10-Q 1 e10-q.txt PARK NATIONAL CORPORATION 10-Q 1 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, 2000 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 ------ ----- 10,831,767 common shares, no par value per share, outstanding at July 25, 2000. ---------- Page 1 of 25 Exhibit Index at Page 22 2 PARK NATIONAL CORPORATION CONTENTS --------
Page ---- PART I. FINANCIAL INFORMATION 3-12 Item 1. Financial Statements 3-12 Consolidated Balance Sheets as of June 30, 2000 and and December 31, 1999 (unaudited) 3 Consolidated Condensed Statements of Income for the Three Months and Six Months ended June 30, 2000 and 1999 (unaudited) 4,5 Consolidated Condensed Statements of Changes in Stockholders' Equity for the Six Months ended June 30, 2000 and 1999 (unaudited) 6 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2000 and 1999 (unaudited) 7,8 Notes to Consolidated Financial Statements 9-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 Item 3. Quantitative and Qualitative Disclosure About Market Risk 21 PART II. OTHER INFORMATION 22 Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 EXHIBITS 24-25
-2- 3 PARK NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except per share data)
June 30, December 31, 2000 1999 --------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $107,975 $123,975 --------------------------------------------------------------------------------------------------------- Federal funds sold 0 1,550 --------------------------------------------------------------------------------------------------------- Securities available-for-sale, at fair value (amortized cost of $795,884 and $792,737 at June 30, 2000 and December 31,1999) 778,959 778,570 --------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $4,380 and $4,451 at June 30, 2000 and December 31,1999) 4,300 4,321 --------------------------------------------------------------------------------------------------------- Loans (net of unearned interest) 2,217,891 2,127,425 --------------------------------------------------------------------------------------------------------- Allowance for possible loan losses 47,257 45,176 --------------------------------------------------------------------------------------------------------- Net loans 2,170,634 2,082,249 --------------------------------------------------------------------------------------------------------- Bank premises and equipment, net 30,917 32,468 --------------------------------------------------------------------------------------------------------- Other assets 104,663 110,230 --------------------------------------------------------------------------------------------------------- Total assets $3,197,448 $3,133,363 --------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits: Noninterest bearing $344,263 $342,680 --------------------------------------------------------------------------------------------------------- Interest bearing 2,072,943 2,065,382 --------------------------------------------------------------------------------------------------------- Total deposits 2,417,206 2,408,062 --------------------------------------------------------------------------------------------------------- Short-term borrowings 277,113 364,258 --------------------------------------------------------------------------------------------------------- Long-term debt 181,774 16,993 --------------------------------------------------------------------------------------------------------- Other liabilities 25,431 53,989 --------------------------------------------------------------------------------------------------------- Total liabilities 2,901,524 2,843,302 --------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 11,191,729 shares issued in 2000 and 11,251,598 issued in 1999) 76,869 79,108 --------------------------------------------------------------------------------------------------------- Retained earnings 257,699 243,488 --------------------------------------------------------------------------------------------------------- Treasury stock (354,603 shares in 2000 and 359,190 shares in 1999) (27,642) (23,374) --------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of taxes (11,002) (9,161) --------------------------------------------------------------------------------------------------------- Total stockholders' equity 295,924 290,061 --------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $3,197,448 $3,133,363 ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 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, ---------------------------------------------------------------------------------- 2000 1999 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $48,760 $42,102 $95,311 $83,700 -------------------------------------------------------------------------------------------------------------------------------- Interest on: Obligations of U.S. Government, its agencies and other securities 10,931 10,841 21,552 21,360 -------------------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 1,782 1,835 3,637 3,899 -------------------------------------------------------------------------------------------------------------------------------- Other interest income 36 90 132 209 -------------------------------------------------------------------------------------------------------------------------------- Total interest income 61,509 54,868 120,632 109,168 -------------------------------------------------------------------------------------------------------------------------------- Interest expense: Interest on deposits: Demand and savings deposits 4,842 4,190 9,352 8,512 -------------------------------------------------------------------------------------------------------------------------------- Time deposits 16,009 14,416 31,576 29,090 -------------------------------------------------------------------------------------------------------------------------------- Interest on borrowings: Short-term borrowings 3,484 3,120 7,065 6,082 -------------------------------------------------------------------------------------------------------------------------------- Long-term debt 2,603 246 4,079 539 -------------------------------------------------------------------------------------------------------------------------------- Total interest expense 26,938 21,972 52,072 44,223 -------------------------------------------------------------------------------------------------------------------------------- Net interest income 34,571 32,896 68,560 64,945 -------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 2,039 2,109 3,748 3,729 -------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 32,532 30,787 64,812 61,216 -------------------------------------------------------------------------------------------------------------------------------- Other income 7,793 6,993 14,986 13,819 -------------------------------------------------------------------------------------------------------------------------------- Gain (loss) on sale of securities 0 (236) 0 (236) --------------------------------------------------------------------------------------------------------------------------------
Continued 4 5 PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (CONTINUED) (dollars in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------------------------------- 2000 1999 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Other expense: Salaries and employee benefits $10,461 $9,630 $21,416 $19,635 ----------------------------------------------------------------------------------------------------------------------------------- Occupancy expense 1,061 1,035 2,181 2,126 ----------------------------------------------------------------------------------------------------------------------------------- Furniture and equipment expense 1,213 1,232 2,372 2,439 ----------------------------------------------------------------------------------------------------------------------------------- Other expense 7,690 7,107 14,592 13,920 ----------------------------------------------------------------------------------------------------------------------------------- Total other expense 20,425 19,004 40,561 38,120 ----------------------------------------------------------------------------------------------------------------------------------- Income before federal income taxes 19,900 18,540 39,237 36,679 ----------------------------------------------------------------------------------------------------------------------------------- Federal income taxes 5,462 5,267 10,935 10,549 ----------------------------------------------------------------------------------------------------------------------------------- Net income $14,438 $13,273 $28,302 $26,130 =================================================================================================================================== PER SHARE: Net income: Basic $1.33 $1.22 $2.61 $2.40 =================================================================================================================================== Diluted $1.33 $1.21 $2.60 $2.39 =================================================================================================================================== Weighted average Basic 10,841,387 10,885,967 10,859,097 10,879,357 =================================================================================================================================== Diluted 10,865,114 10,935,006 10,898,382 10,931,163 =================================================================================================================================== Cash dividends declared $0.65 $0.57 $1.30 $1.14 ===================================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (dollars in thousands, except per share data)
Accumulated SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Treasury Other Common Retained Stock Comprehensive Comprehensive Stock Earnings at Cost Income Income ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1998 $75,754 $221,597 ($20,208) $8,594 ------------------------------------------------------------------------------------------------------------------ Net Income 26,130 $26,130 ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized losses on securities available-for-sale net of income taxes of ($7,395) (13,831) (13,831) ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $12,299 ------------------------------------------------------------------------------------------------------------------================== Cash dividends on common stock: Park at $1.14 per share (11,164) ------------------------------------------------------------------------------------------------------------------ Cash dividends paid by U. B. Bancshares and SNB Corp. prior to merger (853) ------------------------------------------------------------------------------------------------------------------ Shares issued by U. B. Bancshares prior to merger - 48,095 Shares 3,407 ------------------------------------------------------------------------------------------------------------------ Shares issued for stock options - 652 shares 35 ------------------------------------------------------------------------------------------------------------------ Treasury stock purchased - 29,242 shares (2,635) ------------------------------------------------------------------------------------------------------------------ Treasury stock reissued for stock options - 10,353 shares 549 ------------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 1999 $79,196 $235,710 ($22,294) ($5,237) ================================================================================================================== ------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 $79,108 $243,488 ($23,374) ($9,161) ------------------------------------------------------------------------------------------------------------------ Net Income $28,302 $28,302 ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized losses on securities available-for-sale net of income taxes of ($991) (1,841) (1,841) ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $26,461 ------------------------------------------------------------------------------------------------------------------================== Cash dividends on common stock: Park at $1.30 per share (13,372) ------------------------------------------------------------------------------------------------------------------ Cash dividends paid by U. B. Bancshares and SNB Corp. prior to merger (719) ------------------------------------------------------------------------------------------------------------------ Retire treasury stock from U. B. Bancshares and SNB Corp. mergers - 66,360 shares (2,246) 2,246 ------------------------------------------------------------------------------------------------------------------ Cash payment for fractional shares in mergers - 406 shares (39) ------------------------------------------------------------------------------------------------------------------ Shares issued for stock options - 6,897 shares 46 ------------------------------------------------------------------------------------------------------------------ Treasury stock purchased - 75,553 shares (7,220) ------------------------------------------------------------------------------------------------------------------ Treasury stock reissued for stock options - 13,780 shares 706 ------------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 2000 $76,869 $257,699 ($27,642) ($11,002) ================================================================================================================== THREE MONTHS ENDED JUNE 30, 2000 1999 ------------------------------------------------------------------------------------- Net Income $14,438 $ 13,273 ------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of income taxes of ($440) in 2000 and ($6,093) in 1999 818 (11,315) ------------------------------------------------------------------------------------- Total comprehensive income $15,256 $ 1,958 --------------------------------------------------------------=======================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 7 PARK NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands)
Six Months Ended June 30, ------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Operating activities: Net income $28,302 $26,130 ----------------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 1,511 1,357 ----------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 3,748 3,729 ----------------------------------------------------------------------------------------------------------------------------------- Amortization of the excess of cost over net assets of banks purchased 1,654 1,497 ----------------------------------------------------------------------------------------------------------------------------------- Realized investment security loss 0 236 ----------------------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: Decrease (increase) in other assets 4,830 (4,743) ----------------------------------------------------------------------------------------------------------------------------------- Decrease in other liabilities (22,227) (6,155) ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 17,818 22,051 -------------------------------------------------------------------------------------------------------------------- Investing activities: Proceeds from sales of: Available-for-sale securities 0 23,245 ----------------------------------------------------------------------------------------------------------------------------------- Proceeds from maturity of: Available-for-sale securities 48,854 111,819 ----------------------------------------------------------------------------------------------------------------------------------- Held-to-maturity securities 20 563 ----------------------------------------------------------------------------------------------------------------------------------- Purchases of: Available-for-sale securities (51,823) (150,126) ----------------------------------------------------------------------------------------------------------------------------------- Net increase in loans (91,726) (68,986) ----------------------------------------------------------------------------------------------------------------------------------- Purchases of premises and equipment, net (544) (1,600) ----------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (95,219) (85,085) --------------------------------------------------------------------------------------------------------------------
Continued 7 8 PARK NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINUED) (dollars in thousands)
Six Months Ended June 30, ------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Financing activities: Net increase in deposits $9,144 $10,597 ----------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in short-term borrowings (87,145) 72,114 ----------------------------------------------------------------------------------------------------------------------------------- Issuance of stock by U. B. Bancshares prior to merger 0 3,407 ----------------------------------------------------------------------------------------------------------------------------------- Exercise of stock options 46 35 ----------------------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (6,553) (2,086) ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt issued 165,000 0 ----------------------------------------------------------------------------------------------------------------------------------- Repayment of long-term debt (219) (6,229) ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends paid (20,422) (17,597) ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 59,851 60,241 -------------------------------------------------------------------------------------------------------------------- Increase/(decrease) in cash and cash equivalents (17,550) (2,793) -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 125,525 126,705 ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $107,975 $123,912 ==================================================================================================================== Supplemental disclosures of cash flow information: Cash paid for: Interest $52,278 $44,291 ------------------------------------------------------------------------------------------------------- Income taxes $5,975 $11,420 -------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 9 PARK NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Month Periods Ended June 30, 2000 and 1999. 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 period ended June 30, 2000 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 2000. 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 generally accepted accounting principles. 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, 1999. Certain amounts in 1999 have been reclassified to conform to the financial statement presentation used for 2000. Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements. Note 2 - STOCK DIVIDEND The Corporation's Board of Directors approved a 5% stock dividend in November 1999. The additional shares resulting from the dividend were distributed on December 15, 1999 to stockholders of record as of December 3, 1999. The unaudited consolidated financial statements, notes, and other references to share and per share data have been retroactively restated for the stock dividend. Note 3 - ACQUISITIONS Effective April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million one bank holding company headquartered in Bucyrus, Ohio. Park issued approximately 325,000 shares of common stock to the stockholders of U.B. Bancshares, Inc. based upon an exchange ratio of .577209 shares of Park common stock for each outstanding share of U.B. Bancshares, Inc. common stock. United Bank N.A., the wholly owned subsidiary of U.B. Bancshares, Inc., is being operated as a separate banking subsidiary by Park. -9- 10 Park also merged with SNB Corp., a $300 million one bank holding company headquartered in Greenville, Ohio, effective April 30, 2000. Park issued approximately 835,000 shares of common stock to the stockholders of SNB Corp. based upon an exchange ratio of 5.367537 shares of Park common stock for each outstanding share of SNB Corp. common stock. Second National Bank, the wholly owned subsidiary of SNB Corp., is being operated as a separate banking subsidiary by Park. The pooling-of-interests accounting treatment was used for both mergers and as a result, the historical financial statements of Park have been restated to show Park, U.B. Bancshares, Inc., and SNB Corp. on a combined basis. Separate results of operations for Park, U.B. Bancshares, Inc., and SNB Corp. follow:
Three Months Six Months Ended June 30, 1999 Ended June 30, 1999 Net Interest Income Park $28,739 $56,637 U.B. Bancshares, Inc. 1,565 3,159 SNB Corp. 2,592 5,149 Combined $32,896 $64,945 Net Income Park $12,003 $23,601 U.B. Bancshares, Inc. 372 717 SNB Corp. 898 1,812 Combined $13,273 $26,130 Primary Earnings Per Common Share Park $1.23 $2.42 U.B. Bancshares, Inc. .70 1.41 SNB Corp. 5.89 11.88 Combined $1.22 $2.40 Diluted Earnings Per Common Share Park $1.22 $2.40 U.B. Bancshares, Inc. .67 1.33 SNB Corp. 5.89 11.88 Combined $1.21 $2.39
Note 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible 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. -10- 11
(In Thousands) -------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 -------------------------------------------------------- Beginning of Period $46,043 $42,705 $45,176 $41,215 Provision for loan losses 2,039 2,109 3,748 3,729 Losses charged to the reserve (1,661) (1,595) (3,676) (3,203) Recoveries 836 763 2,009 2,241 -------------------------------------------------------- End of Period $47,257 $43,982 $47,257 $43,982 ========================================================
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, 2000 and 1999.
(Dollars in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 --------------------------------------------------------------------- Numerator: Net Income $14,438 $13,273 $28,302 $26,130 Denominator: Denominator for basic earnings per share 10,841,387 10,885,967 10,859,097 10,879,357 weighted-average shares Effect of dilutive securities 23,727 49,039 39,285 51,806 Denominator for diluted earnings per share-adjusted weighted-average shares & assumed conversions 10,865,114 10,935,006 10,898,382 10,931,163 Earnings per share: Basic earnings per share $1.33 $1.22 $2.61 $2.40 Diluted earnings per share $1.33 $1.21 $2.60 $2.39
Note 6 - SEGMENT INFORMATION The Corporation is a multi-bank holding company headquartered in Newark, Ohio. The operating segments for the Corporation are its banking subsidiaries and their respective divisions. The Corporation's banking subsidiaries are The Park National Bank (PNB), The Richland Trust Company (RTC), Century National Bank (CNB), The First-Knox National Bank of Mount -11- 12 Vernon (FKNB), United Bank N.A. (UB), and Second National Bank (SNB). PNB operates through two banking divisions with the Park National Division (PND) headquartered in Newark, Ohio and the Fairfield National Division (FND) headquartered in Lancaster, Ohio. FKNB also operates through two banking divisions with the First-Knox National Division (FKND) headquartered in Mount Vernon, Ohio and the Farmers and Savings Division (FSD) headquartered in Loudonville, Ohio. Information about reportable segments follows:
Operating Results for the Three Months Ended June 30, 2000 (In Thousands) PND FND RTC CNB FKND FSD UB SNB All Total Other Net Interest Income $10,766 $3,247 $4,569 $4,204 $5,826 $884 $1,770 $2,795 $510 $34,571 Provision for Loan Losses 780 150 347 140 447 76 30 45 24 2,039 Other Income 3,449 776 696 838 1,164 106 217 256 291 7,793 Other Expense 5,931 1,939 2,588 2,357 3,146 404 1,395 1,607 1,058 20,425 Net Income $ 5,309 $1,303 $1,543 $1,755 $2,406 $358 $418 $1,066 $280 $14,438
Operating Results for the Three Months Ended June 30, 1999 (In Thousands) PND FND RTC CNB FKND FSD UB SNB All Total Other Net Interest Income $10,204 $3,192 $4,427 $4,107 $5,760 $789 $1,566 $2,592 $259 $32,896 Provision for Loan Losses 735 150 124 220 529 211 55 45 40 2,109 Other Income 3,281 439 545 740 1,140 115 218 220 59 6,757 Other Expense 5,655 1,875 2,587 2,199 2,939 401 1,236 1,586 526 19,004 Net Income $ 4,923 $1,090 $1,497 $1,672 $2,427 $216 $371 $902 $175 $13,273
Operating Results for the Six Months Ended June 30, 2000 (In Thousands) PND FND RTC CNB FKND FSD UB SNB All Other Total Net Interest Income $21,227 $6,489 $9,175 $8,428 $11,448 $1,730 $3,500 $5,541 $1,022 $68,560 Provision for Loan Losses 1,560 300 572 260 726 136 60 90 44 3,748 Other Income 6,854 1,495 1,276 1,623 2,288 200 408 461 381 14,986 Other Expense 11,998 3,891 5,217 4,744 6,400 825 2,719 3,157 1,610 40,561 Net Income $10,273 $2,559 $3,090 $3,477 $4,692 $682 $841 $2,076 $612 $28,302 Balances at June 30, 2000 Assets 976,976 288,021 465,056 404,941 535,681 67,779 183,287 305,749 (30,042) $3,197,448
-12- 13
Operating Results for the Six Months Ended June 30, 1999 (In Thousands) PND FND RTC CNB FKND FSD UB SNB All Other Total Net Interest Income $20,253 $6,197 $8,721 $8,097 $11,334 $1,546 $3,183 $5,149 $465 $64,945 Provision for Loan Losses 1,470 300 349 340 808 247 85 90 40 3,729 Other Income 6,306 1,083 1,242 1,494 2,263 190 478 407 120 13,583 Other Expense 11,489 3,780 5,185 4,401 5,931 830 2,637 3,079 788 38,120 Net Income $9,450 $2,170 $2,934 $3,338 $4,846 $481 $734 $1,826 $351 $26,130 Balances at June 30, 1999 Assets $900,636 $272,230 $418,928 $391,810 $511,016 $61,900 $177,909 $294,102 $(17,266) $3,011,265
The operating results of the Parent Company and Guardian Finance Company, which began operating in May 1999, are included in the category "all other" to reconcile the segment totals to the consolidated income statements for all periods. The reconciling amounts for consolidated total assets as of June 30, 2000 and 1999 consist of the elimination of intersegment borrowings and the Parent Company and Guardian Finance Company assets which are not eliminated. -13- 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Results of Operations for the Three and Six Month Periods Ended June 30, 2000 and 1999 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 $1.7 million or 5.1% to $34.6 million for the three months ended June 30, 2000 compared to $32.9 million for the second quarter of 1999. 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 2000 with the same quarter in 1999.
Three Months Ended June 30, ---------------------------------------------------- (In Thousands) 2000 1999 ---------------------- ------------------------- Average Tax Average Tax Balance Equivalent Balance Equivalent % % Loans $2,182,577 9.03% $1,929,208 8.81% Taxable Investments $643,200 6.84% $653,860 6.67% Tax Exempt Investments $148,619 6.90% $165,250 6.50% Federal Funds Sold $2,163 6.45% $8,116 4.45% ====================================================== Interest Earning Assets $2,976,559 8.45% $2,756,434 8.15% Interest Bearing Deposits $2,091,603 4.01% $2,020,966 3.70% Short-term Borrowings $248,424 5.64% $275,299 4.54% Long-term Debt $161,589 6.48% $16,827 5.86% ====================================================== Interest Bearing Liabilities $2,501,616 4.33% $2,313,092 3.82% Excess Interest Earning Assets $474,943 4.12% $443,342 4.33% Net Interest Margin 4.81% 4.95%
Average interest earning assets increased by $220 million or 8.0% to $2,977 million for the quarter ended June 30, 2000 compared to the same quarter in 1999. Average loan totals increased by $253 million or 13.1% to $2,183 million for the second quarter of 2000 compared to the second quarter of 1999. The demand for commercial, commercial real estate, and consumer loans and leases has been strong for the past year and accounts for the growth in average loan balances for the second quarter of 2000 compared to the same period in 1999. The average yield on the loan portfolio was 9.03% for the second quarter of 2000 compared to 8.81% for the same period in 1999. The average prime lending rate for Park's affiliate banks was 9.25% for the second quarter of 2000 compared to 7.75% for the same period in 1999. The Federal Reserve increased the federal funds rate by 1.75% during the second half of 1999 and the -14- 15 first half of 2000. Park's prime lending rate was increased by the same magnitude at the same time. Approximately 25% of Park's loan portfolio reprices based on the prime lending rate. The yield on Park's loan portfolio is expected to increase over the remainder of the year as variable rate loans reprice and new loan originations have an average interest rate that is higher than the current loan portfolio rate. Average investment securities including federal funds sold decreased by $33 million or 4.0% to $794 million for the second quarter of 2000 compared to the same quarter in 1999. The yield on taxable investment securities increased to 6.84% in 2000 compared to 6.67% in 1999 and the yield on tax exempt securities increased to 6.90% in 2000 compared to 6.50% in 1999. The average maturity or repricing of the investment portfolio was approximately 5.1 years at June 30, 2000 compared to approximately 4.5 years at June 30, 1999. Average interest bearing liabilities increased by $189 million or 8.2% to $2,502 million for the quarter ended June 30, 2000 compared to the same quarter in 1999. Average interest bearing deposits increased by $71 million or 3.5% to $2,092 million for the second quarter of 2000 compared to the same period in 1999. Average short-term borrowings decreased by $27 million or 9.8% to $248 million and average long-term debt increased by $145 million to $162 million for the second quarter of 2000 compared to the same period in 1999. The increase in average borrowed funds of $118 million was needed to help fund the increase in the loan portfolio. The increase in long-term debt consists of variable rate Federal Home Loan Bank advances with a maturity of two years. These advances reprice every thirty days based on the one month LIBOR index. The average cost of interest bearing liabilities increased by .51% to 4.33% in 2000 compared to 3.82% in 1999. The average cost of interest bearing deposits increased by .31% to 4.01% in 2000 compared to 3.70% in 1999. The average cost of total borrowed funds increased by 1.33% to 5.95% in 2000 compared to 4.62% in 1999. The cost of Park's interest bearing liabilities is expected to continue to increase over the remainder of the year as the cost of new certificates of deposit is higher than the current portfolio rate. The increase in net interest income of $1.7 million or 5.1% to $34.6 million for the quarter ended June 30, 2000 was primarily due to the 8.0% increase in interest earning assets. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) decreased by .21% to 4.12% in 2000 compared to 4.33% in 1999. However, the increase in average interest earning assets of $220 million or 8.0% in 2000 compared to 1999 and the increase in excess interest earning assets of $32 million or 7.1% in 2000 compared to 1999 were still able to produce an increase in net interest income of 5.1% for the second quarter of 2000 compared to the second quarter of 1999. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) decreased by .14% to 4.81% for the second quarter of 2000 compared to 4.95% in 1999. This decrease in the net interest margin was due to the decrease in the net interest spread. Net interest income increased by $3.6 million or 5.6% to $68.6 million for the six months ended June 30, 2000 compared to $65.0 million for the same period in 1999. The following table -15- 16 compares the average balance and tax equivalent yield/cost for interest earning assets and interest bearing liabilities for the first six months of 2000 with the same period in 1999.
Six months Ended June 30, (In Thousands) --------------------------------------------------------- 2000 1999 --------------------------- --------------------------- Average Tax Equivalent Average Tax Equivalent Balance % Balance % Loans $2,158,494 8.92% $1,912,668 8.84% Taxable Investments $638,293 6.79% $649,062 6.62% Tax Exempt Investments $150,493 6.97% $165,769 6.86% Federal Funds Sold $4,526 5.76% $9,770 4.29% Interest Earning Assets $2,951,806 8.36% $2,737,269 8.17% Interest Bearing Deposits $2,090,978 3.94% $2,009,993 3.76% Short-Term Borrowings $258,192 5.50% $271,911 4.49% Long-Term Borrowings $130,952 6.27% $18,372 5.88% Interest Bearing Liabilities $2,480,122 4.22% $2,300,276 3.87% Excess Interest-Earning Assets $471,684 4.14% $436,993 4.30% Net Interest Margin 4.81% 4.92%
Average interest earning assets increased by $215 million or 7.8% to $2,952 million for the six months ended June 30, 2000 compared to the same period in 1999. Average loans increased by $246 million or 12.9% to $2,158 million for the first half of 2000 compared to the same period in 1999. The yield on loans was 8.92% for the first half of 2000 compared to 8.84% for the first half of 1999. Average investment securities including federal funds sold decreased by $31 million or 3.8% to $793 million for the first half of 2000 compared to the same period in 1999. The yield on taxable investment securities increased to 6.79% for the first half of 2000 compared to 6.62% for the same period in 1999. Average interest-bearing liabilities increased by $180 million or 7.8% to $2,480 million for the first six months of 2000 compared to the same period in 1999. Average interest bearing deposits increased by $81 million or 4.0% to $2,091 million for the first half of 2000 compared to the same period in 1999. Average short-term borrowings decreased by $14 million or 5.0% to $258 million and average long-term debt increased by $113 million to $131 million for the first six months of 2000 compared to the same period in 1999. The increase in long-term debt consists of variable rate Federal Home Loan Bank advances. The average cost of interest bearing liabilities increased by .35% to 4.22% in 2000 compared to 3.87% in 1999. The average cost of interest bearing deposits increased by .18% to 3.94% in 2000 compared to 3.76% in 1999. The cost of Park's interest bearing liabilities is expected to continue to increase over the remainder of the year as the cost of new certificates of deposit is higher than the current portfolio rate. -16- 17 The increase in net interest income of $3.6 million or 5.6% to $68.6 million for the first half of 2000 was primarily due to the 7.8% increase in interest earning assets. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) decreased by .16% to 4.14% in 2000 compared to 4.30% in 1999. However, the increase in average interest earning assets of $215 million or 7.8% in 2000 compared to 1999 and the increase in excess interest earning assets of $35 million or 7.9% in 2000 compared to 1999 were still able to generate an increase in net interest income of 5.6% for the first six months of 2000 compared to the same period in 1999. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) decreased by .11% to 4.81% for 2000 compared to 4.92% in 1999. This decrease in the net interest margin was due to the decrease in the net interest spread. Provision for Loan Losses ------------------------- The provision for loan losses was $2.0 million and $3.7 million, respectively, for the second quarter and first half of 2000 compared to $2.1 million and $3.7 million for the same periods in 1999. Net charge-offs were $825,000 and $1.7 million, respectively, for the three and six month periods ended June 30, 2000 compared to $832,000 and $962,000 for the same periods in 1999. Nonperforming loans defined as loans that are 90 days past due, renegotiated loans, and nonaccrual loans were $8.8 million or .40% of loans at June 30, 2000 compared to $6.5 million or .30% of loans at December 31, 1999 and $6.7 million or .34% of loans at June 30, 1999. The reserve for loan losses as a percentage of outstanding loans was 2.13% at June 30, 2000 compared to 2.12% at December 31, 1999 and 2.23% at June 30, 1999. 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 increased by $800,000 or 11.4% to $7.8 million for the three months ended June 30, 2000 and increased by $1.2 million or 8.4% to $15.0 million for the six months ended June 30, 2000 compared to the same periods in 1999. The following is a summary of the change in noninterest income.
Three Months Ended Six Months Ended June 30th June 30th --------------------------------- ---------------------------------- 2000 1999 Change 2000 1999 Change ---- ---- ------ ---- ---- ------ Fees from fiduciary activities $1,544 $1,307 $237 $3,070 $2,634 $436 Service charges on deposit accounts 2,361 2,029 332 4,569 3,877 692 Other service income 1,232 1,271 (39) 2,397 2,655 (258) Other income 2,656 2,386 270 4,950 4,653 297 Total $7,793 $6,993 $800 $14,986 $13,819 $1,167
-17- 18 The increase in fee income from fiduciary activities, for both periods, was primarily due to an increase in assets under management for new trust department customers. The increase in service charges on deposit accounts, for both periods, was due to both an increase in the number of transaction accounts and to increases in various deposit fees. The decrease in fees earned from other service income, for both periods, was primarily due to a decrease in the fee income earned from the origination and sale into the secondary market of fixed rate mortgage loans due to higher interest rates. The increase in other income, for both periods, was primarily due to increases in fee income from debit cards and automated teller machines. Gain (loss) on Sale of Securities --------------------------------- Losses from the sale of securities were $236,000 for both the three and six month periods ended June 30, 1999 compared to no gains or losses during the first six months of 2000. Longer term interest rates increased during the second quarter of 1999 and as a result the market value of the investment portfolio decreased. Mortgage-backed securities with an average book yield of 6.00% and an average life of about 4 years were sold at losses, and the proceeds were reinvested in callable U.S. Agency securities with a yield of 7.00% and an average life of about 4 years. The net unrealized holding loss on available-for-sale securities (accumulated other comprehensive income) was $11.0 million at June 30, 2000 compared to a loss of $9.2 million at December 31, 1999 and a loss of $5.2 million at June 30, 1999. Management expects that losses will be realized from the sale of investment securities during the second half of 2000 and the proceeds from the sales will be reinvested at higher book yields with a similar average life. Other Expense ------------- Total other expense increased by $1.4 million or 7.5% to $20.4 million for the quarter ended June 30, 2000 and increased by $2.4 million or 6.4% to $40.6 million for the six months ended June 30, 2000 compared to the same periods in 1999. Salaries and employee benefits expense increased by $831,000 or 8.6% to $10.5 million for the quarter ended June 30, 2000 and increased by $1.8 million or 9.1% to $21.4 million for the first six months of 2000 compared to the same periods in 1999. Salaries increased by $617,000 or 7.7% for the quarter ended June 30, 2000 and increased by $1.3 million or 8.1% for the six months ended June 30, 2000 compared to the same periods in 1999. Full time equivalent employees were 1,240 at June 30, 2000 compared to 1,222 at June 30, 1999. Benefits expense increased by $215,000 or 13.0% for the three months ended June 30, 2000 and increased by $495,000 or 13.4% for the six months ended June 30, 2000 compared to the same periods in 1999. The increase in benefits expense was primarily due to the increase in cost of medical insurance for employees. -18- 19 The subcategory other expense which includes data processing expense, fees and service charges, supplies, marketing, telephone, postage, deposit insurance premiums, state franchise taxes, and amortization of intangibles increased by $583,000 or 8.2% to $7.7 million for the quarter ended June 30, 2000 and increased by $672,000 or 4.8% to $14.6 million for the first six months of 2000 compared to the same periods in 1999. The increase for both periods was due to increases in data processing expense, and professional fees pertaining to the mergers. Federal Income Taxes -------------------- Federal income tax expense was $5.5 million and $10.9 million, respectively, for the three and six month periods ended June 30, 2000 compared to $5.3 million and $10.6 million for the same periods in 1999. The ratio of federal income tax expense to income before taxes was approximately 28% for both the three and six month periods ended June 30, 2000 compared to approximately 29% for the same periods in 1999. The statutory rate was 35% for both 2000 and 1999. 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, which have both increased in 2000. Net Income ---------- Net income increased by $1.2 million or 8.8% to $14.44 million for the three months ended June 30, 2000 compared to $13.27 million for the same period in 1999. For the six months ended June 30, 2000, net income increased by $2.2 million or 8.3% to $28.3 million compared to $26.1 million for the same period in 1999. The annualized, net income to average assets ratio (ROA) was 1.84% and 1.82%, respectively, for the three and six month periods ended June 30, 2000 compared to 1.80% for both periods in 1999. The annualized, net income to average equity ratio (ROE) was 20.30% and 19.90%, respectively, for the three and six month periods ended June 30, 2000 compared to 18.29% and 18.21% for the same periods in 1999. Diluted earnings per share increased by 9.9% to $1.33 for the second quarter of 2000 compared to $1.21 for the same quarter in 1999 and increased by 8.8% to $2.60 for the first half of 2000 compared to $2.39 for the same period in 1999. -19- 20 COMPARISON OF FINANCIAL CONDITION FOR JUNE 30, 2000 AND DECEMBER 31, 1999 Changes in Financial Condition and Liquidity -------------------------------------------- Total assets increased by $64 million or 2.0% to $3,197 million at June 30, 2000 compared to $3,133 million at December 31, 1999. Total loans increased by $90 million, other assets decreased by $7 million and cash and due from banks decreased by $16 million. Total liabilities increased by $58 million or 2.0% to $2,901 million at June 30, 2000 compared to $2,843 million at December 31, 1999. Total deposits increased by $9 million, borrowed funds increased by $78 million and other liabilities decreased by $29 million. Long-term debt of $165 million was borrowed from the Federal Home Loan Bank and was used to repay short-term borrowings. The long-term debt has a maturity of two years and reprices every thirty days based on the one month LIBOR index. 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 69.4% at June 30, 2000 compared to 67.9% at December 31, 1999 and 65.4% at June 30, 1999. Cash and cash equivalents totaled $108 million at June 30, 2000 compared to $126 million at December 31, 1999 and $124 million at June 30, 1999. 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, 2000 was $296 million or 9.26% of total assets compared to $290 million or 9.26% of total assets at December 31, 1999 and $287 million or 9.54% of total assets at June 30, 1999. 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 9.30% at June 30, 2000 and 9.17% at December 31, 1999. 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 13.50% at June 30, 2000 and 13.44% at December 31, 1999. The minimum total risk-based capital ratio (defined as leverage -20- 21 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 14.77% at June 30, 2000 and 14.70% at December 31, 1999. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at June 30, 2000. The following table indicates the capital ratios for each subsidiary and Park at June 30, 2000:
TIER I TOTAL LEVERAGE RISK-BASED RISK-BASED -------- ---------- ---------- Park National Bank 7.13% 9.75% 12.11% Richland Trust Company 6.53% 11.00% 12.26% Century National Bank 6.94% 11.41% 12.67% First-Knox National Bank 6.70% 9.39% 12.99% United Bank N.A. 7.44% 11.85% 13.10% Second National Bank 7.74% 11.51% 12.70% Park National Corporation 9.30% 13.50% 14.77% Minimum Capital Ratio 4.00% 4.00% 8.00% Well Capitalized Ratio 5.00% 6.00% 10.00%
At the July 24, 2000 Park National Corporation Board of Director's meeting, a cash dividend of $.65 per share was declared payable on September 8, 2000 to stockholders of record on August 25, 2000. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Footnote 1 for disclosure that Park does not have any off-balance sheet derivative financial instruments. -21- 22 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 ----------------------------------------- On April 4, 2000, Park issued 50 shares of treasury stock to a director of RTC in lieu of an annual cash retainer for serving as a director. The common shares had a market value of $90 per share on the date of issuance. Park issued the shares in reliance upon the exemptions from registration provided by Sections 4(2) and 4(6) under the Securities Act of 1933 based upon the limited number of persons to whom common shares were "sold" and the status of the individual as a director of one of Park's subsidiaries. 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 ----------------- Not applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- a. Exhibits -------- Exhibit 27.1 - Financial Data Schedule at June 30, 2000 - page 24 Exhibit 27.2 - Restated Financial Data Schedule at June 30, 1999 - page 25 b. Reports on Form 8-K ------------------- On April 18, 2000, Park filed a current report on Form 8-K, dated April 17, 2000 in order to report earnings for the first quarter ended March 31, 2000 and the status of the then pending mergers with U.B. Bancshares, Inc. and SNB Corp. -22- 23 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 3, 2000 BY: /s/ C. Daniel DeLawder -------------- ------------------------------------- C. Daniel DeLawder President and Chief Executive Officer DATE: August 3, 2000 BY: /S/ John W. Kozak -------------- ------------------------------------- John W. Kozak Chief Financial Officer -23-