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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission File Number 1-13006
---------------------------------------------------------
Park National Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1179518
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 North Third Street, Newark, Ohio 43055
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(740) 349-8451
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
13,852,491 common shares, no par value per share, outstanding at July 29, 2002.
- ----------
Page 1 of 23
PARK NATIONAL CORPORATION
CONTENTS
--------
Page
----
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3-12
Consolidated Balance Sheets as of June 30, 2002 and
and December 31, 2001 (unaudited) 3
Consolidated Condensed Statements of Income for the
Three Months and Six Months ended June 30, 2002 and 2001 (unaudited) 4,5
Consolidated Condensed Statements of Changes in Stockholders'
Equity for the Six Months ended June 30, 2002 and 2001
(unaudited) 6
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2002 and 2001 (unaudited) 7-8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
-2-
PARK NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per share data)
June 30, December 31,
2002 2001
- --------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 158,977 $ 169,143
- --------------------------------------------------------------------------------------
Interest bearing deposits 50 50
- --------------------------------------------------------------------------------------
Securities available-for-sale, at fair value
(amortized cost of $1,426,211 and $1,423,268
at June 30, 2002 and December 31, 2001) 1,459,876 1,436,661
- --------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized cost
(fair value approximates $27,276 and $27,382
at June 30, 2002 and December 31, 2001) 26,844 27,518
- --------------------------------------------------------------------------------------
Loans (net of unearned interest) 2,704,893 2,795,808
- --------------------------------------------------------------------------------------
Allowance for possible loan losses 63,030 59,959
- --------------------------------------------------------------------------------------
Net loans 2,641,863 2,735,849
- --------------------------------------------------------------------------------------
Bank premises and equipment, net 39,098 39,910
- --------------------------------------------------------------------------------------
Other assets 167,734 160,384
- --------------------------------------------------------------------------------------
Total assets $ 4,494,442 $ 4,569,515
- --------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits:
Noninterest bearing $ 525,885 $ 515,333
- --------------------------------------------------------------------------------------
Interest bearing 2,937,629 2,798,870
- --------------------------------------------------------------------------------------
Total deposits 3,463,514 3,314,203
- --------------------------------------------------------------------------------------
Short-term borrowings 227,988 318,311
- --------------------------------------------------------------------------------------
Long-term debt 252,456 392,540
- --------------------------------------------------------------------------------------
Other liabilities 52,188 76,115
- --------------------------------------------------------------------------------------
Total liabilities 3,996,146 4,101,169
- --------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock (No par value; 20,000,000 shares
authorized; 14,540,480 shares issued in 2002
and 14,540,498 issued in 2001) 105,770 105,771
- --------------------------------------------------------------------------------------
Retained earnings 426,129 403,870
- --------------------------------------------------------------------------------------
Treasury stock (642,972 shares in 2002
and 599,697 shares in 2001) (55,485) (50,000)
- --------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of taxes 21,882 8,705
- --------------------------------------------------------------------------------------
Total stockholders' equity 498,296 468,346
- --------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 4,494,442 $ 4,569,515
- --------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 51,506 $ 63,567 $ 104,698 $ 129,348
- -------------------------------------------------------------------------------------------
Interest on:
Obligations of U.S. Government,
its agencies and other securities 19,803 14,569 39,554 27,418
- -------------------------------------------------------------------------------------------
Obligations of states
and political subdivisions 1,757 2,000 3,558 3,997
- -------------------------------------------------------------------------------------------
Other interest income 33 89 163 616
- -------------------------------------------------------------------------------------------
Total interest income 73,099 80,225 147,973 161,379
- -------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
Demand and savings deposits 3,193 5,998 6,453 12,584
- -------------------------------------------------------------------------------------------
Time deposits 14,375 21,794 29,534 44,272
- -------------------------------------------------------------------------------------------
Interest on borrowings:
Short-term borrowings 888 2,925 2,000 5,865
- -------------------------------------------------------------------------------------------
Long-term debt 2,744 2,606 5,840 6,325
- -------------------------------------------------------------------------------------------
Total interest expense 21,200 33,323 43,827 69,046
- -------------------------------------------------------------------------------------------
Net interest income 51,899 46,902 104,146 92,333
- -------------------------------------------------------------------------------------------
Provision for loan losses 3,644 2,392 8,163 4,651
- -------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 48,255 44,510 95,983 87,682
- -------------------------------------------------------------------------------------------
Other income 11,174 11,359 22,969 21,515
- -------------------------------------------------------------------------------------------
Gain (loss) on sale of securities - - (210) 142
- -------------------------------------------------------------------------------------------
Continued
4
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(CONTINUED)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits $ 15,692 $ 14,151 $ 31,943 $ 28,717
- -----------------------------------------------------------------------------------------------------------
Occupancy expense 1,489 1,487 3,028 3,004
- -----------------------------------------------------------------------------------------------------------
Furniture and equipment expense 1,477 1,468 3,006 2,883
- -----------------------------------------------------------------------------------------------------------
Other expense 9,682 9,645 19,579 19,117
- -----------------------------------------------------------------------------------------------------------
Total other expense 28,340 26,751 57,556 53,721
- -----------------------------------------------------------------------------------------------------------
Income before federal income taxes 31,089 29,118 61,186 55,618
- -----------------------------------------------------------------------------------------------------------
Federal income taxes 9,117 8,735 17,766 16,345
- -----------------------------------------------------------------------------------------------------------
Net income $ 21,972 $ 20,383 $ 43,420 $ 39,273
===========================================================================================================
PER SHARE:
Net income:
Basic $ 1.58 $ 1.45 $ 3.12 $ 2.79
===========================================================================================================
Diluted $ 1.57 $ 1.45 $ 3.11 $ 2.79
===========================================================================================================
Weighted average
Basic 13,920,111 14,033,886 13,928,226 14,062,112
===========================================================================================================
Diluted 13,958,268 14,055,661 13,965,659 14,085,943
===========================================================================================================
Cash dividends declared $ 0.76 $ 0.71 $ 1.52 $ 1.42
===========================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED) (dollars in thousands, except per share data)
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Treasury
Common Retained Stock
Stock Earnings at Cost
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $119,229 $365,975 ($46,583)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 39,273
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of income taxes of $5,052
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock:
Park at $1.42 per share (17,570)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid by Security Banc Corporation
prior to merger (2,355)
- -----------------------------------------------------------------------------------------------------------------------------------
Retire treasury stock from Security Banc Corporation merger - 259,280 shares (13,361) 13,361
- -----------------------------------------------------------------------------------------------------------------------------------
Cash payment for fractional shares in Security Banc Corporation merger - 1,089 shares (96)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 115,334 shares (9,884)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 15,128 shares 777
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 $105,772 $385,323 ($42,329)
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $105,771 $403,870 ($50,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $43,420
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of income taxes of $7,095
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends on common stock:
Park at $1.52 per share (21,161)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid for fractional shares - 18 shares (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 82,181 shares (7,813)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 38,906 shares 2,328
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 $105,770 $426,129 ($55,485)
===================================================================================================================================
Accumulated
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Other
Comprehensive Comprehensive
Income Income
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $4,028
- -------------------------------------------------------------------------------------------------------------
Net Income $39,273
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of income taxes of $5,052 9,384 9,384
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $48,657
- -------------------------------------------------------------------------------------------------------------====================
Cash dividends on common stock:
Park at $1.42 per share
- -------------------------------------------------------------------------------------------------------------
Cash dividends paid by Security Banc Corporation
prior to merger
- -------------------------------------------------------------------------------------------------------------
Retire treasury stock from Security Banc Corporation merger - 259,280 shares
- -------------------------------------------------------------------------------------------------------------
Cash payment for fractional shares in Security Banc Corporation merger - 1,089 shares
- -------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 115,334 shares
- -------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 15,128 shares
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 $13,412
=============================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $8,705
- -------------------------------------------------------------------------------------------------------------
Net Income $43,420
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of income taxes of $7,095 13,177 13,177
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $56,597
- -------------------------------------------------------------------------------------------------------------====================
Cash dividends on common stock:
Park at $1.52 per share
- -------------------------------------------------------------------------------------------------------------
Cash paid for fractional shares - 18 shares
- -------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 82,181 shares
- -------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 38,906 shares
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 $21,882
=============================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
PARK NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Six Months Ended
June 30,
-------------------------
2002 2001
- --------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 43,420 $ 39,273
- --------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and accretion (969) 1,586
- --------------------------------------------------------------------------------------------------
Provision for loan losses 8,163 4,651
- --------------------------------------------------------------------------------------------------
Amortization of the excess of cost over
net assets of banks purchased 1,950 1,988
- --------------------------------------------------------------------------------------------------
Realized investment security losses (gains) 210 (142)
- --------------------------------------------------------------------------------------------------
Changes in assets and liabilities:
(Increase) decrease in other assets (12,805) 2,410
- --------------------------------------------------------------------------------------------------
Decrease in other liabilities (16,911) (10,309)
- --------------------------------------------------------------------------------------------------
Net cash provided from operating activities 23,058 39,457
-----------------------------------------------------------------------------------
Investing activities:
Proceeds from sales of:
Available-for-sale securities 99,673 24,968
- --------------------------------------------------------------------------------------------------
Proceeds from maturity of:
Available-for-sale securities 353,230 176,398
- --------------------------------------------------------------------------------------------------
Held-to-maturity securities 674 601
- --------------------------------------------------------------------------------------------------
Purchases of:
Available-for-sale securities (454,199) (442,172)
- --------------------------------------------------------------------------------------------------
Net decrease in interest bearing deposits with other banks 0 1,088
- --------------------------------------------------------------------------------------------------
Net decrease in loans 87,635 67,667
- --------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (1,888) (3,039)
- --------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 85,125 (174,489)
-----------------------------------------------------------------------------------
Continued
7
PARK NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Six Months Ended
June 30,
--------------------------
2002 2001
- --------------------------------------------------------------------------------------------
Financing activities:
Net increase in deposits $ 149,311 $ 32,331
- --------------------------------------------------------------------------------------------
Net (decrease) increase in short-term borrowings (90,323) 42,505
- --------------------------------------------------------------------------------------------
Cash paid for fractional shares (1) (96)
- --------------------------------------------------------------------------------------------
Purchase of treasury stock, net (5,485) (9,107)
- --------------------------------------------------------------------------------------------
Long-term debt issued 0 235,000
- --------------------------------------------------------------------------------------------
Repayment of long-term debt (140,084) (172,476)
- --------------------------------------------------------------------------------------------
Cash dividends paid (31,767) (27,595)
- --------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (118,349) 100,562
-----------------------------------------------------------------------------
Decrease in cash and cash equivalents (10,166) (34,470)
-----------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 169,143 169,577
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 158,977 $ 135,107
=============================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 45,552 $ 70,105
---------------------------------------------------------------------------------
Income taxes $ 18,350 $ 16,463
---------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Periods Ended June 30, 2002 and 2001.
Note 1 - Basis of Presentation
---------------------
The consolidated financial statements included in this report have been prepared
by Park National Corporation (the "Registrant", "Corporation", "Company", or
"Park") without audit. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) necessary for a fair presentation of
results of operations for the interim periods included herein have been made.
The results of operations for the periods ended June 30, 2002 are not
necessarily indicative of the operating results to be anticipated for the fiscal
year ended December 31, 2002.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all information and footnotes necessary for a fair presentation of the balance
sheets, condensed statements of income, condensed statements of changes in
stockholders' equity and statements of cash flows in conformity with accounting
principles generally accepted in the United States. These financial statements
should be read in conjunction with the financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts
in 2001 have been reclassified to conform to the financial statement
presentation used for 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by accounting principles generally accepted in the United
States.
Park does not have any off-balance sheet derivative financial instruments such
as interest-rate swap agreements.
Note 2 - Acquisitions
------------
On March 23, 2001, Park merged with Security Banc Corporation, a $995 million
bank holding company headquartered in Springfield, Ohio in a transaction
accounted for as a pooling-of-interests. Park issued approximately 3,350,000
shares of common stock to the stockholders of Security Banc Corporation based
upon an exchange ratio of .284436 shares of Park common stock for each
outstanding share of Security Banc Corporation common stock. The three financial
institution subsidiaries of Security Banc Corporation (The Security National
Bank and Trust Co., The Citizens National Bank of Urbana, and The Third Savings
and Loan Company) are being operated as two separate banking subsidiaries by
Park. The Third Savings and Loan Company is now being operated as a separate
division of The Security National Bank and Trust Co. under the name of Unity
National and The Citizens National Bank of Urbana is also being operated as a
separate banking subsidiary of Park.
On December 13, 2001, Security National Bank and Trust Company acquired a branch
office in Jamestown, Ohio. In addition to the fixed assets, the purchase
included $15 million in deposits and $3 million in loans. The excess of the cost
over net tangible assets purchased was $1 million and is being amortized using
the straight-line method over seven years.
9
Note 3 - Intangible Assets
-----------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and indefinite lived intangible
assets will no longer be amortized but will be subject to annual impairment
tests in accordance with the statements. Other intangible assets, such as core
deposit intangibles, will continue to be amortized over their useful lives.
Park had approximately $7.5 million of goodwill on its balance sheet at December
31, 2001. This goodwill was evaluated for impairment during the first quarter of
2002 and a determination made that the goodwill was not impaired and that the
book value of the goodwill would continue to be shown as $7.5 million. No
amortization expense is being recorded on the goodwill in 2002 compared to
amortization expense of $94,000 for the second quarter of 2001, $198,000 for the
first half of 2001 and $375,000 for the year 2001. Application of the
non-amortization provisions of the statement increased net income by $94,000 or
$.01 per share in the second quarter of 2002, $198,000 or $.01 for the first
half of 2002 and is expected to increase net income by $375,000 or $.03 per
share for the entire year.
Note 4 - Allowance for Loan Losses
-------------------------
The allowance for loan losses is that amount believed adequate to absorb
estimated credit losses in the loan portfolio based on management's evaluation
of various factors including overall growth in the loan portfolio, an analysis
of individual loans, prior and current loss experience, and current economic
conditions. A provision for loan losses is charged to operations based on
management's periodic evaluation of these and other pertinent factors.
- ----------------------------------------------------------------------------------------------------------
(In Thousands)
- ----------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
- ---------------------------------------- ------------------------------- ---------------------------------
2002 2001 2002 2001
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
Beginning of Period $60,693 $58,165 $59,959 $57,473
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
Provision for loan losses 3,644 2,392 8,163 4,651
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
Losses charged to the reserve (3,501) (3,441) (8,706) (6,647)
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
Recoveries 2,194 2,711 3,614 4,350
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
- ---------------------------------------- ---------------- -------------- ----------------- ---------------
End of Period $63,030 $59,827 $63,030 $59,827
- -----------------------------------------=================================================================
10
Note 5- Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted earnings per
share for the three and six month periods ended June 30, 2002 and 2001.
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Numerator:
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 21,972 $ 20,383 $ 43,420 $ 39,273
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Denominator:
- -------------------------------------------------------------------------------------------------------------------
Denominator for basic earnings per share
(weighted-average shares) 13,920,111 14,033,886 13,928,226 14,062,112
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities 38,157 21,775 37,433 23,831
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share
(adjusted weighted-average shares & assumed
conversions) 13,958,268 14,055,661 13,965,659 14,085,943
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Earnings per share:
- -------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.58 $ 1.45 $ 3.12 $ 2.79
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.57 $ 1.45 $ 3.11 $ 2.79
- -------------------------------------------------------------------------------------------------------------------
Note 6 - Segment Information
-------------------
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
The operating segments for the Corporation are its financial institution
subsidiaries. The Corporation's financial institution subsidiaries are The Park
National Bank (PNB), The Richland Trust Company (RTC), Century National Bank
(CNB), The First-Knox National Bank of Mount Vernon (FKNB), United Bank N.A.
(UB), Second National Bank (SNB), The Security National Bank and Trust Co. (SEC)
and The Citizens National Bank of Urbana (CIT).
- ------------------------------------------------------------------------------------------------------------------------
Operating Results for the Three Months Ended June 30, 2002 (In Thousands)
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Net Interest
Income $15,479 $5,702 $4,980 $7,655 $2,229 $3,384 $8,742 $1,717 $2,011 $51,899
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Provision for
Loan Losses 1,370 410 240 799 90 150 420 90 75 3,644
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Other Income 4,684 874 1,032 1,430 328 284 2,002 438 102 11,174
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Other Expense 8,668 2,698 2,608 3,705 1,459 1,778 4,682 1,086 1,656 28,340
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Net Income $7,080 $2,287 $2,112 $3,161 $736 $1,255 $3,813 $674 $854 $21,972
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Balances at June 30, 2002
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
Assets 1,468,586 496,064 443,395 664,610 197,440 322,692 870,363 168,914 (137,622) $4,494,442
- --------------- ----------- --------- -------- --------- --------- --------- --------- ---------- ---------- -----------
11
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Results for the Three Months Ended June 30, 2001 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Net Interest Income $14,702 $4,877 $4,430 $7,062 $1,777 $2,852 $8,233 $1,690 $1,279 $46,902
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Provision for
Loan Losses 870 330 180 474 120 (50) 375 50 43 2,392
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Other Income 5,093 810 1,113 1,424 294 343 1,860 311 111 11,359
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Other Expense 8,215 2,663 2,566 3,646 1,418 1,677 4,593 1,056 917 26,751
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Net Income $7,380 $1,779 $1,869 $3,059 $401 $1,139 $3,455 $601 $700 $20,383
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Balances at June 30, 2001
- --------------------------- ---------- --------- --------- -------- --------- ----------- --------- --------- ---------- -----------
Assets 1,342,915 484,825 447,191 648,389 189,592 305,131 851,685 182,600 (107,449) $4,344,879
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Results for the Six Months Ended June 30, 2002 (In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- --------------------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------- ------------
Net Interest Income
$31,340 $11,479 $10,085 $14,973 $4,376 $6,881 $17,611 $3,468 $3,933 $104,146
- --------------------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------- ------------
Provision for
Loan Losses 2,915 995 480 1,673 180 425 840 505 150 8,163
- --------------------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------- ------------
Other Income
9,876 1,563 2,230 2,925 617 628 3,953 754 213 22,759
- --------------------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------- ------------
Other Expense
17,341 5,503 5,354 7,482 2,943 3,552 9,626 2,195 3,560 57,556
- --------------------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------- ------------
Net Income $14,669 $4,320 $4,321 $6,054 $1,371 $2,544 $7,591 $1,051 $1,499 $43,420
- ---------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Operating Results for the Six Months Ended June 30, 2001 (In Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- --------------------- --------- --------- --------- --------- --------- -------- -------- --------- ----------- -------------
Net Interest Income
$28,843 $9,319 $8,861 $13,980 $3,485 $5,659 $16,358 $3,323 $2,505 $92,333
- --------------------- --------- --------- --------- --------- --------- -------- -------- --------- ----------- -------------
Provision for
Loan Losses 1,590 600 330 918 180 25 750 185 73 4,651
- --------------------- --------- --------- --------- --------- --------- -------- -------- --------- ----------- -------------
Other Income
9,502 1,513 2,003 2,756 597 744 3,610 714 218 21,657
- --------------------- --------- --------- --------- --------- --------- -------- -------- --------- ----------- -------------
Other Expense
16,647 5,364 4,976 7,318 2,857 3,440 9,182 2,139 1,798 53,721
- --------------------- --------- --------- --------- --------- --------- -------- -------- --------- ----------- -------------
Net Income $13,896 $3,223 $3,715 $6,130 $797 $2,155 $6,771 $1,163 $1,423 $39,273
- -----------------------------------------------------------------------------------------------------------------------------
The operating results of the Parent Company and Guardian Finance Company (GFC)
in the All Other column are used to reconcile the segment totals to the
consolidated income statements for the three and six month periods ended June
30, 2002 and 2001. The reconciling amounts for consolidated total assets at June
30, 2002 and 2001 consist of the elimination of intersegment borrowings, and the
assets of the Parent Company and GFC which are not eliminated.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis by management contains forward-looking statements
that are provided to assist in the understanding of anticipated future financial
performance. These forward-looking statements involve significant risks and
uncertainties including changes in general economic and financial market
conditions and Park's ability to execute its business plans, as well as other
risks detailed in our press releases and Securities and Exchange Commission
filings. Although Park believes that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially.
Undue reliance should not be placed on the forward-looking statements, which
speak only as of the date hereof. Park does not undertake any obligation to
publicly update any forward-looking statement.
Comparison of Results of Operations for the Three and Six Month Periods
Ended June 30, 2002 and 2001.
Net Interest Income
- -------------------
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income increased by $5.0 million or 10.7% to $51.9 million for the
three months ended June 30, 2002 compared to $46.9 million for the second
quarter of 2001. The following table compares the average balance and tax
equivalent yield/cost for interest earning assets and interest bearing
liabilities for the second quarter of 2002 with the same quarter in 2001.
- -------------------------------------------------------------------------------------------------
Three Months Ended June 30,
(In Thousands)
- -------------------------------------------------------------------------------------------------
2002 2001
- -------------------------------------- --------------------------- ------------------------------
Average Tax Average Tax
Balance Equivalent Balance Equivalent
% %
- -------------------------------------- -------------- ------------ ---------------- -------------
- -------------------------------------- -------------- ------------ ---------------- -------------
Loans $2,702,648 7.68% $2,897,339 8.83%
- -------------------------------------- -------------- ------------ ---------------- -------------
Taxable Investments 1,292,480 6.15% 873,886 6.69%
- -------------------------------------- -------------- ------------ ---------------- -------------
Tax Exempt Investments 145,499 7.09% 161,685 7.07%
- -------------------------------------- -------------- ------------ ---------------- -------------
Federal Funds Sold 4,790 2.21% 6,148 5.97%
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Earning Assets $4,145,417 7.18% $3,939,058 8.28%
- -------------------------------------- -------------- ------------ ---------------- -------------
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Bearing Deposits $2,907,553 2.42% $2,732,563 4.08%
- -------------------------------------- -------------- ------------ ---------------- -------------
Short-term Borrowings 237,240 1.50% 310,292 3.78%
- -------------------------------------- -------------- ------------ ---------------- -------------
Long-term Debt 256,163 4.30% 205,355 5.09%
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Bearing Liabilities $3,400,956 2.50% $3,248,210 4.11%
- -------------------------------------- -------------- ------------ ---------------- -------------
Excess Interest Earning Assets $744,461 4.68% $690,848 4.17%
- -------------------------------------- -------------- ------------ ---------------- -------------
Net Interest Margin 5.12% 4.89%
- -------------------------------------- -------------- ------------ ---------------- -------------
Average interest earning assets increased by $206 million or 5.2% for the
quarter ended June 30, 2002 compared to the same quarter in 2001. The average
yield on interest earning assets decreased to 7.18% for the second quarter of
2002 compared to 8.28% for the second quarter of 2001.
13
Average loan totals decreased by $195 million or 6.7% to $2,703 million for the
quarter ended June 30, 2002 compared to the same quarter in 2001. The demand for
commercial, commercial real estate, and consumer loans and leases secured by
automobiles decreased sharply during the first quarter of 2001 and remained weak
for the remainder of 2001. The demand for commercial, commercial real estate
loans and consumer loans secured by automobiles improved during the second
quarter of 2002. The demand for fixed rate long-term residential mortgage loans
has been strong for the past several quarters, but these loans are sold by Park
in the secondary market. This activity, the origination and sale of fixed rate
mortgage loans, produced a significant increase in fee income for the past
several quarters, but did not increase loan balances since the loans are sold.
Many borrowers took advantage of the low interest rate environment to refinance
their adjustable rate mortgage loan into a fixed rate mortgage loan which
reduces the loan balances reported on the balance sheet.
Total loan balances have decreased each quarter for the past six quarters. The
decrease in loans was $43 million for the first quarter of 2001, $27 million for
the second quarter of 2001, $22 million for the third quarter of 2001, $68
million for the fourth quarter of 2001, $71 million for the first quarter of
2002 and $20 million for the second quarter of 2002. As stated previously, the
demand for loans improved during the second quarter of 2002 and management is
hopeful that loan balances will increase during the second half of 2002 as the
economy recovers from the recession which started a year ago.
The average yield on the loan portfolio was 7.68% for the second quarter of 2002
compared to 8.83% for the same period in 2001. The average prime lending rate
was 4.75% for the second quarter of 2002 compared to 7.34% for the second
quarter of 2001. Approximately 25% of Park's loan portfolio adjusts with the
prime rate. The yield on the loan portfolio is expected to decrease next quarter
as variable rate loans reprice lower and new loan originations have an average
rate that is lower than the current loan portfolio rate.
Average investment securities including federal funds sold increased by $401
million or 38.5% to $1,443 million for the second quarter of 2002 compared to
$1,042 million for the second quarter of 2001. The increase in the investment
portfolio was funded by a decrease in loans and by an increase in deposits. The
average yield on taxable investment securities decreased to 6.15% for the second
quarter of 2002 compared to 6.69% for the same period in 2001. The yield on
taxable investment securities is expected to decrease next quarter as new
investment purchases yield less than the average rate on the taxable investment
portfolio. The yield on tax exempt investments was 7.09% for the second quarter
of 2002 and 7.07% for the same period last year. No tax exempt securities have
been purchased in the past year. The average maturity in the investment
portfolio was 2.5 years at June 30, 2002 compared to 3.3 years at December 31,
2001 and 3.9 years at June 30, 2001. Average interest bearing liabilities
increased by $153 million or 4.7% to $3,401 million for the quarter ended June
30, 2002 compared to the same quarter in 2001. Average interest bearing deposits
increased by $175 million or 6.4% to $2,908 million in 2002 compared to 2001.
Average total borrowings decreased by $22 million or 4.3% to $493 million in
2002 compared to 2001.
The average cost of interest bearing liabilities decreased by 1.61% to 2.50% in
2002 compared to 4.11% in 2001. The average cost of interest bearing deposits
decreased by 1.66% to 2.42% in 2002 compared to 4.08% in 2001. The cost of
short-term borrowings decreased by 2.28% to 1.50% in 2002 compared to 3.78% in
2001, consistent with the decrease in the federal funds rate in 2002. The cost
of long-term debt also decreased to 4.30% in 2002 compared to 5.09% in 2001. The
cost of Park's interest bearing liabilities is expected to continue to slowly
decrease during the second half of the year as the cost of new certificates of
deposit is lower than the portfolio rate.
14
The increase in net interest income of $5.0 million or 10.7% to $51.9 million
for the quarter ended June 30, 2002 was due to an increase in the net interest
spread (the difference between the yield on interest earning assets and the cost
of interest bearing liabilities) of .51% to 4.68% in 2002 compared to 4.17% in
2001 and to an increase in average interest earning assets of 5.2%. The tax
equivalent net interest margin (defined as net interest income divided by
average interest earning assets) increased by .23% to 5.12% for the second
quarter of 2002 compared to 4.89% in 2001.
Net interest income increased by $11.8 million or 12.8% to $104.1 million for
the six months ended June 30, 2002 compared to $92.3 million for the same period
in 2001. The following table compares the average balance and tax equivalent
yield/cost for interest earning assets and interest bearing liabilities for the
first six months of 2002 with the same period in 2001.
- -----------------------------------------------------------------------------------------------------
Six Months Ended June 30, (In Thousands)
- -----------------------------------------------------------------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------
Average Tax Equivalent Average Tax Equivalent
Balance % Balance %
- -------------------------------------- -------------- --------------- --------------- ---------------
Loans $2,724,710 7.79% $2,913,012 8.99%
- -------------------------------------- -------------- --------------- --------------- ---------------
Taxable Investments 1,269,649 6.28% 823,693 6.71%
- -------------------------------------- -------------- --------------- --------------- ---------------
Tax Exempt Investments 147,255 7.13% 163,285 7.00%
- -------------------------------------- -------------- --------------- --------------- ---------------
Federal Funds Sold 17,210 1.89% 21,142 5.88%
- -------------------------------------- -------------- --------------- --------------- ---------------
Interest Earning Assets $4,158,824 7.28% $3,921,132 8.41%
- -------------------------------------- -------------- --------------- --------------- ---------------
- -------------------------------------- -------------- --------------- --------------- ---------------
Interest Bearing Deposits $2,868,453 2.53% $2,715,101 4.22%
- -------------------------------------- -------------- --------------- --------------- ---------------
Short-Term Borrowings 259,222 1.56% 282,526 4.19%
- -------------------------------------- -------------- --------------- --------------- ---------------
Long-Term Borrowings 293,525 4.01% 239,567 5.32%
- -------------------------------------- -------------- --------------- --------------- ---------------
Interest Bearing Liabilities $3,421,200 2.58% $3,237,194 4.30%
- -------------------------------------- -------------- --------------- --------------- ---------------
Excess Interest-Earning Assets $737,624 4.70% $683,938 4.11%
- -------------------------------------- -------------- --------------- --------------- ---------------
Net Interest Margin 5.15% 4.86%
- -----------------------------------------------------------------------------------------------------
Average interest earning assets increased by $238 million or 6.1% to $4,159
million for the six months ended June 30, 2002 compared to the same period in
2001. Average loans decreased by $188 million or 6.5% to $2,725 million for the
first half of 2002 compared to the same period in 2001. The yield on loans was
7.79% for the first half of 2002 compared to 8.99% for the first half of 2001.
Average investment securities including federal funds sold increased by $426
million or 42.3% to $1,434 million for the first half of 2002 compared to the
same period in 2001. The yield on taxable investment securities was 6.28% for
the first half of 2002 compared to 6.71% for the same period in 2001.
Average interest-bearing liabilities increased by $184 million or 5.7% to $3,421
million for the first six months of 2002 compared to the same period in 2001.
Average interest bearing deposits increased by $153 million or 5.7% to $2,868
million for the first half of 2002 compared to the same period in 2001. Average
total borrowings were $553 million at an average cost of 2.84% for the first
half of 2002 compared to average total borrowings of $522 million at an average
cost of 4.67% for the first half of 2001.
The average cost of interest bearing liabilities decreased by 1.72% to 2.58% in
2002 compared to 4.30% in 2001. The average cost of interest bearing deposits
decreased by 1.69% to 2.53% in 2002 compared to 4.22% in 2001.
15
The increase in net interest income of $11.8 million or 12.8% to $104.1 million
for the first half of 2002 was due to the 6.1% increase in interest earning
assets and the increase in the net interest spread. The net interest spread (the
difference between the yield on interest earning assets and the cost of interest
bearing liabilities) increased by .59% to 4.70% in 2002 compared to 4.11% in
2001. The tax equivalent net interest margin (defined as net interest income
divided by average interest earning assets) increased by .29% to 5.15% for 2002
compared to 4.86% in 2001.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $3.6 million and $8.2 million, respectively,
for the second quarter and first half of 2002 compared to $2.4 million and $4.7
million for the same periods in 2001. Net charge-offs were $1.3 million and $5.1
million, respectively, for the three and six month periods ended June 30, 2002
compared to $730,000 and $2.3 million for the same periods in 2001.
Nonperforming loans defined as loans that are 90 days past due, renegotiated
loans, and nonaccrual loans were $27.6 million or 1.02% of loans at June 30,
2002 compared to $27.1 million or .97% of loans at December 31, 2001 and $24.2
million or .84% of loans at June 30, 2002. The reserve for loan losses as a
percentage of outstanding loans was 2.33% at June 30, 2002 compared to 2.14% at
December 31, 2001 and 2.07% at June 30, 2001. See Note 4 of the Notes to
Consolidated Financial Statements for a discussion of the factors considered by
management in determining the provision for loan losses.
Noninterest Income
- ------------------
Noninterest income decreased by $185,000 or 1.6% to $11.2 million for the three
months ended June 30, 2002 and increased by $1.5 million or 6.8% to $23.0
million for the six months ended June 30, 2002 compared to the same periods in
2001. The following is a summary of the change in noninterest income.
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
- ---------------------------- --------------------------------------- -------------------------------------
2002 2001 Change 2002 2001 Change
- ---------------------------- ------------ ------------- ------------ ------------ ------------ -----------
Fees from fiduciary
activities $2,317 $2,224 $93 $4,518 $4,386 $132
- ---------------------------- ------------ ------------- ------------ ------------ ------------ -----------
Service charges on deposit
accounts 3,374 3,436 (62) 6,590 6,592 (2)
- ---------------------------- ------------ ------------- ------------ ------------ ------------ -----------
Other service income
1,901 2,458 (557) 4,769 4,010 759
- ---------------------------- ------------ ------------- ------------ ------------ ------------ -----------
Other income 3,582 3,241 341 7,092 6,527 565
- ---------------------------- ------------ ------------- ------------ ------------ ------------ -----------
Total $11,174 $11,359 $(185) $22,969 $21,515 $1,454
- ----------------------------------------------------------------------------------------------------------
The increase in Other Income for both the three month and six month periods
ended June 30, 2002 was primarily due to increases in check card and ATM
transactions. Other Service Income decreased by $557,000 for the three months
ended June 30, 2002 and increased by $759,000 for the first half of 2002. A
large portion of Other Service Income is the fee income earned from the
origination and sale into the secondary market of fixed rate mortgage loans.
With the recent decrease in long-term interest rates, this source of noninterest
should be strong for the third quarter.
16
Gain (Loss) on Sale of Securities
- ---------------------------------
The loss on sale of securities of $210,000 for the first quarter of 2002 was due
to the sale of $100 million of U.S. Government Agency collateralized mortgage
obligations. These securities were sold to reduce the maturity extension risk in
the investment portfolio.
The gain on sale of securities of $142,000 for the first quarter of 2001 was due
to the sale of United States Treasury Notes with the proceeds reinvested in U.S.
Government Agency mortgage-backed securities.
Other Expense
- -------------
Total other expense increased by $1.6 million or 5.9% for the quarter ended June
30, 2002 and increased by $3.8 million or 7.1% for the six months ended June 30,
2002 compared to the same periods in 2001.
Salaries and employee benefits expense increased by $1.5 million or 10.9% to
$15.7 million for the quarter ended June 30, 2002 and increased by $3.2 million
or 11.2% for the first six months of 2002 compared to the same periods in 2001.
Full time equivalent employees were 1,595 at June 30, 2002 compared to 1,588 at
June 30, 2001.
Federal Income Taxes
- --------------------
Federal income tax expense was $9.1 million and $17.8 million, respectively, for
the three and six month periods ended June 30, 2002 compared to $8.7 million and
$16.3 million for the same periods in 2001. The ratio of federal income tax
expense to income before taxes was 29.3% for the three months ended June 30,
2002 and 29.0% for the six months ended June 30, 2002 compared to 30.0% and
29.4% for the same periods in 2001. The statutory rate was 35% for both 2002 and
2001. The difference between the effective federal income tax rate and the
statutory rate is primarily due to tax-exempt interest income and low income
housing tax credits.
Net Income
- ----------
Net income increased by $1.6 million or 7.8% to $22.0 million for the three
months ended June 30, 2002 compared to $20.4 million for the same period in
2001. For the six months ended June 30, 2002, net income increased by $4.1
million or 10.6% to $43.4 million compared to $39.3 million for the same period
in 2001. The annualized, net income to average assets ratios (ROA) were 1.99%
and 1.97%, respectively, for the three and six month periods ended June 30, 2002
compared to 1.95% and 1.90% for the same periods in 2001. The annualized, net
income to average equity ratios (ROE) were 18.32% and 18.40%, respectively, for
the three and six months periods ended June 30, 2002 compared to 18.23% and
17.79% for the same periods in 2001.
Diluted earnings per share increased by 8.3% to $1.57 for the second quarter of
2002 compared to $1.45 for the second quarter in 2001 and increased by 11.5% to
$3.11 for the first half of 2002 compared to $2.79 for the same period in 2001.
17
COMPARISON OF FINANCIAL CONDITION
AT JUNE 30, 2002 AND DECEMBER 31, 2001
Changes in Financial Condition and Liquidity
- --------------------------------------------
Total assets decreased by $76 million or 1.6% to $4,494 million at June 30, 2002
compared to $4,570 million at December 31, 2001. Total loans decreased by $91
million or 3.3% to $2,705 million as the demand for loans was fairly weak during
the first six months of 2002. The demand for loans improved during the second
quarter with loan totals increasing during the month of June. Management is
hopeful that loans will increase during the second half of the year as the
economy recovers from the recession which started a year ago.
Total liabilities decreased by $105 million or 2.6% to $3,996 million at June
30, 2002 compared to $4,101 million at December 31, 2001. Total borrowed money
decreased by $230 million or 32.4% to $481 million at June 30, 2002 compared to
$711 million at December 31, 2001. Borrowed money was repaid with excess
available funds which resulted from the weak loan demand during the first half
of 2002 and from the increase in deposits.
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of the
Corporation, are met.
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 Corporation's loan to asset ratio was
60.2% at June 30, 2002 compared to 61.18% at December 31, 2001 and 66.4% at June
30, 2001. Cash and cash equivalents totaled $159 million at June 30, 2002
compared to $169 million at December 31, 2001 and $135 million at June 30, 2001.
The present funding sources provide more than adequate liquidity for the
Corporation to meet its cash flow needs.
Capital Resources
- -----------------
Stockholders' equity at June 30, 2002 was $498 million or 11.1% of total assets
compared to $468 million or 10.25% of total assets at December 31, 2001 and $462
million or 10.64% of total assets at June 30, 2001.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. The net unrealized gain
or loss on available-for-sale securities is generally 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
10.35% at June 30, 2002 and 9.97% at December 31, 2001. The minimum Tier I
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 I risk-based capital ratio was 15.68% at June 30, 2002 and 14.84% at
December 31, 2001. The minimum total risk-based capital ratio (defined as
leverage capital plus supplemental capital divided by risk-adjusted assets) is
8% and the well capitalized ratio is greater than or equal to 10%. Park's total
risk-based capital ratio was 16.97% at June 30, 2002 and 16.09% at December 31,
2001.
18
The financial institution subsidiaries of Park each met the well capitalized
capital ratio guidelines at June 30, 2002. The following table indicates the
capital ratios for each subsidiary and Park at June 30, 2002:
TIER I TOTAL
LEVERAGE RISK-BASED RISK-BASED
-------- ---------- ----------
- -----------------------------------------------------------------------------------------
Park National Bank 6.53% 9.41% 12.99%
- ------------------------------------------ -------------- ---------------- --------------
Richland Trust Company 6.80% 12.16% 13.42%
- ------------------------------------------ -------------- ---------------- --------------
Century National Bank 6.43% 11.59% 14.07%
- ------------------------------------------ -------------- ---------------- --------------
First-Knox National Bank 6.59% 9.79% 13.64%
- ------------------------------------------ -------------- ---------------- --------------
Second National Bank 6.61% 9.96% 13.62%
- ------------------------------------------ -------------- ---------------- --------------
United Bank, N.A. 6.94% 12.42% 13.69%
- ------------------------------------------ -------------- ---------------- --------------
Security National Bank 6.39% 9.66% 13.50%
- ------------------------------------------ -------------- ---------------- --------------
Citizens National Bank 6.83% 12.86% 17.96%
- ------------------------------------------ -------------- ---------------- --------------
Park National Corporation 10.35% 15.68% 16.97%
- ------------------------------------------ -------------- ---------------- --------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
- ------------------------------------------ -------------- ---------------- --------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
- -----------------------------------------------------------------------------------------
At the July 22, 2002 Park National Corporation Board of Director's meeting, a
cash dividend of $.76 per share was declared payable on September 10, 2002 to
stockholders of record on August 23, 2002.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 1 of the Notes to Consolidated Financial Statements for disclosure that
Park does not have any off-balance sheet derivative financial instruments.
Management reviews interest rate sensitivity on a quarterly basis by modeling
the financial statements under various interest rate scenarios. The primary
reason for these efforts is to guard Park from adverse impacts of unforeseen
changes in interest rates. Management continues to believe that further changes
in interest rates will have a small impact on net income, consistent with the
disclosure on pages 31 and 32 of our 2001 Annual Report, which is incorporated
by reference into our 2001 Form 10-K.
19
PARK NATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Park National Corporation is not engaged in any legal proceedings of a
material nature at the present time.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Effective July 22, 2002, David C. Bowers retired from his position
as Secretary and an executive officer of Park National Corporation
and David L. Trautman, who serves as an Executive Vice President
and a director of The Park National Bank, was elected by Park
National Corporation Board of Directors to fill the position.
Mr. Bowers will continue to serve as an Executive Vice President
and a director of The Park National Bank. It is anticipated that
Mr. Bowers will retire from those positions at the end of 2002.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
99.1 Certification Pursuant to Title 18, United States
Code, Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)
99.2 Certification Pursuant to Title 18, United States
Code, Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer)
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 2002.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARK NATIONAL CORPORATION
DATE: August 12, 2002 BY: /s/C. Daniel DeLawder
--------------- ----------------------
C. Daniel DeLawder
President and Chief Executive Officer
DATE: August 12, 2002 BY: /s/John W. Kozak
--------------- ----------------
John W. Kozak
Chief Financial Officer
21