T A B L E
O F
C O N T E N T S
To Our Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Stockholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Regional Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Directors:
Century National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fairfield National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Farmers and Savings Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
First-Knox National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Park National Bank of Southwest Ohio & Northern Kentucky Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Vision Bank – Alabama Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Vision Bank – Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Officers of Corporation & Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Consolidated Statements of Changes in Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
1
1
T O
O U R
S T O C K H O L D E R S
The length of this letter may suggest conditions are back to normal.
Far from it. We hope the difficult conditions of the past two years are
not the new normal. Regardless, we have much to report.
Net income for Park National Corporation (Park) for the past five
years, before writing off goodwill in 2007 and 2008, was $74.2
million in 2009, $68.7 million in 2008, $76.7 million in 2007,
$94.1 million in 2006 and $95.2 million in 2005. Cash dividends
paid in 2009 were $3.76, one cent less than was paid in 2008.
We are in a distinct minority of bank holding companies of
comparable size continuing to pay dividends at historic levels.
We were pleased when your board of directors approved the first
quarterly dividend in 2010 at $.94 per share, the same quarterly
dividend rate enjoyed during 2009. We continue to generate
sufficient net income to support our historic dividend payment
record.
2009 net income was $74.2 million, or $4.82 per diluted common
share. For the 2008 year, Park reported net income of $13.7
million, or $0.97 per diluted common share. Without the goodwill
write off charge, Park’s net income for 2008 would have been $68.7
million, or $4.91 per diluted common share.
Last year we executed various capital-raising strategies, selling an
aggregate of 904,072 common shares at a price of $61.20 per
average weighted share, for gross proceeds of $55.3 million.
In addition, we raised $35.25 million through the issuance of
10 percent Subordinated Notes due December 23, 2019 (which
qualify for Tier 2 Capital treatment under the Federal Reserve
Board’s risk-based capital guidelines). Net of all selling and
due diligence expenses, we raised approximately $89 million.
Selling additional common shares increased our outstanding
number of common shares to 14.9 million. As a point of reference,
the outstanding common shares of Park amounted to 14.7 million
following the issuance of common shares to Vision shareholders
on March 9, 2007.
The additional capital was raised for general corporate purposes
and to help position us to repay the $100 million we received in
December 2008 from the U.S. Treasury’s Capital Purchase Program
(CPP), part of the Troubled Asset Relief Program (TARP). When
property values and problem asset ratios stabilize, we intend to
repay TARP and exit the CPP. As a healthy bank holding company,
we were encouraged to participate in the program and with the
extent of problems experienced nationwide in 2009, we are
pleased we did.
22
As reported in the February 1, 2010 edition of American Banker,
page 1, “Nonperforming assets—which have skyrocketed
throughout the recession—fell at a handful of lenders, including
JP Morgan Chase & Co., KeyCorp and Huntington Bancshares, Inc.
And they grew at a sharply lower rate at companies like PNC
Financial Services Group, Inc., Bank of America Corp. and
Regions Financial Corp.”
Our nonperforming assets increased throughout 2009, but at
a decreasing rate in the second half of the year. They did not
stabilize by last year-end as we expected but we are optimistic
we will see a flattening and perhaps a reduction in problem
loans and assets during 2010.
The acquisition of Vision Bancshares, Inc. presented the
opportunity to grow our lending business in markets that appeared
to have far greater potential than our historic Ohio footprint. The
purchase also brought exposure to a lending category that has
proven to be the source of much of our growth in problem loans.
By far the largest single category of growth in our nonperforming
loans has been Commercial Land and Development (CL&D)
loans. The “Financial Review” section of this 2009 Annual
Report contains more complete data on this subject beginning
on page 40.
The overall exposure to CL&D loans at Vision Bank declined 29.2%
from a quarter-end high of $308.5 million at June 30, 2007, to
$218.3 million at December 31, 2009. CL&D loans continuing to
perform have declined 56.5% from a high quarter-end balance of
$305.3 million at June 30, 2007 to $132.4 million at December
31, 2009. Vision has $85.9 million in non-accrual CL&D loans that
are net of $25.5 million previously charged off against the legal
balances. The schedule of Vision CL&D loans on page 41 was
created in order to allow us to better track the category that has
been such a significant source of our problem loans over the
previous two years.
Our affiliates remain focused on improving asset quality. While
troubled assets are still far too high by any measure, asset quality
in Ohio improved in the second half of 2009. This topic, along with
increasing net income and covering dividends, is at the top of the
agenda for all of our operating units in 2010 as it was in 2009 and
2008.
We’ve said before we were unable to predict the severity of the
conditions of the previous two years. Annual net charged off loans
provide a remarkable comparison and put into context the severity
T O
O U R
S T O C K H O L D E R S
of the recession and the loss in property values. Here are the last
five years of specific data:
(dollars in millions)
2009
2008
2007
2006
2005
Annual Net Loan
Charge Offs
Net Loan Charge Offs
$52.2
$57.5
$22.2
$3.9
$5.9
to Loans
1.14%
1.32%
.55%
.12%
.18%
Allowance for Loan
and Lease Losses
to Loans
2.52%
2.23%
2.06%
2.03%
2.09%
While we expensed significant dollars for loan losses and grew the
reserve for future loan losses, we generated net income sufficient to
pay handsome dividends. The banking industry has been in crisis
mode for the past two years. We’ve had more than our share of
pain, but thus far we’ve managed through better than most.
At the risk of being proven wrong again, we believe the worst is
behind us. We know as surely as the sun rises in the east that some
loans will continue to go bad, in all the markets we serve. We’ll
continue to aggressively address asset quality and recognize losses
as they occur.
Some final words on asset quality...Last year, we engaged a group
of problem loan workout specialists in Florida and Alabama. They
include attorneys and realtors who have proven success in up and
down markets, over decades. Since April 2009, they, along with
our Vision Bank colleagues, have been engaged in maximizing the
value of Vision’s troubled assets. While still early in the recovery
process, they have scored some early victories and we believe they
will advance us farther than we would be without their help.
Turning to more pleasant topics, we completed the final stages of
Project EPS (Efficiency, Progress, Simplicity) last year. Conceived
in late 2006 and put in motion in 2007, each of our Ohio banking
divisions operates today on an identical, standardized data and
information services platform.
A key benefit of Project EPS was the centralization of countless
operational tasks that are transparent to our customers yet allowed
us to gain significant operating efficiencies. Project EPS was largely
responsible for allowing us to keep operating expenses at 2008
levels, excluding increases in our cost of FDIC insurance. We
congratulate our associates for meeting, and in many cases
exceeding, Project EPS objectives.
Our plans in 2010 and beyond are to capitalize on Project EPS
by identifying other process improvement opportunities. We
have plenty of work ahead and are confident in the abilities of
our associates to add even more value to the foundation put in
place by Project EPS.
We also embarked on an unrelated but significant upgrade in the
technology platform that serves our banks. While perhaps not an
exciting project for some folks, we decided to replace external
vendors and establish our own disaster recovery site.
Now well underway, we anticipate the recovery site installation and
further mainframe and system upgrades will be mostly complete
next year. We believe investments of this nature will allow us to do
a better job of managing our future rather than relying so much on
third-party providers. We are proud of the technology supporting
our products and services and believe what we offer is highly
competitive with industry practices.
As indicated in the financial highlights and elsewhere in this
2009 Annual Report, we are delighted to report an increase in loan
and deposit balances. We experienced the second consecutive year
of stronger loan growth than typical in the previous several years,
and we believe much credit is owed to having professionals in each
of our affiliates who are knowledgeable and eager to make good
loans. Not every bank had that advantage in 2009.
We were especially pleased to see strong growth in our aircraft
finance unit, Scope Aircraft Finance. Like our bank lenders, the
Scope team found many of its competitors retreating. Scope
advanced, growing its portfolio by some 40%. We gained some
very high quality new business and commercial customers last
year, in our banks and with Scope Aircraft Finance.
One of the cornerstones of successful community banking is
lending money to folks for their homes. In total dollars lent,
2009 was the second busiest year for home loans we have ever
experienced. Taking applications, preparing documents, closing
loans and finally servicing loans takes enormous effort and
coordination. We have over $750 million of home loans on our
books, and we additionally service over $1.5 billion of loans we
originated and sold into the secondary market. It should be clear
we place a very strong emphasis on meeting our customer and
community housing needs.
33
T O
O U R
S T O C K H O L D E R S
Aided partly by the recovery of equity markets after early March
2009 lows, collective assets held by our various trust departments
once again exceeded $3 billion in market value at year-end. We
continue to welcome new clients by delivering personal trust
services in ways that provide clear differentiation from brokerage
houses and large, seemingly faceless metropolitan bank trust
departments.
As we close this message, we encourage you to recommend
prospective customers to our affiliates. While other lenders
may choose to reduce or restrict lending, we continue to lend
using the same fundamental principles that have long served us
well. And as some banking companies encourage large depositors
to take their business elsewhere, we continue to welcome new
customers of all sizes.
We remain committed to delivering extraordinary service, with a
smile, and with a sense of urgency unmatched by others. It is easy
to get in the defensive bunker, wait out this challenging economy
or wallow in misery. We choose otherwise...it is not in our nature
to withdraw, but rather, to advance.
We are still having fun, at least on most days. And like our
associates, we love serving our customers and working with one
another. Chaotic times bring opportunities, and we’re all about
taking advantage of opportunities aided by our strong capital,
talented colleagues and profitability.
We believe in our associates. We witness consistent and superior
performance delivered by folks who understand the importance
and value of taking care of the needs of others. Encourage your
family, friends and acquaintances to give us a call. Our service
will not disappoint you, and we are grateful for your support.
C. Daniel DeLawder
Chairman
David L. Trautman
President
Net income last year, while not up to historical standards,
was accomplished in an economic environment that few have
experienced. Interest rates were at historic lows. The Federal
Reserve Board continues to hold short-term interest rates at low
levels as Congress debates significant regulatory reform. We offer
a brief description of the environment not as excuses, but to
demonstrate that we manage several types of risks in changing
conditions.
We continue to effectively manage interest rate risk. As an
example, last year we took advantage of an opportunity to
sell securities at a significant gain made possible largely due to
government intervention in financial markets. Seasoned readers
of our annual reports will recognize that we typically refrain from
selling securities at a gain as it does little more than accelerate
income tax liability and depress future earnings. But these sales
were different.
Subsequent to the sale of securities last year, we were able to
purchase acceptable replacement securities that allowed us to
record a permanent gain, not just a gain typically described as
a timing difference in the recognition of income. These types
of transactions are made possible by individuals within our
organization who are attentive, opportunistic and responsive.
We credit especially John Kozak, Paul Turner and April Dusthimer
for their good work.
As 2009 concluded, we reluctantly reported Nicholas J. Berning’s
retirement from our Board. Nick joined the corporate board in
2006 and served as Audit Committee chairman for the past two
years. We will miss his insight and guidance and wish him well
in his retirement.
At year-end 2009, we welcomed two new members to the Board
of Park. Timothy S. McLain, CPA, has served our affiliate Century
National Bank in Zanesville as a director since 2006. Stephen J.
Kambeitz, CPA, joined our affiliate board at The Park National
Bank. In addition to becoming new board members of Park,
both Tim and Steve became members of the Audit Committee
which Steve agreed to chair. Both are terrific additions.
44
F I N A N C I A L
H I G H L I G H T S
(In thousands, except per share data)
2009
2008
$ 367,690
$ 391,339
Earnings:
Total interest income
Total interest expense
Net interest income
Net income available to common shareholders (x)
Net income available to common shareholders
before impairment charge (a)(x)
Per Share:
Net income per common share – basic (x)
Net income per common share – diluted (x)
Net income per common share
before impairment charge – diluted (a)(x)
Cash dividends declared
Common book value (end of period)
At Year-End:
Total assets
Deposits
Loans
Investment securities
Total borrowings
Total stockholders’ equity
Ratios:
Return on average common equity (x)
Return on average common equity
before impairment charge (a)(x)
Return on average assets (x)
Return on average assets before impairment charge (a)(x)
Efficiency ratio before impairment charge
94,199
273,491
68,430
68,430
4.82
4.82
4.82
3.76
41.71
$7,040,329
5,188,052
4,640,432
1,863,560
1,053,850
717,264
11.81%
11.81%
0.97%
0.97%
54.01%
(x) Reported measure uses net income available to common shareholders. Net income available to common
shareholders is calculated as net income less preferred stock dividends and accretion, associated with the
preferred stock issued to the U.S. Treasury under the Capital Purchase Program.
(a) Net income for the year has been adjusted for the impairment charge to goodwill. Net income before
impairment charge equals net income available to common shareholders for the year plus the impairment
charge to goodwill of $54,986 in 2008.
Twelve Months Ended December 31 (In thousands, except per share data)
2009
Reconciliation of net income available to common shareholders to net income
available to common shareholders before impairment charge:
Net income available to common shareholders
Plus goodwill impairment charge
Net income available to common shareholders before impairment charge
Reconciliation of net income per share – diluted to net income per share
before impairment charge – diluted:
Net income per common share – diluted
Plus goodwill impairment charge per share – diluted
Net income per common share before impairment charge – diluted
$68,430
—
$68,430
$4.82
—
$4.82
135,466
255,873
13,566
68,552
0.97
0.97
4.91
3.77
39.15
$7,070,720
4,761,750
4,491,337
2,059,051
1,554,754
642,663
2.40%
12.12%
0.20%
1.02%
52.59%
2008
$13,566
54,986
$68,552
$0.97
3.94
$4.91
Percent
Change
–6.04%
–30.46%
6.89%
404.42%
–0.18%
396.91%
396.91%
–1.83%
–0.27%
6.54%
–0.43%
8.95%
3.32%
–9.49%
–32.22%
11.61%
—
—
—
—
—
55
S T O C K H O L D E R S ’
I N F O R M A T I O N
STOCK LISTING:
NYSE Amex Symbol – PRK
CUSIP #700658107
GENERAL STOCKHOLDER INQUIRIES:
Park National Corporation
David L. Trautman, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740/349-3927
DIVIDEND REINVESTMENT PLAN:
The Corporation offers a plan whereby participating stockholders can purchase additional
shares of Park National Corporation common stock through automatic reinvestment of their
regular quarterly cash dividends. All commissions and fees connected with the purchase and
safekeeping of the shares are paid by the Corporation. Details of the plan and an enrollment
card can be obtained by contacting the Corporation’s Stock Transfer Agent and Registrar as
indicated below.
DIRECT DEPOSIT OF DIVIDENDS:
The Corporation’s stockholders may have their dividend payments directly deposited into
their checking, savings or money market account. This direct deposit of dividends is free for
all stockholders. If you have any questions or need an enrollment form, please contact the
Corporation’s Stock Transfer Agent and Registrar as indicated below.
STOCK TRANSFER AGENT AND REGISTRAR:
First-Knox National Bank, Division of The Park National Bank
Post Office Box 1270
One South Main Street
Mount Vernon, Ohio 43050-1270
800/837-5266 Ext. 5208
FORM 10-K:
All forms filed by the Corporation with the SEC (including our Form 10-K for 2009) are
available on our website by clicking on the Documents/SEC Filings section of the Investor
Relations page. These forms may also be obtained, without charge, by contacting the
Secretary as indicated above.
INTERNET ADDRESS:
www.parknationalcorp.com
E-MAIL:
David L. Trautman
dtrautman@parknationalbank.com
66
Park National Corporation
PARKNATIO NAL
C O R P O R A T I O N
Board of Directors
Back Row: David L. Trautman - President; William T. McConnell - Chairman of the Executive Committee; F.W. Englefield IV -
President, Englefield, Inc.; Timothy S. McLain - Vice President, McLain, Hill, Rugg & Associates, Inc.; Rick R. Taylor -
President, Jay Industries, Inc.; C. Daniel DeLawder - Chairman
Middle Row: Lee Zazworsky - President, Mid State Systems, Inc.; James J. Cullers - Sole Proprietor, Mediation and
Arbitration Services; Harry O. Egger - Vice Chairman; John W. Kozak - Chief Financial Officer; John J. O’Neill - Chairman,
Southgate Corporation
Front Row: William A. Phillips - Chairman, Century National Bank; Sarah R. Wallace - Chairman, First Federal Savings;
Maureen Buchwald - Owner, Glen Hill Orchards, LLC; Stephen J. Kambeitz - President and CFO, RC Olmstead
*Absent from the photograph is Nicholas L. Berning who retired from the board on December 31, 2009. Stephen J. Kambeitz
and Timothy S. McLain joined the board effective January 1, 2010. John W. Kozak is Chief Financial Officer and not a member
of the board of directors.
Executive Officers
C. Daniel DeLawder
Chairman
David L. Trautman
President
William T. McConnell
Chairman of the Executive Committee
John W. Kozak
Chief Financial Officer
Harry O. Egger
Vice Chairman
7
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m
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t
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Mahoning
Wayne
Stark
Columbiana
Holmes
s Carroll
a
w
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T
Harrison
n
o
s
r
e
f
f
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J
Guernsey
Belmont
M
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k
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g
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Noble
Monroe
Mont
gomery
G
Preble
Butler
W
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e
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Clinton
P
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k
a
w
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Ross
Greene
Fayette
Fairfield Perry
Morgan
Hocking
Washington
Vinton
Athens
Delaware
Knox
Coshocton
t
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m
r
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C
Hamilton
e
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o
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B
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K
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a
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Highland
Pike
J
a
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Meigs
Brown
Adams
Scioto
k
s
o
n
Gallia
La
wrence
Kentucky
Century National Bank
Fairfield National Bank
Farmers Bank
First-Knox National Bank
Park National Bank
Park National Bank
Southwest Ohio & Northern Kentucky
Alabama
Richland Bank
Second National Bank
Security National Bank
United Bank
Unity National Bank
Vision Bank Alabama
Vision Bank Florida
8
Mobile
Baldwin
Santa
Rosa
E
s
c
a
m
b
i
a
a
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Walton
Florida
S
G
Scope Aircraft Finance
Guardian Finance Company
Leon
Bay
Gulf
Century National Bank
Offices
Main Office - Zanesville
14 South Fifth Street
Post Office Box 1515
Zanesville, Ohio 43702-1515
Athens*
898 East State Street
Athens, Ohio 45701-2115
Coshocton*
100 Downtowner Plaza
Coshocton, Ohio 43812-1921
Dresden*
91 West Dave Longaberger Avenue
Dresden, Ohio 43821-9726
Logan*
61 North Market Street
Logan, Ohio 43138
New Concord*
1 West Main Street
New Concord, Ohio 43762-1218
New Lexington*
206 North Main Street
New Lexington, Ohio 43764-1263
Newcomerstown*
220 East State Street
Newcomerstown, Ohio 43832
Zanesville - East*
1705 East Pike
Zanesville, Ohio 43701-6601
Zanesville - Kroger*
3387 Maple Avenue
Zanesville, Ohio 43701
Zanesville - Lending Center*
505 Market Street
Zanesville, Ohio 43701
Zanesville - North*
1201 Brandywine Boulevard
Zanesville, Ohio 43701-1086
Zanesville - North Military*
990 Military Road
Zanesville, Ohio 43701
Zanesville - South*
2127 Maysville Avenue
Zanesville, Ohio 43701-5748
Zanesville - South Maysville*
2810 Maysville Pike
Zanesville, Ohio 43701
Off-Site ATM Locations
Zanesville - Genesis HealthCare System
Bethesda Campus
2951 Maple Avenue
Zanesville - Genesis HealthCare System
Good Samaritan Campus
800 Forest Avenue
Affiliate Board
Michael L. Bennett
The Longaberger
Company
Ronald A. Bucci
Stoneware Properties
Ward D. Coffman, III
Coffman Law Offices
Robert D. Goodrich, II
Retired - Wendy’s
Management Group, Inc.
Patrick L. Hennessey
P&D Transportation, Inc.
Robert D. Kessler
Kessler Sign Company
Henry C. Littick, II
Southeastern Ohio
Broadcasting Systems, Inc.
*Includes Automated Teller Machine
Thomas M. Lyall
President
Dr. Anne C. Steele
Muskingum University
James L. Shipley
Miller-Lynn Insurance Service and
Smith-Brogan Insurance Agency
Dr. Robert J. Thompson
Neurological Associates of
Southeastern Ohio, Inc.
Thomas L. Sieber
Retired - Hospital
Administrator
Timothy S. McLain, CPA
McLain, Hill, Rugg and
Associates, Inc.
Don R. Parkhill
Jacobs, Vanaman
Agency, Inc.
William A. Phillips
Chairman
9
FAIRFIELD
NATIONAL
BANK
DIVISION OF THE PARK NATIONAL BANK
Affiliate Board
Charles P. Bird, Ph.D.
Ohio University
Leonard F. Gorsuch
Fairfield Homes, Inc.
Offices
Main Office - Lancaster
143 West Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607
Main Office Drive-Thru*
150 West Wheeling Street
Lancaster, Ohio 43130-3707
Baltimore*
1301 West Market Street
Baltimore, Ohio 43105-1044
Eleanor V. Hood
The Lancaster Festival
Canal Winchester - Kroger*
6095 Gender Road
Canal Winchester, Ohio 43110
Jonathan W. Nusbaum, M.D.
Retired - Surgeon
Lancaster - East Main*
1001 East Main Street
Lancaster, Ohio 43130
Lancaster - East Main Street - Kroger*
1141 East Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607
Lancaster - Meijer*
2900 Columbus-Lancaster Road
Lancaster, Ohio 43130
Lancaster - Memorial Drive*
1280 North Memorial Drive
Post Office Box 607
Lancaster, Ohio 43130-0607
Lancaster - Memorial Drive - Kroger*
1735 North Memorial Drive
Post Office Box 607
Lancaster, Ohio 43130-0607
S. Alan Risch
Risch Drug Stores, Inc.
Mina H. Ubbing
Fairfield Medical Center
Paul Van Camp
P.V.C. Limited
Stephen G. Wells
President
Fairfield National Bank
Lancaster - West Fair*
1001 West Fair Avenue
Lancaster, Ohio 43130
Pickerington - Central - Kroger*
1045 Hill Road North
Pickerington, Ohio 43147
Pickerington - North - Kroger*
7833 Refugee Road NW
Pickerington, Ohio 43147
Reynoldsburg - Slate Ridge*
1988 Baltimore-Reynoldsburg Road
(Route 256)
Reynoldsburg, Ohio 43068
Off-Site ATM Locations
Lancaster - Fairfield Medical Center (2)
401 North Ewing Street
Lancaster - Ohio University - Lancaster
1570 Granville Pike
Lancaster - River View Surgery Center
2405 North Columbus Street
*Includes Automated Teller Machine
10
Farmers and Savings Bank
Offices
Main Office - Loudonville*
120 North Water Street
Post Office Box 179
Loudonville, Ohio 44842-0179
Ashland*
1161 East Main Street
Ashland, Ohio 44805-2831
Perrysville*
112 North Bridge Street
Post Office Box 156
Perrysville, Ohio 44864-0156
Off-Site ATM Location
Loudonville - Stake’s Short Stop
3052 State Route 3
Affiliate Board
*Includes Automated Teller Machine
Patricia A. Byerly
Byerly-Lindsey Funeral Home
Timothy R. Cowen
Cowen Truck Line, Inc.
James S. Lingenfelter
President
Roger E. Stitzlein
Loudonville Farmers Equity
Chris D. Tuttle
Amish Oak Furniture
Company, Inc.
Gordon E. Yance
First-Knox National Bank
11
Affiliate Board
Maureen Buchwald
Glen Hill Orchards, LLC
James J. Cullers
Mediation and
Arbitration Services
Ronald J. Hawk
Danville Feed and Supply, Inc.
Offices
Main Office - Mount Vernon
One South Main Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270
Bellville*
154 Main Street
Bellville, Ohio 44813-1237
Centerburg*
35 West Main Street, Drawer F
Centerburg, Ohio 43011-0806
Danville*
4 South Market Street
Post Office Box 29
Danville, Ohio 43014-0029
William B. Levering
Levering Managment, Inc.
Fredericktown*
137 North Main Street
Fredericktown, Ohio 43019-1109
Noel C. Parrish
NOE, Inc.
Mark R. Ramser
Ohio Cumberland Gas Co.
R. Daniel Snyder
Retired Director - Snyder
Funeral Homes, Inc.
Millersburg*
225 North Clay Street
Millersburg, Ohio 44654-1302
Millersburg - Walmart*
1640 South Washington Street
Millersburg, Ohio 44654-8901
Mount Gilead
17 West High Street
Mount Gilead, Ohio 43338-1212
Mount Gilead - Edison*
504 West High Street
Mount Gilead, Ohio 43338-1004
Roger E. Stitzlein
Loudonville Farmers
Equity
Mount Vernon - Blackjack Road*
8641 Blackjack Road
Mount Vernon, Ohio 43050-9051
Gordon E. Yance
President
Mount Vernon - Coshocton Avenue*
810 Coshocton Avenue
Mount Vernon, Ohio 43050-1931
First-Knox National Bank
Mount Vernon - Operations Center
105 West Vine Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270
Off-Site ATM Locations
Fredericktown - Hot Rod’s
10103 Mount Gilead Road
Gambier - Kenyon College Bookstore
106 Gaskin Avenue
Howard - Apple Valley
21973 Coshocton Road
Mount Gilead - ATD Enterprises Marathon
6154 State Route 95
Mount Gilead - Morrow County Hospital
651 West Marion Road
Mount Vernon - Colonial City Lanes
110 Mount Vernon Avenue
Mount Vernon - Knox Community Hospital
1330 Coshocton Road
Mount Vernon - Mount Vernon
Nazarene University
800 Martinsburg Road
Mount Vernon
11 West Vine Street
*Includes Automated Teller Machine
12
The Park National Bank
Offices
Main Office - Newark*
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
Columbus
140 East Town Street, Suite 1010
Columbus, Ohio 43215
Gahanna - Kroger*
1365 Stoneridge Drive
Gahanna, Ohio 43230
Granville*
119 East Broadway
Granville, Ohio 43023
Heath - Southgate*
567 Hebron Road
Heath, Ohio 43056
Heath - 30th Street*
800 South 30th Street
Heath, Ohio 43056
Hebron*
103 East Main Street
Post Office Box 268
Hebron, Ohio 43025-0268
Johnstown*
60 West Coshocton Street
Post Office Box 446
Johnstown, Ohio 43031-0446
Kirkersville
177 East Main Street
Post Office Box 38
Kirkersville, Ohio 43033-0038
Newark - Deo Drive - Kroger*
245 Deo Drive, Suite A
Post Office Box 3500
Newark, Ohio 43058-3500
Newark - Dugway*
1495 Granville Road
Newark, Ohio 43055
Newark - Eastland*
1008 East Main Street
Newark, Ohio 43055
PARK
NATIONAL BANK
Newark - McMillen*
1633 West Main Street
Newark, Ohio 43055
Newark - 21st Street*
990 North 21st Street
Newark, Ohio 43055
Pataskala - Kroger**
350 East Broad Street
Pataskala, Ohio 43062
Reynoldsburg - Kroger*
8460 Main Street
Reynoldsburg, Ohio 43068
Utica*
33 South Main Street
Post Office Box 486
Utica, Ohio 43080-0486
Worthington*
7140 North High Street
Worthington, Ohio 43085
Operations Centers
21 South First Street
Post Office Box 3500
Newark, Ohio 43058-3500
22 South First Street
Post Office Box 3500
Newark, Ohio 43058-3500
Off-Site ATM Locations
Granville - Denison University
Slayter Hall
Hebron - Kroger
600 East Main Street
Newark - Licking Memorial Hospital
1320 West Main Street
Newark - OSU-N/COTC
1179 University Drive
Reynoldsburg - Kroger
6962 East Main Street
*Includes Automated Teller Machine
**Includes Automated Teller Machine
Drive-up and Inside
Board of Directors
Donna M. Alvarado
AGUILA International
C. Daniel DeLawder
Chairman
F.W. Englefield IV
Englefield, Inc.
Stephen J. Kambeitz
RC Olmstead
*Joined the board effective
January 1, 2010
John W. Kozak
Chief Financial Officer
William T. McConnell
Chairman of the
Executive Committee
Dr. Charles Noble, Sr.
Shiloh Missionary
Baptist Church
John J. O’Neill
Southgate Corporation
Robert E. O’Neill
Southgate Corporation
J. Gilbert Reese
Director Emeritus
Lee Zazworsky
Mid State Systems, Inc.
Sarah R. Wallace
First Federal Savings
David L. Trautman
President
13
Park National Bank
Southwest Ohio & Northern Kentucky
Milford*
25 Main Street
Milford, Ohio 45150
Offices
Main Office - Milford
400 TechneCenter Drive, Suite 106
Milford, Ohio 45150
Amelia - Main Street*
5 West Main Street
Amelia, Ohio 45102
Amelia - Ohio Pike*
1187 Ohio Pike
Amelia, Ohio 45102
Anderson*
1075 Nimitzview Drive
Cincinnati, Ohio 45230
Eastgate - bigg’s*
4450 Eastgate Boulevard
Cincinnati, Ohio 45245
Eastgate Mall*
4609 Eastgate Boulevard
Cincinnati, Ohio 45245
Florence
600 Meijer Drive, Suite 303
Florence, Kentucky 41042
New Richmond
100 Western Avenue
New Richmond, Ohio 45157
Owensville*
5100 State Route 132
Owensville, Ohio 45160
Springboro*
720 Gardner Road
Springboro, Ohio 45066
West Chester*
8366 Princeton-Glendale Road
West Chester, Ohio 45069
Off-Site ATM Location
New Richmond - Berry Pharmacy
1041 Old US 52
*Includes Automated Teller Machine
Affiliate Board
Nicholas L. Berning
Retired - Berning
Financial Consulting
Thomas J. Button
The Park National Bank
Doug Compton
President
Daniel L. Earley
Chairman
Retired President
Martin J. Grunder, Jr.
Grunder Landscaping Co.
Richard W. Holmes
Retired -
PricewaterhouseCoopers LLP
Larry H. Maxey
Synchronic Business
Solutions
14
Richland Bank
Offices
Main Office - Mansfield*
3 North Main Street
Post Office Box 355
Mansfield, Ohio 44901-0355
Butler*
85 Main Street
Butler, Ohio 44822-9618
Lexington*
276 East Main Street
Lexington, Ohio 44904-1300
Mansfield - Ashland Road*
797 Ashland Road
Mansfield, Ohio 44905-2075
Mansfield - Cook Road*
460 West Cook Road
Mansfield, Ohio 44907-2395
Mansfield - Lexington Avenue - Kroger*
1500 Lexington Avenue
Mansfield, Ohio 44907
Mansfield - Madison - Kroger*
1060 Ashland Road
Mansfield, Ohio 44905-8797
Mansfield - Marion Avenue*
50 Marion Avenue
Mansfield, Ohio 44903-2302
Mansfield - Springmill*
889 North Trimble Road
Mansfield, Ohio 44906-2009
Mansfield - West Park*
1255 Park Avenue West
Mansfield, Ohio 44906-2810
Ontario*
325 North Lexington-Springmill Road
Ontario, Ohio 44906-1218
Shelby - Mansfield Avenue*
155 Mansfield Avenue
Shelby, Ohio 44875-1832
Off-Site ATM Locations
Mansfield - Kroger
1240 Park Avenue West
Affiliate Board
Ronald L. Adams
Retired - DAI
Emulsions, Inc.
Mark Breitinger
Milark Industries
Michael L. Chambers
J & B Acoustical
Mansfield - McDonald’s Restaurant
State Route 13 and I-71
25 West Hanley Road
Benjamin A. Goldman
Retired - Superior
Building Services
David J. Gooch
President
Timothy J. Lehman
Chairman of the Board
*Includes Automated Teller Machine
Grant E. Milliron
Milliron Industries
Shirley Monica
S.S.M. Inc.
Linda H. Smith
Ashwood LLC
Rick R. Taylor
Jay Industries, Inc.
15
Second National Bank
Greenville - Third and Walnut*
175 East Third Street
Greenville, Ohio 45331
Greenville - Walmart*
1501 Wagner Avenue
Greenville, Ohio 45331
Versailles*
101 West Main Street
Versailles, Ohio 45380
Off-Site ATM Location
Greenville - Whirlpool Corporation
1701 KitchenAid Way
*Includes Automated Teller Machine
Offices
Main Office - Greenville
499 South Broadway
Post Office Box 130
Greenville, Ohio 45331-0130
Arcanum - Downtown
1 West George Street
Arcanum, Ohio 45304
Arcanum - North*
603 North Main Street
Arcanum, Ohio 45304
Ft. Recovery*
117 North Wayne Street
Ft. Recovery, Ohio 45846
Greenville - Brethren
Retirement Community
750 Chestnut Street
Greenville, Ohio 45331
Greenville - North*
1302 Wagner Avenue
Greenville, Ohio 45331
Affiliate Board
Tyeis Baker-Baumann
Rebsco, Inc.
Wayne G. Deschambeau
Wayne Hospital
Neil J. Diller
Cooper Farms, Inc.
Jeffrey E. Hittle
Hittle Pontiac-Cadillac-
GMC Dealership
Wesley M. Jetter
Ft. Recovery Industries
Marvin J. Stammen
Retired President -
Second National Bank
John E. Swallow
President
16
Security National Bank
Offices
Main Office - Springfield*
40 South Limestone Street
Springfield, Ohio 45502
Enon*
3680 Marion Drive
Enon, Ohio 45323
Jamestown*
82 West Washington Street
Jamestown, Ohio 45335
Jeffersonville*
2 South Main Street
Jeffersonville, Ohio 43128
Mechanicsburg*
2 South Main Street
Mechanicsburg, Ohio 43044
Medway
130 West Main Street
Medway, Ohio 45341
New Carlisle*
201 North Main Street
New Carlisle, Ohio 45344
New Carlisle - Park Layne*
2035 South Dayton-Lakeview Road
New Carlisle, Ohio 45344
North Lewisburg*
8 West Maple Street
North Lewisburg, Ohio 43060
Plain City
105 West Main Street
Plain City, Ohio 43064
South Charleston*
102 South Chillicothe Street
South Charleston, Ohio 45368
Springfield - Derr Road - Kroger*
2989 Derr Road
Springfield, Ohio 45503
Springfield - East Main*
2730 East Main Street
Springfield, Ohio 45503
Springfield - North Limestone*
1756 North Limestone Street
Springfield, Ohio 45503
Springfield - Northridge*
1600 Moorefield Road
Springfield, Ohio 45503
Springfield - Western*
920 West Main Street
Springfield, Ohio 45504
Urbana*
1 Monument Square
Urbana, Ohio 43078
Urbana - Scioto Street*
828 Scioto Street
Urbana, Ohio 43078
Xenia Downtown*
161 East Main Street
Xenia, Ohio 45385
Xenia Plaza*
82 North Allison Avenue
Xenia, Ohio 45385
Off-Site ATM Locations
Plain City - Shell
440 South Jefferson Street
Springfield
2051 North Bechtle Avenue
Springfield - Clark County
Fairgrounds - Champions Center
4122 Laybourne Road
Springfield - Clark State
Community College
570 East Leffel Lane
Affiliate Board
R. Andrew Bell
Consolidated Insurance
Company
Rick D. Cole
Colepak, Inc.
Harry O. Egger
Chairman
Retired President
William C. Fralick
President
Larry E. Kaffenbarger
Kaffenbarger Truck
Equipment Company
Thomas P. Loftis
Midland Properties, Inc.
Springfield - Mercy Medical Center
1343 North Fountain Boulevard
Springfield - Wittenberg University -
Student Center
738 Woodlawn Avenue
Scott D. Michael
Michael Farms, Inc.
Dr. Karen E. Rafinski
Clark State Community
College
Springfield - Wittenberg
University - HPER Center
250 Bill Edwards Drive
Urbana - Champaign County
Community Center
1512 South US Highway 68
Yellow Springs - Young’s
Jersey Dairy
6880 Springfield-Xenia Road
*Includes Automated Teller Machine
Chester L. Walthall
Heat-Treating, Inc.
Robert A. Warren
Hauck Bros., Inc.
17
Offices
Main Office - Bucyrus*
401 South Sandusky Avenue
Post Office Box 568
Bucyrus, Ohio 44820
Caledonia*
140 East Marion Street
Caledonia, Ohio 43314
Crestline*
245 North Seltzer Street
Post Office Box 186
Crestline, Ohio 44827-0186
Galion*
8 Public Square
Galion, Ohio 44833
Marion - Barks Road*
129 Barks Road East
Marion, Ohio 43302
Affiliate Board
Michele McElligott
Pigman, Brown,
McElligott Ltd.
Kenneth A. Parr, Jr.
Parr Insurance Agency, Inc.
Douglas M. Schilling
Schilling Graphics, Inc.
Donald R. Stone
President
Douglas Wilson
Owner - Doug’s Toggery
Realtor - Niederkohr &
Associates Realty Inc.
United Bank
Marion - Walmart Super Center*
1546 Marion-Mt. Gilead Road
Marion, Ohio 43302
Prospect*
105 North Main Street
Prospect, Ohio 43342
Off-Site ATM Location
Bucyrus - East Pointe Shopping Center
211 Stetzer Road South
*Includes Automated Teller Machine
18
Unity National Bank
Offices
Main Office - Piqua*
215 North Wayne Street
Piqua, Ohio 45356
Administrative Office - Piqua
212 North Main Street
Post Office Box 913
Piqua, Ohio 45356
Piqua - Sunset*
1603 Covington Avenue
Piqua, Ohio 45356
Piqua - Walmart*
1300 East Ash Street
Piqua, Ohio 45356
Tipp City*
1176 West Main Street
Tipp City, Ohio 45371
Troy
1314 West Main Street
Troy, Ohio 45373
Troy - Walmart*
1801 West Main Street
Troy, Ohio 45373
Off-Site ATM Location
Troy - Upper Valley Medical Center
3130 North Dixie Highway
Affiliate Board
Dr. Richard N. Adams
Representative of Ohio
General Assembly
Tamara Baird-Ganley
Baird Funeral Home
Michael C. Bardo
Hartzell Industries, Inc.
*Includes Automated Teller Machine
John A. Brown
President
Thomas E. Dysinger
Dysinger & Associates, LLC
Dr. Douglas D. Hulme
Oakview Veterinary
Hospital
Timothy Johnston
Self-employed
Consultant
W. Samuel Robinson
Murray, Wells, Wendeln
& Robinson CPAs, Inc.
19
Offices
Main Office - Gulf Shores*
2201 West First Street
Post Office Box 4649
Gulf Shores, Alabama 36547
Daphne*
28720 US Highway 98
Post Office Box 1144
Daphne, Alabama 36526
Elberta*
24989 State Street
Post Office Box 337
Elberta, Alabama 36530
Fairhope*
218 North Greeno Road
Post Office Box 1786
Fairhope, Alabama 36533
Foley*
501 South McKenzie Street
Foley, Alabama 36535
Orange Beach*
25051 Canal Road
Post Office Box 919
Orange Beach, Alabama 36561
Vision Bank - Alabama
Point Clear*
17008 Scenic Highway 98
Post Office Box 1347
Point Clear, Alabama 36564
Robertsdale
22245-3A Highway 59
Post Office Box 606
Robertsdale, Alabama 36567
Off-Site ATM Locations
Foley - McDonald’s
1010 South McKenzie Street
Orange Beach - Sam’s
27123 Canal Road
Point Clear - Grand Hotel
One Grand Boulevard
Saraland - Microtel Inns & Suites
1124 Shelton Beach Road
*Includes Automated Teller Machine
Affiliate Board
Gordon Barnhill
Barnhill Land &
Real Estate
B.J. Blanchard
Real Estate Developer
Andrew Braswell
Vision Bank
C. Daniel DeLawder
Park National Corporation
John B. Foley, IV
Cunningham, Foley & Barnes
Joey W. Ginn
Chairman
Kevin Leeser, CPA
O’Sullivan Creel, LLP
Henry N. Lyda, III
Retired - University
of Alabama
Robert S. McKean
Retired President -
Vision Bank Alabama
Christopher S. McManus DMD
Baldwin County
Endodontics, PC
Katherine A. Monroe
Wachovia Securities
James R. Owen, Jr.
Gulf Shores Title Co., Inc.
20
Vision Bank - Florida
Offices
Main Office - Panama City*
2200 Stanford Road
Panama City, Florida 32405
Santa Rosa Beach*
1598 South County Highway 393, Suite 106
Santa Rosa Beach, Florida 32459
Destin*
1021 Highway 98 East, Suite A
Destin, Florida 32541
Tallahassee
1414 North Piedmont Way, Suite 100
Tallahassee, Florida 32308
Affiliate Board
Dr. James D. Campbell, Sr.
James D. Campbell,
D.D.S., M.S.
Navarre*
8524 Navarre Parkway
Navarre, Florida 32566
Wewahitchka*
125 North Highway 71
Wewahitchka, Florida 32465
William A. Cathey
Cathey’s Hardware
Panama City Beach*
16901 Panama City Beach Parkway
Panama City Beach, Florida 32413
Panama City Beach - Edgewater*
559 Richard Jackson Boulevard
Panama City Beach, Florida 32407
Port St. Joe*
529 Cecil G Costin, Sr. Boulevard
Port St. Joe, Florida 32456
St. Joe Beach*
8134 West Highway 98
Port St. Joe Beach, Florida 32456
Off-Site ATM Location
Wewahitchka - Rich’s IGA
201 West River Road
C. Daniel DeLawder
Park National Corporation
*Includes Automated Teller Machine
Joey W. Ginn
Chairman
Patrick Koehnemann
Koehnemann
Construction, Inc.
Lana Jane Lewis-Brent
Paul Brent Designer, Inc.
Robert S. McKean
Retired President -
Vision Bank Alabama
Jimmy Patronis, Jr.
Captain Anderson’s
Restaurant
Jack B. Prescott
Retired - Smurfitt-Stone
Container
John S. Robbins
Vision Bank
Jerry F. Sowell, Jr., CPA
Segers, Sowell, Stewart,
Johnson & Brill, PA
21
Kim Styles-DiBacco
Styles Designs
Dr. James Strohmenger
Bay Radiology Associates
Officer Listing
Park National Corporation
C. Daniel DeLawder
Chairman
Harry O. Egger
Vice Chairman
John W. Kozak
Chief Financial Officer
David L. Trautman
President
William T. McConnell
Chairman of the Executive Committee
Century National Bank
William A. Phillips
Chairman
Bruce D. Kolopajlo
Vice President
Karen D. Lowe
Assistant Vice President
Sherry A. Ziemer
Banking Officer
Thomas M. Lyall
President
Mark A. Longstreth
Vice President
Terri L. Sidwell
Assistant Vice President
Molly J. Allen
Administrative Officer
Patrick L. Nash
Executive Vice President
James R. Merry
Vice President
Cynthia J. Snider
Assistant Vice President
James C. Blythe
Senior Vice President
Rebecca R. Porteus
Vice President
Stephen A. Haren
Banking Officer
Barbara A. Gibbs
Senior Vice President
John W. Imes
Senior Vice President
Michael F. Whiteman
Senior Vice President
Brian E. Hall
Vice President
Janice A. Hutchison
Vice President
Jeffrey C. Jordan
Vice President
Brian G. Kaufman
Vice President
Jody D. Spencer
Vice President and
Trust Officer
Thomas N. Sulens
Vice President
Joseph P. Allen
Assistant Vice President
Ann M. Gildow
Assistant Vice President
Theresa M. Gilligan
Assistant Vice President
Susan A. Lasure
Assistant Vice President
M. Rick Knox
Banking Officer
Diana F. McCloy
Banking Officer
Rebecca A. Palmerton
Banking Officer
Amy M. Pinson
Banking Officer
Jesse M. Rollins
Banking Officer
Victoria M. Thomas
Banking Officer
Douglas J. Wells
Banking Officer
Katherine M. Barclay
Administrative Officer
and Trust Officer
Paula L. Meadows
Administrative Officer
Saundra W. Pritchard
Administrative Officer
Beth A. Stillwell
Administrative Officer
Susan L. Summers
Administrative Officer
Deloris A. Tom
Administrative Officer
Fairfield National Bank
Stephen G. Wells
President
Linda M. Harris
Vice President
Molly S. Bates
Banking Officer
Timothy D. Hall
Senior Vice President
Sabrena McClure
Assistant Vice President
Linda B. Boch
Banking Officer
Thomas L. Kokensparger
Senior Vice President and
Trust Officer
Richard E. Baker
Vice President
Scott Reed
Assistant Vice President
Janet K. Cochenour
Banking Officer
Laura Tussing
Assistant Vice President and
Trust Officer
Tara L. Craaybeek
Banking Officer
Daniel R. Bates
Vice President
22
Sandra Uhl
Assistant Vice President
Melissa J. McMullen
Banking Officer
Cynthia A. Moore
Banking Officer
Trudy M. Reeb
Banking Officer
Mareion A. Royster
Banking Officer
and Trust Officer
Kim I. Sheldon
Banking Officer
Tina Taley
Banking Officer
Officer Listing
Heather N. Wiley
Banking Officer
Donna K. Bruce
Administrative Officer
Fairfield National Bank (continued)
Andrew J. Connell
Administrative Officer
Loretta Swyers
Administrative Officer
Sharon L. Brown
Administrative Officer
Grace R. Cline
Administrative Officer
Dusty J. Miller
Administrative Officer
Farmers and Savings Bank
James S. Lingenfelter
President
Hal D. Sheaffer
Vice President
Barbara J. Young
Assistant Vice President
Ronald D. Flowers
Administrative Officer
Kenneth G. Gosche
Senior Vice President
Wayne D. Young
Vice President
Sharon E. Blubaugh
Vice President
Gregory A. Henley
Assistant Vice President
Michael C. Bandy
Administrative Officer
and Trust Officer
Brian R. Hinkle
Administrative Officer
First-Knox National Bank
Gordon E. Yance
President
James W. Hobson
Assistant Vice President
James S. Meyer
Banking Officer
Vickie A. Sant
Executive Vice President
Debra E. Holiday
Assistant Vice President
Sherry L. Snyder
Banking Officer
Mark P. Leonard
Senior Vice President
R. Edward Kline
Assistant Vice President
Rea D. Wirt
Banking Officer
Jeffrey A. Kinney
Administrative Officer
Carol A. Lewis
Administrative Officer
Mary A. Loyd
Administrative Officer
W. Douglas Leonard
Senior Vice President
Gregory M. Roy
Assistant Vice President
Dusty C. Au
Administrative Officer
Nicole L. Mack
Administrative Officer
Robert E. Boss
Vice President
James E. Brinker
Vice President
Cheri L. Butcher
Vice President and
Trust Officer
Cynthia L. Higgs
Vice President
Julie A. Leonard
Vice President
Jesse L. Marlow
Vice President
Jerry D. Simon
Vice President
Todd P. Vermilya
Vice President
Joan M. Stout
Assistant Vice President
Robert T. Brooke
Administrative Officer
Paulina S. McQuigg
Administrative Officer
Mark D. Blanchard
Banking Officer
Julie M. Chester
Administrative Officer
Heather A. Brayshaw
Banking Officer
Deborah J. Daniels
Administrative Officer
Phyllis D. Colopy
Banking Officer
Rachelle E. Dallas
Banking Officer
Deborah S. Dove
Banking Officer
Wendi M. Fowler
Banking Officer and
Trust Officer
Patti J. Frazee
Banking Officer
Lance E. Dill
Administrative Officer
Monica L. Hiller
Administrative Officer
Kassandra L. Hoeflich
Administrative Officer
Dave E. Humphrey
Administrative Officer
Lisa M. Jones
Administrative Officer
Erin C. Kelty
Administrative Officer
23
Barbara A. Barry
Assistant Vice President
Todd A. Geren
Banking Officer
Officer Listing
Guardian Finance Company
Earl W. Osborne
President
Charles L. Harris
Administrative Officer
Valerie Morgan
Administrative Officer
Matthew R. Marsh
Vice President
Tracy Morgan
Administrative Officer
Mary E. Parsell
Administrative Officer
The Park National Bank
C. Daniel DeLawder
Chairman
David L. Trautman
President
William T. McConnell
Chairman of the
Executive Committee
Peter G. Cassanos
Vice President
Cynthia H. Crane
Vice President
Kathleen O. Crowley
Vice President and
Auditor
Thomas J. Button
Senior Vice President
Joan L. Franks
Vice President
Thomas M. Cummiskey
Senior Vice President
and Trust Officer
John S. Gard
Vice President and
Trust Officer
Lynn B. Fawcett
Senior Vice President
Jeffrey C. Gluntz
Vice President
John W. Kozak
Senior Vice President and
Chief Financial Officer
Scott C. Green
Vice President
Timothy J. Lehman
Senior Vice President
Laura B. Lewis
Senior Vice President
Cheryl L. Snyder
Senior Vice President
Jeffrey A. Wilson
Senior Vice President and
Auditor
William R. Wilson
Senior Vice President
Alice M. Browning
Vice President
Brady T. Burt
Vice President and
Chief Accounting Officer
James M. Buskirk
Vice President and
Trust Officer
Damon P. Howarth
Vice President and
Trust Officer
Daniel L. Hunt
Vice President
Lynne F. Karla
Vice President and
Auditor
Steven J. Klein
Vice President
Teresa M. Kroll
Vice President and
Trust Officer
Carl H. Mayer
Vice President
Lydia E. Miller
Vice President
Matthew R. Miller
Vice President
24
Terry C. Myers
Vice President and
Trust Officer
John B. Uible
Vice President and
Trust Officer
Karen K. Rice
Vice President
David J. Rohde
Vice President
David F. Romes
Vice President
Ralph H. Root III
Vice President
Alan C. Rothweiler
Vice President
Christine S. Schneider
Vice President
Michael R. Shannon
Vice President
Robert G. Springer
Vice President
Robin L. Stein
Vice President
Julie L. Strohacker
Vice President and
Trust Officer
Adam T. Stypula
Vice President
Erin E. Tschanen
Vice President
Daniel H. Turben
Vice President
Paul E. Turner
Vice President
Stanley A. Uchida
Vice President
Thomas A. Underwood
Vice President
Brian S. Urquhart
Vice President
Bradden E. Waltz
Vice President
Charles Wigton III
Vice President and
Trust Officer
Barbara A. Wilson
Vice President
Christa D. Wright
Vice President
Renee Baker
Assistant Vice President
Brent A. Barnes
Assistant Vice President and
Auditor
Gail A. Blizzard
Assistant Vice President
Sharon L. Bolen
Assistant Vice President
Rebecca A. Brownfield
Assistant Vice President
Beverly Clark
Assistant Vice President and
Trust Officer
Donna M. Cotterman
Assistant Vice President
Amber L. Cummins
Assistant Vice President
and Trust Officer
Officer Listing
Catherine J. Evans
Assistant Vice President
Gregory M. Rhoads
Assistant Vice President
The Park National Bank (continued)
Kristie L. Green
Trust Officer
Brad G. Chance
Administrative Officer
Jill S. Evans
Assistant Vice President
Rebecca K. Rodeniser
Assistant Vice President
Christopher J. Helms
Banking Officer
Nathan T. Cook
Administrative Officer
Brenda Frakes
Assistant Vice President
Brian E. Smith
Assistant Vice President
Chris R. Hiner
Banking Officer
Judith A. Franklin
Assistant Vice President
Melinda S. Smith
Assistant Vice President
Alice M. Keefe
Banking Officer
David W. Hardy
Assistant Vice President and
Trust Officer
Maryann Thornton
Assistant Vice President
Bethany B. Lewis
Banking Officer
Ned E. Harter
Assistant Vice President
Louise A. Harvey
Assistant Vice President
Timothy J. Holt
Assistant Vice President
Tony L. Kendziorski
Assistant Vice President
Brenda L. Kutan
Assistant Vice President
Rick H. Langley
Assistant Vice President
Craig M. Larson
Assistant Vice President
Candy J. Lehman
Assistant Vice President and
Trust Officer
Kelly M. Maloney
Assistant Vice President
Julia McCormack
Assistant Vice President
Michael D. McDonald
Assistant Vice President
Ronald C. McLeish
Assistant Vice President
Ryan E. Mills
Assistant Vice President
Jennifer L. Morehead
Assistant Vice President
Sandy S. Travis
Assistant Vice President
Kimberly G. McDonough
Banking Officer
Angie D. Treadway
Assistant Vice President
Cindy A. Neely
Banking Officer
Berkley C. Tuggle Jr.
Assistant Vice President
Diane M. Oberfield
Banking Officer
Monte J. VanDeusen
Assistant Vice President
Sherri L. Pembrook
Banking Officer
Charles F. Schultz
Banking Officer
Lori B. Tabler
Banking Officer
Jenny L. Ward
Banking Officer and
Auditor
D. Bradley Wilkins
Banking Officer
Rose M. Wilson
Banking Officer
David B. Armstrong
Administrative Officer
Larry M. Bailey
Administrative Officer
Eric M. Baker
Administrative Officer
Carol S. Whetstone
Assistant Vice President and
Trust Officer
J. Bradley Zellar
Assistant Vice President and
Trust Officer
Kathy L. Allen
Banking Officer
Thomas E. Ballard
Banking Officer
Dixie C. Brown
Banking Officer
Danielle A.M. Burns
Banking Officer
April R. Dusthimer
Banking Officer
Dirk J. Dusthimer
Banking Officer
Amanda K. Evans
Banking Officer
Trudi L. Fisher
Banking Officer and
IT Auditor
Andrew J. Fackler
Administrative Officer and
Assistant Auditor
Jerrod F. Gambs
Administrative Officer
Brad D. Gard
Administrative Officer
Tracy A. Grimm
Administrative Officer
Teresa A. Hennessy
Administrative Officer
Cynthia Hollis
Administrative Officer
Cynthia L. Kissel
Administrative Officer
Ryan A. McIntyre
Administrative Officer
Natasha D. McKee
Administrative Officer
Angela J. Muncie
Administrative Officer
Jeffrey A. Pillow
Administrative Officer
Mark D. Ridenbaugh
Administrative Officer
Leda J. Rutledge
Administrative Officer
Ruth Y. Sawyer
Administrative Officer
Alice M. Schlaegel
Administrative Officer
Evan T. Bing
Administrative Officer
Kathryn S. Schumm
Administrative Officer
Patricia S. Carr
Administrative Officer
Jennifer L. Shanaberg
Administrative Officer
25
Officer Listing
The Park National Bank (continued)
Emila S. Smith
Administrative Officer
Lisa E. Stranger
Administrative Officer
Mark A. Travis
Administrative Officer
Ronda M. Welsh
Administrative Officer
Linda M. Staubach
Administrative Officer
Lori L. Torrens
Administrative Officer
and Assistant Auditor
Ginger R. Varner
Administrative Officer
Judy L. Young
Administrative Officer
Park National Bank of Southwest Ohio & Northern Kentucky
Doug Compton
President
Jason D. Hughes
Vice President
Jay F. Berliner
Assistant Vice President
John L. Schuermann
Assistant Vice President
Edward L. Brady
Senior Vice President
John R. Nienaber
Vice President
Jill A. Brewer
Assistant Vice President
Sam DeBonis
Banking Officer
Jennifer K. Fischer
Senior Vice President
Ginger L. Vining
Vice President
Mary M. Demaree
Assistant Vice President
Jason O. Verhoff
Administrative Officer
Erick K. Harback
Senior Vice President
Joseph A. Wagner
Vice President
James E. Hyson
Assistant Vice President
Jonathan A. Waldo
Administrative Officer
Michael J. Jacunski
Senior Vice President
Kim J. Cunningham
Vice President
John F. Winkler II
Vice President and
Trust Officer
Peggy A. Beckett
Assistant Vice President
R. Kathy Johnson
Assistant Vice President
Cyndy H. Wright
Administrative Officer
Louis J. Prabell
Assistant Vice President
Richland Bank
David J. Gooch
President
Edward F. Adams
Assistant Vice President
Sheryl L. Smith
Assistant Vice President
Clayton J. Herold
Administrative Officer
Donald R. Harris Jr.
Senior Vice President
Edward A. Brauchler
Assistant Vice President
Linda M. Whited
Assistant Vice President
Elizabeth A. Lake
Administrative Officer
Katharine J. Barré
Vice President
Charla A. Irvin
Vice President and
Trust Officer
Michael A. Jefferson
Vice President
Rebecca J. Toomey
Vice President
Michael D. Volz
Vice President
Jimmy D. Burton
Assistant Vice President
John Q. Cleland
Banking Officer
Edward E. Duffey
Assistant Vice President
Susan A. Fanello
Assistant Vice President
Barbara A. Miller
Assistant Vice President
Jeffrey A. Parton
Assistant Vice President
J. Stephen McDonald
Banking Officer and
Trust Officer
Alexander M. Rocks
Banking Officer
Barbara L. Schopp
Banking Officer
Carol L. Davis
Administrative Officer
Beth K. Malaska
Administrative Officer
Kristie L. Massa
Administrative Officer
Kathleen A. Spidel
Administrative Officer
Deborah A. Sweet
Administrative Officer
Andrew C. Waldruff
Administrative Officer
Scope Aircraft Finance
Robert N. Kent Jr.
President
Charles W. Sauter
Vice President
26
Officer Listing
John E. Swallow
President
Eric J. McKee
Vice President
Vicki L. Neff
Assistant Vice President
Second National Bank
Harvey B. Hole III
Banking Officer
Steven C. Badgett
Executive Vice President
Gene A. Rismiller
Vice President
Cynthia J. Riffle
Assistant Vice President
Diana L. Gilmore
Administrative Officer
C. Russell Badgett
Vice President
Daniel G. Schmitz
Vice President
Alexa J. Roth
Assistant Vice President
Michael R. Henry
Administrative Officer
Marie A. Boas
Vice President
D. Todd Durham
Vice President and
Trust Officer
Thomas J. Lawson
Vice President
Kimberly A. Baker
Assistant Vice President
Shane D. Stonebraker
Assistant Vice President
Gregory P. Schwartz
Administrative Officer
Gerald O. Beatty
Assistant Vice President
Brian A. Wagner
Assistant Vice President
Deborah A. Smith
Administrative Officer
Joy D. Greer
Assistant Vice President
Debby J. Folkerth
Banking Officer
Security National Bank
William C. Fralick
President
James E. Leathley
Vice President
Teresa D. Hoyt
Assistant Vice President
Thomas B. Keehner
Banking Officer
Jeffrey A. Darding
Executive Vice President
Thomas C. Ruetenik
Vice President
Rick L. McCain
Assistant Vice President
Patrick K. Rastatter
Banking Officer
Thomas A. Goodfellow
Senior Vice President
David A. Snyder
Vice President
Mark B. Robertson
Assistant Vice President
Rachel M. Brewer
Trust Officer
Andrew J. Irick
Senior Vice President
Michael B. Warnecke
Vice President
Gary J. Seitz
Assistant Vice President
Margaret A. Horstman
Administrative Officer
Timothy L. Bunnell
Vice President
Margaret L. Foley
Vice President and
Trust Officer
Mary L. Goddard
Vice President and
Trust Officer
James A. Kreckman
Vice President and
Trust Officer
Simmie Annandale-King
Assistant Vice President
Darlene S. Williams
Assistant Vice President
JoAnna S. Jaques
Administrative Officer
Sharon K. Boysel
Assistant Vice President
Margaret A. Chapman
Assistant Vice President
Connie P. Craig
Assistant Vice President
Steven B. Duelley
Assistant Vice President
Terri L. Wyatt
Assistant Vice President and
Trust Officer
Tamara L. Augustine
Trust Officer
Teresa L. Belliveau
Banking Officer
Catherine L. Hill
Trust Officer
Mark D. Klingler
Administrative Officer
Rita A. Riley
Administrative Officer
Anne M. Robinette
Administrative Officer
27
Officer Listing
United Bank
Donald R. Stone
President
Scott E. Bennett
Assistant Vice President
Floyd J. Farmer
Assistant Vice President
Wanda S. Massey
Banking Officer
James A. Carr
Senior Vice President
Matthew E. Bickert
Assistant Vice President
Anne K. Spreng
Vice President
James W. Chapman
Assistant Vice President
Richard D. Hancock
Assistant Vice President and
Trust Officer
David J. Lauthers
Banking Officer
James A. DeSimone
Administrative Officer
Jennifer J. Kuns
Administrative Officer
Unity National Bank
John A. Brown
President
Stephen W. Vallo
Vice President
James R. Stubbs
Assistant Vice President
Douglas R. Eakin
Administrative Officer
Brett A. Baumeister
Senior Vice President
Frank W. Wagner II
Vice President
Carol L. Van Culin
Assistant Vice President
Kathy M. Sherman
Administrative Officer
G. Dwayne Cooper
Vice President
Dean F. Brewer
Assistant Vice President
Vicki L. Burke
Trust Officer
David S. Frey
Vice President
Nathan E. Counts
Assistant Vice President
Lisa L. Feeser
Banking Officer
Vision Bank - Alabama
Joey W. Ginn
Chairman
Debra M. Schmidt
Senior Vice President
Geneie S. Scheer
Vice President
Wendy V. Stacks
Assistant Vice President
Diane C. Anderson
President
Patricia R. Burrell
Vice President
Doug J. Sizemore
Vice President
Alodia A. Wimpee
Assistant Vice President
Andrew W. Braswell
Executive Vice President
Patricia H. Campbell
Vice President
Judy R. Smith
Vice President
Deborah D. Ard
Banking Officer
Darrell W. Melton
Executive Vice President
Robin B. Fly
Vice President
Elizabeth O. Stone
Vice President
Alisha N. Mason
Auditor and Banking Officer
Christie G. Barkley
Senior Vice President
Bernard A. Fogarty
Vice President
Laura E. Welch
Vice President
Joshua C. Mims
Banking Officer
Karen J. Harmon
Senior Vice President
Gregory G. Gontarski
Vice President
Rhonda L. Willis
Vice President
Mary Alice Neyhart
Banking Officer
George L. Hawthorne
Senior Vice President
Joel S. Hardee
Vice President
Lauren S. Dango
Assistant Vice President
Cynthia M. Paul
Banking Officer
Lyndsay P. Job
Senior Vice President
Michelle L. Kinne
Vice President
Janet J. Ellis
Assistant Vice President
Paige S. Shoemaker
Banking Officer
James E. Kirkland
Senior Vice President
William R. Legrone
Vice President
Holly L. Floyd
Assistant Vice President
Alina M. Smith
Banking Officer
Julie H. Ralph
Senior Vice President
and Trust Officer
28
Ken N. Neyman
Vice President
Jessica Y. Lopez
Assistant Vice President
Officer Listing
Vision Bank - Florida
Joey W. Ginn
Chairman
John D. Whitlock
President
Emory R. Singletary
Senior Vice President
Scott R. Robertson
Vice President
Tami J. Smith
Assistant Vice President
Owen W. Ayers
Vice President
Cindy L. Stephens
Vice President
Debbie C. Thompson
Assistant Vice President
Jerry D. Gaskin
Executive Vice President
Jeremy S. Bennett
Vice President
Carolyn M. Husband
Executive Vice President
Joan A. Cleckley
Vice President
Bill P. Lloyd
Executive Vice President
Debbie H. Driskell
Vice President
Leslie L. Welsch
Vice President
Johanna L. White
Vice President
Jennifer J. Woods
Vice President
Linda Jo Chumney
Banking Officer
Amber M. Golden
Banking Officer
Terri B. Little
Banking Officer
Diane E. Floyd
Senior Vice President
Colleen Y. Friesen
Senior Vice President
Anita M. Mayer
Senior Vice President
Jim P. Norton
Senior Vice President
and Trust Officer
John S. Robbins
Senior Vice President
Jim M. Haag
Vice President
Laura V. Helms
Vice President
Jim L. Hood
Vice President
Terri A. Hugghins
Vice President
Joe M. Pelter
Vice President
Kimberly K. DePaepe
Assistant Vice President
Donald S. Summers
Banking Officer
Karen P. Fontaine
Assistant Vice President
John M. Morgan
Assistant Vice President
Chelly E. Picone
Assistant Vice President
Shawn B. Pitts
Assistant Vice President
29
F I N A N C I A L
R E V I E W
This financial review presents management’s discussion and analysis of the
financial condition and results of operations for Park National Corporation
(“Park” or the “Corporation”). This discussion should be read in conjunction
with the consolidated financial statements and related notes and the five-year
summary of selected financial data. Management’s discussion and analysis
contains forward-looking statements that are provided to assist in the under-
standing of anticipated future financial performance. Forward-looking
statements provide current expectations or forecasts of future events and are
not guarantees of future performance. The forward-looking statements are
based on management’s expectations and are subject to a number of risks
and uncertainties. Although management believes that the expectations reflected
in such forward-looking statements are reasonable, actual results may differ
materially from those expressed or implied in such statements. Risks and
uncertainties that could cause actual results to differ materially include, without
limitation, Park’s ability to execute its business plan, deterioration in the asset
value of our loan portfolio may be worse than expected, changes in general
economic and financial market conditions, deterioration in credit conditions in
the markets in which Park’s subsidiary banks operate, changes in interest rates,
changes in the competitive environment, changes in banking regulations or
other regulatory or legislative requirements affecting the respective businesses
of Park and its subsidiaries, changes in accounting policies or procedures
as may be required by the Financial Accounting Standards Board or other
regulatory agencies, demand for loans in the respective market areas served
by Park and its subsidiaries, and other risk factors relating to our industry
as detailed from time to time in Park’s reports filed with the Securities and
Exchange Commission (“SEC”) including those described in “Item 1A. Risk
Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2009. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date of this Annual
Report. Park does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions that may be made to update any
forward-looking statement to reflect the events or circumstances after the date
on which the forward-looking statement was made, or reflect the occurrence
of unanticipated events, except to the extent required by law.
ACQUISITION OF VISION BANCSHARES, INC. AND
GOODWILL IMPAIRMENT CHARGES IN 2007 AND 2008
On March 9, 2007, Park acquired all of the stock and outstanding stock options
of Vision Bancshares, Inc. (“Vision”) for $87.8 million in cash and 792,937
shares of Park common stock valued at $83.3 million or $105.00 per share.
The goodwill recognized was $109.0 million. The fair value of the acquired
assets of Vision was $686.5 million and the fair value of the liabilities assumed
was $624.4 million as of March 9, 2007.
At the time of the acquisition, Vision operated two bank subsidiaries (both
named Vision Bank) which became bank subsidiaries of Park on March 9,
2007. On July 20, 2007, the bank operations of the two Vision Banks were
consolidated under a single charter through the merger of the Vision Bank
headquartered in Gulf Shores, Alabama with and into the Vision Bank
headquartered in Panama City, Florida. Vision Bank operates under a Florida
banking charter and has 18 branch locations in Baldwin County, Alabama
and in the panhandle of Florida. The markets that Vision Bank operates in are
expected to grow faster than many of the non-metro markets in which Park’s
subsidiary bank operates in Ohio. Therefore, management still expects that the
acquisition of Vision will improve the future growth rate for Park’s loans and
deposits. However, the acquisition of Vision had a significant negative impact
on Park’s net income in 2007, 2008 and 2009.
Vision Bank began experiencing credit problems during the second half of
2007 as nonperforming loans increased from $6.5 million at June 30, 2007
to $63.5 million or 9.9% of loan balances at December 31, 2007. As a result
of these credit problems at Vision Bank, Park’s management concluded that
the goodwill of $109.0 million recorded at the time of acquisition was possibly
impaired. A goodwill impairment analysis was completed during the fourth
30
30
quarter of 2007 and the conclusion was reached that a goodwill impairment
charge of $54.0 million be recorded at Vision Bank at year-end 2007 to reduce
the goodwill balance to $55.0 million.
Credit problems continued to plague Vision Bank in 2008. Net loan charge-offs
for Vision Bank were $5.5 million during the first quarter or an annualized
3.37% of average loans and increased to $10.8 million during the second
quarter or an annualized 6.41% of average loans. Based primarily on the
increased level of net loan charge-offs at Vision Bank during 2008, management
determined that it would be prudent to test for additional goodwill impairment.
A goodwill impairment analysis was completed during the third quarter of 2008
and the conclusion was reached that a goodwill impairment charge of $55.0
million be recorded at Vision Bank during the third quarter of 2008 to
eliminate the goodwill balance pertaining to Vision Bank.
OVERVIEW
Net income was $74.2 million for 2009, compared to $13.7 million for 2008
and $22.7 million for 2007. Net income increased by $60.5 million or 441.2%
in 2009 compared to 2008 and decreased by $9.0 million or 39.6% in 2008
compared to 2007. The primary reason for the large changes in net income was
the change in the net loss at Vision Bank for the past three years. Vision Bank
had a net loss of $30.1 million in 2009, compared to a net loss of $81.2 million
in 2008 and a net loss of $60.7 million from the date of acquisition (March 9,
2007) through December 31, 2007. As previously discussed, Vision Bank
recognized goodwill impairment charges of $55.0 million in 2008 and $54.0
million in 2007.
Diluted earnings per common share were $4.82, $.97 and $1.60 for 2009,
2008 and 2007, respectively. Diluted earnings per common share increased
by $3.85 or 396.9% in 2009 compared to 2008 and decreased by $.63 or
39.4% in 2008 compared to 2007.
The following tables show the components of net income for 2009, 2008 and
2007. This information is provided for Park, Vision Bank and Park excluding
Vision Bank.
Park – Summary Income Statements
(For the years ended December 31, 2009, 2008 and 2007)
(In thousands)
Net interest income
Provision for loan losses
Other income
Other expense
Goodwill impairment charge
Income before taxes
Income taxes
Net income
2009
2008
2007
$273,491
$255,873
$234,677
68,821
81,190
70,487
84,834
29,476
71,640
188,725
179,515
170,129
—
97,135
22,943
54,986
35,719
22,011
54,035
52,677
29,970
$ 74,192
$ 13,708
$ 22,707
Vision Bank – Summary Income Statements
(For the years ended December 31, 2009, 2008 and 2007)
(In thousands)
Net interest income
Provision for loan losses
Other income (loss)
Other expense
Goodwill impairment charge
Loss before taxes
Income tax benefit
Net loss
2009
2008
2007
$ 25,634
$ 27,065
$ 23,756
44,430
(2,047)
28,091
—
(48,934)
(18,824)
46,963
3,014
27,149
54,986
(99,019)
(17,832)
19,425
3,465
18,545
54,035
(64,784)
(4,103)
$ (30,110)
$(81,187)
$(60,681)
Park acquired Vision Bank on March 9, 2007 and the summary income
statement for 2007 includes the results from the date of acquisition through
year-end 2007.
F I N A N C I A L
R E V I E W
Vision Bank began experiencing credit problems during the third quarter of
2007 and the credit problems continued throughout 2008 and 2009. Vision
Bank’s net loan charge-offs were $28.9 million in 2009, compared to $38.5
million in 2008 and $8.6 million in 2007. As a percentage of average loans, net
loan charge-offs were 4.18% in 2009, 5.69% in 2008 and an annualized 1.71%
in 2007. These severe credit problems resulted in recognition of the goodwill
impairment charges of $55.0 million in 2008 and $54.0 million in 2007.
In summary, the actual results for net interest income, other income and other
expense exceeded the estimated projections from a year ago by $10.5 million,
$6.2 million and $4.7 million, respectively. The net positive impact on income
before taxes from these variances was a positive $12.0 million in 2009.
However, due to continued severe economic conditions in the markets served
by Vision Bank, the provision for loan losses exceeded the estimate from a year
ago by $23.8 million.
Park Excluding Vision Bank – Summary Income Statements
(For the years ended December 31, 2009, 2008 and 2007)
(In thousands)
Net interest income
Provision for loan losses
Other income
Other expense
Goodwill impairment charge
Income before taxes
Income taxes
Net income
2009
2008
2007
$247,857
$228,808
$210,921
24,391
83,237
23,524
81,820
10,051
68,175
160,634
152,366
151,584
—
146,069
41,767
—
134,738
39,843
—
117,461
34,073
$104,302
$ 94,895
$ 83,388
Net income for Park excluding Vision Bank increased by $9.4 million or 9.9%
to $104.3 million in 2009 compared to 2008 and increased by $11.5 million
or 13.8% to $94.9 million in 2008 compared to 2007.
SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK
A year ago, Park’s management projected that net interest income would be
$258 million to $263 million in 2009. The actual results in 2009 of $273.5
million exceeded the top of the estimated range by $10.5 million or 4.0%.
This positive variance was primarily due to an improvement in the net interest
rate spread (the difference between rates received for interest earning assets
and the rates paid for interest bearing liabilities). The net interest rate spread
improved by 12 basis points to 3.94% for 2009 from 3.82%. Management
had not projected an improvement in the net interest rate spread for 2009.
Park’s management also projected a year ago that the provision for loan
losses would be approximately $45 million and that the net loan charge-off
ratio would be approximately 1.00% in 2009. We included the following
statement with this projection: “This estimate could change significantly as
circumstances for individual loans and economic conditions change.” The
provision for loan losses for 2009 was $68.8 million and exceeded our
estimate by $23.8 million or 52.9%. The net loan charge-off ratio for 2009
was 1.14% and exceeded our estimate by 14 basis points or 14.0%. During
2009, “circumstances for individual loans” somewhat changed at Vision
Bank. Park’s management had expected a significant reduction in the loan
loss provision at Vision Bank in 2009 from the 2008 loan loss provision of
$47.0 million. Vision Bank had only a small reduction to $44.4 million in
2009. Vision Bank continued to experience a significant increase in problem
loans in 2009. The loan loss provision for Park’s Ohio-based banking activities
performed as expected in 2009 with a small increase in the loan loss provision
to $24.4 million in 2009, compared to $23.5 million in 2008.
Other income for 2009 was $81.2 million and exceeded the year-ago estimated
amount of $75 million by $6.2 million or 8.3%. This positive variance was
primarily due to a gain from the sale of investment securities of $7.3 million
in the second quarter of 2009. Management had not projected that investment
securities would be sold in 2009.
A year ago, Park’s management projected that total other expense would be
approximately $184 million in 2009. Total other expense was $188.7 million
in 2009 and exceeded management’s estimate by $4.7 million or 2.6%. The
primary reason for this variance was higher than projected FDIC insurance
expense. The FDIC charged the banking industry a special assessment in 2009.
Park’s FDIC special assessment was $3.3 million.
ISSUANCE OF PREFERRED STOCK AND
EMERGENCY ECONOMIC STABILIZATION ACT
On October 3, 2008, Congress passed the Emergency Economic Stabilization
Act of 2008 (“EESA”), which created the Troubled Asset Relief Program
(“TARP”) and provided the Secretary of the Treasury with broad authority
to implement certain actions to help restore stability and liquidity to U.S.
markets. The Capital Purchase Program (the “CPP”) was announced by the
U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008
as part of TARP. Pursuant to the CPP, the U.S. Treasury was authorized to
purchase up to $250 billion of senior preferred shares on standardized terms
from qualifying financial institutions. The purpose of the CPP was to encourage
U.S. financial institutions to build capital to increase the flow of financing to
U.S. businesses and consumers and to support the U.S. economy.
The CPP is voluntary and requires a participating institution to comply with
a number of restrictions and provisions, including standards for executive
compensation and corporate governance and limitations on share repurchases
and the declaration and payment of dividends on common shares.
Eligible financial institutions could generally apply to issue preferred shares to
the U.S. Treasury in aggregate amounts between 1% to 3% of the institution’s
risk-weighted assets. Park was eligible to apply to the U.S. Treasury for between
approximately $47 million and $141 million of funding. Park elected to apply
for $100 million of funds through the CPP and its application was approved on
December 1, 2008.
On December 23, 2008, Park completed the sale to the U.S. Treasury of $100
million of newly-issued Park non-voting preferred shares as part of the CPP.
Park entered into a Securities Purchase Agreement and a Letter Agreement with
the U.S. Treasury on December 23, 2008. Pursuant to these agreements, Park
issued and sold to the U.S. Treasury (i) 100,000 of Park’s Fixed Rate Cumulative
Perpetual Preferred Shares, Series A, each without par value and having a
liquidation preference of $1,000 per share (the “Series A Preferred Shares”),
and (ii) a warrant (the “Warrant”) to purchase 227,376 Park common shares
at an exercise price of $65.97 per share, for an aggregate purchase price of
$100 million. The Warrant has a ten-year term. All of the proceeds from the
sale of the Series A Preferred Shares and the Warrant by Park to the U.S.
Treasury under the CPP qualify as Tier 1 capital for regulatory purposes.
U.S. Generally Accepted Accounting Principles (GAAP) require management
to allocate the proceeds from the issuance of the Series A Preferred Shares
between the Series A Preferred Shares and related Warrant. The terms of the
Series A Preferred Shares require management to pay a cumulative dividend
at the rate of 5 percent per annum until February 14, 2014, and 9 percent
thereafter. Management has determined that the 5 percent dividend rate is
below market value; therefore, the fair value of the Series A Preferred Shares
would be less than the $100 million in proceeds. Management determined
that a reasonable market discount rate was 12 percent for the fair value of
the Series A Preferred Shares. Management used the Black-Scholes model
for calculating the fair value of the Warrant (and related common shares). The
allocation between the Series A Preferred Shares and the Warrant at December
23, 2008, the date of issuance, was $95.7 million and $4.3 million, respectively.
The discount on the Series A Preferred Shares of $4.3 million will be accreted
through retained earnings using the level yield method over a 60-month period.
GAAP requires Park to measure earnings per share with earnings available to
common shareholders. Therefore, the Consolidated Statements of Income
reflect a line item for “Preferred stock dividends and accretion” and a line
3131
F I N A N C I A L
R E V I E W
item for “Income available to common shareholders”. The preferred stock
dividends totaled $5,762,000 for 2009 and $142,000 for 2008. Included in
the preferred stock dividends was the accretion of the discount on the Series A
Preferred Shares. The accretion of this discount was $762,000 in 2009 and
$18,000 in 2008.
Income available to common shareholders is net income minus the preferred
stock dividends and accretion. Income available to common shareholders was
$68.4 million for 2009 and $13.6 million for 2008.
See Note 1 and Note 25 of the Notes to Consolidated Financial Statements for
additional information on the issuance of preferred stock.
DIVIDENDS ON COMMON SHARES
Park declared quarterly cash dividends on common shares in 2009 that totaled
$3.76 per share. The quarterly cash dividend on common shares was $.94 per
share for each quarter of 2009.
Under the terms of the Securities Purchase Agreement with the U.S. Treasury
under the CPP, Park is not permitted to increase the quarterly cash dividend on
its common shares above $.94 per share without seeking prior approval from
the U.S. Treasury.
Cash dividends declared on common shares were $3.76 in 2009, $3.77 in 2008
and $3.73 in 2007. Park’s management expects to pay a quarterly cash dividend
on its common shares of $.94 per share in 2010.
CONSOLIDATION OF OHIO BANKING CHARTERS
On July 30, 2007, Park announced a plan to review current processes and
identify opportunities to improve efficiency by converting to one operating
system. One outcome of this initiative (“Project EPS”) was the consolidation
of the eight banking charters of Park’s Ohio-based subsidiary banks into one
national bank charter, The Park National Bank (“PNB”), during the third
quarter of 2008. PNB operates with eleven banking divisions. See Table 1
for a complete listing of the banking divisions.
BRANCH PURCHASE
On September 21, 2007, a banking division of PNB, the First-Knox National
Bank Division (“FKND”), acquired the Millersburg, Ohio banking office (the
“Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio Legacy”). FKND
acquired substantially all of the loans administered at the Millersburg branch
of Ohio Legacy and assumed substantially all of the deposit liabilities relating to
the deposit accounts assigned to the Millersburg branch. The fair value of the
loans acquired was approximately $38.3 million and the fair value of the
deposit liabilities assumed was approximately $23.5 million.
FKND paid a premium of approximately $1.7 million in connection with the
purchase of the deposit liabilities. FKND recognized a loan premium adjustment
of $700,000 and a certificate of deposit adjustment of $300,000, resulting in
the recording of a core deposit intangible of $2.7 million. No goodwill was
recognized as part of this transaction. In addition, FKND paid $900,000 for the
acquisition of the branch office building that Ohio Legacy was leasing from a
third party.
CRITICAL ACCOUNTING POLICIES
The significant accounting policies used in the development and presentation
of Park’s consolidated financial statements are listed in Note 1 of the Notes to
Consolidated Financial Statements. The accounting and reporting policies of
Park conform with U.S. GAAP and general practices within the financial services
industry. The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
Park considers that the determination of the allowance for loan losses
involves a higher degree of judgment and complexity than its other significant
accounting policies. The allowance for loan losses is calculated with the
32
32
objective of maintaining a reserve level believed by management to be sufficient
to absorb probable incurred credit losses in the loan portfolio. Management’s
determination of the adequacy of the allowance for loan losses is based on
periodic evaluations of the loan portfolio and of current economic conditions.
However, this evaluation is inherently subjective as it requires material
estimates, including expected default probabilities, the loss given default,
the amounts and timing of expected future cash flows on impaired loans, and
estimated losses on consumer loans and residential mortgage loans based on
historical loss experience and the current economic conditions. All of those
factors may be susceptible to significant change. To the extent that actual results
differ from management estimates, additional loan loss provisions may be
required that would adversely impact earnings for future periods.
Management’s assessment of the adequacy of the allowance for loan losses
considers individual impaired loans, pools of unimpaired commercial loans
and pools of homogeneous loans with similar risk characteristics and other
environmental risk factors. This assessment is updated on a quarterly basis.
The allowance established for impaired commercial loans reflects expected
losses resulting from analyses performed on each individual impaired
commercial loan. The specific credit allocations are based on regular analyses
of commercial, commercial real estate and construction loans where we
have determined the loan to be impaired. Due to the variations in Park’s loan
portfolio as well as the deteriorating credit conditions at Vision Bank, beginning
with the fourth quarter of 2009, management has grouped individually impaired
loans into three categories: Vision Bank impaired commercial land and devel-
opment (CL&D) loans ($85.4 million), other PNB and Vision Bank impaired
commercial loans ($112.0 million), and Vision Bank impaired commercial
loans with balances less than $250,000 ($3.7 million). At December 31, 2009,
management had specifically allocated $21.7 million, $14.5 million, and $0.5
million of the loan loss reserve to these three categories, respectively. For the
years ended December 31, 2008 and 2007, management allocated $8.7 million
and $3.4 million respectively, to all impaired commercial loans.
Pools of performing commercial loans and pools of homogeneous loans with
similar risk characteristics are also assessed for probable losses. At December
31, 2008, a loss migration analysis was performed on accruing commercial
loans, which includes commercial, financial and agricultural loans, commercial
real estate loans and certain real estate construction loans. These are loans
above a fixed dollar amount that are assigned an internal credit rating.
During 2009, management determined that it was necessary to discontinue the
migration analysis and implemented a methodology that uses an annual loss
rate (“historical loss experience”), calculated based on an average of the net
charge-offs during the last 24 months. Management believes the 24-month
historical loss experience methodology is appropriate in the current economic
environment, as it captures loss rates that are comparable to the current period
being analyzed. Management also segregated Vision Bank’s accruing CL&D
loan portfolio from other commercial loans, as the loss experience in the CL&D
loan portfolio has far surpassed losses in other commercial loans at Park. The
historical loss experience is judgmentally increased to cover approximately two
years of expected losses in the commercial loan portfolio and 1.75 years of
expected losses in the Vision Bank CL&D loan portfolio. Generally, residential
real estate loans and consumer loans are not individually graded. The amount
of loan loss reserve assigned to these loans is based on historical loss experi-
ence, judgmentally increased to cover approximately 1.25 years of expected
losses. (Refer to the Credit Experience-Provision for Loan Losses section
within this Financial Review for additional discussion.)
Effective January 1, 2008, management implemented the fair value hierarchy,
which has the objective of maximizing the use of observable market inputs.
The related accounting guidance also requires enhanced disclosures regarding
the inputs used to calculate fair value. These inputs are classified as Level 1, 2,
and 3. Level 3 inputs are those with significant unobservable inputs that reflect
a company’s own assumptions about the market for a particular instrument.
Some of the inputs could be based on internal models and cash flow analysis.
At December 31, 2009, financial assets valued using Level 3 inputs for Park
F I N A N C I A L
R E V I E W
had an aggregate fair value of approximately $153.8 million. This was 10.5% of
the total amount of assets measured at fair value as of the end of the year. The fair
value of impaired loans was approximately $109.8 million (or 71.4%) of the total
amount of Level 3 inputs. Additionally, there are $91.3 million of loans that are
impaired and carried at cost, as fair value exceeds book value for each individual
credit. The large majority of Park’s financial assets valued using Level 2 inputs
consist of available-for-sale (“AFS”) securities. The fair value of these AFS
securities is obtained largely by the use of matrix pricing, which is a mathematical
technique widely used in the financial services industry to value debt securities
without relying exclusively on quoted market prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted
securities.
Management believes that the accounting for goodwill and other intangible
assets also involves a higher degree of judgment than most other significant
accounting policies. GAAP establishes standards for the amortization of
acquired intangible assets and the impairment assessment of goodwill.
Goodwill arising from business combinations represents the value attributable
to unidentifiable intangible assets in the business acquired. Park’s goodwill
relates to the value inherent in the banking industry and that value is dependent
upon the ability of Park’s banking subsidiaries to provide quality, cost-effective
banking services in a competitive marketplace. The goodwill value is supported
by revenue that is in part driven by the volume of business transacted.
A decrease in earnings resulting from a decline in the customer base, the
inability to deliver cost-effective services over sustained periods or significant
credit problems can lead to impairment of goodwill that could adversely impact
earnings in future periods. GAAP requires an annual evaluation of goodwill for
impairment, or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The fair value of the goodwill, which resides
on the books of Park’s subsidiary banks, is estimated by reviewing the past
and projected operating results for the Park subsidiary banks, deposit and
loan totals for the Park subsidiary banks and banking industry comparable
information. Park recognized goodwill impairment charges in both 2007
and 2008 as previously discussed.
At December 31, 2009, on a consolidated basis, Park had core deposit
intangibles of $9.5 million subject to amortization and $72.3 million of
goodwill, which was not subject to periodic amortization. The core deposit
intangibles recorded on the balance sheet of PNB totaled $2.8 million and
the core deposit intangibles at Vision Bank were $6.7 million. The goodwill
asset of $72.3 million is carried on the balance sheet of PNB.
ABOUT OUR BUSINESS
Through its Ohio-based banking divisions, Park is engaged in the
commercial banking and trust business, generally in small to medium
population Ohio communities. Vision Bank is primarily engaged in the
commercial banking business throughout the panhandle of Florida and
in Baldwin County, Alabama. Management believes there is a significant
number of consumers and businesses which seek long-term relationships
with community-based financial institutions of quality and strength. While
not engaging in activities such as foreign lending, nationally syndicated loans
or investment banking, Park attempts to meet the needs of its customers for
commercial, real estate and consumer loans, consumer and commercial
leases, and investment, fiduciary and deposit services.
Park’s subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
At December 31, 2009, Park and its Ohio-based banking divisions operated
127 offices and a network of 147 automatic teller machines in 28 Ohio counties
and one county in northern Kentucky. Vision Bank operated 18 offices and a
network of 21 automatic teller machines in Baldwin County, Alabama and in
6 counties in the panhandle of Florida.
A table of financial data of Park’s subsidiaries and banking divisions for 2009,
2008 and 2007 is shown below. See Note 23 of the Notes to Consolidated
Financial Statements for additional information on the Corporation’s
subsidiaries. Please note that the financial statements for various divisions
of PNB are not maintained on a separate basis and, therefore, net income
is only an estimate by management.
Table 1 – Park National Corporation Affiliate Financial Data
2009
2008
2007
Average
Assets
Net
Income
Average
Assets
Net
Income
Average
Assets
Net
Income
$1,798,814 $26,991 $1,839,012 $25,445
$1,492,652 $24,830
825,481
14,316
820,571
13,001
835,801
12,439
650,488
11,387
711,162
12,995
720,781
11,913
633,260
12,411
658,151
12,718
656,406
10,891
563,776
9,954
526,989
8,946
529,175
5,915
484,849
9,368
337,355
7,332
332,564
6,322
416,502
1,841
416,398
1,506
398,517
(69)
(In thousands)
Park National Bank:
Park National
Division
Security National
Division
Century National
Division
First-Knox National
Division
Richland Trust
Division
Fairfield National
Division
Park National SW &
N KY Division
Second National
Division
United Bank Division
242,166
371,079
6,926
4,300
423,062
214,074
5,752
3,467
403,114
207,493
4,847
2,410
Unity National
Division
Farmers & Savings
Division
Vision Bank
Parent Company,
including consolidating
entries
182,373
2,251
190,739
2,061
192,382
1,290
107,437
1,713
119,014
2,042
129,133
2,292
904,897 (30,110)
904,420
(81,187)
698,788 (60,681)
(145,591)
2,844
(452,861)
(370)
(427,650)
308
Consolidated
Totals
$7,035,531 $74,192 $6,708,086 $13,708
$6,169,156 $22,707
SOURCE OF FUNDS
Deposits: Park’s major source of funds is provided by deposits from
individuals, businesses and local government units. These deposits consist
of noninterest bearing and interest bearing deposits.
Total year-end deposits increased by $426 million or 9.0% to $5,188 million
at December 31, 2009. Excluding the $236 million decrease in brokered
deposits, total year-end deposits increased by $662 million or 14.6% in 2009.
Please see the following table for information on the growth in deposits in
2009.
Year-End Deposits
December 31,
(In thousands)
2009
2008
Noninterest bearing checking
$ 897,243
$ 782,625
Interest bearing transaction
accounts
Savings
Brokered time deposits
All other time deposits
Other
Total
1,193,845
873,137
—
2,222,537
1,290
$5,188,052
1,204,530
694,721
235,766
1,842,606
1,502
$4,761,750
Change
$ 114,618
(10,685)
178,416
(235,766)
379,931
(212)
$ 426,302
In 2009, total year-end deposits at Vision Bank increased by $52 million or
8.2% and increased by $374 million or 9.1% for Park’s Ohio-based banking
operations.
Total year-end deposits increased by $323 million or 7.3% in 2008. However,
$236 million of the growth in deposits came from the use of brokered deposits.
Excluding the brokered deposits, total year-end deposits increased by $87
million or 2.0%. In 2008, Vision Bank’s year-end total deposits decreased by
$20 million or 3.1% and the Ohio-based banking operations increased deposits
by $107 million or 2.8%.
3333
F I N A N C I A L
R E V I E W
Average total deposits were $5,051 million in 2009 compared to $4,603 million
in 2008 and $4,403 million in 2007. Average noninterest bearing deposits were
$818 million in 2009 compared to $740 million in 2008 and $697 million in
2007.
Management expects that total deposits (exclusive of brokered deposits) will
decrease in 2010 by 3% to 5%. The extraordinary growth in deposits in 2009
was partially due to Park’s competitors attempting to limit deposit growth by not
accepting public funds deposits and by customers seeking a different local bank
for their deposit business. Excluding brokered deposits, total year-end deposits
increased by 14.6% in 2009, which was much stronger than the growth
guidance of 1% to 2% that was provided a year ago by Park’s management.
The Federal Open Market Committee (“FOMC”) of the Federal Reserve Board
decreased the federal funds rate from 4.25% at December 31, 2007 to a range
of 0% to .25% at year-end 2008. The FOMC aggressively lowered the federal
funds rate during 2008 as the severity of the economic recession increased.
The FOMC maintained the targeted federal funds rate in the 0% to .25% range
for all of 2009 as the U.S. economy gradually recovered from the severe
recession. The average federal funds rate was .16% for 2009, compared
to an average rate of 1.93% for 2008 and 5.02% in 2007.
The average interest rate paid on interest bearing deposits was 1.53% in 2009,
compared to 2.33% in 2008 and 3.27% in 2007. The average cost of interest
bearing deposits for each quarter of 2009 was 1.33% for the fourth quarter,
compared to 1.48% for the third quarter, 1.59% for the second quarter and
1.73% for the first quarter.
Park’s management expects that due to the uncertainty of future economic
growth following the severe economic recession, the FOMC will maintain the
federal funds interest rate at approximately .25% for most of 2010. As a result,
Park’s management expects a further decrease in the average interest rate paid
on interest bearing deposits in 2010.
Short-Term Borrowings: Short-term borrowings consist of securities sold
under agreements to repurchase, Federal Home Loan Bank advances, federal
funds purchased and other borrowings. These funds are used to manage the
Corporation’s liquidity needs and interest rate sensitivity risk. The average rate
paid on short-term borrowings generally moves closely with changes in market
interest rates for short-term investments. The average rate paid on short-term
borrowings was .76% in 2009 compared to 2.38% in 2008 and 4.47% in 2007.
The average cost of short-term borrowings for each quarter of 2009 was
.64% for the fourth quarter, compared to .81% for the third quarter, .77%
for the second quarter and .83% for the first quarter. Management expects the
average rate paid on short-term borrowings in 2010 to be similar to 2009.
Average short-term borrowings were $420 million in 2009 compared to $609
million in 2008 and $494 million in 2007. The decrease in average short-term
borrowings in 2009 compared to 2008 was primarily due to the large increase
in average deposit balances. The increase in average short-term borrowings
in 2008 compared to 2007 was used to help fund the increase in loans and
investments.
Long-Term Debt: Long-term debt primarily consists of borrowings from the
Federal Home Loan Bank and repurchase agreements with investment banking
firms. The average rate paid on long-term debt was 3.38% for 2009, compared
to 3.72% for 2008 and 4.22% for 2007. In 2009, the average cost of long-term
debt for each quarter was 3.63% for the fourth quarter, compared to 3.62% for
the third quarter, 3.31% for the second quarter and 3.03% for the first quarter.
(The average balance of long-term debt and the average cost of long-term debt
includes the subordinated debentures discussed in the following section.)
Management expects that the average rate paid on long-term debt will be
approximately 3.75% in 2010.
In 2009, average long-term debt was $780 million compared to $836 million in
2008 and $569 million in 2007. Average total debt (long-term and short-term)
was $1,200 million in 2009 compared to $1,445 million in 2008 and $1,063
million in 2007. Average total debt decreased by $245 million or 16.9% in
34
34
2009 compared to 2008 and increased by $382 million or 35.9% in 2008
compared to 2007. The decrease in average total debt in 2009 compared to
2008 was primarily due to the large increase in average deposits. In 2008,
the large increase in average total debt was used to fund the large increase
in average loans and investments.
Average long-term debt was 65% of average total debt in 2009 compared to
58% in 2008 and 54% in 2007.
Subordinated Debentures/Notes: Park assumed with the Vision acquisition
$15 million of floating rate junior subordinated notes. The interest rate on these
subordinated notes adjusts every quarter at 148 basis points above the three-
month LIBOR interest rate. The maturity date on the junior subordinated notes
is December 30, 2035 and the subordinated debenture may be prepaid after
December 30, 2010. These subordinated notes qualify as Tier 1 capital under
Federal Reserve Board guidelines.
Park’s Ohio-based banking subsidiary, PNB, issued a $25 million subordinated
debenture on December 28, 2007. The interest rate on this subordinated
debenture adjusts every quarter at 200 basis points above the three-month
LIBOR interest rate. The maturity date on the subordinated debenture is
December 29, 2017 and the subordinated debenture may be prepaid after
December 28, 2012. On January 2, 2008, Park entered into a “pay fixed-receive
floating” interest rate swap agreement for a notional amount of $25 million with
a maturity date of December 28, 2012. This interest rate swap agreement was
designed to hedge the cash flows pertaining to the $25 million subordinated
debenture until December 28, 2012. Management converted the cash flows
to a fixed interest rate of 6.01% through the use of the interest rate swap.
This subordinated debenture qualifies as Tier 2 capital under the applicable
regulations of the Office of the Comptroller of the Currency of the United States
of America (the “OCC”) and the Federal Reserve System.
On December 23, 2009, Park issued $35.25 million of subordinated notes to
38 purchasers. The subordinated notes have a fixed annual interest rate of 10%
with quarterly interest payments. The maturity date on the subordinated notes is
December 23, 2019. These notes may be prepaid by Park at any time after five
years. The subordinated notes qualify as Tier 2 capital under applicable rules
of the Federal Reserve Board. Each subordinated note was purchased at a
purchase price of 100% of the principal amount by an accredited investor.
See Note 11 of the Notes to Consolidated Financial Statements for additional
information on the subordinated debentures and subordinated notes.
Sale of Common Stock: Park sold an aggregate of 904,072 common
shares, out of treasury shares, during 2009 using various capital raising
strategies. As part of one of these strategies, Park issued warrants for the
purchase of 500,000 shares of common stock. The warrants have an exercise
price of $67.75 per share. Warrants covering the purchase of an aggregate of
250,000 common shares expire on April 30, 2010 and warrants covering the
purchase of the other 250,000 common shares expire on October 30, 2010.
Park sold a total of 288,272 common shares through an At-the-Market
Common Stock Offering Program (“ATM”) during the second and third
quarters of 2009. Gross proceeds from these sales were $17.5 million at
a weighted average sales price of $60.83 per share. Net of selling and due
diligence expenses, Park raised $16.7 million in equity from the ATM.
During the fourth quarter of 2009, Park sold 500,000 shares of common stock
and issued the previously described warrants for the purchase of an aggregate
of 500,000 shares of common stock in a registered direct offering. The gross
proceeds from the sale of the common stock and warrants was $30.8 million
at an average sales price of $61.59 per share. Net of selling and professional
expenses, Park raised $29.8 million from this transaction.
Also during the fourth quarter of 2009, Park sold 115,800 common shares
to Park’s Defined Benefit Pension Plan (the “Pension Plan”). These common
shares were sold at the current market price of $60.45 per share for gross
proceeds of $7.0 million. There were no expenses associated with this sale.
F I N A N C I A L
R E V I E W
In total for 2009, Park sold 904,072 common shares and warrants covering
500,000 common shares at a weighted average price per share of $61.20 for
gross proceeds of $55.3 million. Net of selling expenses and professional fees,
Park raised $53.5 million of equity from these capital raising strategies in 2009.
Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equity
less goodwill and other intangible assets) to tangible assets (total assets less
goodwill and other intangible assets) was 9.13% at December 31, 2009
compared to 7.98% at December 31, 2008 and 6.85% at December 31, 2007.
The large increase in the ratio of tangible stockholders’ equity to tangible assets
in 2008 was due to the issuance of $100 million of Park non-voting preferred
shares to the U.S. Treasury on December 23, 2008. In 2009, Park’s tangible
stockholders’ equity to tangible assets ratio further increased largely as a result
of the sale of common stock which increased equity by $53.5 million. Excluding
the $100.0 million of preferred stock, the ratio of tangible stockholders’ equity
to tangible assets ratio was 7.69% at December 31, 2009 and 6.54% at
December 31, 2008.
In accordance with GAAP, Park reflects any unrealized holding gain or loss
on AFS securities, net of income taxes, as accumulated other comprehensive
income (loss) which is part of Park’s equity. The unrealized holding gain
on AFS securities, net of income taxes, was $30.1 million at year-end 2009,
compared to an unrealized holding gain on AFS securities, net of income
taxes, of $31.6 million at year-end 2008 and an unrealized holding gain on
AFS securities, net of income taxes, of $1.0 million at year-end 2007. Long-term
and short-term interest rates decreased sharply during the fourth quarter of
2008 which caused the market value of Park’s investment securities to increase
and produced the large unrealized holding gain on AFS securities, net of
income taxes, at year-end 2008 and year-end 2009.
In accordance with GAAP, Park adjusts accumulated other comprehensive
income (loss) to recognize the net actuarial gain or loss reflected in the
accounting for Park’s Pension Plan. See Note 13 of the Notes to Consolidated
Financial Statements for information on the accounting for Park’s Pension Plan.
Pertaining to the Pension Plan, Park recognized a net comprehensive gain of
$6.3 million in 2009, a net comprehensive loss of $(16.2) million in 2008 and
a net comprehensive gain of $3.3 million in 2007. The comprehensive gain in
2009 was due to positive investment returns and contributions to the Pension
Plan. The large comprehensive loss in 2008 was primarily due to the negative
investment return on Pension Plan assets in 2008, as a result of the poor
performance of stock investments in 2008. At year-end 2009, the balance in
accumulated other income (loss) pertaining to the Pension Plan was $(13.5)
million, compared to $(19.8) million at December 31, 2008 and $(3.6)
million at December 31, 2007.
Park also recognized in 2008, a net comprehensive loss of $(1.3) million
due to the mark-to-market of the $25 million cash flow hedge. In 2009, Park
recognized $.3 million of comprehensive income on the cash flow hedge. See
Note 19 of the Notes to Consolidated Financial Statements for information on
the accounting for Park’s derivative instruments.
INVESTMENT OF FUNDS
Loans: Average loans were $4,594 million in 2009 compared to $4,355
million in 2008 and $4,011 million in 2007. The average yield on loans was
6.03% in 2009 compared to 6.93% in 2008 and 8.01% in 2007. The average
prime lending rate in 2009 was 3.25% compared to 5.09% in 2008 and 8.05%
in 2007. Approximately 63% of Park’s loan balances mature or reprice within
one year (see Table 10). The yield on average loan balances for each
quarter of 2009 was 5.91% for the fourth quarter, compared to 5.99% for
the third quarter, 6.02% for the second quarter and 6.18% for the first quarter.
Management expects that the yield on the loan portfolio will decrease modestly
in 2010 compared to the average yield of 6.03% for 2009. Year-end loan
balances increased by $149 million or 3.3% in 2009 compared to 2008.
Park’s Ohio-based subsidiaries increased loans by $162 million or 4.3%
during 2009. Vision Bank had a small decline in loans of $13 million or
1.9% during 2009.
In 2008, year-end loan balances increased by $267 million or 6.3%. During
the fourth quarter of 2008, Park’s Ohio-based banking divisions sold $31
million of unsecured credit card balances. Exclusive of the sale of the credit
card balances, year-end loan balances grew by $298 million or 7.0%. At Vision
Bank, year-end loan balances increased by $51 million or 8.0% during 2008 to
$690 million. Park’s Ohio-based subsidiaries increased loans by $216 million
or 6.0% during 2008. Excluding the sale of the credit card balances, Park’s
Ohio-based subsidiaries increased loans by $247 million or 6.9% in 2008.
Year-end loan balances increased by $110 million or 3.2% in 2007 exclusive of
$596 million of loans that were acquired in the Vision acquisition and exclusive
of the $38 million of loans that were acquired as part of the Millersburg, Ohio
branch purchase. From the date of the Vision acquisition (March 9, 2007)
through year-end 2007, Vision Bank increased loans by $43 million to $639
million at year-end 2007. Excluding the growth from Vision Bank, Park’s Ohio-
based subsidiaries grew loans by $67 million during 2007 for a growth rate
of 1.9%.
A year ago, management projected that year-end loan balances would grow
between 3% to 4% in 2009. The actual loan growth of 3.3% was consistent with
this guidance. Management expects that loan growth for 2010 will be slower
(1% to 3%) as the demand for loans decreased in the fourth quarter of 2009.
Year-end residential real estate loans were $1,555 million, $1,560 million and
$1,481 million in 2009, 2008 and 2007, respectively. Residential real estate
loans decreased by $5 million or .3% in 2009 and increased by $79 million
or 5.3% during 2008. In 2007, residential real estate loans increased by $43
million or 3.3% exclusive of the $138 million of loans from the Vision acquisi-
tion. Management does not expect any growth in residential real estate loans in
2010, as Park’s customers will continue to favor long-term fixed rate residential
mortgage loans.
The long-term fixed rate residential mortgage loans that Park originates are
sold in the secondary market and Park typically retains the servicing on these
loans. The balance of sold fixed-rate residential mortgage loans increased
by $149 million or 10.9% to $1,518 million at year-end 2009, compared to
$1,369 million at year-end 2008 and $1,403 million at year-end 2007. Due
to low long-term interest rates in 2009, the demand for fixed-rate residential
mortgage loans was extraordinary. Park originated and sold $615 million of
fixed-rate residential mortgage loans in 2009, compared to $161 million in
2008 and 2007. Management expects that the loan origination volume of fixed-
rate mortgage loans will decrease by 50% or more in 2010, as the annualized
loan origination volume for the fourth quarter of 2009 was $333 million.
The balance of sold fixed-rate residential mortgage loans is expected to
increase by 1% to 3% in 2010.
Year-end consumer loans were $704 million, $643 million and $593 million
in 2009, 2008 and 2007, respectively. Consumer loans increased by $61 million
or 9.5% in 2009 and increased by $50 million or 8.4% in 2008. In 2007, con-
sumer loans increased by $55 million or 10.3% exclusive of the $6 million of
loans acquired from the Vision acquisition. The increases in consumer loans
for 2009, 2008 and 2007 were primarily due to an increase in automobile
loans originated through automobile dealers in Ohio. Management expects
that consumer loans will increase by 2% to 3% in 2010.
On a combined basis, year-end construction loans, commercial loans and
commercial real estate loans totaled $2,377 million, $2,284 million and $2,143
million at year-end 2009, 2008 and 2007, respectively. These combined loan
totals increased by $93 million or 4.1% in 2009 and increased by $141 million
or 6.6% in 2008. These combined loan totals increased by $33 million or 2.0%
in 2007, exclusive of the $472 million of loans acquired through the Vision
acquisition and the Millersburg branch purchase. Management expects that
construction loans, commercial loans and commercial real estate loans will
grow by 1% to 3% in 2010.
3535
F I N A N C I A L
R E V I E W
Year-end lease balances were $3 million, $4 million and $7 million in 2009,
2008 and 2007, respectively. Management continues to de-emphasize leasing
and expects the balance to further decline in 2010.
Table 2 reports year-end loan balances by type of loan for the past five years.
Table 2 – Loans by Type
December 31,
(In thousands)
Commercial, financial
and agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
2009
2008
2007
2006
2005
$ 751,277
$ 714,296
$ 613,282
$ 548,254
$ 512,636
495,518
533,788
536,389
234,988
193,185
1,555,390
1,560,198
1,481,174
1,300,294
1,287,438
1,130,672
704,430
3,145
1,035,725
643,507
3,823
993,101
593,388
6,800
854,869
532,092
10,205
823,354
494,975
16,524
Total Loans
$4,640,432
$4,491,337
$4,224,134
$3,480,702
$3,328,112
Table 3 – Selected Loan Maturity Distribution
December 31, 2009
(In thousands)
Commercial, financial and
agricultural
Real estate – construction
Real estate – commercial
One Year
or Less (1)
$ 355,738
396,829
254,901
Over One
Through
Five Years
$248,780
33,325
131,738
Over
Five
Years
Total
$146,759
65,364
744,033
$ 751,277
495,518
1,130,672
Total
$1,007,468
$413,843
$956,156
$2,377,467
Total of these selected loans due
after one year with:
Fixed interest rate
Floating interest rate
$ 508,111
$ 861,888
(1) Nonaccrual loans of $173,525 are included within the one year or less classification above.
Investment Securities: Park’s investment securities portfolio is structured
to provide liquidity and contribute to earnings. Park’s investment strategy is
dynamic. As conditions change over time, Park’s overall interest rate risk,
liquidity needs and potential return on the investment portfolio will change.
Management regularly evaluates the securities in the investment portfolio as
circumstances 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 on the investment portfolio.
Park classifies most of its securities as AFS (see Note 4 of the Notes to
Consolidated Financial Statements). These securities are carried on the books
at their estimated fair value with the unrealized holding gain or loss, net of
federal taxes, accounted for as accumulated other comprehensive income
(loss) which is part of the Corporation’s equity. The securities that are classified
as AFS are free to be sold in future periods in carrying out Park’s investment
strategies.
Generally, Park classifies U.S. Government Agency collateralized mortgage
obligations (“CMOs”) that it purchases as held-to-maturity. A classification of
held-to-maturity means that Park has the positive intent and the ability to hold
these securities until maturity. Park classifies CMOs as held-to-maturity because
these securities are generally not as liquid as the U.S. Government Agency mort-
gage-backed securities and U.S. Government Agency notes that Park classifies
as AFS. At year-end 2009, Park’s held-to-maturity securities portfolio was $507
million, compared to $428 million at year-end 2008 and $165 million at year-
end 2007. Park purchased $119 million of CMOs in 2009 and purchased $270
million of CMOs in 2008. All of the mortgage-backed securities and CMOs in
Park’s investment portfolio were issued by a U.S. Government Agency.
Average taxable investment securities were $1,848 million in 2009, compared
to $1,756 million in 2008 and $1,531 million in 2007. The average yield on
taxable securities was 4.90% in 2009, compared to 5.00% in 2008 and 5.03%
in 2007. Average tax-exempt investment securities were $30 million in 2009,
compared to $45 million in 2008 and $65 million in 2007. The average
tax-equivalent yield on tax-exempt investment securities was 7.45% in 2009,
compared to 6.90% in 2008 and 6.68% in 2007.
Year-end total investment securities (at amortized cost) were $1,817 million
in 2009, $2,010 million in 2008 and $1,702 million in 2007. Management
purchased investment securities totaling $469 million in 2009, $693 million
in 2008 and $843 million in 2007. Proceeds from repayments and maturities
of investment securities were $467 million in 2009, $310 million in 2008 and
$712 million in 2007. Proceeds from sales of AFS securities were $204 million
in 2009 and $81 million in 2008. Park realized net security gains of $7.3
million in 2009 and $1.1 million in 2008. Park did not sell any investment
securities in 2007.
During the second quarter of 2009, Park’s management sold U.S. Government
Agency mortgage-backed securities with a book value of $197 million, for
proceeds of $204.3 million and a pre-tax gain of $7.3 million. These securities
had a book yield of 4.70% and a weighted average remaining life of about 3
years. These mortgage-backed securities were sold at a price of approximately
103.2% of par for a give-up yield (yield expected to be received by purchaser to
maturity) of approximately 3.33%. Park’s management purchased $250 million
of U.S. Government Agency callable notes during the second quarter of 2009 at
a weighted average yield of 4.55%. These callable notes have final maturities in
9 to 10 years and have call dates from 1 to 3 years.
During January 2010, Park’s management sold approximately $200 million of
U.S. Government Agency mortgage-backed securities for settlement in March
2010 for an estimated gain of $7.3 million. These securities were sold at a price
of approximately 103.5% of par for a give-up yield of approximately 3.12%.
The book yield on these mortgage-backed securities is approximately 4.68%.
Management expects to reinvest the proceeds from the sale of the mortgage-
backed securities late in the first quarter of 2010 or in the second quarter
of 2010.
At year-end 2009 and 2008, the average tax-equivalent yield on the total
investment portfolio was 4.87% and 5.01%, respectively. The weighted
average remaining maturity was 3.5 years at December 31, 2009 and 2.9 years
at December 31, 2008. U.S. Government Agency asset-backed securities were
approximately 76% of the total investment portfolio at year-end 2009 and
were approximately 88% of the total investment portfolio at year-end 2008.
This segment of the investment portfolio consists of 15-year mortgage-backed
securities and CMOs.
The average maturity of the investment portfolio would lengthen if long-term
interest rates would increase as the principal repayments from mortgage-
backed securities and CMOs would be reduced and callable U.S. Government
Agency notes would extend to their maturity dates. At year-end 2009, manage-
ment estimated that the average maturity of the investment portfolio would
lengthen to 5.3 years with a 100 basis point increase in long-term interest
rates and to 5.4 years with a 200 basis point increase in long-term interest
rates. Likewise, the average maturity of the investment portfolio would shorten
if long-term interest rates would decrease as the principal repayments from
mortgage-backed securities and CMOs would increase as borrowers would
refinance their mortgage loans and the callable U.S. Government Agency notes
would shorten to their call dates. At year-end 2009, management estimated
that the average maturity of the investment portfolio would decrease to 1.8
years with a 100 basis point decrease in long-term interest rates and to 1.3
years with a 200 basis point decrease in long-term interest rates.
The following table sets forth the carrying value of investment securities at
year-end 2009, 2008 and 2007:
Table 4 – Investment Securities
December 31,
(In thousands)
Obligations of U.S. Treasury and other
U.S. Government agencies
2009
2008
2007
$ 347,595
$ 128,688
$ 203,558
Obligations of states and political subdivisions
20,123
37,188
59,052
U.S. Government asset-backed securities
1,425,361
1,822,587
1,375,005
Other securities
Total
70,481
70,588
65,488
$1,863,560
$2,059,051
$1,703,103
36
LL
36
RR
F I N A N C I A L
R E V I E W
Included in “Other Securities” in Table 4, are Park’s investments in Federal
Home Loan Bank stock and Federal Reserve Bank stock. At December 31,
2009, Park owned $62.0 million of Federal Home Loan Bank stock and $6.9
million of Federal Reserve Bank stock. Park owned $61.9 million of Federal
Home Loan Bank stock and $6.9 million of Federal Reserve Bank stock at year-
end 2008. At December 31, 2007, Park owned $56.8 million of Federal Home
Loan Bank stock and $6.4 million of Federal Reserve Bank stock. The fair
values of these investments are the same as their amortized costs.
ANALYSIS OF EARNINGS
Park’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. (See Table 5 for three years of history on the average balances
of the balance sheet categories and the average rates earned on interest
earning assets and the average rates paid on interest bearing liabilities.)
Net interest income increased by $17.6 million or 6.9% to $273.5 million
for 2009 compared to an increase of $21.2 million or 9.0% to $255.9 million
for 2008. The tax equivalent net yield on interest earning assets was 4.22% for
2009 compared to 4.16% for 2008 and 4.20% for 2007. The net interest rate
spread (the difference between rates received for interest earning assets and
the rates paid for interest bearing liabilities) was 3.94% for 2009, compared
to 3.82% for 2008 and 3.68% for 2007. In 2009, the increase in net interest
income was primarily due to the increase in average interest earning assets of
$353 million or 5.7% and to an increase in the net interest spread to 3.94%
from 3.82% in 2008. The increase in net interest income in 2008 was primarily
due to the large increase in average interest earning assets of $546 million or
9.7% and an increase in the net interest spread to 3.82% from 3.68% in 2007.
The average yield on interest earning assets was 5.67% in 2009 compared to
6.37% in 2008 and 7.18% in 2007. On a quarterly basis for 2009, the average
yield on earning assets was 5.51% for the fourth quarter, 5.66% for the third
quarter, 5.69% for the second quarter and 5.81% for the first quarter. The
FOMC of the Federal Reserve Board decreased the targeted federal funds rate
from 4.25% at year-end 2007 to a range of 0% to .25% at year-end 2008. The
average federal funds rate for 2009 was .16%, compared to an average rate of
1.93% in 2008 and 5.02% in 2007. Management expects that the average yield
on interest earning assets will modestly decrease in 2010.
Table 5 – Distribution of Assets, Liabilities and Stockholders’ Equity
December 31,
(In thousands)
ASSETS
Interest earning assets:
Loans (1) (2)
Taxable investment securities
Tax-exempt investment securities (3)
Money market instruments
Total interest earning assets
Noninterest earning assets:
Allowance for probable loan losses
Cash and due from banks
Premises and equipment, net
Other assets
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Transaction accounts
Savings deposits
Time deposits
Total interest bearing deposits
Short-term borrowings
Long-term debt (4)
Total interest bearing liabilities
Noninterest bearing liabilities:
Demand deposits
Other
Total noninterest bearing liabilities
Stockholders’ equity
TOTAL
Net interest earnings
Net interest spread
Net yield on interest earning assets
Daily
Average
2009
Interest
Average
Rate
Daily
Average
2008
Interest
Average
Rate
Daily
Average
2007
Interest
Average
Rate
$4,594,436
$276,893
1,847,706
29,597
52,518
90,558
2,205
111
6,524,257
369,767
6.03%
4.90%
7.45%
0.21%
5.67%
$4,354,520
$301,926
1,755,879
45,420
15,502
87,711
3,134
295
6,171,321
393,066
6.93%
5.00%
6.90%
1.90%
6.37%
$4,011,307
$321,392
1,531,144
65,061
17,838
77,016
4,346
920
5,625,350
403,674
8.01%
5.03%
6.68%
5.16%
7.18%
(103,683)
110,227
67,944
436,786
$7,035,531
$1,229,553
$ 7,889
2,926
53,805
64,620
3,209
26,370
94,199
805,783
2,197,055
4,232,391
419,733
780,435
5,432,559
818,243
109,415
927,658
675,314
$7,035,531
(86,485)
143,151
69,278
410,821
$6,708,086
(78,256)
151,219
61,604
409,239
$6,169,156
0.64%
0.36%
2.45%
1.53%
0.76%
3.38%
1.73%
$1,364,635
$ 19,509
585,505
1,912,640
3,862,780
609,219
835,522
3,124
67,259
89,892
14,469
31,105
5,307,521
135,466
1.43%
0.53%
3.52%
2.33%
2.38%
3.72%
2.55%
$1,318,764
$ 35,919
553,407
1,834,060
3,878
81,224
3,706,231
121,021
494,160
568,575
22,113
24,013
4,768,966
167,147
2.72%
0.70%
4.43%
3.27%
4.47%
4.22%
3.50%
739,993
92,607
832,600
567,965
$6,708,086
697,247
84,185
781,432
618,758
$6,169,156
$275,568
$257,600
$236,527
3.94%
4.22%
3.82%
4.16%
3.68%
4.20%
(1) Loan income includes loan related fee income of $1,372 in 2009, $4,650 in 2008 and $5,935 in 2007. Loan income also includes the effects of taxable equivalent adjustments using a 35% tax rate in 2009,
2008 and 2007. The taxable equivalent adjustment was $1,294 in 2009, $763 in 2008 and $565 in 2007.
(2) For the purpose of the computation, nonaccrual loans are included in the daily average loans outstanding.
(3)
Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2009, 2008 and 2007. The taxable equivalent adjustments were $783
in 2009, $964 in 2008 and $1,285 in 2007.
(4)
Includes subordinated debenture and subordinated notes.
RR
37
37
F I N A N C I A L
R E V I E W
The average rate paid on interest bearing liabilities was 1.73% in 2009,
compared to 2.55% in 2008 and 3.50% in 2007. On a quarterly basis for 2009,
the average rate paid on interest bearing liabilities was 1.58% for the fourth
quarter, 1.73% for the third quarter, 1.78% for the second quarter and 1.84%
for the first quarter. Management expects that the average rate paid on interest
bearing liabilities will modestly decrease in 2010.
The following table displays (for each quarter of 2009) the average balance
of interest earning assets, net interest income and the tax equivalent net interest
margin.
(In thousands)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2009
Average Interest
Earning Assets
$6,546,681
6,528,425
6,476,283
6,546,174
Net Interest
Income
$ 68,233
67,994
68,462
68,802
$6,524,257
$273,491
Tax Equivalent
Net Interest Margin
4.26%
4.21%
4.22%
4.20%
4.22%
Management expects that average interest earnings assets will be approximately
$6,550 million for 2010 as the expected growth in loan balances from year-
end will be partially offset by a decrease in investment securities. Management
expects that net interest income will be $265 to $275 million in 2010 and that
the tax equivalent net interest margin will be approximately 4.15% to 4.20%
in 2010. (Please see the “Summary Discussion of Operating Results for
Park” section of this Financial Review for a comparison of 2009 results
to management’s projections from a year ago.)
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 6 – Volume/Rate Variance Analysis
Change from 2008 to 2009
Total
Rate
Volume
Change from 2007 to 2008
Total
Rate
Volume
(In thousands)
Increase (decrease) in:
Interest income:
Total loans
$15,891 $(40,924) $(25,033) $26,080 $(45,546) $(19,466)
Taxable investments
4,600
(1,753)
2,847
11,160
(465)
10,695
Tax-exempt investments
(1,163)
234
(929)
(1,351)
139
(1,212)
Money market
instruments
Total interest
income
Interest expense:
248
(432)
(184)
(107)
(518)
(625)
19,576
(42,875)
(23,299)
35,782
(46,390)
(10,608)
Transaction accounts
$ (1,766) $ (9,854) $(11,620) $ 1,204 $(17,614) $(16,410)
Savings accounts
968
(1,166)
(198)
Time deposits
9,026
(22,480)
(13,454)
Short-term borrowings
(3,536)
(7,724)
(11,260)
217
3,351
4,345
(971)
(754)
(17,316)
(13,965)
(11,989)
(7,644)
Long-term debt
(1,985)
(2,750)
(4,735)
10,203
(3,111)
7,092
Total interest
expense
Net variance
2,707
(43,974)
(41,267)
19,320
(51,001)
(31,681)
$16,869 $ 1,099
$17,968
$16,462 $ 4,611 $ 21,073
Other Income: Total other income decreased by $3.6 million or 4.3% to
$81.2 million in 2009 compared to an increase of $13.2 million or 18.4%
to $84.8 million in 2008. Park’s total other income in 2008 was positively
impacted by two “one-time” items totaling $14.9 million. The “one-time”
positive items in 2008 were $3.1 million of revenue recognized as a result
of the initial public offering of Visa, Inc. and an aggregate of $11.8 million
of revenue which resulted from the sale of the unsecured credit card balances
and the sale of the merchant processing business. In 2009, Park’s total other
income includes a “one-time” positive item of $3.0 million from the sale of all
the Class B shares of stock that Park received from the initial public offering
of Visa, Inc.
The following table displays total other income for Park in 2009, 2008 and
2007.
Year Ended December 31
(In thousands)
Income from fiduciary activities
Service charges on deposits
Net gains on sales of securities
Other service income
Other
Total other income
2009
$12,468
21,985
7,340
18,767
20,630
$81,190
2008
$13,937
24,296
1,115
8,882
36,604
$84,834
2007
$14,403
23,813
—
11,543
21,881
$71,640
Income from fiduciary activities decreased by $1.5 million or 10.5% to $12.5
million in 2009 and decreased $466,000 or 3.2% to $13.9 million in 2008.
The decrease in fiduciary fee income in 2009 and 2008 was primarily due to
the poor performance of the equity markets during the past two years. Park
charges fiduciary fees based on the market value of the assets being managed.
The Dow Jones Industrial Average stock index annual average was 13,178 for
calendar year 2007, compared to 11,244 for calendar year 2008 and 8,885 for
calendar year 2009. On a positive note, the Dow Jones Industrial Average stock
index at year-end 2009 was 10,428, compared to 8,776 at year-end 2008. The
market value of the assets that Park manages were $3.1 billion at December 31,
2009 compared to $2.7 billion at December 31, 2008. Management expects an
increase of approximately 7% in fee income from fiduciary activities in 2010.
Service charges on deposit accounts decreased by $2.3 million or 9.5% to
$22.0 million in 2009 and increased by $483,000 or 2.0% to $24.3 million in
2008. The decrease in service charge income in 2009 was primarily due to a
decrease in fee income from the courtesy overdraft program. Park’s customers
did not use the courtesy overdraft program as frequently in 2009 and as a result
this fee income decreased by $2.2 million or 12.7% in 2009 compared to 2008.
Management expects that revenue from service charges on deposits in 2010 will
decrease modestly from the $22.0 million in revenue in 2009.
Fee income earned from origination and sale into the secondary market of
long-term fixed-rate mortgage loans is included within other non-yield related
fees in the subcategory “Other service income”. Other service income increased
by $9.9 million or 111.3% to $18.8 million in 2009. This large increase was
due to the extraordinary volume of fixed-rate residential mortgage loans that
Park originated and sold into the secondary market in 2009. The amount
of fixed-rate mortgage loans originated and sold in 2009 was $615 million,
compared to $161 million for both 2008 and 2007. In 2008, other service
income decreased by $2.7 million or 23.1% to $8.9 million. This decrease was
primarily due to a write-down of $1.6 million on the mortgage loan servicing
asset during the fourth quarter of 2008. Park’s management expects that the
volume of fixed-rate residential mortgage loans will decrease significantly
in 2010 and as a result expects that other service income will decrease by
approximately $7 million or 38% in 2010.
The subcategory of “Other” income includes fees earned from check card
and ATM services, income from bank owned life insurance, fee income earned
from the sale of official checks and printed checks, rental fee income from safe
deposit boxes and other miscellaneous income. Total other income decreased
by $16.0 million or 43.6% to $20.6 million in 2009 and increased by $14.7
million or 67.3% to $36.6 million in 2008. The large increase in this revenue
in 2008 and the large decrease in 2009 was primarily due to the two “one-
time” revenue items in 2008 which totaled $14.9 million. Park also had a
$3.0 million positive “one-time” revenue item in 2009, but other income was
reduced during the year by $6.3 million of losses recognized on the write-down
or sale of real estate owned at Vision Bank. Approximately $5.0 million of these
other real estate owned losses occurred in the fourth quarter of 2009. Park’s
management expects that the subcategory of other income will increase by
5% in 2010 as the losses on real estate owned at Vision Bank are expected
to decline modestly in 2010.
38
38
F I N A N C I A L
R E V I E W
Park recognized net gains from the sale of investment securities of $7.3
million in 2009 and $1.1 million in 2008. No securities were sold in 2007.
As previously discussed, Park expects to recognize a gain of approximately
$7.3 million from the sale of securities in 2010.
Vision Bank recorded goodwill impairment charges of $55.0 million in 2008
and $54.0 million in 2007. See Note 1 of the Notes to Consolidated Financial
Statements for a discussion of the goodwill impairment charges. Vision Bank
did not have any remaining goodwill at year-end 2008.
A year ago, Park’s management forecast that total other income, excluding
gains from the sale of securities, would be approximately $75 million for 2009.
The actual performance was below our estimate by $1.1 million or 1.5% at
$73.9 million. For 2010, Park’s management expects that total other income,
excluding gains from the sale of securities, will be approximately $68 million.
Other Expense: Total other expense was $188.7 million in 2009, compared
to $234.5 million in 2008 and $224.2 million in 2007. Total other expense
includes goodwill impairment charges of $55.0 million in 2008 and $54.0
million in 2007. Excluding the goodwill impairment charges, total other
expense increased by $9.2 million or 5.1% to $188.7 million in 2009 and
increased by $9.4 million or 5.5% to $179.5 million in 2008.
The following table displays total other expense for Park in 2009, 2008 and
2007.
Year Ended December 31
(In thousands)
2009
2008
2007
Salaries and employee benefits
$101,225
$ 99,018
$ 97,712
Goodwill impairment charge
Data processing fees
Fees and service charges
Net occupancy expense of bank premises
Amortization of intangibles
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
State taxes
Other
—
5,674
15,935
11,552
3,746
9,734
12,072
3,775
6,903
3,206
54,986
7,121
12,801
11,534
4,025
9,756
2,322
4,525
7,167
2,989
54,035
6,892
11,055
10,717
3,847
9,259
1,445
4,961
6,910
2,769
14,903
18,257
14,562
Total other expense
$188,725
$234,501
$224,164
Salaries and employee benefits expense increased by $2.2 million or 2.2%
to $101.2 million in 2009 and increased by $1.3 million or 1.3% to $99.0
million in 2008. The increase in 2009 was primarily related to higher employee
benefit costs, as Pension Plan expense increased approximately $2.8 million.
Full-time equivalent employees at year-end 2009 were 2,024, compared to
2,051 at year-end 2008 and 2,066 at year-end 2007.
On July 30, 2007, Park announced Project EPS, a plan to review current
processes and identify opportunities to improve efficiency by converting to
one operating system in Ohio. During the third quarter of 2008, Park merged
its eight Ohio banking charters into a national bank, PNB. The banking divisions
of PNB have been able to reduce full-time equivalent employees as a result of
Project EPS. Full-time equivalent employees for Park’s Ohio-based divisions
were 1,811 at year-end 2009, compared to 1,837 at year-end 2008, 1,865 at
year-end 2007 and 1,889 at year-end 2006. During 2008 and 2009, all of Park’s
Ohio-based banking divisions converted to one operating system. The number
of full-time equivalent employees in Ohio has declined by 78 from year-end
2006 to year-end 2009. Park’s management estimates that approximately 105
full-time equivalent positions were eliminated as a result of Project EPS. The
actual reduction in full-time equivalent employees over the past three years
was not quite this large due to the opening of additional branch offices.
A year ago, Park’s management projected that salaries and benefit expense
would be $103.0 million for 2009. The actual performance for the year
was $1.8 million or 1.7% lower than the estimate. For 2010, management
is projecting salaries and employee benefits expense to increase by $0.8
million or 0.8% to $102 million for the year.
Fees and service charges increased by $3.1 million or 24.5% to $15.9 million
in 2009 and increased by $1.7 million or 15.8% to $12.8 million in 2008. This
subcategory of total other expense includes legal fees, management consulting
fees, director fees, audit fees, regulatory examination fees and memberships in
industry associations. The large increase in fees and service charges expense
in 2009 was primarily due to an increase in legal fees of $1.9 million to $4.1
million and in consulting fees of $.4 million to $1.7 million. This additional
expense was primarily related to an increase in problem loans in 2009. The
increase in other fees and service charges expense in 2008 was primarily due
to an increase in consulting fees of $.7 million to $1.3 million. This additional
expense in 2008 primarily pertained to Project EPS.
Insurance expense increased by $9.8 million or 419.0% to $12.1 million
in 2009 and increased by $.9 million or 60.7% to $2.3 million in 2008. The
increase in insurance expense for both years was primarily due to the increase
in FDIC insurance expense. In 2009, FDIC insurance expense increased by $9.5
million to $11.0 million and in 2008, FDIC insurance expense increased by $.9
million to $1.5 million.
The subcategory “Other” expense includes expenses for supplies, travel,
charitable contributions, amortization of low income housing tax investments,
expenses pertaining to other real estate owned and other miscellaneous
expenses. The subcategory other expense decreased by $3.4 million or 18.4%
to $14.9 million in 2009 and increased by $3.7 million or 25.4% to $18.3
million in 2008. The decrease in the subcategory other expense in 2009 was
primarily due to a $1.9 million decrease to $2.2 million in other real estate
owned expense. In 2008, the increase in other expense was primarily due to an
increase of $3.4 million to $4.1 million in other real estate owned expense.
A year ago, Park’s management projected that total other expense would be
approximately $184.0 million in 2009. The actual expense for the year of
$188.7 million exceeded our estimate by $4.7 million or by 2.6%. This variance
was primarily due to the special assessment of FDIC insurance in the second
quarter of 2009, which was $3.3 million for Park. Management expects that
total other expense for 2010 will be approximately $191 million, a projected
increase of $2.3 million or 1.2%.
Income Taxes: Federal income tax expense was $25.4 million in 2009,
compared to $24.3 million in 2008 and $30.4 million in 2007. State income
tax expense was a credit for each of the past three years of $(2.5) million in
2009, $(2.3) million in 2008 and $(453,000) in 2007. Vision Bank is subject
to state income tax in the states of Alabama and Florida. State income tax
expense was a credit in 2009, 2008 and 2007, because Vision Bank had
losses in all three years. Park and its Ohio-based subsidiaries do not pay state
income tax to the state of Ohio, but pay a franchise tax based on year-end equity.
The franchise tax expense is included in “state taxes” on Park’s Consolidated
Statements of Income. Park’s management will investigate the merger of Vision
Bank into PNB during 2010. The merger of Vision Bank into PNB will ensure
that the state net operating loss carryforward will be utilized in the future in
the states of Alabama and Florida.
Federal income tax expense as a percentage of income before taxes was
26.2% in 2009, compared to 68.1% in 2008 and 57.8% in 2007. The goodwill
impairment charge of $55.0 million in 2008 reduced income tax expense by
approximately $1 million. The goodwill impairment charge of $54.0 million
in 2007 had no impact on income tax expense.
3939
F I N A N C I A L
R E V I E W
For 2008 and 2007, the percentage of federal income tax expense to income
before taxes (adjusted for the goodwill impairment charges) was 26.8% and
28.5%, respectively. By comparison, the percentage of federal income tax
expense to income before taxes was 26.2% in 2009.
A lower federal effective tax rate than the statutory rate of 35% is primarily due
to tax-exempt interest income from state and municipal investments and loans,
low income housing tax credits and income from bank owned life insurance.
Park’s management expects that the federal effective income tax rate for 2010
will be approximately 28% to 29%.
CREDIT EXPERIENCE
Provision for Loan Losses: The provision for loan losses is the amount
added to the allowance for loan losses to absorb future loan charge-offs. The
amount of the loan loss provision is determined by management after reviewing
the risk characteristics of the loan portfolio, historic and current loan loss
experience and current economic conditions.
The provision for loan losses was $68.8 million in 2009, $70.5 million in 2008
and $29.5 million in 2007. Net loan charge-offs were $52.2 million in 2009,
$57.5 million in 2008 and $22.2 million in 2007. The ratio of net loan charge-
offs to average loans was 1.14% in 2009, 1.32% in 2008 and 0.55% in 2007.
The loan loss provision for Vision Bank was $44.4 million in 2009, $47.0
million in 2008 and $19.4 million in 2007. Net loan charge-offs for Vision
Bank were $28.9 million in 2009, $38.5 million in 2008 and $8.6 million in
2007. Vision Bank’s ratio of net loan charge-offs to average loans was 4.18%
in 2009, 5.69% in 2008 and an annualized 1.71% in 2007.
Park’s Ohio-based subsidiaries had a combined loan loss provision of $24.4
million in 2009, $23.5 million in 2008 and $10.1 million in 2007. Net loan
charge-offs for Park’s Ohio-based subsidiaries were $23.3 million in 2009,
$19.0 million in 2008 and $13.6 million in 2007. The net loan charge-off
ratio for Park’s Ohio-based subsidiaries was 0.60% for 2009, 0.52% for
2008 and 0.39% for 2007.
At year-end 2009, the allowance for loan losses was $116.7 million or 2.52%
of total loans outstanding, compared to $100.1 million or 2.23% of total loans
outstanding at year-end 2008 and $87.1 million or 2.06% of total loans out-
standing at year-end 2007. In 2007, the acquired loan loss reserve for Vision,
$9.3 million, was added to Park’s allowance for loan losses.
Management believes that the allowance for loan losses at year-end 2009
is adequate to absorb probable incurred credit losses in the loan portfolio.
See Note 1 of the Notes to Consolidated Financial Statements and the discussion
under the heading “Critical Accounting Policies” earlier in the Financial Review
section for additional information on management’s evaluation of the adequacy
of the allowance for loan losses.
Management expects the loan loss provision for 2010 will be approximately
$45 million to $55 million. This estimate reflects management’s expectation
that: (1) future declines in collateral values will be moderate as the economy
continues to improve and pricing stabilizes throughout 2010 and (2) new
nonperforming loans, specifically new nonperforming CL&D loans at Vision
Bank, will decline in 2010. As discussed within the remainder of the credit
experience section, Vision Bank’s performing CL&D loan portfolio has declined
significantly over the past two years. Thus management expects new
nonperformers to decline in 2010. This estimated range could change signifi-
cantly as circumstances for individual loans and economic conditions change.
A year ago, management projected the provision for loan losses would be
$45 million in 2009 and the net loan charge-off ratio would be approximately
1.00%. As discussed throughout the remainder of this “Credit Experience”
section, the primary reasons that the provision for loan losses and net charge-
offs were greater than management’s projections were the credit losses
and continued credit deterioration at Vision.
40
40
Table 7 – Summary of Loan Loss Experience
(In thousands)
2009
2008
2007
2006
2005
Average loans
(net of unearned
interest)
Allowance for
loan losses:
$4,594,436 $4,354,520 $4,011,307 $3,357,278 $3,278,092
Beginning balance
100,088
87,102
70,500
69,694
68,328
Charge-offs:
Commercial, financial
and agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
10,047
2,953
4,170
21,956
34,052
7,899
853
718
3,154
46
11,765
12,600
5,785
1,915
1,006
5,662
9,583
9
4,126
9,181
4
1,899
8,020
3
556
6,673
57
1,612
7,255
316
Total charge-offs
59,022
62,916
27,776
10,772
13,389
Recoveries:
Commercial, financial
and agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
Total recoveries
Net charge-offs
Provision charged
to earnings
Allowance for loan
losses of acquired bank
$1,010 $
861 $
1,011 $
842 $
2,707
1,322
137
1,723
1,128
771
2,001
3
6,830
52,192
451
2,807
31
5,415
57,501
180
718
560
3,035
64
5,568
22,208
—
1,017
1,646
3,198
150
6,853
3,919
173
659
517
3,214
229
7,499
5,890
68,821
70,487
29,476
3,927
5,407
—
—
9,334
798
1,849
Ending balance
$ 116,717 $ 100,088 $
87,102 $
70,500 $
69,694
Ratio of net charge-offs
to average loans
Ratio of allowance for
loan losses to end of
year loans, net of
unearned interest
1.14%
1.32%
0.55%
0.12%
0.18%
2.52%
2.23%
2.06%
2.03%
2.09%
The following table summarizes the allocation of the allowance for loan losses
for the past five years:
Table 8 – Allocation of Allowance for Loan Losses
December 31,
2009
2008
2007
2006
2005
Percent of
Loans Per
(In thousands) Allowance Category Allowance Category Allowance Category Allowance Category
Percent of
Loans Per
Percent of
Loans Per
Percent of
Loans Per
Percent of
Loans Per
Allowance Category
Commercial,
financial
and
agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
$14,725
16.19% $ 14,286
15.90% $14,557
14.52% $16,985
15.75% $17,942
15.40%
47,521
10.68%
24,794
11.88%
20,007
12.70%
4,425
6.75%
3,864
5.80%
19,753
33.51%
22,077
34.74%
15,997
35.06%
10,402
37.36%
10,329
38.68%
23,970
10,713
35
24.37%
15.18%
0.07%
15,498
23,391
42
23.06%
14.33%
0.09%
15,989
20,477
75
23.51%
14.05%
0.16%
17,097
21,285
306
24.56%
15.29%
0.29%
16,823
19,799
937
24.74%
14.87%
0.51%
Total
$116,717 100.00% $100,088 100.00% $87,102 100.00% $70,500 100.00% $69,694 100.00%
As of December 31, 2009, Park had no significant concentrations of loans to
borrowers engaged in the same or similar industries nor did Park have any
loans to foreign governments.
Nonperforming Assets: Nonperforming loans include: 1) loans whose
interest is accounted for on a nonaccrual basis; 2) renegotiated loans not
currently on nonaccrual; and 3) loans which are contractually past due 90
days or more as to principal or interest payments but whose interest continues
to accrue. Other real estate owned results from taking title to property used as
collateral for a defaulted loan.
F I N A N C I A L
R E V I E W
The percentage of nonperforming loans to total loans was 5.35% at year-end
2009, 3.74% at year-end 2008 and 2.57% at year-end 2007. The percentage
of nonperforming assets to total loans was 6.24% at year-end 2009, 4.31% at
year-end 2008 and 2.89% at year-end 2007.
Vision Bank had $159.6 million of nonperforming loans or 23.6% of its total
loans at year-end 2009, compared to $94.7 million of nonperforming loans or
13.7% of its total loans at year-end 2008 and $63.5 million of nonperforming
loans or 9.9% of its total loans at year-end 2007. Nonperforming assets totaled
$194.8 million for Vision Bank at year-end 2009, compared to $114.4 million
at year-end 2008 and $70.5 million at year-end 2007. As a percentage of year-
end loans, Vision Bank’s nonperforming assets were 28.8%, 16.6% and 11.0%
for 2009, 2008 and 2007, respectively.
Park’s Ohio-based subsidiaries had $88.8 million of nonperforming loans at
year-end 2009, compared to $73.1 million at year-end 2008. Nonperforming
loans were 2.2% and 1.9% of total loans for Park’s Ohio-based subsidiaries
at year-end 2009 and 2008, respectively. Total nonperforming assets for Park’s
Ohio-based subsidiaries were $94.9 million or 2.4% of total loans at year-end
2009 and $79.2 million or 2.1% of total loans at year-end 2008.
Economic conditions began deteriorating during the second half of 2007
and continued throughout 2008 and 2009. Park and many other financial
institutions throughout the country experienced a sharp increase in net loan
charge-offs and nonperforming loans. Financial institutions operating in Florida
and Alabama (including Vision Bank) have been particularly hard hit by the
severe recession as the demand for real estate and the price of real estate have
sharply decreased.
Park had $277.7 million of commercial loans included on the watch list
of potential problem commercial loans at December 31, 2009 compared
to $243.2 million at year-end 2008 and $208.8 million at year-end 2007.
Commercial loans include: (1) commercial, financial and agricultural loans,
(2) commercial real estate loans, and (3) real estate construction loans.
Park’s watch list includes all classified commercial loans, defined by Park as
loans rated special mention or worse, less those commercial loans currently
considered to be impaired. As a percentage of year-end total loans, Park’s
watch list of potential problem loans was 6.0% in 2009, 5.4% in 2008 and
4.9% in 2007. The existing conditions of these loans do not warrant classifica-
tion as nonaccrual. However, these loans have shown some weakness and
management performs additional analyses regarding a borrower’s ability to
comply with payment terms for watch list loans.
The following is a summary of the nonaccrual loans, loans past due 90 days or
more and still accruing and renegotiated loans not currently on nonaccrual and
other real estate owned for the last five years:
Table 9 – Nonperforming Assets
December 31,
(In thousands)
Nonaccrual loans
Renegotiated loans
Loans past due 90 days
or more
Total nonperforming
loans
2009
2008
2007
2006
2005
$233,544
142
$159,512
2,845
$101,128
2,804
$16,004
9,113
$14,922
7,441
14,773
5,421
4,545
7,832
7,661
248,459
167,778
108,477
32,949
30,024
Other real estate owned
41,240
25,848
13,443
3,351
2,368
Total nonperforming
assets
Percentage of
nonperforming loans
to loans
Percentage of
nonperforming assets
to loans
Percentage of
nonperforming assets
to total assets
$289,699
$193,626
$121,920
$36,300
$32,392
5.35%
3.74%
2.57%
0.95%
0.90%
6.24%
4.31%
2.89%
1.04%
0.97%
4.11%
2.74%
1.88%
0.66%
0.60%
Tax equivalent interest income from loans of $276.9 million for 2009 would
have increased by $24.9 million if all loans had been current in accordance
with their contractual terms.
Park’s allowance for loan losses includes an allocation for loans specifically
identified as impaired under GAAP. At December 31, 2009, loans considered to
be impaired consisted substantially of commercial loans graded as “doubtful”
and placed on non-accrual status. During the fourth quarter of 2009, manage-
ment made a change in accounting estimate (as defined under GAAP) for the
estimation of allowance for loan losses. Based on escalating losses within the
Vision Bank CL&D loan portfolio, management determined that it was necessary
to segregate this portion of the portfolio for both impaired credits, as well as
those CL&D loans on accrual at December 31, 2009. From the date Park
acquired Vision (March 9, 2007) through December 31, 2009, Vision had
cumulative charge-offs within the CL&D loan portfolio of $51.3 million.
Additionally, at December 31, 2009, management established a specific
reserve of $21.7 million related to those CL&D loans at Vision Bank that are
deemed to be impaired. The aggregate of charge-offs since acquisition, along
with the specific reserves at December 31, 2009, total $73.0 million. Total
provision expense for Vision Bank since the date of acquisition through
December 31, 2009 has been $110.8 million. The magnitude of the losses
coming from the CL&D loan portfolio at Vision, along with the continued
run-off of performing CL&D loans, led to the change in accounting estimate
made by management during the fourth quarter of 2009. The following table
summarizes the CL&D loan portfolio at Vision Bank:
Year Ended December 31
(In thousands)
CL&D loans, period end
Impaired CL&D loans
Performing CL&D loans, period end
Specific reserve on impaired CL&D loans
Current year net charge-offs
Specific reserve plus net charge-offs
2009
2008
2007
$218,205
$251,443
$295,743
85,417
132,788
21,706
16,233
38,035
59,731
191,712
3,134
27,705
30,839
35,548
260,195
1,184
7,399
8,583
At December 31, 2009, loans considered to be impaired under GAAP totaled
$201.1 million, after charge-offs of $43.4 million. At December 31, 2008,
impaired loans totaled $142.9 million, after charge-offs of $30.0 million.
The specific allowance for loan losses related to these impaired loans was
$36.7 million at December 31, 2009 and $8.9 million at December 31, 2008.
At December 31, 2009, the impaired loans and related specific reserves are
summarized as follows:
December 31, 2009
(In thousands)
Impaired loan type:
Vision Bank impaired CL&D loans
Other impaired commercial loans
Vision other impaired commercial
less than $250,000
Total
Principal Balance
Specific Reserve
$85,417
111,981
3,745
$201,143
$21,706
14,453
562
$36,721
The specific reserves discussed above are typically based on management’s
best estimate of the fair value of collateral securing these loans or based on
projected cash flows from the sale of the underlying collateral and payments
from the borrowers. The amount ultimately charged-off for these loans may be
different from the specific reserve as the ultimate liquidation of the collateral
and/or projected cash flows may be for amounts different from management’s
estimates.
4141
F I N A N C I A L
R E V I E W
We have listed in the table below the year-end 2008 and the quarterly and
year-end 2009 information pertaining to the provision for loan losses, net
loan charge-offs, nonperforming loans and the allowance for loan losses:
(In thousands)
Year-end 2008
March 2009
June 2009
September 2009
December 2009
Year-end 2009
Provision
for Loan
Losses
$70,487
$12,287
15,856
14,958
25,720
$68,821
Net Loan
Charge-Offs
Nonperforming
Loans
Allowance
for Loan
Losses
$57,501
$11,097
12,330
9,721
19,044
$167,778
$100,088
$166,673
$101,279
210,998
212,061
248,459
104,804
110,040
116,717
$52,192
$248,459
$116,717
When determining the quarterly loan loss provision, Park reviews the grades of
commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates
little or no credit risk and a grade of 8 is considered a loss. Commercial loans
with grades of 1 to 4 (pass-rated) are considered to be of acceptable credit
risk. Commercial loans graded a 5 (special mention) are considered to be
watch list credits and a higher loan loss reserve percentage is used on these
loans. Commercial loans graded 6 (substandard), also considered watch list
credits, are considered of higher risk and, as a result, a higher loan loss reserve
percentage is used on these loans. Generally, commercial loans that are graded
a 6 are considered for partial charge-off. Commercial loans that are graded
a 7 (doubtful) are shown as nonperforming and Park generally charges these
loans down to their fair value by taking a partial charge-off or recording a
specific reserve. Any commercial loan graded an 8 (loss) is completely
charged-off.
As of December 31, 2009, management had taken partial charge-offs of
approximately $43.4 million ($30.2 million for Vision Bank) related to the
$201.1 million of commercial loans considered to be impaired, compared
to charge-offs of approximately $30 million ($22.2 million for Vision Bank)
related to the $142.9 million of impaired commercial loans at December 31,
2008. Historically, Park’s management has been quick to recognize charge-offs
on problem loans. However, there is a higher level of uncertainty when valuing
collateral or projecting cash flows in Vision Bank’s Florida and Alabama
markets due to the illiquid nature of the collateral. Park has experienced an
increase in specific reserves related to many of Vision Bank’s impaired loans.
In April 2009, Park engaged a third-party specialist to assist in the resolution
of impaired loans at Vision Bank. Management is pleased with the success
this third-party specialist experienced in the second half of 2009, as they have
helped maximize the value of the impaired loans at Vision Bank. We expect to
continue utilizing this third-party specialist through 2010 and thereafter, until
such point in time that Vision Bank’s impaired loan portfolio shows sustained
improvement.
A significant portion of Park’s allowance for loan losses is allocated to
commercial loans classified as “special mention” or “substandard.” “Special
mention” loans are loans that have potential weaknesses that may result in loss
exposure to Park. “Substandard” loans are those that exhibit a well defined
weakness, jeopardizing repayment of the loan, resulting in a higher probability
that Park will suffer a loss on the loan unless the weakness is corrected. As
previously discussed, during the 2009 fourth quarter, management segregated
the Vision Bank CL&D loans from other commercial loans that are still accru-
ing. The Vision CL&D loans that are still accruing at December 31, 2009 total
$132.8 million. Additionally, PNB participations in Vision Bank accruing CL&D
loans total $21.3 million at December 31, 2009, bringing total exposure of
accruing CL&D loans originated at Vision Bank to $154.1 million. Park’s loss
experience on CL&D loans for the last 24 months is an annual rate of 8.83%.
Management has allocated an allowance for loan losses to the $154.1 million
of accruing CL&D loans based on this historical loss experience, judgmentally
increased to cover 1.75 years of expected losses, for a total reserve of $23.8
million or 15.45%. Further, we have allocated 15.45% to the $154.1 million
of CL&D loans, regardless of the current loan grade, as this portion of the loan
portfolio has experienced significant declines in collateral values, and thus if
management determines that borrowers are unable to pay in accordance with
the contractual terms of the loan agreement, significant specific reserves have
typically been necessary. Park’s 24-month loss experience within the remaining
commercial loan portfolio (excluding Vision Bank’s CL&D loans) has been
0.86% of the principal balance of these loans. Park’s management believes it is
appropriate to cover two years worth of expected commercial losses within the
other commercial loan portfolio, thus the total reserve for loan losses is $41.8
million or 1.72% of the outstanding principal balance at December 31, 2009.
The overall reserve of 1.72% for other accruing commercial loans breaks down
as follows: pass-rated commercial loans are reserved at 1.26%; special mention
commercial loans are reserved at 4.29%; and substandard commercial loans
are reserved at 12.87%. As always, management is working to address weak-
nesses in those loans that may result in future loss. Actual loss experience
may be more or less than the amount allocated.
CAPITAL RESOURCES
Liquidity and Interest Rate Sensitivity Management: Park’s objective in
managing its liquidity is to maintain the ability to continuously meet the cash
flow needs of customers, such as borrowings or deposit withdrawals, while at
the same time seeking higher yields from longer-term lending and investing
activities.
Cash and cash equivalents decreased by $12.2 million during 2009 to
$159.1 million at year-end. Cash provided by operating activities was $71.9
million in 2009, $90.7 million in 2008 and $83.2 million in 2007. Net income
(adjusted for the goodwill impairment charges in 2008 and 2007) was the
primary source of cash for operating activities during each year. The goodwill
impairment charges of $55 million in 2008 and $54 million in 2007 did
not impact cash or cash provided by operating activities.
Cash used in investing activities was $5.3 million in 2009, $635.0 million
in 2008 and $360.3 million in 2007. Investment security transactions are
the major use or source of cash in investing activities. Proceeds from the sale,
repayment or maturity of securities provide cash and purchases of securities
use cash. Net security transactions provided cash of $202.6 million in 2009
and used cash of $304.8 million in 2008 and $130.8 million in 2007. Another
major use or source of cash in investing activities is the net increase or
decrease in the loan portfolio. Cash used by the net increase in the loan
portfolio, including proceeds from the sale of loans, was $199.9 million in
2009, $351.3 million in 2008 and $126 million in 2007. In 2007, Park also
used $38.3 million in cash to acquire the loans pertaining to the Millersburg,
Ohio branch purchase and used $47.7 million of cash on a net basis for the
acquisition of Vision.
Cash used in financing activities was $78.7 million in 2009. Cash provided by
financing activities was $522.2 million in 2008 and $284.2 million in 2007.
A major source of cash for financing activities is the net change in deposits.
Cash provided by the net change in deposits was $426.3 million in 2009,
$322.5 million in 2008, and $13.2 million in 2007. Another major source
of cash for financing activities is short-term borrowings and long-term debt.
In 2009, net short-term borrowings used $335 million in cash and net long-
term borrowings used $201.2 million. In 2008, net short-term borrowings used
$100.1 million in cash and net long-term borrowings provided $265.1 million
in cash. The net increase in short-term borrowings provided cash of $359.2
million in 2007. Cash was used by the net decrease in long-term borrowings
of $19.4 million in 2007. In 2009, $35.3 million of cash was provided by the
issuance of subordinated notes and $53.5 million was provided by the issuance
of common stock previously held as treasury shares. In 2008, cash of $100
million was provided from the issuance of preferred stock. In 2007, cash
was also provided from the deposits of $23.5 million acquired as part of the
Millersburg, Ohio branch purchase and from the $25 million in proceeds
from the issuance of subordinated debt.
42
42
F I N A N C I A L
R E V I E W
Total interest
earning
assets
Interest bearing
liabilities:
Interest bearing
transaction
accounts (2)
Savings
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, Federal Home Loan Bank borrowings and
the capability to securitize or package loans for sale. The present funding
sources provide more than adequate liquidity for Park to meet its cash flow
needs.
The following table shows interest rate sensitivity data for five different time
intervals as of December 31, 2009:
Table 10 – Interest Rate Sensitivity
0-3
Months
3-12
Months
1-3
Years
3-5
Years
Over 5
Years
Total
(In thousands)
Interest earning
assets:
Investment
securities (1)
$ 182,483 $ 254,417 $ 465,456 $ 339,556 $ 621,648 $1,863,560
Money market
instruments
42,289
—
—
—
—
42,289
Loans (1)
1,518,818
1,383,273
1,430,468
291,842
16,031
4,640,432
1,743,590
1,637,690
1,895,924
631,398
637,679
6,546,281
608,849
— 584,996
—
—
— 1,193,845
— 873,137
accounts (2)
228,699
— 644,438
Time deposits
601,728
1,058,822
452,771
106,769
2,447
2,222,537
Other
1,290
—
—
—
—
1,290
Total deposits 1,440,566
1,058,822
1,682,205
106,769
2,447
4,290,809
Short-term
borrowings
324,219
—
—
—
— 324,219
Long-term debt
—
17,560
31,960
1,000
603,861
654,381
Subordinated
debentures/
notes
Total interest
bearing
liabilities
Interest rate
15,000
—
25,000
35,250
—
75,250
1,779,785
1,076,382
1,739,165
143,019
606,308
5,344,659
sensitivity gap
(36,195)
561,308
156,759
488,379
31,371
1,201,622
Cumulative rate
sensitivity gap
Cumulative gap as
a percentage of
total interest
earning assets
(36,195)
525,113
681,872
1,170,251
1,201,622
–0.55%
8.02%
10.42%
17.88%
18.36%
(1)
Investment securities and loans that are subject to prepayment are shown in the table by the
earlier of their repricing date or their expected repayment dates and not by their contractual
maturity. Nonaccrual loans of $233.7 million are included within the three to twelve month
maturity classification.
(2) Management considers interest bearing transaction accounts and savings accounts to be core
deposits and therefore, not as rate sensitive as other deposit accounts and borrowed money.
Accordingly, only 51% of interest bearing transaction accounts and 26% of savings accounts
are considered to reprice within one year. If all of the interest bearing checking accounts and
savings accounts were considered to reprice within one year, the one year cumulative gap
would change from a positive 8.02% to a negative 10.76%.
The interest rate sensitivity gap analysis provides a good overall picture of
Park’s static interest rate risk position. Park’s policy is that the twelve month
cumulative gap position should not exceed fifteen percent of interest earning
assets for three consecutive quarters. At December 31, 2009, the cumulative
interest earning assets maturing or repricing within twelve months were
$3,381.3 million compared to the cumulative interest bearing liabilities
maturing or repricing within twelve months of $2,856.2 million. For the
twelve-month cumulative gap position, rate sensitive assets exceed rate
sensitive liabilities by $525.1 million or 8.02% of interest earning assets.
A positive twelve month cumulative rate sensitivity gap (assets exceed liabilities)
would suggest that Park’s net interest margin would decrease if interest rates
were to decrease. Conversely, a positive twelve month cumulative rate sensitivity
gap would suggest that Park’s net interest margin would increase if interest
rates were to increase. However, the usefulness of the interest sensitivity gap
analysis as a forecasting tool in projecting net interest income is limited. The
gap analysis does not consider the magnitude by which assets or liabilities will
reprice during a period and also contains assumptions as to the repricing of
transaction and savings accounts that may not prove to be correct.
A year ago, the cumulative twelve month interest rate sensitivity gap position
at year-end 2008 was a positive $162.4 million or 2.5% of interest earning
assets. The percentage of interest earning assets maturing or repricing within
one year was 51.7% at year-end 2009 compared to 51.8% at year-end 2008.
The percentage of interest bearing liabilities maturing or repricing within one
year was 53.4% at year-end 2009 compared to 58.5% at year-end 2008.
Management supplements the interest rate sensitivity gap analysis with
periodic simulations of balance sheet sensitivity under various interest rate
and what-if scenarios to better forecast and manage the net interest margin.
Park’s management uses an earnings simulation model to analyze net interest
income sensitivity to movements in interest rates. This model is based on actual
cash flows and repricing characteristics for balance sheet instruments and
incorporates market-based assumptions regarding the impact of changing
interest rates on the prepayment rate of certain assets and liabilities. This
model also includes management’s projections for activity levels of various
balance sheet instruments and noninterest fee income and operating expense.
Assumptions based on the historical behavior of deposit rates and balances
in relation to changes in interest rates are also incorporated into this earnings
simulation model. These assumptions are inherently uncertain and as a result,
the model cannot precisely measure net interest income and net income.
Actual results will differ from simulated results due to timing, magnitude,
and frequency of interest rate changes as well as changes in market conditions
and management strategies.
Management uses a 50 basis point change in market interest rates per quarter
for a total of 200 basis points per year in evaluating the impact of changing
interest rates on net interest income and net income over a twelve month
horizon. At December 31, 2009, the earnings simulation model projected that
net income would increase by 2.2% using a rising interest rate scenario and
decrease by 0.1% using a declining interest rate scenario over the next year.
At December 31, 2008, the earnings simulation model projected that net
income would increase by 0.6% using a rising interest rate scenario and
decrease by 3.3% using a declining interest rate scenario over the next year
and at December 31, 2007, the earnings simulation model projected that
net income would increase by 0.2% using a rising interest rate scenario and
decrease by 0.6% using a declining interest rate scenario over the next year.
Consistently, over the past several years, Park’s earnings simulation model has
projected that changes in interest rates would have only a small impact on net
income and the net interest margin. Park’s net interest margin has been rela-
tively stable over the past three years at 4.22% in 2009, 4.16% in 2008, and
4.20% in 2007. A major goal of Park’s asset/liability committee is to maintain
a relatively stable net interest margin regardless of the level of interest rates.
Management expects that the net interest margin will be approximately 4.15%
to 4.20% in 2010.
CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, Park enters into certain contractual
obligations. Such obligations include the funding of operations through debt
issuances as well as leases for premises. The following table summarizes Park’s
significant and determinable obligations by payment date at December 31,
2009.
4343
F I N A N C I A L
R E V I E W
Further discussion of the nature of each specified obligation is included in the
referenced Note to the Consolidated Financial Statements or referenced Table
in this Financial Review section.
Table 11 – Contractual Obligations
December 31, 2009
Payments Due In
Table /
Note
0–1
Years
1–3
Years
3–5
Years
Over 5
Years
Total
(In thousands)
Deposits without
stated maturity
Certificates of deposit
Short-term borrowings
Long-term debt
Subordinated debentures/
notes
Operating leases
Purchase obligations
Total contractual
obligations
8
8
9
10
11
7
$2,965,515
$
— $
— $
— $2,965,515
1,657,922
455,377
106,791
2,447
2,222,537
324,219
—
—
— 324,219
17,619
32,092
1,155
603,515
654,381
—
1,903
814
—
2,700
1,623
— 75,250
75,250
1,846
2,278
—
—
8,727
2,437
$4,967,992 $491,792
$109,792 $683,490 $6,253,066
The Corporation’s operating lease obligations represent short-term and
long-term lease and rental payments for facilities and equipment. Purchase
obligations represent obligations under agreements to purchase goods or
services that are enforceable and legally binding on the Corporation.
Commitments, Contingent Liabilities, and Off-Balance Sheet
Arrangements: In order to meet the financing needs of its customers,
the Corporation issues loan commitments and standby letters of credit. At
December 31, 2009, the Corporation had $955.3 million of loan commitments
for commercial, commercial real estate, and residential real estate loans and
had $36.3 million of standby letters of credit. At December 31, 2008, the
Corporation had $1,143 million of loan commitments for commercial,
commercial real estate and residential real estate loans and had $25.4
million of standby letters of credit.
Commitments to extend credit for loan commitments and standby letters
of credit do not necessarily represent future cash requirements. These
commitments often expire without being drawn upon. However, all of the
loan commitments and standby letters of credit are permitted to be drawn
upon in 2010. See Note 18 of the Notes to Consolidated Financial Statements
for additional information on loan commitments and standby letters of credit.
The Corporation did not have any unrecorded significant contingent liabilities
at December 31, 2009.
Capital: Park’s primary means of maintaining capital adequacy is through
net retained earnings. At December 31, 2009, the Corporation’s stockholders’
equity was $717.3 million, compared to $642.7 million at December 31,
2008. Stockholders’ equity at December 31, 2009 was 10.19% of total assets
compared to 9.09% of total assets at December 31, 2008. During 2009, Park
issued an aggregate of 904,072 common shares previously held as treasury
shares, at a purchase price of $61.20 per weighted average share, for net
proceeds of $53.5 million. On December 23, 2008, Park issued $100 million
of cumulative perpetual preferred shares to the U.S. Treasury (see Note 25
of the Notes to Consolidated Financial Statements for a description of this
transaction).
Tangible stockholders’ equity (stockholders’ equity less goodwill and other
intangible assets) was $635.5 million at December 31, 2009 and was $557.1
million at December 31, 2008. At December 31, 2009, tangible stockholders’
equity was 9.13% of total tangible assets (total assets less goodwill and other
intangible assets), compared to 7.98% at December 31, 2008.
Tangible common equity (tangible stockholders’ equity less $100 million
of preferred stock and warrant issued to the U.S. Treasury) was $535.5
million at December 31, 2009 compared to $457.1 million at December 31,
2008. At December 31, 2009, tangible common equity was 7.69% of tangible
assets, compared to 6.54% at December 31, 2008.
44
44
Net income for 2009 was $74.2 million, $13.7 million in 2008, and
$22.7 million in 2007. The net income for 2008 and 2007 include goodwill
impairments at Vision Bank of $55.0 million and $54.0 million, respectively.
Excluding the goodwill impairment charges at Vision Bank, net income for
2008 and 2007 would be $68.7 million and $76.7 million, respectively.
Cash dividends declared were $53.6 million in 2009, $52.6 million in 2008,
and $52.8 million in 2007. On a per share basis, the cash dividends declared
were $3.76 per share in 2009, $3.77 per share in 2008, and $3.73 per share
in 2007.
Park did not purchase any treasury stock during 2009 or 2008. In 2007, Park
purchased 760,531 shares of treasury stock totaling $65.6 million at a weighted
average cost of $86.21 per share. Treasury stock had a balance in stockholders’
equity of $125.3 million at December 31, 2009, $207.7 million at December
31, 2008, and $208.1 million at December 31, 2007. During 2009, Park issued
904,072 shares of common stock, which reduced the amount of treasury stock
available. The issuance of these shares out of treasury stock during 2009
resulted in a reduction in treasury stock by the weighted average cost of $81.7
million and an additional $634,000 from 7,020 common shares that were
issued to directors of the Board of Directors of Park and affiliates.
During 2009 and 2008, Park did not issue any new common shares (that were
not already held in treasury stock, as discussed above). However, in 2009, Park
recorded $1.1 million for the common stock warrants that were issued as part
of the issuance of the 904,072 shares discussed above. In 2008, Park recorded
$4.3 million for the common stock warrant as part of the issuance of $100
million of preferred stock (see Note 1 and Note 25 of the Notes to Consolidated
Financial Statements). In 2007, Park issued 792,937 shares of common stock
valued at a price of $105.00 per share for a total value of $83.3 million
pursuant to the acquisition of Vision on March 9, 2007. Common stock
had a balance in stockholders’ equity of $301.2 million at December 31,
2009, December 31, 2008, and December 31, 2007.
Accumulated other comprehensive income (loss) was $15.7 million at
December 31, 2009 compared to $10.6 million at December 31, 2008
and ($2.6) million at December 31, 2007. Long-term interest rates declined
significantly in the fourth quarter of 2007, continued declining in 2008 and
remained low throughout 2009. As a result of the declining interest rate
environment, the market value of Park’s investment securities increased
during 2007 and continued to increase in 2008, with a slight decline in market
value occurring late in 2009. Park recognized a $1.5 million other comprehen-
sive loss on investment securities during 2009 and recognized $30.7 million
of other comprehensive income on investment securities in 2008 and $16.9
million in 2007. In addition, Park recognized other comprehensive income of
$6.3 million related to the change in Pension Plan assets and benefit obligations
in 2009 compared to a loss of ($16.2) million in 2008 and compared to
income of $3.3 million related to the Pension Plan in 2007. Finally, Park has
recognized other comprehensive income of $0.3 million in 2009 due to the
mark-to-market of a cash flow hedge at December 31, 2009 compared to a
($1.3) million comprehensive loss for the year ended December 31, 2008.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. Park’s accumulated other
comprehensive income (loss) is not included in computing regulatory capital.
The minimum leverage capital ratio (defined as stockholders’ equity less
intangible assets divided by tangible assets) is 4% and the well capitalized ratio
is greater than or equal to 5%. Park’s leverage ratio was 9.04% at December
31, 2009 and exceeded the minimum capital required by $353 million. The
minimum Tier 1 risk-based capital ratio (defined as leverage capital divided
by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or
equal to 6%. Park’s Tier 1 risk-based capital ratio was 12.45% at December
31, 2009 and exceeded the minimum capital required by $430 million. The
minimum total risk-based capital ratio (defined as leverage capital plus supple-
mental capital divided by risk-adjusted assets) is 8% and the well capitalized
F I N A N C I A L
R E V I E W
ratio is greater than or equal to 10%. Park’s total risk-based capital ratio was
14.89% at December 31, 2009 and exceeded the minimum capital required
by $351 million.
At December 31, 2009, Park exceeded the well capitalized regulatory guidelines
for bank holding companies. Park exceeded the well capitalized leverage capital
ratio of 5% by $283 million, exceeded the well capitalized Tier 1 risk-based
capital ratio of 6% by $328 million and exceeded the well capitalized total
risk-based capital ratio of 10% by $249 million.
The two financial institution subsidiaries of Park each met the well
capitalized ratio guidelines at December 31, 2009. See Note 22 of the
Notes to Consolidated Financial Statements for the capital ratios for Park
and its two financial institution subsidiaries.
Effects of Inflation: Balance sheets of financial institutions typically contain
assets and liabilities that are monetary in nature, and therefore, differ greatly
from most commercial and industrial companies which have significant
investments in premises, equipment and inventory. During periods of inflation,
financial institutions that are in a net positive monetary position will experience
a decline in purchasing power, which does have an impact on growth. Another
significant effect on internal equity growth is other expenses, which tend to rise
during periods of inflation.
Table 12 – Consolidated Five-Year Selected Financial Data continued
December 31,
(Dollars in thousands,
except per share data)
2009
2008
2007
2006
2005
Average Balances:
Short-term borrowings $ 419,733 $ 609,219 $ 494,160 $ 375,332 $ 291,842
799,888
835,522
Long-term debt
Stockholders’ equity
559,211
567,965
Common stockholders’
780,436
675,314
568,575
618,758
553,307
545,074
equity
Total assets
579,224
7,035,531
565,612
6,708,086
618,758
6,169,156
545,074
5,380,623
559,211
5,558,088
Ratios:
Return on average
assets (x)
Return on average
common equity (x)
Net interest margin (1)
Dividend payout ratio
Average stockholders’
equity to average
total assets
Leverage capital
Tier 1 capital
Risk-based capital
0.97%
0.20%
0.37%
1.75%
1.71%
11.81%
4.22%
78.27%
2.40%
4.16%
387.79%
3.67%
4.20%
232.35%
9.60%
9.04%
12.45%
14.89%
8.47%
8.36%
11.69%
13.47%
10.03%
7.10%
10.16%
11.97%
17.26%
4.33%
54.65%
10.13%
9.96%
14.72%
15.98%
17.03%
4.34%
54.19%
10.06%
9.27%
14.17%
15.43%
(1) Computed on a fully taxable equivalent basis
(x) Reported measure uses net income available to stockholders.
Management believes the most significant impact on financial results is the
Corporation’s ability to align its asset/liability management program to react
to changes in interest rates.
The following table is a summary of selected quarterly results of operations for
the years ended December 31, 2009 and 2008. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation.
SELECTED FINANCIAL DATA
The following table summarizes five-year financial information.
Table 12 – Consolidated Five-Year Selected Financial Data
December 31,
(Dollars in thousands,
except per share data)
Results of Operations:
Interest income
Interest expense
Net interest income
Provision for loan
losses
Net interest income
after provision for
loan losses
Net gains on sale
of securities
Noninterest income
Noninterest expense
Net income
Net income available
to common
shareholders
Per common share:
Net income per common
share – basic
Net income per common
share – diluted
Cash dividends declared
Average Balances:
Loans
Investment securities
Money market
2009
2008
2007
2006
2005
$367,690 $ 391,339 $ 401,824 $ 334,559 $ 314,459
93,895
167,147
220,564
234,677
135,466
255,873
121,315
213,244
94,199
273,491
68,821
70,487
29,476
3,927
5,407
204,670
185,386
205,201
209,317
215,157
7,340
73,850
188,725
74,192
1,115
83,719
234,501
13,708
—
71,640
224,164
22,707
97
64,665
141,002
94,091
96
59,609
139,438
95,238
68,430
13,566
22,707
94,091
95,238
4.82
4.82
3.76
0.97
0.97
3.77
1.60
1.60
3.73
6.75
6.74
3.69
6.68
6.64
3.62
4,594,436
1,877,303
4,354,520
1,801,299
4,011,307
1,596,205
3,357,278
1,610,639
3,278,092
1,851,598
instruments and other
52,518
15,502
17,838
8,723
12,258
Total earning assets 6,524,257
6,171,321
5,625,350
4,976,640
5,141,948
Noninterest bearing
deposits
Interest bearing
deposits
818,243
739,993
697,247
662,077
643,032
4,232,391
3,862,780
3,706,231
3,162,867
3,187,033
Total deposits
5,050,634
4,602,773
4,403,478
3,824,944
3,830,065
Table 13 – Quarterly Financial Data
(Dollars in thousands,
except per share data)
March 31
Three Months Ended
Sept. 30
June 30
Dec. 31
2009:
Interest income
Interest expense
Net interest income
Provision for loan losses
Gain on sale of securities
Income before
income taxes
Net income
Net income available
to common shareholders
Per common share data:
Net income per common
share – basic (x)
Net income per common
share – diluted (x)
Weighted-average common
stock outstanding – basic
Weighted-average common
stock equivalent – diluted
$93,365
$92,092
$91,868
$90,365
25,132
68,233
12,287
—
29,294
21,390
24,098
67,994
15,856
7,340
29,084
21,307
23,406
68,462
14,958
—
25,617
19,199
21,563
68,802
25,720
—
13,140
12,296
19,950
19,866
17,759
10,855
1.43
1.43
1.42
1.42
1.25
1.25
0.74
0.74
13,971,720
14,001,608
14,193,411
14,658,601
13,971,720
14,001,608
14,193,411
14,658,601
4545
F I N A N C I A L
R E V I E W
Table 13 – Quarterly Financial Data continued
(Dollars in thousands,
except per share data)
March 31
Three Months Ended
Sept. 30
June 30
Dec. 31
The following table displays net income available to common shareholders
and related performance metrics after excluding the 2007 and 2008 goodwill
impairment charges related to the Vision Bank acquisition.
2008:
Interest income
Interest expense
Net interest income
Provision for loan losses
Gain (loss) on sale of securities
Income (loss) before
income taxes
Net income (loss)
Net income (loss) available
to common shareholders
Per common share data:
Net income (loss) per common
share – basic (x)
Net income (loss) per common
share – diluted (x)
Weighted-average common
stock outstanding – basic
Weighted-average common
stock equivalent – diluted
$100,468
$98,201
$97,947
$94,723
38,984
61,484
7,394
309
32,161
22,978
33,875
64,326
14,569
587
24,454
18,191
32,719
65,228
15,906
—
(33,069)
(38,412)
29,888
64,835
32,618
219
12,173
10,951
22,978
18,191
(38,412)
10,809
1.65
1.65
1.30
1.30
(2.75)
(2.75)
0.77
0.77
13,964,572
13,964,561
13,964,549
13,967,194
13,964,572
13,964,561
13,964,549
13,967,650
(x) Reported measure uses net income available to common shareholders.
Non-GAAP Financial Measures: Park’s management uses certain non-
GAAP (generally accepted accounting principles) financial measures to
evaluate Park’s performance. Specifically, management reviews (i) net income
available to common shareholders before impairment charge, (ii) net income
available to common shareholders before impairment charge per common
share-diluted, (iii) return on average assets before impairment charge, and
(iv) return on average common equity before impairment charge, (collectively,
the “adjusted performance metrics”) and has included in this annual report
information relating to the adjusted performance metrics for the twelve-
month period ended December 31, 2008. Management believes the adjusted
performance metrics present a more reasonable view of Park’s operating per-
formance and ensures comparability of operating performance from period to
period while eliminating the one-time non-recurring impairment charges. Park
has provided reconciliations of the GAAP measures to the adjusted performance
metrics solely for the purpose of complying with SEC Regulation G and not as
an indication that the adjusted performance metrics are a substitute for other
measures determined by GAAP.
December 31,
(Dollars in thousands,
except per share data)
Results of Operations:
Net income available
to common
shareholders
excluding
impairment
charge (a)
Per common share:
Net income per
common share
excluding
impairment
charge –
diluted (a)
Ratios:
Return on average
assets excluding
impairment
charge (a)(b)
Return on average
common equity
excluding
impairment
charge (a)(b)
Noninterest expense
excluding
impairment
charge to
net revenue (1)
2009
2008
2007
2006
2005
$68,430
$68,552
$76,742
$94,091
$95,238
4.82
4.91
5.40
6.74
6.64
0.97%
1.02%
1.24%
1.75%
1.71%
11.81%
12.12%
12.40%
17.26%
17.03%
54.01%
52.59%
55.21%
50.35%
49.32%
(1) Computed on a fully taxable equivalent basis
(a) Net income for the year has been adjusted for the impairment charge to goodwill. Net income
before impairment charge equals net income for the year plus the impairment charge to
goodwill of $54,986 and $54,035 for 2008 and 2007, respectively.
(b) Reported measure uses net income available to common shareholders.
The following table displays net income available to common shareholders and
related performance metrics for each quarter in 2008 after excluding the Vision
Bank goodwill impairment charges during the third quarter of 2008.
(Dollars in thousands,
except per share data)
March 31
Three Months Ended
Sept. 30
June 30
Dec. 31
2008:
Net income available to
common shareholders
excluding impairment
charge (a)
Per common share:
Net income per common
share excluding impairment
charge – diluted (a)(x)
$22,978
$18,191
$16,574
$ 10,809
1.65
1.30
1.19
0.77
(x) Reported measure uses net income available to shareholders.
(a) Net income for the third quarter 2008 has been adjusted for the impairment charge to goodwill.
Net income excluding the impairment charge equals net income for the period plus the
impairment charge to goodwill of $54,986.
The Corporation’s common stock (symbol: PRK) is traded on the NYSE Amex.
At December 31, 2009, the Corporation had 4,616 stockholders of record. The
following table sets forth the high, low and closing sale prices of, and dividends
declared on the common stock for each quarterly period for the years ended
December 31, 2009 and 2008, as reported by NYSE Amex since October 1,
2008 and by its predecessors, the NYSE Alternext and the American Stock
Exchange LLC prior thereto.
46
46
F I N A N C I A L
R E V I E W
Table 14 – Market and Dividend Information
2009:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Last
Price
$ 70.10
$ 39.90
$ 55.75
70.00
66.59
62.55
53.88
54.01
56.35
56.48
58.34
58.88
$ 74.87
$ 56.80
$ 70.85
78.65
82.50
80.00
53.90
44.87
53.55
53.90
78.00
71.75
Cash
Dividend
Declared
Per Share
$0.94
0.94
0.94
0.94
$0.94
0.94
0.94
0.95
PERFORMANCE GRAPH
Table 15 compares the total return performance for Park common shares
with the NYSE Amex Composite Index, the NASDAQ Bank Stocks Index and the
SNL Financial Bank and Thrift Index for the five-year period from December 31,
2004 to December 31, 2009. The NYSE Amex Composite Index is a market cap-
italization-weighted index of the stocks listed on NYSE Amex. The NASDAQ Bank
Stocks Index is comprised of all depository institutions, holding companies and
other investment companies that are traded on The NASDAQ Global Select and
Global Markets. Park considers a number of bank holding companies traded
on The NASDAQ National Market to be within its peer group. The SNL Financial
Bank and Thrift Index is comprised of all publicly traded bank and thrift stocks
researched by SNL Financial.
The NYSE Amex Financial Stocks Index includes the stocks of banks, thrifts,
finance companies and securities broker-dealers. Park believes that The
NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index
are more appropriate industry indices for Park to use for the five-year total
return performance comparison.
200
180
160
140
120
100
80
60
40
20
l
e
u
a
V
x
e
d
n
I
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
Table 15 – Total Return Performance
PERIOD ENDING
Index
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
Park National Corporation
NYSE Amex Composite
NASDAQ Bank Stocks
SNL Bank and Thrift Index
100.00
100.00
100.00
100.00
78.28
126.18
95.67
101.57
78.31
151.34
106.20
118.68
53.33
62.78
54.86
177.33
105.60
143.17
82.76
90.50
62.96
52.05
51.31
51.35
The total return performance for Park’s common shares has underperformed
the total return performance of the NYSE Amex Composite Index in the five-year
comparison as indicated in Table 15, but outperformed both the NASDAQ Bank
Stocks Index and the SNL Bank and Thrift Index for the same five-year period.
The annual compound total return on Park’s common shares for the past five
years was a negative 11.3%. By comparison, the annual compound total returns
for the past five years on the NYSE Amex Composite Index, the NASDAQ Bank
Stocks Index and the SNL Bank and Thrift Index were positive 7.4%, negative
12.5% and negative 12.5%, respectively.
47
47
M A N A G E M E N T ’ S
R E P O R T
O N
O V E R
F I N A N C I A L
I N T E R N A L
R E P O R T I N G
C O N T R O L
To the Board of Directors and Stockholders
Park National Corporation
The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities
Exchange Act of 1934. The Corporation’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. The Corporation’s internal control over financial
reporting includes those policies and procedures that:
a.) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Corporation and its consolidated subsidiaries;
b.) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures
of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of
management and directors of the Corporation; and
c.) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect
on the financial statements.
The Corporation’s internal control over financial reporting as it relates to the financial statements is evaluated for
effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to
correct potential deficiencies as they are identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable
assurance with respect to financial statement preparation.
With the participation of our Chairman of the Board and Chief Executive Officer, our President and our Chief Financial
Officer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2009, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria set
forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment under the criteria described in the proceeding paragraph, management concluded that the
Corporation maintained effective internal control over financial reporting as of December 31, 2009.
The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s
2009 and 2008 consolidated financial statements included in this Annual Report and the Corporation’s internal control
over financial reporting as of December 31, 2009, and has issued their Report of Independent Registered Public
Accounting Firm, which appears in this Annual Report.
C. Daniel DeLawder
Chairman and Chief Executive Officer
David L. Trautman
President
John W. Kozak
Chief Financial Officer
February 24, 2010
4848
R E P O R T
I N D E P E N D E N T
O F
P U B L I C
A C C O U N T I N G
F I R M
R E G I S T E R E D
To the Board of Directors and Shareholders
Park National Corporation
Newark, Ohio
We have audited the accompanying consolidated balance sheets of Park National Corporation as of December 31, 2009 and 2008
and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2009. We also have audited Park National Corporation’s internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Park National Corporation’s management is responsible
for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion
on the company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Park National Corporation as of December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, Park National Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control –
Integrated Framework issued by the COSO.
Columbus, Ohio
February 24, 2010
49
49
C O N S O L I D A T E D
B A L A N C E
S H E E T S
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2009 and 2008 (In thousands, except share and per share data)
ASSETS
Cash and due from banks
Money market instruments
Cash and cash equivalents
Investment securities:
Securities available-for-sale, at fair value (amortized cost of $1,241,381 and
$1,513,223 at December 31, 2009 and 2008, respectively)
Securities held-to-maturity, at amortized cost (fair value of $523,450 and
$433,435 at December 31, 2009 and 2008, respectively)
Other investment securities
Total investment securities
Total loans
Allowance for loan losses
Net loans
Other assets:
Bank owned life insurance
Goodwill
Other intangibles
Premises and equipment, net
Accrued interest receivable
Other real estate owned
Mortgage loan servicing rights
Other
Total other assets
Total assets
The accompanying notes are an integral part of the financial statements.
2009
$ 116,802
42,289
159,091
1,287,727
506,914
68,919
1,863,560
4,640,432
(116,717)
4,523,715
137,133
72,334
9,465
69,091
24,354
41,240
10,780
129,566
493,963
$7,040,329
2008
$ 150,298
20,964
171,262
1,561,896
428,350
68,805
2,059,051
4,491,337
(100,088)
4,391,249
132,916
72,334
13,211
68,553
27,930
25,848
8,306
100,060
449,158
$7,070,720
50
50
C O N S O L I D A T E D
B A L A N C E
S H E E T S
(CONTINUED)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2009 and 2008 (In thousands, except share and per share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing
Interest bearing
Total deposits
Short-term borrowings
Long-term debt
Subordinated debentures
Total borrowings
Other liabilities:
Accrued interest payable
Other
Total other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Preferred stock (200,000 shares authorized;
100,000 shares issued with $1,000 per share
liquidation preference)
Common stock, no par value (20,000,000 shares authorized;
16,151,112 shares issued in 2009 and 16,151,151 issued in 2008)
Common stock warrants
Accumulated other comprehensive income, net
Retained earnings
Less: Treasury stock (1,268,332 shares in 2009 and
2,179,424 shares in 2008)
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of the financial statements.
2009
$ 897,243
4,290,809
5,188,052
324,219
654,381
75,250
1,053,850
9,330
71,833
81,163
6,323,065
96,483
301,208
5,361
15,661
423,872
(125,321)
717,264
$7,040,329
2008
$ 782,625
3,979,125
4,761,750
659,196
855,558
40,000
1,554,754
11,335
100,218
111,553
6,428,057
95,721
301,210
4,297
10,596
438,504
(207,665)
642,663
$7,070,720
51
51
C O N S O L I D A T E D
S T A T E M E N T S
O F
I N C O M E
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2009, 2008 and 2007 (In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities
Obligations of states and political subdivisions
Other interest income
Total interest and dividend income
Interest expense:
Interest on deposits:
Demand and savings deposits
Time deposits
Interest on short-term borrowings
Interest on long-term debt
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Income from fiduciary activities
Service charges on deposit accounts
Net gains on sales of securities
Other service income
Check fee income
Bank owned life insurance income
Net gain on sale of credit card portfolio
Income from sale of merchant processing
Other
Total other income
The accompanying notes are an integral part of the financial statements.
2009
2008
2007
$275,599
$301,163
$ 320,827
90,558
1,417
116
367,690
10,815
53,805
3,209
26,370
94,199
273,491
68,821
204,670
12,468
21,985
7,340
18,767
9,339
5,050
—
—
87,711
2,171
294
391,339
22,633
67,259
14,469
31,105
135,466
255,873
70,487
185,386
13,937
24,296
1,115
8,882
8,695
5,102
7,618
4,200
77,016
3,061
920
401,824
39,797
81,224
22,113
24,013
167,147
234,677
29,476
205,201
14,403
23,813
—
11,543
7,200
4,228
—
—
6,241
$ 81,190
10,989
$ 84,834
10,453
$ 71,640
52
52
C O N S O L I D A T E D
S T A T E M E N T S
O F
I N C O M E
(CONTINUED)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2009, 2008 and 2007 (In thousands, except per share data)
Other expense:
Salaries and employee benefits
Goodwill impairment charge
Data processing fees
Fees and service charges
Net occupancy expense of bank premises
Amortization of intangibles
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
State taxes
Other
Total other expense
Income before income taxes
Income taxes
Net income
Preferred stock dividends and accretion
Income available to common shareholders
Earnings per common share:
Basic
Diluted
The accompanying notes are an integral part of the financial statements.
2009
2008
2007
$101,225
$ 99,018
$ 97,712
—
5,674
15,935
11,552
3,746
9,734
12,072
3,775
6,903
3,206
14,903
188,725
97,135
22,943
$ 74,192
5,762
$ 68,430
$4.82
$4.82
54,986
7,121
12,801
11,534
4,025
9,756
2,322
4,525
7,167
2,989
18,257
234,501
35,719
22,011
$ 13,708
142
$ 13,566
$0.97
$0.97
54,035
6,892
11,055
10,717
3,847
9,259
1,445
4,961
6,910
2,769
14,562
224,164
52,677
29,970
$ 22,707
—
$ 22,707
$1.60
$1.60
53
53
income taxes of $1,759
Unrealized net holding gain on
securities available-for-sale,
net of income taxes of $9,125
Total comprehensive income
Cash dividends, $3.73 per share
Cash payment for fractional shares
in dividend reinvestment plan
Stock options granted
Treasury stock purchased
Treasury stock reissued
for stock options exercised
and other grants
Shares issued for Vision Bancshares, Inc. purchase
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of
income taxes of $(8,735)
Unrealized net holding loss on
cash flow hedge, net of
income taxes of $(678)
Unrealized net holding gain on
securities available-for-sale,
net of income taxes of $16,522
Total comprehensive income
Cash dividends, $3.77 per share
Cash payment for fractional shares
in dividend reinvestment plan
Cumulative effect of new accounting
pronouncement pertaining to
endorsement split-dollar life insurance
SFAS No. 158 measurement date
adjustment, net of taxes of $(178)
Preferred stock issued
Discount on preferred stock issued
Accretion of discount on preferred stock
Common stock warrant issued
Preferred stock dividends
Treasury stock reissued for
director grants
C O N S O L I D A T E D
S T A T E M E N T S
O F
C H A N G E S
I N
S T O C K H O L D E R S ’
E Q U I T Y
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2009, 2008 and 2007 (In thousands, except share and per share data)
Preferred Stock
Common Stock
Shares
Outstanding
Amount
—
$
—
Shares
Outstanding
13,921,529
—
Amount
$217,067
—
Retained
Earnings
$519,563
22,707
Treasury
Stock
$(143,371)
—
Accumulated
Other
Comprehensive
Income (Loss)
$(22,820)
—
Total
$570,439
22,707
Comprehensive
Income
$ 22,707
Balance, January 1, 2007
Net income
Other comprehensive income, net of tax:
Change in funded status of pension plan, net of
Balance, December 31, 2007
—
$
—
13,964,576
$301,213
3,266
3,266
3,266
16,946
16,946
16,946
$ 42,919
—
(60)
—
(760,531)
—
(5)
893
—
10,701
792,937
—
83,258
(52,759)
—
—
—
—
—
—
—
—
(65,568)
835
—
—
—
—
—
—
—
$489,511
13,708
$(208,104)
—
$ (2,608)
—
(52,759)
(5)
893
(65,568)
835
83,258
$580,012
13,708
$ 13,708
(16,223)
(16,223)
(16,223)
(1,259)
(1,259)
(1,259)
30,686
30,686
30,686
$ 26,912
—
(49)
—
(3)
100,000
100,000
(4,297)
18
—
4,297
—
—
—
—
(52,608)
—
(11,634)
(331)
(18)
(124)
7,200
13,971,727
—
439
$305,507
—
$438,504
74,192
$(207,665)
—
$ 10,596
—
(52,608)
(3)
(11,634)
(331)
100,000
(4,297)
—
4,297
(124)
439
$642,663
74,192
$ 74,192
Balance, December 31, 2008
100,000
$ 95,721
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of
income taxes of $3,383
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $159
Unrealized net holding (loss) on
securities available-for-sale,
net of income taxes of $(815)
Total comprehensive income
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan
Reissuance of common stock
from treasury shares held
Accretion of discount on preferred stock
Common stock warrant issued
Preferred stock dividends
Treasury stock reissued for
director grants
6,283
6,283
6,283
295
295
295
(1,513)
(1,513)
(1,513)
$ 79,257
—
(39)
904,072
—
(2)
—
762
—
1,064
(53,563)
—
(29,299)
(762)
(5,000)
—
—
81,710
—
—
—
7,020
(200)
634
(53,563)
(2)
52,411
—
1,064
(5,000)
434
Balance, December 31, 2009
100,000
$ 96,483
14,882,780
$306,569
$423,872
$(125,321)
$ 15,661
$717,264
The accompanying notes are an integral part of the financial statements.
54
54
C O N S O L I D A T E D
S T A T E M E N T S
O F
C A S H
F L O W S
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2009, 2008 and 2007 (In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Amortization of loan fees and costs, net
Provision for depreciation
Other than temporary impairment on investment securities
Goodwill impairment charge
Amortization of intangible assets
Accretion of investment securities
Gain on sale of credit card portfolio
Deferred income tax (benefit)
Realized net investment security (gains)
Stock based compensation expense
Stock dividends on Federal Home Loan Bank stock
Changes in assets and liabilities:
Increase in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Investing activities:
Proceeds from sales of available-for-sale securities
Proceeds from maturities of securities:
Held-to-maturity
Available-for-sale
Purchase of securities:
Held-to-maturity
Available-for-sale
Proceeds from sale of credit card portfolio
Net (increase) decrease in other investments
Net loan originations, excluding loan sales
Proceeds from sale of loans
Proceeds from loans purchased with branch office
Cash (paid) for acquisition, net
Purchases of bank owned life insurance, net
Purchases of premises and equipment, net
Premises and equipment acquired in branch acquisitions
Net cash used in investing activities
Financing activities:
Net increase in deposits
Deposits purchased with branch office
Net (decrease) increase in short-term borrowings
Issuance of preferred stock
Issuance (purchase) of treasury stock, net
Proceeds from issuance of subordinated notes
Proceeds from long-term debt
Repayment of long-term debt
Cash dividends paid
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure:
Summary of business acquisition:
Fair value of assets acquired
Cash paid for the purchase of financial institutions
Stock issued for the purchase of financial institutions
Fair value of liabilities assumed
Goodwill recognized
2009
$ 74,192
68,821
(1,378)
7,473
613
—
3,746
(2,682)
—
(8,932)
(7,340)
—
—
(31,987)
(30,622)
71,904
204,304
40,105
426,841
(118,667)
(349,895)
—
(114)
(814,981)
615,072
—
—
—
(8,011)
—
(5,346)
426,302
—
(334,977)
—
53,909
35,250
60,100
(261,278)
(58,035)
(78,729)
(12,171)
171,262
$ 159,091
$
$
—
—
—
—
—
2008
$ 13,708
70,487
(4,650)
7,517
980
54,986
4,025
(1,592)
(7,618)
(1,590)
(1,115)
—
(2,269)
(42,409)
239
90,699
80,894
7,116
303,160
(270,045)
(422,512)
38,841
(3,371)
(512,752)
161,475
—
—
(8,401)
(9,436)
—
(635,031)
322,511
—
(100,122)
100,000
439
—
690,100
(424,951)
(65,781)
522,196
(22,136)
193,398
$ 171,262
$
$
—
—
—
—
—
2007
$ 22,707
29,476
(5,935)
6,480
—
54,035
3,847
(3,009)
—
(7,839)
—
893
—
(11,980)
(5,492)
83,183
—
11,063
700,582
—
(842,598)
—
180
(287,425)
161,420
(38,348)
(47,686)
—
(16,331)
(1,150)
(360,293)
13,198
23,466
359,213
—
(64,733)
25,000
378,100
(397,460)
(52,533)
284,251
7,141
186,257
$ 193,398
$ 686,512
(87,843)
(83,258)
(624,432)
$(109,021)
The accompanying notes are an integral part of the financial statements.
55
55
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Park National
Corporation (“Park”, the “Company” or the “Corporation”) and all of its
subsidiaries. Material intercompany accounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Management has identified the allowance for loan losses and
accounting for goodwill as significant estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Subsequent Events
The Company has evaluated subsequent events for recognition or disclosure
through February 24, 2010, which is the date that the Company’s financial
statements were issued.
Investment Securities
Investment securities are classified upon acquisition into one of three
categories: held-to-maturity, available-for-sale, or trading (see Note 4 of
these Notes to Consolidated Financial Statements).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available to
be sold in the future in response to the Corporation’s liquidity needs, changes
in market interest rates, and asset-liability management strategies, among
others. Available-for-sale securities are reported at fair value, with unrealized
holding gains and losses excluded from earnings but included in other
comprehensive income, net of applicable taxes. The Corporation did not hold
any trading securities during any period presented.
Available-for-sale and held-to-maturity securities are evaluated quarterly for
potential other-than-temporary impairment. Management considers the facts
of each security including the nature of the security, the amount and duration
of the loss, credit quality of the issuer, the expectations for that security’s
performance and Park’s intent and ability to hold the security until recovery.
Declines in equity securities that are considered to be other-than-temporary
are recorded as a charge to earnings in the Consolidated Statements of Income.
Declines in debt securities that are considered to be other-than-temporary are
separated into (1) the amount of the total impairment related to credit loss and
(2) the amount of the total impairment related to all other factors. The amount
of the total other-than-temporary impairment related to the credit loss is recog-
nized in earnings. The amount of the total impairment related to all other
factors is recognized in other comprehensive income.
Other investment securities (as shown on the Consolidated Balance Sheet)
consist of stock investments in the Federal Home Loan Bank and the Federal
Reserve Bank.
Interest income includes amortization of purchase premium or discount.
Premiums and discounts on securities are amortized on the level-yield method
without anticipating prepayments, except for mortgage-backed securities where
prepayments are anticipated.
Gains and losses realized on the sale of investment securities are recorded on
the trade date and determined using the specific identification basis.
56
56
Federal Home Loan Bank (FHLB) Stock
Park’s two separately chartered banks are members of the FHLB system.
Members are required to own a certain amount of stock based on their level of
borrowings and other factors and may invest in additional amounts. FHLB stock
is carried at cost, classified as a restricted security, and periodically evaluated
for impairment based on the ultimate recovery of the par value. Both cash and
stock dividends are reported as income.
Bank Owned Life Insurance
Park has purchased life insurance policies on directors and certain key officers.
Bank owned life insurance is recorded at its cash surrender value (or the
amount that can be realized).
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at their fair value as of December 31,
2009 and at the lower of cost or fair value at December 31, 2008. Due to the
significant increase in mortgage originations through the first half of 2009,
and to better match the change in fair value of commitments to sell these loans,
Park elected the fair value option of accounting for mortgage loans held for sale
that were originated after January 1, 2009. Mortgage loans held for sale were
$9.6 million at December 31, 2009 and 2008. These amounts are included
in loans on the Consolidated Balance Sheet. The impact of adopting the fair
value option for mortgage loans held for sale added $0.1 million to other
service income for the year ended December 31, 2009.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the
secondary market and forward commitments for the future delivery of these
mortgage loans are accounted for as free standing derivatives. Fair values of
these mortgage derivatives are estimated based on changes in mortgage interest
rates from the date the interest on the loan is locked. The Company enters into
forward commitments for the future delivery of mortgage loans when interest
rate locks are entered into, in order to hedge the change in interest rates result-
ing from its commitments to fund the loans. Changes in the fair values of these
derivatives are included in net gains on sales of loans.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff, are reported at their outstanding principal
balances adjusted for any charge-offs, any deferred fees or costs on originated
loans, and any unamortized premiums or discounts on purchased loans.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term. Generally, commercial
loans are placed on nonaccrual status at 90 days past due and consumer and
residential mortgage loans are placed on nonaccrual status at 120 days past
due. Interest on these loans is considered a loss, unless the loan is well-secured
and in the process of collection. Commercial loans placed on nonaccrual status
are considered impaired (See Note 5 of these Notes to Consolidated Financial
Statements). For loans which are on nonaccrual status, it is Park’s policy to
reverse interest previously accrued on the loan against interest income. Interest
on such loans is thereafter recorded on a cash basis and is included in earnings
only when actually received in cash.
The delinquency status of a loan is based on contractual terms and not on how
recently payments have been received. Loans are removed from nonaccrual
status when loan payments have been received to cure the delinquency status
and the loan is deemed to be well-secured by management.
Allowance for Loan Losses
The allowance for loan losses is that amount believed adequate to absorb
probable incurred credit losses in the loan portfolio based on management’s
evaluation of various factors. The determination of the allowance requires
significant estimates, including the timing and amounts of expected cash
flows on impaired loans, consideration of current economic conditions,
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
and historical loss experience pertaining to pools of homogeneous loans, all
of which may be susceptible to change. The allowance is increased through a
provision for loan losses that is charged to earnings based on management’s
quarterly evaluation of the factors previously mentioned and is reduced by
charge-offs, net of recoveries.
The allowance for loan losses includes both (1) an estimate of loss based
on historical loss experience within both commercial and consumer loan
categories with similar characteristics (“statistical allocation”) and (2) an
estimate of loss based on an impairment analysis of each commercial loan
that is considered to be impaired (“specific allocation”).
In calculating the allowance for loan losses, management believes it is
appropriate to utilize historical loss rates that are comparative to the current
period being analyzed. For the historical loss factor at December 31, 2009,
the Company annualized actual losses (net charge-offs) experienced during
2008 and 2009 within the commercial and consumer loan categories. For these
purposes, consumer loans include residential real estate loans. Considering
the unprecedented economic conditions over the past 24 months, we believe
it is reasonable to use actual losses for 2008 and 2009 in our determination
of the December 31, 2009 historical loss factor. The loss factor applied to
Park’s consumer portfolio includes the annualized two year historical loss
factor, plus an additional judgmental reserve, increasing the total allowance
for loan loss coverage in the consumer portfolio to approximately 1.25 years
of historical loss. The loss factor applied to Park’s commercial portfolio
includes the annualized two year historical loss factor, plus an additional
judgmental reserve, increasing the total allowance for loan loss coverage
in the commercial portfolio to approximately two years of historical loss.
Park’s commercial loans are individually risk graded. If loan downgrades
occur, the probability of default increases, and accordingly, management
allocates a higher percentage reserve to those accruing commercial loans
graded special mention and substandard. At December 31, 2008, much of the
loss factors applied to the Company’s commercial and consumer loss categories
consisted of subjective adjustments due to the Company’s limited recent loan
loss history.
U.S. generally accepted accounting principles (“GAAP”) require a specific
allocation to be established as a component of the allowance for loan losses
for certain loans when it is probable that all amounts due pursuant to the
contractual terms of the loan will not be collected, and the recorded investment
in the loan exceeds fair value. Fair value is measured using either the present
value of expected future cash flows based upon the initial effective interest rate
on the loan, the observable market price of the loan or the fair value of the
collateral, if the loan is collateral dependent.
Income Recognition
Income earned by the Corporation and its subsidiaries is recognized on
the accrual basis of accounting, except for nonaccrual loans, as previously
discussed, and late charges on loans which are recognized as income when
they are collected.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is generally provided on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the remaining lease period or the estimated
useful lives of the improvements. Upon the sale or other disposal of an asset,
the cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss is recognized. Maintenance and repairs are
charged to expense as incurred while renewals and improvements that extend
the useful life of an asset are capitalized. Premises and equipment is evaluated
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
The range of depreciable lives over which premises and equipment are being
depreciated are:
Buildings
Equipment, furniture and fixtures
Leasehold improvements
5 to 50 Years
3 to 20 Years
1 to 10 Years
Buildings that are currently placed in service are depreciated over 30 years.
Equipment, furniture and fixtures that are currently placed in service are
depreciated over 3 to 12 years. Leasehold improvements are depreciated
over the lives of the related leases which range from 1 to 10 years.
Other Real Estate Owned
Other real estate owned is recorded at the lower of cost or fair market value
(which is the estimated net realizable value) and consists of property acquired
through foreclosure and real estate held for sale. Subsequent to acquisition,
write-downs to other real estate owned result if carrying values exceed fair
value less estimated costs to sell. These write-downs are expensed within
“other income”. Costs relating to development and improvement of such
properties are capitalized (not in excess of fair value less estimated costs
to sell) and costs relating to holding the properties are charged to expense.
Mortgage Loan Servicing Rights
When Park sells mortgage loans with servicing rights retained, servicing rights
are recorded at fair value, with the income statement effect recorded in gains
on sale of loans. Capitalized servicing rights are amortized in proportion to
and over the period of estimated future servicing income of the underlying loan.
Capitalized mortgage servicing rights totaled $10.8 million at December 31,
2009 and $8.3 million at December 31, 2008, which was also the fair value
of servicing rights at December 31, 2009 and 2008. The fair value of mortgage
servicing rights is determined by discounting estimated future cash flows
from the servicing assets, using market discount rates and expected future
prepayment rates. In order to calculate fair value, the sold loan portfolio
is stratified into homogenous pools of like categories. (See Note 20 of
these Notes to Consolidated Financial Statements.)
Mortgage servicing rights are assessed for impairment periodically, based
on fair value, with any impairment recognized through a valuation allowance.
Fees received for servicing mortgage loans owned by investors are based on
a percentage of the outstanding monthly principal balance of such loans and
are included in income as loan payments are received. The cost of servicing
loans is charged to expense as incurred.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over net identifiable
tangible and intangible assets acquired in a purchase business combination.
Other intangible assets represent purchased assets that have no physical
property but represent some future economic benefit to their owner and
are capable of being sold or exchanged on their own or in combination
with a related asset or liability.
Goodwill and indefinite-lived intangible assets are not amortized to expense, but
are subject to annual impairment tests, or more frequently if events or changes
in circumstances indicate that the asset might be impaired. Intangible assets
with definitive useful lives (such as core deposit intangibles) are amortized
to expense over their estimated useful lives.
Management considers several factors when performing the annual impairment
tests on goodwill. The factors considered include the operating results for the
particular Park segment for the past year and the operating results budgeted for
the current year (including multi-year projections), the purchase prices being
paid for financial institutions in the markets served by the Park segment, the
deposit and loan totals of the Park segment and the economic conditions in
the markets served by the Park segment.
5757
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following table reflects the activity in goodwill and other intangible assets
for the years 2009, 2008 and 2007. (See Note 2 of these Notes to Consolidated
Financial Statements for details on the acquisition of Vision Bancshares, Inc.
(“Vision”), and the recognition of impairment charges in 2008 and 2007
to Vision Bank’s goodwill.)
(In thousands)
January 1, 2007
Vision Acquisition
Millersburg Branch Acquisition
Amortization
Impairment of Vision Goodwill
December 31, 2007
Amortization
Impairment of Vision Goodwill
December 31, 2008
Amortization
December 31, 2009
Goodwill
$ 72,334
109,021
—
—
(54,035)
Core Deposit
Intangibles
$ 5,669
12,720
2,694
(3,847)
—
Total
$ 78,003
121,741
2,694
(3,847)
(54,035)
$127,320
$17,236
$144,556
—
(54,986)
(4,025)
—
(4,025)
(54,986)
$ 72,334
$13,211
$ 85,545
—
$72,334
(3,746)
$9,465
(3,746)
$81,799
GAAP requires a company to perform an impairment test on goodwill annually,
or more frequently if events or changes in circumstances indicate that the asset
might be impaired, by comparing the fair value of such goodwill to its recorded
or carrying amount. If the carrying amount of the goodwill exceeds the fair
value, an impairment charge must be recorded in an amount equal to the
excess.
Park typically evaluates goodwill for impairment during the first quarter of each
year. A determination was made during the first quarter of 2009 that goodwill
for Park’s Ohio-based bank (The Park National Bank) was not impaired.
During the fourth quarter of 2007, Park’s management determined that the
goodwill from the Vision acquisition on March 9, 2007 could possibly be
impaired due to the significant deterioration in the credit condition of Vision
Bank. Nonperforming loans at Vision Bank increased from $26.3 million at
September 30, 2007 to $63.5 million at December 31, 2007, or 9.9% of year-
end loan balances. Net loan charge-offs were $6.4 million for the fourth quarter
or an annualized 3.99% of average loan balances. Management determined,
due to severe credit conditions, that a valuation of the fair value of Vision Bank
should be computed to determine if the goodwill of $109.0 million was
impaired as of December 31, 2007.
At December 31, 2007, management calculated the estimated fair value
of Vision Bank to be $123.0 million, based on four equally weighted tests:
(i) on-going earnings multiplied by a price to earnings multiple; (ii) tangible
book multiplied by a price to tangible book ratio; (iii) core deposit premium
added to tangible book; and (iv) discounted future cash flows. Once it is
determined that the fair value is materially less than the carrying value, GAAP
requires a company to calculate the implied fair value of goodwill and compare
it to the carrying amount of goodwill. The amount of the excess of the carrying
amount of goodwill over the implied amount of goodwill is the amount of the
impairment loss, which was calculated as $54.0 million by Park management.
After the impairment charge, the new carrying amount of goodwill resulting
from the Vision acquisition was $55.0 million at December 31, 2007.
The balance of goodwill was $127.3 million at December 31, 2007 and was
located at four subsidiary banks of Park. The subsidiary banks were Vision
Bank ($55.0 million), The Park National Bank ($39.0 million), Century
National Bank ($25.8 million) and The Security National Bank and Trust Co.
($7.5 million).
Based primarily on the increased level of net loan charge-offs at Vision
Bank, management determined that it was appropriate to test for goodwill
impairment during the third quarter of 2008. Park continued to experience
credit deterioration in Vision Bank’s market place during the third quarter
of 2008. The fair value of Vision was estimated by using the average of three
measurement methods. These included application of various metrics from
bank sale transactions for institutions comparable to Vision Bank, including
application of a market-derived multiple of tangible book value and estimations
of the present value of future cash flows. Park’s management reviewed the
valuation of Vision Bank with Park’s Board of Directors and concluded that
Vision Bank should recognize an impairment charge and write down the
remaining goodwill ($55.0 million), resulting in a goodwill balance of
zero with respect to the Vision Bank reporting unit.
Goodwill and other intangible assets (as shown on the Consolidated Balance
Sheet) totaled $81.8 million at December 31, 2009 and $85.5 million at
December 31, 2008.
The core deposit intangibles are being amortized to expense principally
on the straight-line method, over periods ranging from six to ten years.
The amortization period for the Vision acquisition is six years. Core deposit
intangible amortization expense was $3.7 million in 2009, $4.0 million
in 2008 and $3.8 million in 2007.
The accumulated amortization of core deposit intangibles was $12.7 million as
of December 31, 2009 and $8.9 million at December 31, 2008. The expected
core deposit intangible amortization expense for each of the next five years is
as follows:
(In thousands)
2010
2011
2012
2013
2014
Total
$3,422
2,677
2,677
689
—
$9,465
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from
banks and money market instruments. Generally money market instruments
are purchased and sold for one-day periods.
Net cash provided by operating activities reflects cash payments as follows:
December 31,
(Dollars in thousands)
2009
2008
2007
Interest paid on deposits and other borrowings
Income taxes paid
$96,204
$30,660
$139,256
$ 28,365
$167,154
$ 39,115
Loss Contingencies and Guarantees
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated.
Income Taxes
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. To the extent that Park
does not consider it more likely than not that a deferred tax asset will be
recovered, a valuation allowance is recorded. All positive and negative evidence
is reviewed when determining how much of a valuation allowance is recognized
on a quarterly basis. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more-likely-
than-not” that the tax position would be sustained in a tax examination being
presumed to occur. The benefit recognized for a tax position that meets the
“more-likely-than-not” criteria is measured based on the largest benefit that
is more than 50 percent likely to be realized, taking into consideration the
amounts and probabilities of the outcome upon settlement. For tax positions
not meeting the “more-likely-than-not” test, no tax benefit is recorded.
Preferred Stock
On December 23, 2008, Park issued $100 million of Senior Preferred Shares
to the U.S. Department of Treasury (the “Treasury”) under the Capital Purchase
Program (CPP), consisting of 100,000 shares, each with a liquidation
58
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
preference of $1,000 per share. In addition, on December 23, 2008, Park
issued a warrant to the Treasury to purchase 227,376 common shares.
These preferred shares and related warrant are considered permanent
equity for accounting purposes. GAAP requires management to allocate the
proceeds from the issuance of the preferred stock between the preferred stock
and related warrant. The terms of the preferred shares require management
to pay a cumulative dividend at the rate of 5 percent per annum until February
14, 2014 and 9 percent thereafter. Management determined that the 5 percent
dividend rate is below market value; therefore, the fair value of the preferred
shares would be less than the $100 million in proceeds. Management deter-
mined that a reasonable market discount rate is 12 percent for the fair value of
preferred shares. Management used the Black-Scholes model for calculating the
fair value of the warrant (and related common shares). The allocation between
the preferred shares and warrant at December 23, 2008, the date of issuance,
was $95.7 million and $4.3 million, respectively. The discount on the preferred
shares of $4.3 million is being accreted through retained earnings over a 60
month period.
Treasury Stock
The purchase of Park’s common stock is recorded at cost. At the date of
retirement or subsequent reissuance, the treasury stock account is reduced
by the weighted average cost of the common shares retired or reissued.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive
income (loss). Other comprehensive income (loss) includes unrealized gains
and losses on securities available for sale, changes in the funded status of the
Company’s Defined Benefit Pension Plan, and the unrealized net holding gains
and losses on the cash flow hedge, which are also recognized as separate
components of equity.
Stock Based Compensation
Compensation cost is recognized for stock options and stock awards issued
to employees and directors, based on the fair value of these awards at the date
of grant. A Black-Scholes model is utilized to estimate the fair value of stock
options, while the market price of Park’s common stock at the date of grant
is used for stock awards. Compensation cost is recognized over the required
service period, generally defined as the vesting period. Park did not grant any
stock options during 2009 or 2008, but granted 90,000 stock options in 2007.
Additionally, all stock options granted in 2007 vested that year. No stock options
vested in 2009 or 2008. Park granted 7,020 , 7,200 and 7,140 shares of
common stock to its directors in 2009, 2008 and 2007, respectively.
Derivative Instruments
At the inception of a derivative contract, the Company designates the derivative
as one of three types based on the Company’s intentions and belief as to likely
effectiveness as a hedge. These three types are (1) a hedge of the fair value of
a recognized asset or liability or of an unrecognized firm commitment (“fair
value hedge”), (2) a hedge of a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash
flow hedge”), or (3) an instrument with no hedging designation (“stand-alone
derivative”). For a fair value hedge, the gain or loss on the derivative, as well
as the offsetting loss or gain on the hedged item, are recognized in current
earnings as fair values change. For a cash flow hedge, the gain or loss on the
derivative is reported in other comprehensive income and is reclassified into
earnings in the same periods during which the hedged transaction affects earn-
ings. For both types of hedges, changes in the fair value of derivatives that are
not highly effective in hedging the changes in fair value or expected cash flows
of the hedged item are recognized immediately in current earnings. Changes
in the fair value of derivatives that do not qualify for hedge accounting are
reported currently in earnings, as noninterest income.
The Company formally documents the relationship between derivatives and
hedged items, as well as the risk-management objective and the strategy for
undertaking hedge transactions at the inception of the hedging relationship.
This documentation includes linking fair value or cash flow hedges to specific
assets and liabilities on the Consolidated Balance Sheet or to specific firm
commitments or forecasted transactions. The Company also formally assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivative
instruments that are used are highly effective in offsetting changes in fair values
or cash flows of the hedged items. The Company discontinues hedge accounting
when it determines that the derivative is no longer effective in offsetting changes
in the fair value or cash flows of the hedged item, the derivative is settled or
terminates, a hedged forecasted transaction is no longer probable, a hedged
firm commitment is no longer firm, or treatment of the derivative as a hedge
is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of
the derivative are recorded as noninterest income. When a fair value hedge is
discontinued, the hedged asset or liability is no longer adjusted for changes in
fair value and the existing basis adjustment is amortized or accreted over the
remaining life of the asset or liability. When a cash flow hedge is discontinued
but the hedged cash flows or forecasted transactions are still expected to occur,
gains or losses that were accumulated in other comprehensive income are
amortized into earnings over the same periods which the hedged transactions
will affect earnings.
Fair Value Measurement
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in Note 21 of
these Notes to Consolidated Financial Statements. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions
could significantly affect the estimates.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been relinquished. Control over transferred assets is deemed
to be surrendered when the assets have been isolated from the Company, the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and the
Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets
and amortization of gains and losses not immediately recognized. Employee
401(k) plan expense is the amount of matching contributions. Deferred
compensation and supplemental retirement plan expense allocates the
benefits over years of service.
Earnings Per Common Share
Basic earnings per common share is net income available to common stock-
holders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share includes the dilutive
effect of additional potential common shares issuable under stock options,
warrants and convertible securities. Earnings and dividends per common
share are restated for any stock splits and stock dividends through the date
of issuance of the financial statements.
Adoption of New Accounting Standards in 2009
Accounting for Business Combinations: Park adopted new guidance
impacting Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 805, Business Combinations (SFAS 141(R),
“Business Combinations”), on January 1, 2009. This guidance was issued
with the objective to improve the comparability of information that a company
provides in its financial statements related to a business combination. This
new guidance establishes principles and requirements for how the acquirer:
(i) recognizes and measures in its financial statements the identifiable assets
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acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (ii) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (iii) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This new guidance
does not apply to combinations between entities under common control. The
Company’s adoption of the new guidance had no impact on Park’s financial
statements and applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009.
Noncontrolling Interests in Consolidated Financial Statements:
Park adopted new guidance impacting FASB ASC 810-10, Consolidation
(SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements”), on January 1, 2009. A noncontrolling interest, also known
as a “minority interest,” is the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. This guidance was issued with the objective to
improve upon the consistency of financial information that a company provides
in its consolidated financial statements. This guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company’s adoption of the new guidance did not
have a material impact on Park’s consolidated financial statements.
Disclosures about Derivative Instruments and Hedging Activities:
Park adopted new guidance impacting FASB ASC 815-10, Derivatives and
Hedging (SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities”), on January 1, 2009. This guidance requires enhanced disclosures
about an entity’s derivative and hedging activities and therefore should improve
the transparency of financial reporting, and is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The Company’s adoption of the new guidance did not have a material impact on
Park’s consolidated financial statements.
Subsequent Events: Park adopted FASB ASC 855, Subsequent Events (SFAS
No. 165, “Subsequent Events”), on June 30, 2009. This guidance establishes
general standards of accounting for and disclosures of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. Companies should disclose the date through which
subsequent events have been evaluated and whether that date is the date the
financial statements were issued or the date the financial statements were
available to be issued. Companies are required to reflect in their financial
statements the effects of subsequent events that provide additional evidence
about conditions at the balance-sheet date (recognized subsequent events).
Companies are also prohibited from reflecting in their financial statements the
effects of subsequent events that provide evidence about conditions that arose
after the balance-sheet date (nonrecognized subsequent events), but requires
information about those events to be disclosed if the financial statements would
otherwise be misleading. The Company’s adoption of this guidance did not have
a material impact on Park’s consolidated financial statements.
Interim Disclosures about Fair Value of Financial Instruments:
Park adopted new guidance impacting FASB ASC 825-10-50, Financial
Instruments (FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments”), effective June 30, 2009. This guidance
amended existing GAAP to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. The Company’s adoption of the new guidance
impacts quarterly disclosures, but did not have an impact on Park’s December
31, 2009 consolidated financial statements.
Recognition and Presentation of Other-Than-Temporary Impairments:
In April 2009, the FASB issued new guidance impacting FASB ASC 320-10,
Investments – Debt and Equity Securities (FSP FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”).
This guidance amends the other-than-temporary impairment guidance in GAAP
for debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This guidance does not amend
existing recognition and measurement guidance related to other-than-
temporary impairments of equity securities. The Company’s adoption of
the new guidance did not have a material impact on Park’s consolidated
financial statements as Park has not experienced other-than-temporary
impairment within its debt securities portfolio.
Employer’s Disclosures about Postretirement Benefit Plan Assets:
In December 2008, the FASB issued new guidance impacting FASB ASC 715-20,
Defined Benefit Plan – General (FSP No. 132(R)-1, “Employer’s Disclosures
about Postretirement Benefit Plan Assets”). This guidance addresses an
employer’s disclosures about plan assets of a defined benefit pension or
other post-retirement plan. These additional disclosures include disclosure
of investment policies and fair value disclosures of plan assets, including
fair value hierarchy. The guidance also includes a technical amendment that
requires a nonpublic entity to disclose net periodic benefit cost for each
annual period for which a statement of income is presented. This new
guidance is effective for fiscal years ending after December 15, 2009. Upon
initial application, provisions are not required for earlier periods that are
presented for comparative purposes. The new disclosures have been
presented in the notes to the consolidated financial statements.
Fair Value Measurements: In April 2009, the FASB issued new guidance
impacting FASB ASC 820-10, Fair Value Measurements and Disclosures –
Overall (FSP No. 157-4, “Determining Fair Value When the Volume and Level
of Activity for the Asset and Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”). This guidance emphasizes that the
objective of a fair value measurement does not change even when market
activity for the asset or liability has decreased significantly. Fair value is the
price that would be received for an asset sold or paid to transfer a liability
in an orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants at the measurement date under current market
conditions. When observable transactions or quoted prices are not considered
orderly, then little, if any, weight should be assigned to the indication of the
asset or liability’s fair value. Adjustments to those transactions or prices would
be needed to determine the appropriate fair value. The new guidance, which
was applied prospectively, was effective for interim and annual reporting
periods ending after June 15, 2009. The Company’s adoption of the new
guidance did not have a material impact on Park’s consolidated financial
statements.
Measuring Liabilities at Fair Value: In August 2009, the FASB issued
Accounting Standards Update (“ASU”) No. 2009-05, Measuring Liabilities
at Fair Value (ASC 820). This update provides amendments to ASC 820 for the
fair value measurement of liabilities by clarifying that in circumstances in which
a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using a valuation technique
that uses the quoted price of the identical liability when traded as an asset,
quoted prices for similar liabilities or similar liabilities when traded as assets,
or that is consistent with the principles of ASC 820. The amendments in this
guidance also clarify that both a quoted price for the identical liability at the
measurement date and the quoted price for the identical liability when traded
as an asset in an active market when no adjustments to the quoted price of
the asset are required are Level 1 fair value measurements. The guidance was
effective for the first reporting period (including interim periods) beginning
after issuance. The Company’s adoption of the new guidance did not have a
material impact on Park’s consolidated financial statements.
Recently issued but not yet Effective Accounting Pronouncements
Accounting for Transfers of Financial Assets: In June 2009, FASB
issued new guidance impacting FASB ASC 810, Consolidation (SFAS No.
166, “Accounting for Transfers of Financial Assets-an amendment of FASB
Statement No. 140”). This removes the concept of a qualifying special-purpose
entity from existing GAAP and removes the exception from applying FASB ASC
810-10, Consolidation (FASB Interpretation No. 46 (revised December 2003)
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Consolidation of Variable Interest Entities) to qualifying special purpose
entities. The objective of this new guidance is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of financial
assets; the effects of a transfer on its financial position, financial performance,
and cash flows; and a transferor’s continuing involvement in transferred
financial assets. The new guidance will be effective as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company’s adoption of
the new guidance is expected to have an immaterial impact on the consolidated
financial statements.
Amendments to FASB Interpretation No. 46(R): In June 2009, FASB
issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”
The objective of this new guidance is to amend certain requirements of FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. This guidance will be effective as of the begin-
ning of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The Company’s adoption of the new guidance
is expected to have an immaterial impact on the consolidated financial
statements.
2. ORGANIZATION AND ACQUISITIONS
Park National Corporation is a multi-bank holding company headquartered in
Newark, Ohio. Through its banking subsidiaries, The Park National Bank (PNB)
and Vision Bank (VB), Park is engaged in a general commercial banking and
trust business, primarily in Ohio, Baldwin County, Alabama and the panhandle
of Florida. A wholly-owned subsidiary of Park, Guardian Finance Company
(GFC) began operating in May 1999. GFC is a consumer finance company
located in Central Ohio. PNB operates through eleven banking divisions
with the Park National Division headquartered in Newark, Ohio, the Fairfield
National Division headquartered in Lancaster, Ohio, The Park National Bank of
Southwest Ohio & Northern Kentucky Division headquartered in Milford, Ohio,
the First-Knox National Division headquartered in Mount Vernon, Ohio, the
Farmers and Savings Division headquartered in Loudonville, Ohio, the Security
National Division headquartered in Springfield, Ohio, the Unity National Division
headquartered in Piqua, Ohio, the Richland Bank Division headquartered in
Mansfield, Ohio, the Century National Division headquartered in Zanesville,
Ohio, the United Bank Division headquartered in Bucyrus, Ohio and the
Second National Division headquartered in Greenville, Ohio. VB operates
through two banking divisions with the Vision Bank Florida Division
headquartered in Panama City, Florida and the Vision Bank Alabama Division
headquartered in Gulf Shores, Alabama. All of the Ohio-based banking divisions
provide the following principal services: the acceptance of deposits for demand,
savings and time accounts; commercial, industrial, consumer and real estate
lending, including installment loans, credit cards, home equity lines of credit,
commercial leasing; trust services; cash management; safe deposit operations;
electronic funds transfers and a variety of additional banking-related services.
VB, with its two banking divisions, provides the services mentioned above,
with the exception of commercial leasing. See Note 23 of these Notes to
Consolidated Financial Statements for financial information on the
Corporation’s operating segments.
On March 9, 2007, Park acquired all of the stock and outstanding stock options
of Vision Bancshares, Inc. for $87.8 million in cash and 792,937 shares of Park
common stock valued at $83.3 million or $105.00 per share. The goodwill rec-
ognized as a result of this acquisition was $109.0 million. Management expects
that the acquisition of Vision will improve the future growth rate for Park’s
loans, deposits and net income. The fair value of the acquired assets of Vision
was $686.5 million and the fair value of the liabilities assumed was $624.4
million at March 9, 2007. During the fourth quarter of 2007, Park recognized
a $54.0 million impairment charge to the Vision goodwill. In addition, Park
recognized an additional impairment charge to the remaining Vision goodwill
of $55.0 million during the third quarter of 2008. The goodwill impairment
charge of $55.0 million in 2008 reduced income tax expense by approximately
$1 million. The goodwill impairment charge of $54.0 million in 2007 had no
impact on income tax expense.
At the time of the acquisition, Vision operated two bank subsidiaries (both
named Vision Bank) which became bank subsidiaries of Park on March 9,
2007. On July 20, 2007, the bank operations of the two Vision Banks were
consolidated under a single charter through the merger of the Vision Bank
headquartered in Gulf Shores, Alabama with and into the Vision Bank
headquartered in Panama City, Florida. Vision Bank operates under a Florida
banking charter and has 18 branch locations in Baldwin County, Alabama
and in the Florida panhandle.
On September 21, 2007, a national bank subsidiary of Park, The First-Knox
National Bank of Mount Vernon (“First-Knox”), acquired the Millersburg, Ohio
banking office (the “Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio
Legacy”). First-Knox acquired substantially all of the loans administered at the
Millersburg branch of Ohio Legacy and assumed substantially all of the deposit
liabilities relating to the deposit accounts assigned to the Millersburg branch.
The fair value of loans acquired was approximately $38 million and deposit
liabilities acquired were approximately $23 million. First-Knox paid a premium
of approximately $1.7 million in connection with the purchase of the deposit
liabilities. First-Knox recognized a loan premium adjustment of $700,000 and
a certificate of deposit adjustment of $300,000, resulting in a total increase to
core deposit intangibles of $2.7 million. No goodwill was recognized as part of
this transaction. In addition, First-Knox paid $900,000 for the acquisition of the
branch office building that Ohio Legacy was leasing from a third party.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation’s two bank subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank. The average required reserve
balance was approximately $31.9 million at December 31, 2009 and $29.4
million at December 31, 2008. No other compensating balance arrangements
were in existence at December 31, 2009.
4. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are shown in the
following table. Management evaluates the investment securities on a quarterly
basis for other-than-temporary impairment.
During 2009, management determined that Park’s unrealized losses in the
stocks of several financial institutions were other-than-temporarily impaired
due to the duration and severity of the losses. Therefore, Park recognized
impairment losses of $0.6 million during the twelve months ended December
31, 2009, which is recorded in “other expenses” within the Consolidated
Statements of Income. Park recognized impairment losses of $1.0 million
for the year ended December 31, 2008 on certain of these equity investments
in financial institutions. Since these are equity securities, no amounts were
recognized in other comprehensive income at the time of the impairment
recognition.
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Investment securities at December 31, 2009 were as follows:
Investment securities at December 31, 2008 were as follows:
Gross
Gross
Unrealized Unrealized
Amortized
Cost
Holding
Gains
Holding
Losses
Estimated
Fair Value
(In thousands)
2009:
Securities Available-for-Sale
Obligations of U.S. Treasury and
other U.S. Government agencies $ 349,899
$
389
$2,693
$ 347,595
Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities
Other equity securities
Total
2009:
Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities
Total
15,189
493
875,331
47,572
962
656
15
—
56
15,667
922,903
1,562
$1,241,381
$49,110
$2,764
$1,287,727
$
4,456
$
25
$ — $
4,481
502,458
16,512
$ 506,914
$16,537
$
1
1
518,969
$ 523,450
Park’s U.S. Government Agency asset-backed securities consist of 15-year
mortgage-backed securities and collateralized mortgage obligations (CMOs).
At December 31, 2009, the amortized cost of Park’s AFS and held-to-maturity
mortgage-backed securities was $868.3 million and $0.2 million, respectively.
At December 31, 2009, the amortized cost of Park’s AFS and held-to-maturity
CMOs was $7.0 million and $502.3 million, respectively.
Other investment securities (as shown on the Consolidated Balance Sheet)
consist of stock investments in the Federal Home Loan Bank and the Federal
Reserve Bank. Park owned $62.0 million of Federal Home Loan Bank stock and
$6.9 million of Federal Reserve stock at December 31, 2009. Park owned $61.9
million of Federal Home Loan Bank stock and $6.9 million of Federal Reserve
Bank stock at December 31, 2008.
Management does not believe any individual unrealized loss as of December 31,
2009 or December 31, 2008, represents an other-than-temporary impairment.
The unrealized losses on debt securities are primarily the result of interest rate
changes. These conditions will not prohibit Park from receiving its contractual
principal and interest payments on these debt securities. The fair value of these
debt securities is expected to recover as payments are received on these
securities and they approach maturity.
Should the impairment of any of these securities become other-than-temporary,
the cost basis of the investment will be reduced and the resulting loss recog-
nized in net income in the period the other-than-temporary impairment is
identified.
The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual
securities have been in a continuous loss position at December 31, 2009:
(In thousands)
2009:
Securities
Available-for-Sale
Obligations of
states and
political
subdivisions
Less than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$257,206
$2,693
$ —
$—
$257,206
$2,693
U.S. Government
agencies’ asset-
backed securities
Other equity securities
295
—
15
—
Total
$257,501
$2,708
—
202
$202
—
56
$56
295
202
15
56
Gross
Gross
Unrealized Unrealized
Amortized
Cost
Holding
Gains
Holding
Losses
Estimated
Fair Value
(In thousands)
2008:
Securities Available-for-Sale
Obligations of U.S. Treasury and
other U.S. Government agencies $ 127,628
$ 1,060
$ —
$ 128,688
Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities
Other equity securities
Total
2008:
Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities
26,424
503
1,357,710
47,050
1,461
428
33
229
106
26,894
1,404,531
1,783
$1,513,223
$49,041
$368
$1,561,896
$
10,294
$
79
$ —
$
10,373
418,056
5,035
29
423,062
Total
$ 428,350
$ 5,114
$ 29
$ 433,435
The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual
securities have been in a continuous loss position at December 31, 2008:
Less than 12 Months
12 Months or Longer
Total
(In thousands)
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
2008:
Securities
Available-for-Sale
Obligations of
states and
political
subdivisions
U.S. Government
agencies’ asset-
backed securities
Other equity securities
$1,135
$ 1
$
278
$ 32
$ 1,413
$ 33
703
17
6
14
6,850
314
223
92
7,553
331
229
106
Total
$1,855
$21
$ 7,442
$347
$ 9,297
$368
2008:
Securities
Held-to-Maturity
U.S. Government
agencies’ asset-
backed securities
$ 156
$ 1
$42,863
$ 28
$43,019
$ 29
The amortized cost and estimated fair value of investments in debt securities at
December 31, 2009, are shown in the following table by contractual maturity or
the expected call date, except for asset-backed securities, which are shown as a
single total, due to the unpredictability of the timing in principal repayments.
(In thousands)
Securities Available-for-Sale
U.S. Treasury and agencies’ notes:
Due within one year
Due five through ten years*
Total
Obligations of states and
political subdivisions:
Due within one year
Due one through five years
Due over ten years
Total
U.S. Government agencies’
asset-backed securities:
Amortized
Cost
Estimated
Fair Value
$ 90,000
259,899
$349,899
$ 90,389
257,206
$347,595
$ 10,280
$ 10,519
4,599
310
4,853
295
$ 15,189
$ 15,667
$257,703
$2,764
Total
$875,331
$922,903
2009:
Securities
Held-to-Maturity
U.S. Government
agencies’ asset-
backed securities
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$
50
$
1
$ —
$—
$
50
$
1
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(In thousands)
Securities Held-to-Maturity
Obligations of states and
political subdivisions:
Due within one year
Total
U.S. Government agencies’
asset-backed securities:
Total
Amortized
Cost
Estimated
Fair Value
$
4,456
$
4,481
$502,458
$518,969
*Includes callable notes with call dates of 3 months to two years. Management’s current
expectation is that these securities could extend to the maturity date, although this expectation
could change depending on future changes in the interest rate environment.
Investment securities having a book value of $1,720 million and $1,751 million
at December 31, 2009 and 2008, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold, and as collateral for
Federal Home Loan Bank (FHLB) advance borrowings.
At December 31, 2009, $952 million was pledged for government and
trust department deposits, $658 million was pledged to secure repurchase
agreements and $110 million was pledged as collateral for FHLB advance
borrowings. At December 31, 2008, $939 million was pledged for government
and trust department deposits, $664 million was pledged to secure repurchase
agreements and $148 million was pledged as collateral for FHLB advance
borrowings.
At December 31, 2009, there were no holdings of securities of any one issuer,
other than the U.S. Government and its agencies, in an amount greater than
10% of shareholders’ equity.
During 2009, Park realized a pre-tax gain of $7.3 million from the sale of
$204.3 million of U.S. Government Agency mortgage-backed securities. The
book yield on the sold securities was 4.70%. The proceeds from the sale of
these investment securities were generally reinvested in U.S. Government Agency
issued callable notes. The tax expense related to the net securities gains was
$2.57 million for 2009.
During 2008, Park sold $140 million of U.S. Government Agency securities,
realizing a pre-tax gain of $1.1 million. These securities were callable
during 2008 and were sold with a give up yield of approximately 3.63%.
The proceeds from the sale of these investment securities were generally
reinvested in U.S. Government Agency 15-year mortgage-backed securities.
The tax expense related to the net securities gains was $390 thousand for
2008. No gross losses were realized in 2009 or 2008.
5. LOANS
The composition of the loan portfolio is as follows:
December 31 (In thousands)
Commercial, financial and agricultural
Real estate:
Construction
Residential
Commercial
Consumer, net
Leases, net
Total loans
2009
$ 751,277
495,518
1,555,390
1,130,672
704,430
3,145
$4,640,432
2008
$ 714,296
533,788
1,560,198
1,035,725
643,507
3,823
$4,491,337
Loans are shown net of deferred origination fees, costs and unearned income
of $6.3 million at December 31, 2009 and $6.0 million at December 31, 2008.
Overdrawn deposit accounts of $3.3 million and $3.6 million have been
reclassified to loans at December 31, 2009 and 2008, respectively.
Under the Corporation’s credit policies and practices, all nonaccrual and
restructured commercial, financial, agricultural, construction and commercial
real estate loans meet the definition of impaired loans. Additionally, certain
consumer loans, residential real estate loans, and lease financing receivables
are classified as nonaccrual and are thus included within total nonperforming
loans. The majority of the loans deemed impaired were evaluated using the
fair value of the collateral as the measurement method.
Nonperforming loans are summarized as follows:
December 31 (In thousands)
Impaired loans:
Nonaccrual
Restructured
Total impaired loans
Other nonaccrual loans
2009
$201,001
142
201,143
32,543
Total nonaccrual and restructured loans
$233,686
Loans past due 90 days or more and accruing
Total nonperforming loans
14,773
$248,459
2008
$138,498
2,845
141,343
21,014
$162,357
5,421
$167,778
Management’s general practice is to proactively charge down impaired loans
to the fair value of the underlying collateral. The allowance for loan losses
includes specific reserves related to impaired loans at December 31, 2009
and 2008, of $36.7 million and $8.9 million, respectively, related to loans with
principal balances of $123.7 million and $64.5 million. The increase in specific
reserves in 2009 is primarily related to commercial land and development
(CL&D) loans at Vision Bank. The collateral values related to these loans have
declined significantly in the current market environment. Management believes
it is appropriate to specifically reserve for these declines and continue to
evaluate charge-offs in the future as the outcome with respect to the CL&D
loans becomes more apparent. In April 2009, Park engaged a third-party
specialist to assist in the resolution of impaired loans at Vision Bank.
Management is pleased with the success this third-party specialist
experienced in the second half of 2009, as they have helped maximize
the value of the impaired loans at Vision Bank.
The average balance of impaired loans was $184.7 million, $130.6 million
and $51.1 million for 2009, 2008 and 2007, respectively.
Interest income on impaired loans is recognized on a cash basis after all
past due and current principal payments have been made. For the year ended
December 31, 2009, the Corporation recognized a net reversal to interest
income of $1.3 million, consisting of $1.8 million in interest recognized at PNB
and $3.1 million in interest reversed at Vision, on loans that were impaired as
of the end of the year. For the year ended December 31, 2008, the Corporation
recognized $0.9 million in interest income, consisting of $2.8 million in interest
recognized at PNB and $1.9 million in interest reversed at Vision. For the year
ended December 31, 2007, the Corporation recognized $0.4 million in interest
income, consisting of $1.3 million in interest recognized at PNB and $0.9
million in interest reversed at Vision.
Management transfers ownership of a loan to other real estate owned at the
time that Park takes the title of the asset. At December 31, 2009 and 2008,
Park had $41.2 million and $25.8 million, respectively, of other real estate
owned. Other real estate owned at Vision Bank has increased from $19.7
million at December 31, 2008 to $35.2 million at December 31, 2009.
Certain of the Corporation’s executive officers and directors are loan customers
of the Corporation’s two banking subsidiaries. As of December 31, 2009 and
2008, loans and lines of credit aggregating approximately $56.8 million and
$59.1 million, respectively, were outstanding to such parties. During 2009,
$27.9 million of new loans were made to these executive officers and directors
and repayments totaled $9.5 million. New loans and repayments for 2008 were
$17.4 million and $3.4 million, respectively. Additionally, during 2009, $20.8
million in loans were removed from the aggregate amount reported due to the
resignation of certain directors.
RR
6363
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(In thousands)
Balance, January 1
Allowance for loan losses of acquired banks
Provision for loan losses
Losses charged to the reserve
Recoveries
Balance, December 31
2009
$100,088
—
68,821
(59,022)
6,830
$116,717
2008
$ 87,102
—
70,487
(62,916)
5,415
$100,088
2007
$ 70,500
9,334
29,476
(27,776)
5,568
$ 87,102
The composition of the allowance for loan losses at December 31, 2009 and
2008 were as follows:
December 31, 2009 (In thousands)
Performing loans and statistical allocation
Impaired loans and specific allocation
Total loans and allowance for loan losses
Allowance as a percentage of total loans
December 31, 2008 (In thousands)
Performing loans and statistical allocation
Impaired loans and specific allocation
Total loans and allowance for loan losses
Allowance as a percentage of total loans
Outstanding
Loan Balance
Allowance
for Loan Losses
$4,439,289
201,143
$4,640,432
$ 79,996
36,721
$116,717
2.52%
Outstanding
Loan Balance
Allowance
for Loan Losses
$4,348,395
142,942
$4,491,337
$ 91,213
8,875
$100,088
2.23%
Performing loan balances above include all performing loans at December 31,
2009 and 2008, as well as nonperforming consumer loans. Nonperforming
consumer loans are not typically evaluated for impairment, but receive a
portion of the statistical allocation of the allowance for loan losses. Impaired
loan balances above include all impaired commercial loans at December 31,
2009 and 2008, which are evaluated for impairment in accordance with GAAP
(see Note 1 of these Notes to Consolidated Financial Statements).
Included in performing loans at December 31, 2008 was $67.2 million of
CL&D loans at Vision Bank that became impaired during 2009. Park recorded
charge-offs of $6.8 million in 2009 related to these CL&D loans that became
impaired during 2009. Additionally, at December 31, 2009, Park had estab-
lished a specific allocation of $19.0 million for those CL&D loans that became
impaired during 2009. The performing CL&D loans were $132.8 million,
$191.7 million and $260.2 million at December 31, 2009, 2008 and 2007,
respectively. Generally, Park discontinued origination of new CL&D loans during
2008. Given the run-off nature of the CL&D loan portfolio, management believes
the risk of loss and uncertainty within this portfolio declined during 2009.
As a result of the changes in the loan portfolio discussed above, along
with management’s utilization of historical loss rates that are comparative
to the current period being analyzed, management believes the $11.2 million
reduction in the statistical allocation from $91.2 million at December 31, 2008
to $80.0 million at December 31, 2009, is appropriate.
7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated
depreciation are summarized as follows:
December 31 (In thousands)
Land
Buildings
Equipment, furniture and fixtures
Leasehold improvements
Total
Less accumulated depreciation and amortization
2009
2008
$ 23,257
$ 21,799
75,583
56,822
6,080
$161,742
(92,651)
74,106
52,574
5,553
154,032
(85,479)
Premises and equipment, net
$ 69,091
$ 68,553
Depreciation and amortization expense amounted to $7.5 million, $7.5 million
and $6.5 million for the three years ended December 31, 2009, 2008 and
2007, respectively.
The Corporation and its subsidiaries lease certain premises and equipment
accounted for as operating leases. The following is a schedule of the future
minimum rental payments required for the next five years under such leases
with initial terms in excess of one year:
(In thousands)
2010
2011
2012
2013
2014
Thereafter
Total
$1,903
1,636
1,064
971
875
2,278
$8,727
Rent expense was $2.8 million, $2.8 million and $2.7 million, for the three
years ended December 31, 2009, 2008 and 2007, respectively.
8. DEPOSITS
At December 31, 2009 and 2008, noninterest bearing and interest bearing
deposits were as follows:
December 31 (In thousands)
Noninterest bearing
Interest bearing
Total
2009
$ 897,243
4,290,809
$5,188,052
2008
$ 782,625
3,979,125
$4,761,750
At December 31, 2009, the maturities of time deposits were as follows:
(In thousands)
2010
2011
2012
2013
2014
After 5 years
Total
$1,657,922
313,051
142,326
48,719
58,072
2,447
$2,222,537
Maturities of time deposits of $100,000 and over as of December 31, 2009
were:
December 31 (In thousands)
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
$ 338,152
255,585
252,494
182,814
$1,029,045
At December 31, 2009, Park had approximately $27.7 million of deposits
received from executive officers, directors, and their related interests.
9. SHORT-TERM BORROWINGS
Short-term borrowings were as follows:
December 31 (In thousands)
2009
2008
Securities sold under agreements to repurchase
and federal funds purchased
Federal Home Loan Bank advances
Total short-term borrowings
$294,219
30,000
$324,219
$284,196
375,000
$659,196
64
LL
64
RR
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The outstanding balances for all short-term borrowings as of December 31,
2009, 2008 and 2007 and the weighted-average interest rates as of and paid
during each of the years then ended were as follows:
(In thousands)
2009:
Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:
As of year-end
Paid during the year
2008:
Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:
As of year-end
Paid during the year
2007:
Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:
As of year-end
Paid during the year
Repurchase
Agreements
and Federal
Funds
Purchased
Federal
Home Loan
Bank
Advances
$294,219
303,972
281,941
0.49%
0.82%
$284,196
294,226
256,877
1.12%
1.81%
$253,289
259,065
230,651
3.27%
3.67%
$ 30,000
442,000
137,792
0.49%
0.66%
$375,000
572,000
336,561
0.71%
2.80%
$502,000
502,000
260,140
4.42%
5.19%
Demand
Notes
Due U.S.
Treasury
and Other
$ —
—
—
—
—
$ —
30,414
12,008
0.00%
3.43%
$4,029
8,058
3,369
3.59%
4.78%
At December 31, 2009, 2008 and 2007, Federal Home Loan Bank
(FHLB) advances were collateralized by investment securities owned by
the Corporation’s subsidiary banks and by various loans pledged under
a blanket agreement by the Corporation’s subsidiary banks.
See Note 4 of these Notes to Consolidated Financial Statements for the amount
of investment securities that are pledged. At December 31, 2009, $1,959
million of commercial real estate and residential mortgage loans were
pledged under a blanket agreement to the FHLB by Park’s subsidiary banks. At
December 31, 2008, $1,992 million of commercial real estate and residential
mortgage loans were pledged under a blanket agreement to the FHLB by Park’s
subsidiary banks.
Note 4 states that $658 million and $664 million of securities were
pledged to secure repurchase agreements as of December 31, 2009 and
2008, respectively. Park’s repurchase agreements in short-term borrowings
consist of customer accounts and securities which are pledged on an individual
security basis. Park’s repurchase agreements with a third-party financial
institution are classified in long-term debt. See Note 10 of these Notes to
Consolidated Financial Statements.
10. LONG-TERM DEBT
Long-term debt is listed below:
December 31
(In thousands)
2009
2008
Outstanding
Balance
Average
Rate
Outstanding
Balance
Average
Rate
Total Federal Home Loan Bank advances
by year of maturity:
2009
2010
2011
2012
2013
2014
Thereafter
Total
$
—
17,560
16,460
15,500
500
500
302,371
$352,891
Total broker repurchase agreements
by year of maturity:
2009
After 2014
Total
$
—
300,000
$300,000
—
5.68%
1.99%
2.09%
4.03%
4.23%
3.02%
3.05%
—
4.04%
4.04%
$
6,208
217,442
1,442
488
485
485
302,464
$529,014
$ 25,000
300,000
$325,000
3.79%
1.09%
4.00%
3.87%
4.03%
4.23%
3.02%
2.24%
3.79%
4.04%
4.02%
December 31
(In thousands)
2009
2008
Outstanding
Balance
Average
Rate
Outstanding
Balance
Average
Rate
Other borrowings by year of maturity:
2009
2010
2011
2012
2013
2014
Thereafter
Total
Total combined long-term debt
by year of maturity:
2009
2010
2011
2012
2013
2014
Thereafter
Total
$
—
59
63
69
74
81
1,144
$ 1,490
$
—
17,619
16,523
15,569
574
581
603,515
$654,381
—
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
—
5.69%
2.01%
2.12%
4.54%
4.75%
3.54%
3.52%
$
54
59
63
69
74
81
1,144
$
1,544
$31,262
217,501
1,505
557
559
566
603,608
$855,558
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
3.80%
1.09%
4.17%
4.38%
4.55%
4.77%
3.54%
2.93%
Other borrowings consist of a capital lease obligation of $1.5 million,
pertaining to an arrangement that was part of the acquisition of Vision
on March 9, 2007 and its associated minimum lease payments.
Park had approximately $603.5 million of long-term debt at December 31,
2009 with a contractual maturity longer than five years. However, approximately
$600 million of this debt is callable by the issuer in 2010.
At December 31, 2009 and 2008, Federal Home Loan Bank (FHLB) advances
were collateralized by investment securities owned by the Corporation’s sub-
sidiary banks and by various loans pledged under a blanket agreement by the
Corporation’s subsidiary banks.
See Note 4 of these Notes to Consolidated Financial Statements for the
amount of investment securities that are pledged. See Note 9 of these Notes
to Consolidated Financial Statements for the amount of commercial real estate
and residential mortgage loans that are pledged to the FHLB.
11. SUBORDINATED DEBENTURES
As part of the acquisition of Vision on March 9, 2007, Park became the
successor to Vision under (i) the Amended and Restated Trust Agreement
of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005,
(ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and
(iii) the Guarantee Agreement, also dated as of December 5, 2005.
On December 1, 2005, Vision formed a wholly-owned Delaware statutory
business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0
million of the Trust’s floating rate preferred securities (the “Trust Preferred
Securities”) to institutional investors. These Trust Preferred Securities qualify
as Tier I capital under Federal Reserve Board guidelines. All of the common
securities of Trust I are owned by Park. The proceeds from the issuance of the
common securities and the Trust Preferred Securities were used by Trust I to
purchase $15.5 million of junior subordinated notes, which carry a floating rate
based on a three-month LIBOR plus 148 basis points. The debentures represent
the sole asset of Trust I. The Trust Preferred Securities accrue and pay distribu-
tions at a floating rate of three-month LIBOR plus 148 basis points per annum.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the
notes in December 2035, or upon earlier redemption as provided in the notes.
Park has the right to redeem the notes purchased by Trust I in whole or in part,
on or after December 30, 2010. As specified in the indenture, if the notes are
redeemed prior to maturity, the redemption price will be the principal amount,
plus any unpaid accrued interest.
In accordance with GAAP, Trust I is not consolidated with Park’s financial
statements, but rather the subordinated notes are reflected as a liability.
RR
6565
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
On December 28, 2007, one of Park’s wholly-owned subsidiary banks, The
Park National Bank (“PNB”), entered into a Subordinated Debenture Purchase
Agreement with USB Capital Funding Corp. Under the terms of the Purchase
Agreement, USB Capital Funding Corp. purchased from PNB a Subordinated
Debenture dated December 28, 2007, in the principal amount of $25 million,
which matures on December 29, 2017. The Subordinated Debenture is
intended to qualify as Tier 2 capital under the applicable regulations of the
Office of the Comptroller of the Currency of the United States of America (the
“OCC”). The Subordinated Debenture accrues and pays interest at a floating
rate of three-month LIBOR plus 200 basis points. The Subordinated Debenture
may not be prepaid in any amount prior to December 28, 2012; however,
subsequent to this date, PNB may prepay, without penalty, all or a portion of
the principal amount outstanding in a minimum amount of $5 million or any
larger multiple of $5 million. The three-month LIBOR rate was 0.25% at
December 31, 2009. On January 2, 2008, Park entered into an interest rate
swap transaction, which was designated as a cash flow hedge against the
variability of cash flows related to the Subordinated Debenture of $25 million
(see Note 19 of these Notes to Consolidated Financial Statements).
On December 23, 2009, Park entered into a Note Purchase Agreement, dated
December 23, 2009, with 38 purchasers (the “Purchasers”). Under the terms
of the Note Purchase Agreement, the Purchasers purchased from Park an
aggregate principal amount of $35.25 million of 10% Subordinated Notes due
December 23, 2019 (the “Notes”). The Notes are intended to qualify as Tier 2
Capital under applicable rules and regulations of the Board of Governors of the
Federal Reserve System (the “Federal Reserve Board”). The Notes may not be
prepaid in any amount prior to December 23, 2014, however, subsequent to
this date, Park may prepay, without penalty, all or a portion of the principal
amount outstanding. Of the $35.25 million in Subordinated Notes, $14.05
million were purchased by related parties.
12. STOCK OPTION PLANS
The Park National Corporation 2005 Incentive Stock Option Plan (the “2005
Plan”) was adopted by the Board of Directors of Park on January 18, 2005,
and was approved by the shareholders at the Annual Meeting of Shareholders
on April 18, 2005. Under the 2005 Plan, 1,500,000 common shares are
authorized for delivery upon the exercise of incentive stock options. All of
the common shares delivered upon the exercise of incentive stock options
granted under the 2005 Plan are to be treasury shares. At December 31, 2009,
1,245,130 common shares were available for future grants under the 2005
Plan. Under the terms of the 2005 Plan, incentive stock options may be granted
at a price not less than the fair market value at the date of the grant, and for an
option term of up to five years. No additional incentive stock options may be
granted under the 2005 Plan after January 17, 2015.
The Park National Corporation 1995 Incentive Stock Option Plan (the “1995
Plan”) was adopted April 17, 1995 and amended April 20, 1998 and April
16, 2001. Pursuant to the terms of the 1995 Plan, all of the common shares
delivered upon exercise of incentive stock options were to be treasury shares.
No further incentive stock options may be granted under the 1995 Plan.
The fair value of each incentive stock option granted is estimated on the date
of grant using a closed form option valuation (Black-Scholes) model that uses
the assumptions noted in the table below. Expected volatilities are based on
historical volatilities of Park’s common stock. The Corporation uses historical
data to estimate option exercise behavior. The expected term of incentive stock
options granted is based on historical data and represents the period of time
that options granted are expected to be outstanding, which takes into account
that the options are not transferable. The risk-free interest rate for the expected
term of the incentive stock options is based on the U.S. Treasury yield curve in
effect at the time of the grant.
The fair value of incentive stock options granted was determined using the
following weighted-average assumptions as of the grant date. Park did not
grant any options in 2009 or 2008.
Risk-free interest rate
Expected term (years)
Expected stock price volatility
Dividend yield
2009
2008
—
—
—
—
—
—
—
—
2007
3.99%
5.0
19.5%
4.00%
The activity in Park’s stock option plan is listed in the following table for 2009:
January 1, 2009
Granted
Exercised
Forfeited/Expired
December 31, 2009
Number
452,419
—
—
197,527
254,892
Exercisable at year end
Weighted-average remaining contractual life
Aggregate intrinsic value
Weighted Average
Exercise Price per Share
$102.33
—
—
108.19
$ 97.78
254,892
1.25 years
$0
Information related to Park’s stock option plans for the past three years is listed
in the following table for 2009:
(In thousands)
Intrinsic value of options exercised
Cash received from option exercises
Tax benefit realized from option exercises
Weighted-average fair value of options
granted per share
2009
$ —
—
—
$ —
2008
$ —
—
—
$ —
2007
$ 47
296
—
$9.92
Total compensation cost that has been charged against income pertaining to
the above plans was $893,000 for 2007. No expense was recognized for 2009
or 2008. The 90,000 options granted in 2007 vested immediately upon grant.
13. BENEFIT PLANS
The Corporation has a noncontributory Defined Benefit Pension Plan (the
“Pension Plan”) covering substantially all of the employees of the Corporation
and its subsidiaries. The plan provides benefits based on an employee’s years
of service and compensation.
The Corporation’s funding policy is to contribute annually an amount that
can be deducted for federal income tax purposes using a different actuarial
cost method and different assumptions from those used for financial reporting
purposes. Management did not make a contribution to the Pension Plan in
2008; however, management made a $20 million contribution in January 2009,
which was deductible on the 2008 tax return and as such is reflected as part
of the deferred tax liabilities at December 31, 2008. In addition, management
made a $10 million contribution in November 2009, which will be deductible
on the 2009 tax return and as such is reflected as part of deferred tax liabilities
at December 31, 2009. See Note 14 of these Notes to Consolidated Financial
Statements. Park does not expect to make any contributions to the Pension
Plan in 2010.
Using an accrual measurement date of December 31, 2009 and 2008, plan
assets and benefit obligation activity for the Pension Plan are listed below:
(In thousands)
2009
2008
Change in fair value of plan assets
Fair value at beginning of measurement period
Actual return on plan assets
Company contributions
Benefits paid
$38,506
11,689
30,000
(4,380)
$ 60,116
(16,863)
0
(4,747)
Fair value at end of measurement period
$75,815
$ 38,506
66
66
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(In thousands)
Change in benefit obligation
Projected benefit obligation at beginning of
measurement period
Service cost
Interest cost
Actuarial (gain) or loss
Benefits paid
Projected benefit obligation at the
end of measurement period
Funded status at end of year
(assets less benefit obligation)
2009
2008
$57,804
$ 51,914
3,813
3,432
(327)
(4,380)
4,313
3,946
2,378
(4,747)
$60,342
$ 57,804
$15,473
$(19,298)
The asset allocation for the Pension Plan as of the measurement date, by asset
category, is as follows:
Asset Category
Equity securities
Fixed income and cash equivalents
Total
Target Allocation
50% – 100%
remaining balance
—
2009
83%
17%
100%
2008
79%
21%
100%
Percentage of Plan Assets
Using an actuarial measurement date of December 31 for 2009 and 2008 and
September 30 for 2007, components of net periodic benefit cost and other
amounts recognized in other comprehensive income were as follows:
(In thousands)
2009
2008
2007
Components of net periodic benefit cost and
other amounts recognized in Other
Comprehensive Income
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss
Net periodic benefit cost
Change to net actuarial gain/(loss)
for the period
Amortization of prior service cost
Amortization of net loss
Total recognized in other
comprehensive income/(loss)
Total recognized in net benefit cost
$ (3,813)
(3,432)
4,487
(34)
(2,041)
$ (4,833)
$ 7,591
34
2,041
$ (3,451)
(3,157)
4,608
(34)
—
$ (2,034)
$(25,000)
42
—
$ (3,238)
(3,104)
4,263
(34)
(551)
$ (2,664)
$ 4,440
34
551
9,666
(24,958)
5,025
and other comprehensive income/(loss) $ 4,833
$(26,992)
$ 2,361
The investment policy, as established by the Retirement Plan Committee, is to
invest assets per the target allocation stated above. Assets will be reallocated
periodically based on the investment strategy of the Retirement Plan Committee.
The investment policy is reviewed periodically.
The estimated prior service costs for the Pension Plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost
over the next fiscal year is $22 thousand. The estimated net actuarial (loss)
expected to be recognized in the next fiscal year is $(1.1) million.
The expected long-term rate of return on plan assets was 7.75% in 2009 and
2008. This return was based on the expected return of each of the asset cate-
gories, weighted based on the median of the target allocation for each class.
The accumulated benefit obligation for the Pension Plan was $52.6 million
and $49.5 million at December 31, 2009 and 2008, respectively.
On November 17, 2009, the Park Pension Plan completed the purchase
of 115,800 common shares of Park for $7.0 million or $60.45 per share.
At December 31, 2009, the fair value of the 115,800 shares held by the plan
was $6.8 million, or $58.88 per share.
The weighted average assumptions used to determine benefit obligations at
December 31, 2009 and December 31, 2008 were as follows:
2009
2008
Discount rate
Rate of compensation increase
6.00%
3.00%
6.00%
3.00%
The estimated future pension benefit payments reflecting expected future
service for the next ten years are shown below in thousands:
2010
2011
2012
2013
2014
2015 – 2019
Total
$ 1,252
1,500
1,884
2,280
2,694
20,538
$30,148
The following table shows ending balances of accumulated other
comprehensive income (loss) at December 31, 2009 and 2008.
(In thousands)
Prior service cost
Net actuarial loss
Total
Deferred taxes
2009
$
(115)
(20,654)
(20,769)
7,269
2008
$
(149)
(30,286)
(30,435)
10,652
Accumulated other comprehensive (loss)
$(13,500)
$(19,783)
The weighted average assumptions used to determine net periodic benefit
cost for the years ended December 31, 2009 and 2008, are listed below:
Discount rate
Rate of compensation increase
Expected long-term return on plan assets
2009
6.00%
3.00%
7.75%
2008
6.25%
3.00%
7.75%
Management believes the 7.75% expected long-term rate of return is an
appropriate assumption given historical performance of the S&P 500 Index,
which management believes is a good indicator of future performance of
Pension Plan assets.
The Pension Plan maintains cash in a Park National Bank savings account,
with a balance of $1.96 million at December 31, 2009.
GAAP defines fair value as the price that would be received by Park for an
asset or paid by Park to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date, using the
most advantageous market for the asset or liability. The fair values of equity
securities, consisting of mutual fund investments and common stock held by
the Pension Plan and the fixed income and cash equivalents, are determined
by obtaining quoted prices on nationally recognized securities exchanges
(Level 1 inputs). The market value of Pension Plan assets at December 31,
2009 was $75.8 million. At December 31, 2009, $63.0 million of investments
in the Pension Plan are categorized as Level 1 inputs; $12.8 million of plan
investments in corporate and U.S. government agency bonds are categorized
as Level 2 inputs, as fair value is based on quoted market prices of comparable
instruments; and no investments are categorized as Level 3 inputs.
The Corporation has a voluntary salary deferral plan covering substantially
all of the employees of the Corporation and its subsidiaries. Eligible employees
may contribute a portion of their compensation subject to a maximum statutory
limitation. The Corporation provides a matching contribution established annu-
ally by the Corporation. Contribution expense for the Corporation was $1.5
million, $2.0 million and $1.9 million for 2009, 2008 and 2007, respectively.
The Corporation has a Supplemental Executive Retirement Plan (SERP)
covering certain key officers of the Corporation and its subsidiaries with defined
pension benefits in excess of limits imposed by federal tax law. At December 31,
2009 and 2008, the accrued benefit cost for the SERP totaled $7.4 million and
$7.6 million, respectively. The expense for the Corporation was $0.5 million,
$0.6 million and $0.7 million for 2009, 2008, and 2007, respectively.
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
14. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant compo-
nents of the Corporation’s deferred tax assets and liabilities are as follows:
December 31 (in thousands)
Deferred tax assets:
Allowance for loan losses
Accumulated other comprehensive loss –
interest rate swap
Accumulated other comprehensive loss –
pension plan
Intangible assets
Deferred compensation
OREO devaluations
State net operating loss carryforwards
Other
2009
2008
$42,236
$35,929
519
7,269
2,756
4,348
2,380
1,725
5,273
678
10,652
3,357
4,539
18
1,071
4,604
Total deferred tax assets
$66,506
$60,848
Deferred tax liabilities:
Accumulated other comprehensive
income – unrealized gains on securities
Deferred investment income
Pension plan
Mortgage servicing rights
Purchase accounting adjustments
Other
Total deferred tax liabilities
Net deferred tax assets
$16,221
10,201
12,664
3,773
3,228
1,285
$47,372
$19,134
$17,036
11,168
10,875
2,907
4,493
1,440
$47,919
$12,929
Park has determined that it is not required to establish a valuation allowance
against deferred tax assets in accordance with GAAP since it is more likely than
not that the deferred tax assets will be fully realized in future periods.
The components of the provision for federal and state income taxes are shown
below:
December 31 (in thousands)
2009
2008
2007
Currently payable
Federal
State
Deferred
Federal
State
Total
$32,148
(273)
$23,645
(44)
$37,692
117
(6,745)
(2,187)
697
(2,287)
(7,269)
(570)
$22,943
$22,011
$29,970
The following is a reconciliation of federal income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31, 2009,
2008 and 2007.
December 31
2008
2009
2007
Statutory federal corporate tax rate
Changes in rates resulting from:
Tax-exempt interest income, net of
disallowed interest
Bank owned life insurance
Tax credits (low income housing)
Goodwill impairment
State income tax expense, net of
federal benefit
Other
Effective tax rate
35.0%
35.0%
35.0%
(1.3)%
(1.8)%
(4.8)%
—
(1.6)%
(1.9)%
23.6%
(3.5)%
(5.0)%
(11.7)%
50.7%
(4.2)%
.3%
61.6%
(2.6)%
(2.8)%
(7.5)%
35.9%
(.6)%
(.5)%
56.9%
Park and its Ohio-based subsidiaries do not pay state income tax to the state of
Ohio, but pay a franchise tax based on their year-end equity. The franchise tax
expense is included in the state tax expense and is shown in “state taxes” on
Park’s Consolidated Statements of Income. Vision Bank is subject to state
income tax, in the states of Alabama and Florida. State income tax benefit
for Vision Bank is included in “income taxes” on Park’s Consolidated
Statements of Income. Vision Bank’s 2009 state income tax benefit was
$2.46 million.
Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of
unrecognized tax benefits.
(In thousands)
January 1 Balance
Additions based on tax
positions related to the
current year
Additions for tax positions
of prior years
Reductions for tax positions
of prior years
Reductions due to the
statute of limitations
December 31 Balance
2009
$783
64
—
(189)
(63)
$595
2008
$828
102
18
(15)
(150)
$783
2007
$713
250
17
(24)
(128)
$828
The amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in the future periods at December 31, 2009,
2008 and 2007 was $504,000, $704,000 and $711,000, respectively. Park does
not expect the total amount of unrecognized tax benefits to significantly increase
or decrease during the next year.
The (income)/expense related to interest and penalties recorded in the
Consolidated Statements of Income for the years ended December 31, 2009,
2008 and 2007 was $(18,000), $16,000 and $(3,000), respectively. The
amount accrued for interest and penalties at December 31, 2009, 2008
and 2007 was $71,000, $89,000 and $73,000, respectively.
Park and its subsidiaries are subject to U.S. federal income tax. Some of Park’s
subsidiaries are subject to state income tax in the following states: Alabama,
Florida, California, Kentucky, New Jersey and Pennsylvania. Park is no longer
subject to examination by federal or state taxing authorities for the tax year
2005 and the years prior.
The 2006 and 2007 federal income tax returns of Vision Bancshares, Inc. are
currently under examination by the Internal Revenue Service. A preliminary
settlement has been agreed upon and is awaiting final approval by the Service.
All tax and interest relating to the examination has been accrued under ASC
740-10, unrecognized tax benefits.
15. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes are shown
in the following table for the years ended December 31, 2009, 2008 and 2007.
Net-of-Tax
Amount
Year ended December 31
(In thousands)
Before-Tax
Amount
Tax
Expense
2009:
Unrealized gains on available-for-sale
securities
Reclassification adjustment for gains
realized in net income
Unrealized net holding gain on
cash flow hedge
Changes in pension plan assets and
benefit obligations recognized in
Other Comprehensive Income
$
5,012
$
1,754
$
3,258
(7,340)
(2,569)
(4,771)
454
159
295
9,666
3,383
6,283
Other comprehensive income
$
7,792
$
2,727
$
5,065
2008:
Unrealized gains on available-for-sale
securities
Reclassification adjustment for gains
realized in net income
Unrealized net holding loss on
cash flow hedge
Changes in pension plan assets and
benefit obligations recognized in
Other Comprehensive Income
$ 48,324
$16,913
$ 31,411
(1,115)
(1,937)
(390)
(678)
(725)
(1,259)
(24,958)
(8,735)
(16,223)
Other comprehensive income
$ 20,314
$
7,110
$ 13,204
68
LL
68
RR
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Year ended December 31
(In thousands)
Before-Tax
Amount
Tax
Expense
Net-of-Tax
Amount
2007:
Unrealized gains on available-for-sale
securities
Changes in pension plan assets and
benefit obligations recognized in
Other Comprehensive Income
$ 26,071
$
9,125
$ 16,946
5,025
1,759
3,266
Other comprehensive income
$ 31,096
$ 10,884
$ 20,212
The ending balance of each component of accumulated other comprehensive
income was as follows as of December 31:
(In thousands)
Pension benefit adjustments
Unrealized net holding loss on cash flow hedge
Unrealized net holding gains on A-F-S Securities
Total accumulated other
comprehensive income
2009
$(13,500)
(964)
30,125
2008
$(19,783)
(1,259)
31,638
$ 15,661
$ 10,596
16. EARNINGS PER COMMON SHARE
GAAP requires the reporting of basic and diluted earnings per common share.
Basic earnings per common share excludes any dilutive effects of options,
warrants and convertible securities.
The following table sets forth the computation of basic and diluted earnings
per common share:
Year ended December 31
(in thousands, except per share data)
2009
2008
2007
Numerator:
Net income available to
common shareholders
Denominator:
Basic earnings per common share:
Weighted-average shares
Effect of dilutive securities – stock options
and warrants
Diluted earnings per common share:
Adjusted weighted-average shares
and assumed conversions
Earnings per common share:
Basic earnings per common share
Diluted earnings per common share
$68,430
$13,566
$22,707
14,206,335
13,965,219
14,212,805
—
114
4,678
14,206,335
13,965,333
14,217,483
$4.82
$4.82
$0.97
$0.97
$1.60
$1.60
For the years ended December 31, 2009 and 2008, options to purchase a
weighted average of 350,608 and 500,765 common shares, respectively, were
outstanding under Park’s stock option plans. A warrant to purchase 227,376
common shares was outstanding at both December 31, 2009 and 2008 as a
result of Park’s participation in the CPP. In addition, warrants to purchase an
aggregate of 500,000 common shares were outstanding at December 31, 2009
as a result of the issuance of common stock and warrants which closed on
October 30, 2009. The common shares represented by the options and the
warrants at December 31, 2009 and 2008, totaling a weighted average of
662,915 and 505,749, respectively, were not included in the computation of
diluted earnings per common share because the respective exercise prices
exceeded the market value of the underlying common shares such that their
inclusion would have had an anti-dilutive effect.
17. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare
in any calendar year without obtaining prior approval. At December 31, 2009,
approximately $47.7 million of the total stockholders’ equity of The Park
National Bank was available for the payment of dividends to the Corporation,
without approval by the applicable regulatory authorities. Vision Bank is
currently not permitted to pay dividends to the Corporation.
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and inter-
est rate risk in excess of the amount recognized in the financial statements.
The Corporation’s exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
The Corporation uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. Since
many of the loan commitments may expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk
were as follows:
December 31 (in thousands)
Loan commitments
Standby letters of credit
2009
$955,257
36,340
2008
$1,143,280
25,353
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans
to customers primarily located in Ohio, Baldwin County, Alabama and the
panhandle of Florida. The Corporation evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management’s credit evaluation of the customer. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial
portion of the borrowers’ ability to honor their contracts is dependent upon the
economic conditions in each borrower’s geographic location and industry.
19. DERIVATIVE INSTRUMENTS
GAAP establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. As required by GAAP, the Company records all derivatives
on the Consolidated Balance Sheet at fair value. The accounting for changes in
the fair value of derivatives depends on the intended use of the derivatives and
the resulting designation. Derivatives used to hedge the exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability in expected future cash
flows, or other types of forecasted transactions, are considered cash flow
hedges.
For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivatives is initially reported in other comprehensive
income (outside of earnings) and subsequently reclassified into earnings
when the hedged transaction affects earnings, and the ineffective portion of
changes in the fair value of the derivatives is recognized directly in earnings.
The Company assesses the effectiveness of each hedging relationship by
comparing the changes in cash flows of the derivative hedging instrument
with the changes in cash flows of the designated hedged item or transaction.
During the first quarter of 2008, the Company executed an interest rate swap
to hedge a $25 million floating-rate subordinated debenture that was entered
into by Park National Bank during the fourth quarter of 2007. The Company’s
objective in using this derivative was to add stability to interest expense and to
manage its exposure to interest rate risk. Our interest rate swap involves the
RR
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
receipt of variable-rate amounts in exchange for fixed-rate payments over the
life of the agreement without exchange of the underlying principal amount,
and has been designated as a cash flow hedge.
As of December 31, 2009 and 2008, no derivatives were designated as fair
value hedges or hedges of net investments in foreign operations. Additionally,
the Company does not use derivatives for trading or speculative purposes and
currently does not have any derivatives that are not designated as hedges.
At December 31, 2009 and 2008, the derivative’s fair value of $(1.5) million
and $(1.9) million, respectively, was included in other liabilities. No hedge
ineffectiveness on the cash flow hedge was recognized during the twelve months
ended December 31, 2009 or 2008. At December 31, 2009, the variable rate
on the $25 million subordinated debenture was 2.25% (LIBOR plus 200 basis
points) and Park was paying 6.01% (4.01% fixed rate on the interest rate swap
plus 200 basis points).
For the twelve months ended December 31, 2009 and 2008, the change in
the fair value of the derivative designated as a cash flow hedge reported in
other comprehensive income (loss) was $295 thousand (net of taxes of $159
thousand) and $(1.3) million (net of taxes of $(678) thousand), respectively.
Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to interest expense as interest payments are
made on the Company’s variable-rate debt.
In connection with the sale of Park’s Class B Visa shares, Park entered into a
swap agreement with the purchaser of the shares. The swap agreement adjusts
for dilution in the conversion ratio of Class B Visa shares resulting from certain
Visa litigation. At December 31, 2009, the fair value of the swap liability of
$0.5 million is an estimate of the exposure based upon probability-weighted
potential Visa litigation losses.
20. LOAN SERVICING
Park serviced sold mortgage loans of $1,518 million at December 31, 2009
compared to $1,369 million at December 31, 2008, and $1,403 million at
December 31, 2007. At December 31, 2009, $53 million of the sold mortgage
loans were sold with recourse compared to $65 million at December 31, 2008.
Management closely monitors the delinquency rates on the mortgage loans sold
with recourse. At December 31, 2009, management determined that no liability
was deemed necessary for these loans.
Park capitalized $5.5 million in mortgage servicing rights in 2009, $1.5 million
in 2008 and $1.6 million in 2007. Park’s amortization of mortgage servicing
rights was $4.0 million in 2009 and $1.7 million in both 2008 and 2007. The
amortization of mortgage loan servicing rights is included within “Other Service
Income”. Generally, mortgage servicing rights are capitalized and amortized on
an individual sold loan basis. When a sold mortgage loan is paid off, the related
mortgage servicing rights are fully amortized.
Activity for mortgage servicing rights and the related valuation allowance
follows:
December 31 (In thousands)
Servicing rights:
Beginning of year
Additions
Amortized to expense
Change in valuation allowance
End of year
Valuation allowance:
Beginning of year
(Reductions)/Additions expensed
End of year
2009
2008
$ 8,306
5,480
(4,077)
1,071
$10,780
$ 1,645
(1,071)
$
574
$10,204
1,481
(1,734)
(1,645)
$ 8,306
$ —
1,645
$ 1,645
21. FAIR VALUES
The fair value hierarchy requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs that Park uses to measure fair value are as follows:
(cid:31) Level 1: Quoted prices (unadjusted) for identical assets or liabilities
in active markets that the entity has the ability to access as of the
measurement date.
(cid:31) Level 2: Level 1 inputs for assets or liabilities that are not actively traded.
Also consists of an observable market price for a similar asset or liability.
This includes the use of “matrix pricing” used to value debt securities
absent the exclusive use of quoted prices.
(cid:31) Level 3: Consists of unobservable inputs that are used to measure fair
value when observable market inputs are not available. This could include
the use of internally developed models, financial forecasting, etc.
Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability between market participants at the balance sheet date.
When possible, the Company looks to active and observable markets to price
identical assets or liabilities. When identical assets and liabilities are not traded
in active markets, the Company looks to observable market data for similar
assets and liabilities. However, certain assets and liabilities are not traded in
observable markets and Park must use other valuation methods to develop
a fair value. The fair value of impaired loans is based on the fair value of the
underlying collateral, which is estimated through third party appraisals or
internal estimates of collateral values.
Assets and Liabilities Measured on a Recurring Basis:
The following table presents financial assets and liabilities measured on
a recurring basis:
Fair Value Measurements at December 31, 2009 Using:
(In thousands)
(Level 1)
(Level 2)
(Level 3)
Balance at
12/31/09
ASSETS
Investment Securities
Obligations of U.S.
Treasury and
Other U.S.
Government
sponsored
entities
Obligations of states
and political
subdivisions
U.S. Government
sponsored entities’
asset-backed
securities
Equity securities
Mortgage loans
held for sale
Mortgage IRLCs
LIABILITIES
Interest rate swap
Fair value swap
$ —
$347,595
$ —
$347,595
—
12,916
2,751
15,667
—
1,562
—
—
$ —
—
922,903
—
9,551
214
$ (1,483)
—
—
—
—
—
$ —
(500)
922,903
1,562
9,551
214
$ (1,483)
(500)
Balance at
12/31/08
Fair Value Measurements at December 31, 2008 Using:
(In thousands)
(Level 1)
(Level 2)
(Level 3)
ASSETS
Investment Securities
Obligations of U.S.
Treasury and
Other U.S.
Government
sponsored
entities
Obligations of states
and political
subdivisions
U.S. Government
sponsored entities’
asset-backed
securities
Equity securities
LIABILITIES
$ —
$128,688
$ —
$128,688
—
24,189
2,705
26,894
—
1,783
1,404,531
—
—
—
1,404,531
1,783
70
70
Interest rate swap
$ —
$ (1,937)
$ —
$ (1,937)
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following methods and assumptions were used by the Corporation in
determining fair value of the financial assets and liabilities discussed above:
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not avail-
able, fair values are based on quoted market prices of comparable instruments.
The Fair Value Measurements table on the previous page excludes Park’s
Federal Home Loan Bank stock and Federal Reserve Bank stock, which are
carried at the redemption value, as it is not practicable to calculate their fair
values. For securities where quoted prices or market prices of similar securities
are not available, which include municipal securities, fair values are calculated
using discounted cash flows.
Interest rate swaps: The fair value of interest rate swaps represents the
estimated amount Park would pay or receive to terminate the agreements,
considering current interest rates and the current creditworthiness of the
counterparties.
Fair Value Swap: The fair value of the swap agreement entered into with the
purchaser of the Visa Class B shares represents an internally developed estimate
of the exposure based upon probability-weighted potential Visa litigation losses.
Interest Rate Lock Commitments (IRLCs): IRLCs are based on current
secondary market pricing and are classified as Level 2.
Mortgage Loans Held for Sale: Mortgage loans held for sale are carried at
their fair value as of December 31, 2009 and at the lower of cost or fair value at
December 31, 2008. On January 1, 2009, Park elected the fair value option of
accounting for mortgage loans held for sale. Mortgage loans held for sale are
estimated using security prices for similar product types, and therefore, are
classified in Level 2.
The table below is a reconciliation of the beginning and ending balances of the
Level 3 inputs for the years ended December 31, 2009 and 2008, for financial
instruments measured on a recurring basis and classified as Level 3:
Level 3 Fair Value Measurements
Year ended December 31
(in thousands)
Beginning Balance at December 31, 2008
Total gains/(losses)
Included in earnings
Included in Other Comprehensive Income
Fair value swap
Balance at December 31, 2009
Balance at December 31, 2007
Total gains/(losses)
Included in earnings
Included in Other Comprehensive Income
A-F-S
Securities
$2,705
Fair Value
Swap
$ —
—
46
—
$2,751
$2,969
—
(264)
—
—
(500)
$(500)
$ —
—
—
Balance at December 31, 2008
$2,705
$ —
The following table presents financial assets and liabilities measured on
a nonrecurring basis:
Fair Value Measurements at December 31, 2009 Using:
(In thousands)
Impaired loans
Mortgage servicing
rights
Other real estate owned
(Level 1)
$ —
—
—
(Level 2)
$ —
10,780
—
Fair Value Measurements at December 31, 2008 Using:
(In thousands)
Impaired loans
Mortgage servicing
rights
Other real estate owned
(Level 1)
$ —
—
—
(Level 2)
$ —
8,306
—
(Level 3)
$109,818
—
41,240
(Level 3)
$ 75,942
—
25,848
Balance at
12/31/09
$109,818
10,780
41,240
Balance at
12/31/08
$ 75,942
8,306
25,848
Impaired loans, which are usually measured for impairment using the fair
value of collateral, had a carrying amount of $201.1 million at December 31,
2009, after a partial charge-off of $43.4 million. In addition, these loans have
a specific valuation allowance of $36.7 million. Of the $201.1 million impaired
loan portfolio, $109.8 million were carried at fair value, as a result of the afore-
mentioned charge-offs and specific valuation allowance. The remaining $91.3
million of impaired loans are carried at cost, as the fair value exceeds the book
value for each individual credit. At December 31, 2008, impaired loans had a
carrying amount of $142.9 million. Of these, $75.9 million were carried at fair
value, as a result of partial charge-offs of $30.0 million and a specific valuation
allowance of $8.9 million. The impact of changes in the specific valuation
allowance for the year ended December 31, 2009 was $27.9 million.
Mortgage servicing rights (MSRs), which are carried at lower of cost or fair
value, were recorded at a fair value of $10.8 million, including a valuation
allowance of $0.6 million, at December 31, 2009. MSRs do not trade in active,
open markets with readily observable prices. For example, sales of MSRs do
occur, but precise terms and conditions typically are not readily available.
Accordingly, MSRs are classified Level 2. At December 31, 2008, MSRs were
recorded at a fair value of $8.3 million, including a valuation allowance of
$1.6 million.
Other real estate owned (OREO) is recorded at fair value based on property
appraisals, less estimated selling costs, at the date of transfer. The carrying
value of OREO is not re-measured to fair value on a recurring basis, but is
subject to fair value adjustments when the carrying value exceeds the fair value,
less estimated selling costs. At December 31, 2009 and 2008, the estimated fair
value of OREO, less estimated selling costs amounted to $41.2 million and
$25.8 million, respectively. The financial impact of OREO valuation adjustments
for the year ended December 31, 2009 was $6.8 million.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for assets and liabilities not discussed above:
Cash and cash equivalents: The carrying amounts reported in the
Consolidated Balance Sheet for cash and short-term instruments approximate
those assets’ fair values.
Interest bearing deposits with other banks: The carrying amounts
reported in the Consolidated Balance Sheet for interest bearing deposits with
other banks approximate those assets’ fair values.
Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Off-balance sheet instruments: Fair values for the Corporation’s loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties’ credit standing. The carrying
amount and fair value are not material.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit approximate their fair values at the reporting
date. Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
of time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-term debt: Fair values for long-term debt are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on long-term debt to a schedule of monthly maturities.
Subordinated debentures/notes: Fair values for subordinated debentures
and notes are estimated using a discounted cash flow calculation that applies
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
interest rate spreads currently being offered on similar debt structures to a
schedule of monthly maturities.
The fair value of financial instruments at December 31, 2009 and December 31,
2008, was as follows:
December 31,
(In thousands)
Financial assets:
Cash and money market
instruments
Investment securities
Accrued interest
receivable
Mortgage loans
held for sale
Impaired loans carried
at fair value
Other loans
Loans
receivable, net
Financial liabilities:
Noninterest bearing
checking
Interest bearing
transaction accounts
Savings
Time deposits
Other
2009
2008
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$ 159,091
1,794,641
$ 159,091
1,811,177
$ 171,262
1,990,246
$ 171,262
1,995,331
24,354
9,551
24,354
27,930
27,930
9,551
9,603
9,603
109,818
4,404,346
109,818
4,411,526
75,942
4,305,704
75,942
4,324,829
$4,523,715
$4,530,895
$4,391,249
$4,410,374
$ 897,243
$ 897,243
$ 782,625
$ 782,625
1,193,845
873,137
2,222,537
1,290
1,193,845
873,137
2,234,599
1,290
1,204,530
694,721
2,078,372
1,502
1,204,530
694,721
2,084,732
1,502
Total deposits
$5,188,052
$5,200,114
$4,761,750
$4,768,110
Short-term borrowings
Long-term debt
Subordinated debentures/
notes
Accrued interest payable
324,219
654,381
75,250
9,330
324,219
703,699
64,262
9,330
659,196
855,558
40,000
11,335
659,196
939,210
30,855
11,335
Derivative financial
instruments:
Interest rate swap
Fair value swap
$
1,483
500
$
1,483
500
$
1,937
—
$
1,937
—
22. CAPITAL RATIOS
At December 31, 2009 and 2008, the Corporation and each of its two separately
chartered banks had Tier 1, total risk-based capital and leverage ratios which
were well above both the required minimum levels of 4.00%, 8.00% and
4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and
5.00%, respectively.
The following table indicates the capital ratios for Park and each subsidiary
at December 31, 2009 and December 31, 2008.
2009
Total
Risk-
Based
Tier 1
Risk-
Based
Tier 1
Risk-
Based
Leverage
2008
Total
Risk-
Based
Park National Bank
8.81% 10.89% 6.27%
8.63% 10.89%
Vision Bank
Park
13.15% 14.46% 10.77%
11.60% 12.86%
12.45% 14.89% 9.04%
11.69% 13.47%
Leverage
5.94%
9.74%
8.36%
Failure to meet the minimum requirements above could cause the Federal
Reserve Board to take action. Park’s bank subsidiaries are also subject to these
capital requirements by their primary regulators. As of December 31, 2009
and 2008, Park and its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject. There are no conditions
or events since the most recent regulatory report filings, by PNB or Vision Bank
(“VB”), that management believes have changed the risk categories for either
of the two banks. Park management has agreed to maintain Vision Bank’s total
risk-based capital at 14.00% and the leverage ratio at 10.00%.
The following table reflects various measures of capital for Park and each
of PNB and VB:
(In thousands)
Actual Amount
Ratio
To Be Adequately Capitalized
Ratio
Amount
To Be Well Capitalized
Amount
Ratio
At December 31, 2009:
Total risk-based capital
(to risk-weighted assets)
PNB
VB
Park
Tier 1 risk-based capital
(to risk-weighted assets)
PNB
VB
Park
Leverage ratio
(to average total assets)
PNB
VB
Park
At December 31, 2008:
Total risk-based capital
(to risk-weighted assets)
PNB
VB
Park
Tier 1 risk-based capital
(to risk-weighted assets)
PNB
VB
Park
Leverage ratio
(to average total assets)
PNB
VB
Park
72
72
$473,694
103,819
758,291
$383,296
94,408
633,726
$383,296
94,408
633,726
$442,247
94,670
646,132
$350,344
85,397
560,691
$350,344
85,397
560,691
10.89%
14.46%
14.89%
8.81%
13.15%
12.45%
6.27%
10.77%
9.04%
10.89%
12.86%
13.47%
8.63%
11.60%
11.69%
5.94%
9.74%
8.36%
$348,013
57,454
407,366
$174,006
28,727
203,683
$244,368
35,054
280,286
$324,818
58,897
383,650
$162,409
29,449
191,825
$235,878
35,057
268,244
8.00%
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
8.00%
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
$435,016
71,817
509,207
$261,010
43,090
305,524
$305,460
43,818
350,357
$406,022
73,622
479,562
$243,613
44,173
287,737
$294,848
43,821
335,304
10.00%
10.00%
10.00%
6.00%
6.00%
6.00%
5.00%
5.00%
5.00%
10.00%
10.00%
10.00%
6.00%
6.00%
6.00%
5.00%
5.00%
5.00%
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
23. SEGMENT INFORMATION
The Corporation is a multi-bank holding company headquartered in Newark,
Ohio. The operating segments for the Corporation are its two chartered bank
subsidiaries, The Park National Bank (headquartered in Newark, Ohio) and
Vision Bank (headquartered in Panama City, Florida) (“VB”). Guardian Finance
Company (“GFC”) is a consumer finance company and is excluded from PNB
for segment reporting purposes. GFC is included within the presentation of
“All Other” in the segment reporting tables that follow. During the third quarter
of 2008, Park combined the eight separately chartered Ohio-based bank
subsidiaries into one national bank charter, that of The Park National Bank.
Prior to the charter mergers that were consummated in the third quarter
of 2008, Park considered each of its nine chartered bank subsidiaries as
a separate segment for financial reporting purposes. GAAP requires manage-
ment to disclose information about the different types of business activities
in which a company engages and also information on the different economic
environments in which a company operates, so that the users of the financial
statements can better understand a company’s performance, better understand
the potential for future cash flows, and make more informed judgments about
the company as a whole. The change to two operating segments is in line with
GAAP as there are: (i) two separate and distinct geographic markets in which
Park operates, (ii) discrete financial information is available for each operating
segment and (iii) the segments are aligned with internal reporting to Park’s
Chief Executive Officer, who is the chief operating decision maker. The financial
information for the year ended December 31, 2007 has been reclassified to be
consistent with the presentation of the financial information for the twelve
months ended December 31, 2009 and 2008.
Operating Results for the year ended December 31, 2009 (In thousands)
All Other
PNB
VB
Net interest income
Provision for loan losses
Other income
Depreciation and amortization
Other expense
$ 236,107
22,339
82,770
6,142
141,906
Income (loss) before taxes
Income taxes (benefit)
148,490
47,032
$ 25,634
44,430
(2,047)
1,309
26,782
(48,934)
(18,824)
Net income (loss)
$ 101,458
$ (30,110)
$11,750
2,052
467
22
12,564
(2,421)
(5,265)
$2,844
Total
$ 273,491
68,821
81,190
7,473
181,252
97,135
22,943
$
74,192
Balances at December 31, 2009:
Assets
Loans
Deposits
$6,182,257
3,950,599
4,670,113
$897,981
677,018
688,900
$ (39,909)
12,815
$(170,961)
$7,040,329
4,640,432
5,188,052
Operating Results for the year ended December 31, 2008 (In thousands)
Net interest income
Provision for loan losses
Other income
Depreciation and amortization
Goodwill impairment charge
Other expense
Income (loss) before taxes
Income taxes (benefit)
PNB
$ 219,843
21,512
81,310
6,128
—
131,167
142,346
47,081
VB
$ 27,065
46,963
3,014
1,360
54,986
25,789
(99,019)
(17,832)
All Other
8,965
$
2,012
510
29
—
15,042
(7,608)
(7,238)
Total
$ 255,873
70,487
84,834
7,517
54,986
171,998
35,719
22,011
Net income (loss)
$
95,265
$ (81,187)
$
(370)
$
13,708
Balances at December 31, 2008:
Assets
Loans
Deposits
$6,243,365
3,790,867
4,210,439
$917,041
690,472
636,635
$ (89,686)
9,998
(85,324)
$7,070,720
4,491,337
4,761,750
Operating Results for the year ended December 31, 2007 (In thousands)
PNB
VB
All Other
Total
Net interest income
$ 201,555
$ 23,756
$
Provision for loan losses
Other income
Depreciation and amortization
Goodwill impairment charge
Other expense
7,966
67,482
5,392
—
131,907
Income (loss) before taxes
123,772
Income taxes (benefit)
40,692
19,425
3,465
1,024
54,035
17,521
(64,784)
(4,103)
9,366
2,085
693
64
—
14,221
(6,311)
(6,619)
$ 234,677
29,476
71,640
6,480
54,035
163,649
52,677
29,970
Net income (loss)
$
83,080
$ (60,681)
Balances at December 31, 2007:
Assets
Loans
Deposits
$5,655,022
3,574,894
3,820,917
$855,794
639,097
656,768
$
$
308
$
22,707
(9,714)
10,143
(38,446)
$6,501,102
4,224,134
4,439,239
Reconciliation of financial information for the reportable segments to the
Corporation’s consolidated totals:
(In thousands)
2009:
Totals for reportable
segments
Elimination of
Net Interest Depreciation
Income
Expense
Other
Expense
Income
Taxes
Assets
Deposits
$261,741
$7,451 $168,688 $28,208 $7,080,238 $5,359,013
intersegment items
—
Parent Co. and GFC totals
– not eliminated
11,750
—
22
—
— (114,214)
(170,961)
12,564
(5,265)
74,305
—
Totals
2008:
Totals for reportable
segments
Elimination of
$273,491
$7,473 $181,252 $22,943 $7,040,329 $5,188,052
$246,908
$7,488 $211,942 $29,249 $7,160,406 $4,847,074
intersegment items
—
Parent Co. and GFC totals
– not eliminated
8,965
—
29
—
— (186,809)
(85,324)
15,042
(7,238)
97,123
—
Totals
2007:
Totals for reportable
segments
Elimination of
$255,873
$7,517 $226,984 $22,011 $7,070,720 $4,761,750
$225,311
$6,416 $203,463 $36,589 $6,510,816 $4,477,685
intersegment items
—
Parent Co. and GFC totals
– not eliminated
9,366
—
Other items
Totals
—
39
25
—
— (108,602)
(38,446)
14,221
(6,619)
98,888
—
—
—
—
—
$234,677
$6,480 $217,684 $29,970 $6,501,102 $4,439,239
24. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method
of accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents noninterest bearing deposits with a bank subsidiary.
Net cash provided by operating activities reflects cash payments (received
from subsidiaries) for income taxes of $5.22 million, $8.23 million and
$6.67 million in 2009, 2008 and 2007, respectively.
7373
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
At December 31, 2009 and 2008, stockholders’ equity reflected in the
Parent Company balance sheet includes $125.0 million and $126.2 million,
respectively, of undistributed earnings of the Corporation’s subsidiaries which
are restricted from transfer as dividends to the Corporation.
Balance Sheets
December 31, 2009 and 2008
(In thousands)
Assets:
Cash
Investment in subsidiaries
Debentures receivable from subsidiary banks
Other investments
Other assets
Total assets
Liabilities:
Dividends payable
Subordinated notes
Other liabilities
Total liabilities
Total stockholders’ equity
2009
$155,908
587,309
7,500
1,288
76,821
$828,826
$
651
50,250
60,661
111,562
717,264
Total liabilities and stockholders’ equity
$828,826
Statements of Income
for the years ended December 31, 2009, 2008 and 2007
2008
$ 80,343
547,308
7,500
1,064
58,054
$694,269
$
123
15,000
36,483
51,606
642,663
$694,269
(In thousands)
Income:
Dividends from subsidiaries
Interest and dividends
Other
Total income
Expense:
Other, net
Total expense
Income before federal taxes and equity
in undistributed (losses)
of subsidiaries
Federal income tax benefit
Income before equity in
undistributed (losses)
of subsidiaries
Equity in undistributed (losses)
of subsidiaries
Net income
2009
2008
2007
$75,000
$ 93,850
$ 65,564
4,715
489
80,204
10,322
10,322
69,882
6,210
3,639
575
98,064
14,158
14,158
83,906
8,057
3,828
673
70,065
12,032
12,032
58,033
7,055
76,092
91,963
65,088
(1,900)
$74,192
(78,255)
$ 13,708
(42,381)
$ 22,707
Statements of Cash Flows
for the years ended December 31, 2009, 2008 and 2007
(In thousands)
Operating activities:
Net income
2009
2008
2007
$ 74,192
$ 13,708
$ 22,707
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed losses of subsidiaries
Other than temporary impairment charge,
investments
(Gain) on sale of assets
Stock based compensation expense
(Increase) decrease in other assets
Increase in other liabilities
Net cash provided by
operating activities
1,900
78,255
42,381
140
—
—
(18,854)
24,178
774
—
—
4,508
2,042
—
(18)
893
(6,227)
1,774
81,556
99,287
61,510
(In thousands)
2009
2008
2007
Investing activities:
Cash paid for acquisition, net
(Purchase) of investment securities
—
(113)
—
(158)
Capital contribution to subsidiary
(37,000)
(76,000)
Cash received for sale of premises
Repayment of debentures receivable
from subsidiaries
—
—
—
—
(85,600)
(400)
(6,700)
48
20,000
Net cash (used in)
investing activities
Financing activities:
Cash dividends paid
Proceeds from issuance of
common stock and warrants
Proceeds from issuance of
subordinated notes
Cash payment for fractional shares
Proceeds from issuance of
preferred stock
Purchase of treasury stock, net
Net cash provided by (used in)
financing activities
Increase (decrease) in cash
Cash at beginning of year
(37,113)
(76,158)
(72,652)
$(58,035)
$(65,781)
$ (52,533)
53,909
35,250
(2)
—
—
31,122
75,565
80,343
4,736
—
(3)
95,721
—
34,673
57,802
22,541
—
—
(5)
—
(64,733)
(117,271)
(128,413)
150,954
Cash at end of year
$155,908
$ 80,343
$ 22,541
25. PARTICIPATION IN THE U.S. TREASURY
CAPITAL PURCHASE PROGRAM
On December 23, 2008, Park issued $100 million of cumulative perpetual
preferred shares, with a liquidation preference of $1,000 per share (the
“Senior Preferred Shares”). The Senior Preferred Shares constitute Tier 1
capital and rank senior to Park’s common shares. The Senior Preferred
Shares pay cumulative dividends at a rate of 5% per annum through February
14, 2014 and will reset to a rate of 9% per annum thereafter. For the year
ended December 31, 2009, Park recognized a charge to retained earnings of
$5.8 million, representing the preferred stock dividend and accretion of the
discount on the preferred stock, associated with its participation in the CPP.
As part of its participation in the CPP, Park also issued a warrant to the U.S.
Treasury to purchase 227,376 common shares having an exercise price of
$65.97, which is equal to 15% of the aggregate amount of the Senior Preferred
Shares purchased by the U.S. Treasury. The initial exercise price for the warrant
and the market price for determining the number of common shares subject to
the warrant were determined by reference to the market price of the common
shares on the date the Company’s application for participation in the Capital
Purchase Program was approved by the United States Department of the
Treasury (calculated on a 20-day trailing average). The warrant has a term
of 10 years.
A company that participates in the CPP must adopt certain standards for com-
pensation and corporate governance, established under the American Recovery
and Reinvestment Act of 2009 (the “ARRA”), which amended and replaced the
executive compensation provisions of the Emergency Economic Stabilization Act
of 2008 (“EESA”) in their entirety, and the Interim Final Rule promulgated
by the Secretary of the U.S. Treasury under 31 C.F.R. Part 30 (collectively,
the “Troubled Asset Relief Program (TARP) Compensation Standards”).
In addition, Park’s ability to declare or pay dividends on or repurchase its
common shares is partially restricted as a result of its participation in the CPP.
74
LL
74
RR
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
26. SALE OF COMMON SHARES AND
ISSUANCE OF COMMON STOCK WARRANTS
On May 27, 2009, Park announced that it had entered into a distribution
agreement with the investment banking firm of Sandler O’Neill & Partners,
L.P. (“Sandler O’Neill”). Under this distribution agreement, Park could offer
and sell common shares having aggregate sales proceeds of up to $70 million
from time to time through Sandler O’Neill as sales agent, provided that the
aggregate number of common shares offered and sold under offerings con-
ducted pursuant to this distribution agreement could not exceed 1,050,000
common shares. For the year ended December 31, 2009, Park sold 288,272
common shares, out of treasury shares, at a weighted average sales price of
$60.83, with sales proceeds of $17.5 million. Net proceeds for the common
shares sold during 2009 were $16.7 million, net of selling expenses.
On January 27, 2010, Park terminated the distribution agreement with
Sandler O’Neill.
In addition, on October 30, 2009, Park sold, in a registered direct public
offering, 500,000 common shares, out of treasury shares, for gross proceeds
of $30.8 million. In addition to the common shares, Park also issued:
(cid:31) Series A Common Share Warrants, which are exercisable within six
months of the closing date, to purchase up to an aggregate of 250,000
common shares at an exercise price of $67.75.
(cid:31) Series B Common Share Warrants, which are exercisable within twelve
months of the closing date, to purchase up to an aggregate of 250,000
common shares at an exercise price of $67.75.
Net proceeds (net of all selling and legal expenses) from the October 30, 2009
sale of 500,000 Common Shares and Warrants were $29.8 million. Through
December 31, 2009, there were no exercises of the Series A /Series B Common
Share Warrants issued in the registered direct public offering.
Finally, on November 17, 2009, Park sold 115,800 common shares, out of
treasury shares, to the Park National Corporation Defined Benefit Pension
Plan, for gross proceeds of $7.0 million, at $60.45 per share.
RR
7575
N O T E S
76