------------------
Other 3,878 3,051
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $ 9,129 $ 9,619
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS, NET $ 3,574 $ 1,988
- ------------------------------------------------------------------------------------------------------------------------
The components of the provision for federal income taxes are shown below:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Currently payable $12,848 $11,622 $8,594
- ----------------------------------------------------------------------------------------------------------------------
Deferred (170) (775) 371
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $12,678 $10,847 $8,965
- ----------------------------------------------------------------------------------------------------------------------
The following is a reconcilement of federal income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31, 1996,
1995 and 1994.
DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Statutory corporate tax rate 35.0% 35.0% 35.0%
- ----------------------------------------------------------------------------------------------------------------------
Changes in rate resulting from:
Tax-exempt interest income - 1.0% - 1.2% - 1.8%
- ----------------------------------------------------------------------------------------------------------------------
Other - 0.9% - 0.9% - 2.3%
- ----------------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE 33.1% 32.9% 30.9%
- ----------------------------------------------------------------------------------------------------------------------
53
57
12. BENEFIT PLANS
The Corporation has a noncontributory defined benefit pension plan covering
substantially all of its employees. The plan provides benefits based on an
employee's years of service and compensation. The Corporation's funding policy
is to contribute annually an amount that can be deducted for federal income tax
purposes using a different actuarial cost method and different assumptions from
those used for financial reporting purposes.
Net pension cost included the following components:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 639 $ 599 $ 651
- -----------------------------------------------------------------------------------------------------------------------
Interest cost on projected benefit obligation 654 566 530
- -----------------------------------------------------------------------------------------------------------------------
Actual return on plan assets (1,748) (1,843) (221)
- -----------------------------------------------------------------------------------------------------------------------
Net amortization and deferral 950 1,201 (369)
- -----------------------------------------------------------------------------------------------------------------------
PENSION COST, NET $ 495 $ 523 $ 591
- -----------------------------------------------------------------------------------------------------------------------
The funded status of the plan and the accrued pension cost were as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 6,393 $ 6,012 $5,370
- -----------------------------------------------------------------------------------------------------------------------
Nonvested benefits 128 118 111
- -----------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 6,521 6,130 5,481
- -----------------------------------------------------------------------------------------------------------------------
Impact of projected future salary increases 2,625 2,603 2,221
- -----------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 9,146 8,733 7,702
- -----------------------------------------------------------------------------------------------------------------------
Plan assets at fair value 10,670 9,549 7,265
- -----------------------------------------------------------------------------------------------------------------------
PLAN ASSETS IN EXCESS OF/(LESS THAN)
PROJECTED BENEFIT OBLIGATION 1,524 816 (437)
- -----------------------------------------------------------------------------------------------------------------------
Items not yet recognized in income:
Unrecognized net (gain)/loss from past experience
different from that assumed and effects of
changes in assumptions (1,756) (643) 330
- -----------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost (189) (208) (256)
- -----------------------------------------------------------------------------------------------------------------------
Initial transition asset which is being
amortized over 15.8 years (91) (107) (123)
- -----------------------------------------------------------------------------------------------------------------------
ACCRUED PENSION COST INCLUDED IN
CONSOLIDATED BALANCE SHEET $ (512) $ (142) $ (486)
- -----------------------------------------------------------------------------------------------------------------------
The Corporation contributed approximately $125,000, $867,000, and $0 to the plan
in 1996, 1995 and 1994, respectively.
54
58
The assumptions used in determining pension expense and funded status
information presented above were as follows:
DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average discount rate 7.50% 7.50% 7.50%
- ----------------------------------------------------------------------------------------------------------------------
Rate of future salary increases 5.00% 5.00% 5.00%
- ----------------------------------------------------------------------------------------------------------------------
Long-term rate of return on assets 8.00% 8.00% 8.00%
- ----------------------------------------------------------------------------------------------------------------------
The Corporation has a voluntary salary deferral plan covering substantially all
of its employees. Eligible employees may contribute a portion of their
compensation subject to a maximum statutory limitation. The Corporation provides
a matching contribution established annually by the Corporation. Contribution
expense for the Corporation was $400,000, $380,000 and $286,000 for 1996, 1995
and 1994, respectively.
13. DIVIDEND RESTRICTIONS
Bank and thrift regulators limit the amount of dividends a subsidiary bank or
thrift can declare in any calendar year without obtaining prior approval. At
December 31, 1996, approximately $16,371,000 of the total stockholders' equity
of the bank and thrift subsidiaries is available for the payment of dividends to
the Corporation, without approval by the applicable regulatory authorities.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk
are as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Loan commitments $182,573 $151,665
- ------------------------------------------------------------------------------------------------------------------------
Unused credit card limits 79,657 67,668
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit 5,666 5,741
- ------------------------------------------------------------------------------------------------------------------------
The Corporation was party to various interest rate swap agreements, which
matured in 1994, for which it received a six month variable interest rate and
paid a fixed interest rate with a notional amount of $16 million at December 31,
1993. The weighted-average of the variable interest rates was 3.38% at December
31, 1993 compared to weighted-average fixed rates of 12.50% at December 31,
1993. A portion of these swaps was matched to various tax-exempt securities with
$5.4 million matched at December 31, 1993. Net interest expense resulting from
these swaps was $18,000 in 1994 and is shown as a reduction in interest income
on tax-exempt securities in the consolidated statement of income.
55
59
The Corporation was also party to an interest rate swap agreement for which it
received a fixed rate of interest and paid a six month variable interest rate
with a notional amount of $10 million at December 31, 1993. The fixed interest
rate was 4.32% and the variable interest rate was 3.50% at December 31, 1993.
This swap hedged a portion of the variable rate loan portfolio and was
terminated in 1994. Net interest expense or income from this swap is included in
interest income on loans in the consolidated statement of income. Net interest
expense from this swap was $85,000 in 1994. At December 31, 1994, there were no
deferred gains or losses from swap terminations.
The Corporation grants retail, commercial and commercial real estate loans to
customers primarily located in Central Ohio. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the debtors' ability to honor their contracts is dependent upon the economic
conditions in each loan's respective location.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of financial instruments at December 31, 1996 and 1995 is as
follows:
1996 1995
CARRYING FAIR CARRYING FAIR
DECEMBER 31, (IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and federal funds sold $ 61,454 $ 61,454 $ 92,752 $ 92,752
- ------------------------------------------------------------------------------------------------------------------------
Investment securities 396,967 397,404 328,730 329,331
- ------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial, financial and agricultural 129,269 129,269 118,225 118,225
- ------------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 52,443 40,871 40,871
- ------------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 476,488 444,005 452,345
- ------------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 202,948 191,127 190,803
- ------------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 241,462 209,481 211,199
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,091,653 1,102,610 1,003,709 1,013,443
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (27,802) -- (25,073) --
- ------------------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE, NET $1,063,851 $1,102,610 $ 978,636 $1,013,443
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Noninterest-bearing checking $ 174,158 $ 174,158 $ 190,014 $ 190,014
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing checking 152,312 152,312 141,214 141,214
- ------------------------------------------------------------------------------------------------------------------------
Savings accounts 251,410 251,410 236,950 236,950
- ------------------------------------------------------------------------------------------------------------------------
Money market accounts 105,453 105,453 83,873 83,873
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 651,678 655,155 552,866 557,308
- ------------------------------------------------------------------------------------------------------------------------
Other 1,606 1,606 1,623 1,623
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $1,336,617 $1,340,094 $1,206,540 $1,210,982
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings $ 109,230 $ 109,230 $ 113,992 $ 113,992
- ------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Loan commitments -- $ (183) -- $ (152)
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit -- (29) -- (29)
- ------------------------------------------------------------------------------------------------------------------------
56
60
16. STOCK SPLIT
The Corporation's Board of Directors declared a two-for-one stock split at the
July 18, 1994 Directors' meeting. The additional shares of 3,594,825 were
distributed on August 12, 1994 to stockholders of record on July 29, 1994. All
shares and per share data have been restated for the two-for-one stock split.
17. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1996
and December 31, 1995:
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------
Total equity (1) $148,986 9.23% $136,424 9.24%
- ----------------------------------------------------------------------------------------------------------------------
Tier 1 capital (2) 134,291 12.78% 128,900 13.35%
- ----------------------------------------------------------------------------------------------------------------------
Total risk-based capital (3) 147,612 14.04% 141,132 14.61%
- ----------------------------------------------------------------------------------------------------------------------
Leverage (4) 134,291 8.82% 128,900 8.91%
- ----------------------------------------------------------------------------------------------------------------------
(1) Computed in accordance with generally accepted accounting principles,
including unrealized market value adjustment of securities
available-for-sale.
(2) Stockholders' equity less certain intangibles and the unrealized market
value adjustment of securities available-for-sale; computed as a ratio to
risk-adjusted assets as defined.
(3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital computed as a ratio to average total assets less certain
intangibles.
The Corporation's Tier 1, total risk-based capital and leverage ratios are well
above both the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively,
and the well-capitalized levels of 6.00%, 10.00%, and 5.00%, respectively.
At December 31, 1996, all of the Corporation's subsidiary financial institutions
met the well-capitalized levels under the capital definitions prescribed in the
FDIC Improvement Act of 1991.
18. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method of
accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents noninterest-bearing deposits with a bank subsidiary.
Net cash provided by operating activities reflects cash payments for income
taxes of $627,000, $873,000 and $23,000 in 1996, 1995 and 1994, respectively.
57
61
18. PARENT COMPANY STATEMENTS (continued)
At December 31, 1996 and 1995, stockholders' equity reflected in the Parent
Company balance sheet includes $47.7 million and $40.6 million, respectively, of
undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
BALANCE SHEET
for the years ended December 31, 1996 and 1995
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash $ 15,322 $ 13,224
- ------------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 123,619 116,388
- ------------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets of banks purchased, net 1,339 1,598
- ------------------------------------------------------------------------------------------------------------------------
Dividends receivable from subsidiaries 8,700 7,500
- ------------------------------------------------------------------------------------------------------------------------
Other assets 3,939 587
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $152,919 $139,297
- ------------------------------------------------------------------------------------------------------------------------
Liabilities:
Other liabilities $ 3,933 $ 2,873
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,933 2,873
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
TOTAL STOCKHOLDERS' EQUITY 148,986 136,424
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $152,919 $139,297
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME
for the years ended December 31, 1996, 1995 and 1994
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Income:
DIVIDENDS FROM SUBSIDIARIES $24,600 $21,500 $ 8,680
- ----------------------------------------------------------------------------------------------------------------------
Expense:
Amortization of intangibles 259 259 259
- ----------------------------------------------------------------------------------------------------------------------
Other, net 1,014 687 363
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,273 946 622
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 23,327 20,554 8,058
- ----------------------------------------------------------------------------------------------------------------------
Federal income tax benefit 475 525 403
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 23,802 21,079 8,461
- ----------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings
of subsidiaries 1,862 1,041 11,556
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $25,664 $22,120 $20,017
- ----------------------------------------------------------------------------------------------------------------------
58
62
18. PARENT COMPANY STATEMENTS (continued)
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 25,664 $ 22,120 $ 20,017
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization 259 259 259
- ----------------------------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries (1,862) (1,041) (11,556)
- ----------------------------------------------------------------------------------------------------------------------
Increase in dividends receivable
from subsidiaries (1,200) (990) (1,710)
- ----------------------------------------------------------------------------------------------------------------------
(Increase) decrease in other assets (3,298) 105 (272)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in other liabilities 705 411 (631)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,268 20,864 6,107
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital contribution to subsidiary (8,000) -- --
- ----------------------------------------------------------------------------------------------------------------------
Purchase of investment securities (54) (30) --
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,054) (30) --
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (9,998) (8,610) (8,054)
- ----------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (118) (2,545) --
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (10,116) (11,155) (8,054)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 2,098 9,679 (1,947)
- ----------------------------------------------------------------------------------------------------------------------
Cash at beginning of year 13,224 3,545 5,492
- ----------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 15,322 $ 13,224 $ 3,545
- ----------------------------------------------------------------------------------------------------------------------
59
63
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Park National Corporation
We have audited the accompanying consolidated balance sheets of Park National
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Park National
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG L.L.P.
Columbus, Ohio
January 21, 1997
64
PARK NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
---------------------------------------
INDEX TO EXHIBITS
-----------------
Exhibit No. Description Page No.
- ----------- ----------- --------
2(a) Purchase and Assumption Agreement, dated Pages 87 through 113
August 28, 1996, between Richland Trust
Company and Peoples National Bank
2(b) Agreement and Plan of Merger, dated as of Incorporated herein by reference to
October 28, 1996, between Park National Registrant's Registration Statement on
Corporation ("Registrant") and First-Knox Banc Form S-4, filed January 24, 1997
Corp. (Registration No. 333-20417)
("Registrant's Form S-4") [Exhibit 2(a)]
2(c) Amendment to Agreement and Plan of Merger, Incorporated herein by reference to
dated as of January 10, 1997, between Registrant's Form S-4 [Exhibit 2(b)]
Registrant and First-Knox Banc Corp.
3(a) Articles of Incorporation of Park National Incorporated herein by reference to
Corporation as filed with the Ohio Secretary Registrant's Form 8-B, filed May 20,
of State on March 24, 1992 1992 (File No. 0-18772) ("Registrant's
Form 8-B") [Exhibit 3(a)]
3(b) Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Park National Corporation as Registrant's Annual Report on Form 10-K
filed with the Ohio Secretary of State on for the fiscal year ended
May 6, 1993 December 31, 1993 (File No. 0-18772)
[Exhibit 3(b)]
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65
Exhibit No. Description Page No.
- ----------- ----------- --------
3(c) Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Park National Corporation as Registrant's Quarterly Report on Form
filed with the Ohio Secretary of State on 10-Q for the fiscal quarter ended
April 16, 1996 March 31, 1996 (File No. 1-13006)
("Registrant's March 1996 Form 10-Q")
[Exhibit 3(a)]
3(d) Articles of Incorporation of Park National Incorporated herein by reference to
Corporation, as amended (current) Registrant's March 1996 Form 10-Q
[Exhibit 3(b)
3(e) Regulations of Registrant Incorporated herein by reference to
Registrant's Form 8-B [Exhibit 3(b)]
10(a) Certified Copy of Resolutions Adopted by Board Incorporated herein by reference to
of Directors of Park National Corporation on Registrant's Annual Report on Form 10-K
July 17, 1995 Affecting Park National for the fiscal year ended December 31,
Corporation Defined Benefit Pension Plan and 1995 (File No. 1-13006) ("Registrant's
Trust 1995 Form 10-K") [Exhibit 10(a)]
10(b) Park National Corporation Defined Benefit Incorporated herein by reference to
Pension Plan Registrant's 1995 Form 10-K [Exhibit
10(b)]
10(c) Park National Corporation Employees Voluntary Incorporated herein by reference to
Salary Deferral Plan and Trust Registrant's Annual Report on Form 10-K
for the fiscal year ended December
31, 1993 (File No. 0-18772) [Exhibit
10(d)]
10(d) Summary of Incentive Bonus Plan of Park Incorporated herein by reference to
National Corporation Registrant's Form S-4 [Exhibit 10(d)]
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66
Exhibit No. Description Page No.
- ----------- ----------- --------
10(e) Split-Dollar Agreement, dated May 17, 1993, Incorporated herein by reference to:
between William T. McConnell and The Park (a) Registrant's Annual Report on
National Bank; and Schedule A to Exhibit 10(f) Form 10-K for the fiscal year ended
identifying other identical Split-Dollar December 31, 1993 (File No. 0-18772)
Agreements between The Park National Bank and [Exhibit 10(f)]; and (b) Registrant's
executive officers of Registrant Annual Report on Form 10-K for the
fiscal year ended December 31, 1994
(File No. 1-13006) [Exhibit 10(g)]
10(f) Split-Dollar Agreement, dated September 29, Incorporated herein by reference to: (a)
1993, between Dominic C. Fanello and The Registrant's Annual Report on Form 10-K
Richland Trust Company; and Schedule A to for the fiscal year ended December 31,
Exhibit 10(f) identifying other identical 1993 (File No. 0-18772) [Exhibit 10(g)];
Split-Dollar Agreements between directors of and (b) Registrant's Form S-4 [Exhibit
Registrant and The Park National Bank, The 10(f)]
Richland Trust Company or Mutual Federal
Savings Bank, as identified in such Schedule A
10(g) Park National Corporation 1995 Incentive Stock Incorporated herein by reference to
Option Plan Registrant's Registration Statement on
Form S-8 filed May 9, 1995 (Registration
No. 33-92060) [Exhibit 4(d)]
10(h) Form of Stock Option Agreement executed in Incorporated herein by reference to
connection with the grant of options under the Registrant's 1995 Form 10-K [Exhibit
Park National Corporation 1995 Incentive Stock 10(i)]
Option Plan
10(i) Description of Park National Corporation Incorporated herein by reference to
Supplemental Executive Retirement Plan Registrant's Form S-4 [Exhibit 10(i)]
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67
Exhibit No. Description Page No.
- ----------- ----------- --------
10(j) Employment Security Agreement, dated as of Incorporated by reference to
July 12, 1996, between The First-Knox National Registrant's Form S-4 [Exhibit 10(j)]
Bank of Mount Vernon, Ohio and Carlos E.
Watkins (identical agreements were entered
into with Gordon E. Yance and Ian Watson) [To
be assumed by Registrant pursuant to Agreement
and Plan of Merger and Amendment to Agreement
and Plan of Merger with First-Knox Banc Corp.
identified as Exhibits 2(a) and 2(b)]
13 Annual Report to Stockholders of Registrant Incorporated herein by reference to the
for the fiscal year ended December 31, 1996 financial statements portion of this
(Not deemed filed except for portions thereof Annual Report on Form 10-K beginning at
which are specifically incorporated by page 20
reference into this Annual Report on Form 10-K)
21 Subsidiaries of Registrant Incorporated herein by reference to
Registrant's Form S-4 [Exhibit 21]
23 Consent of Ernst & Young LLP Pages 114 and 115
24 Powers of Attorney Pages 116 through 129
27 Financial Data Schedule Pages 130 and 131
-86-