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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.
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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.
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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
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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
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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%
- ----------------------------------------------------------------------------------------------------------------------
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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-per