10-Q 1 l89456ae10-q.txt PARK NATIONAL CORPORATION FORM 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, 2001 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 ----- ----- 14,004,618 common shares, no par value per share, outstanding at July 27, 2001. ---------- Page 1 of 23 2 PARK NATIONAL CORPORATION CONTENTS -------- Page ---- PART I. FINANCIAL INFORMATION 3-13 Item 1. Financial Statements 3-13 Consolidated Balance Sheets as of June 30, 2001 and and December 31, 2000 (unaudited) 3 Consolidated Condensed Statements of Income for the Three Months and Six Months ended June 30, 2001 and 2000 (unaudited) 4,5 Consolidated Condensed Statements of Changes in Stockholders' Equity for the Six Months ended June 30, 2001 and 2000 (unaudited) 6 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2001 and 2000 (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 -2- 3 PARK NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except per share data)
June 30, December 31, 2001 2000 ------------------------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $135,107 $141,547 ------------------------------------------------------------------------------------------------------------------------- Federal funds sold 0 28,030 ------------------------------------------------------------------------------------------------------------------------- Interest bearing deposits 550 1,638 ------------------------------------------------------------------------------------------------------------------------- Securities available-for-sale, at fair value (amortized cost of $1,160,851 and $919,288 at June 30, 2001 and December 31, 2000) 1,180,641 925,496 ------------------------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $29,902 and $30,497 at June 30, 2001 and December 31, 2000) 29,873 30,474 ------------------------------------------------------------------------------------------------------------------------- Loans (net of unearned interest) 2,886,585 2,956,204 ------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses 59,827 57,473 ------------------------------------------------------------------------------------------------------------------------- Net loans 2,826,758 2,898,731 ------------------------------------------------------------------------------------------------------------------------- Bank premises and equipment, net 40,109 39,616 ------------------------------------------------------------------------------------------------------------------------- Other assets 131,417 140,013 ------------------------------------------------------------------------------------------------------------------------- Total assets $4,344,455 $4,205,545 ------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits: Noninterest bearing $459,202 $493,994 ------------------------------------------------------------------------------------------------------------------------- Interest bearing 2,725,380 2,658,257 ------------------------------------------------------------------------------------------------------------------------- Total deposits 3,184,582 3,152,251 ------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 318,204 275,699 ------------------------------------------------------------------------------------------------------------------------- Long-term debt 352,651 290,127 ------------------------------------------------------------------------------------------------------------------------- Other liabilities 26,840 44,819 ------------------------------------------------------------------------------------------------------------------------- Total liabilities 3,882,277 3,762,896 ------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 14,540,641 shares issued in 2001 and 14,801,010 issued in 2000) 105,772 119,229 ------------------------------------------------------------------------------------------------------------------------- Retained earnings 385,323 365,975 ------------------------------------------------------------------------------------------------------------------------- Treasury stock (517,219 shares in 2001 and 676,293 shares in 2000) (42,329) (46,583) ------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of taxes 13,412 4,028 ------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 462,178 442,649 ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,344,455 $4,205,545 -------------------------------------------------------------------------------------------------------------------------
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, -------------------------------- --------------------------------------- 2001 2000 2001 2000 ------------------------------------------------------------------------------------- --------------------------------------- Interest income: Interest and fees on loans $63,223 $63,084 $128,664 $123,345 ------------------------------------------------------------------------------------- --------------------------------------- Interest on: Obligations of U.S. Government, its agencies and other securities 14,569 13,983 27,418 27,695 ------------------------------------------------------------------------------------- --------------------------------------- Obligations of states and political subdivisions 2,000 2,075 3,997 4,225 ------------------------------------------------------------------------------------- --------------------------------------- Other interest income 89 281 616 644 ------------------------------------------------------------------------------------- --------------------------------------- Total interest income 79,881 79,423 160,695 155,909 ------------------------------------------------------------------------------------- --------------------------------------- Interest expense: Interest on deposits: Demand and savings deposits 5,998 7,005 12,584 13,478 ------------------------------------------------------------------------------------- --------------------------------------- Time deposits 21,794 19,897 44,272 39,129 ------------------------------------------------------------------------------------- --------------------------------------- Interest on borrowings: Short-term borrowings 2,581 3,360 5,181 6,465 ------------------------------------------------------------------------------------- --------------------------------------- Long-term debt 2,606 4,031 6,325 7,350 ------------------------------------------------------------------------------------- --------------------------------------- Total interest expense 32,979 34,293 68,362 66,422 ------------------------------------------------------------------------------------- --------------------------------------- Net interest income 46,902 45,130 92,333 89,487 ------------------------------------------------------------------------------------- --------------------------------------- Provision for loan losses 2,392 2,369 4,651 4,408 ------------------------------------------------------------------------------------- --------------------------------------- Net interest income after provision for loan losses 44,510 42,761 87,682 85,079 ------------------------------------------------------------------------------------- --------------------------------------- Other income 11,359 9,770 21,515 18,908 ------------------------------------------------------------------------------------- --------------------------------------- Gain (loss) on sale of securities - - 142 - ------------------------------------------------------------------------------------- ---------------------------------------
Continued 4 5 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, ----------------------------------- -------------------------------------- 2001 2000 2001 2000 ----------------------------------------------------------------------------------------- -------------------------------------- Other expense: Salaries and employee benefits 14,151 13,354 28,717 27,287 ----------------------------------------------------------------------------------------- -------------------------------------- Occupancy expense 1,487 1,386 3,004 2,821 ----------------------------------------------------------------------------------------- -------------------------------------- Furniture and equipment expense 1,468 1,496 2,883 3,049 ----------------------------------------------------------------------------------------- -------------------------------------- Other expense 9,645 9,758 19,117 18,784 ----------------------------------------------------------------------------------------- -------------------------------------- Total other expense 26,751 25,994 53,721 51,941 ----------------------------------------------------------------------------------------- -------------------------------------- Income before federal income taxes 29,118 26,537 55,618 52,046 ----------------------------------------------------------------------------------------- -------------------------------------- Federal income taxes 8,735 7,661 16,345 15,157 ----------------------------------------------------------------------------------------- -------------------------------------- Net income $20,383 $18,876 $39,273 $36,889 ========================================================================================= ====================================== PER SHARE: Net income: Basic $1.45 $1.33 $2.79 $2.59 ========================================================================================= ====================================== Diluted $1.45 $1.33 $2.79 $2.58 ========================================================================================= ====================================== Weighted average Basic 14,033,886 14,228,058 14,062,112 14,264,003 ========================================================================================= ====================================== Diluted 14,055,661 14,255,742 14,085,943 14,310,871 ========================================================================================= ====================================== Cash dividends declared $0.71 $0.65 $1.42 $1.30 ========================================================================================= ======================================
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, 2001 AND 2000 Treasury Other Common Retained Stock Comprehensive Comprehensive Stock Earnings at Cost Income Income ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 $121,210 $333,572 ($29,295) $16,304) ------------------------------------------------------------------------------------------------------------------- Net Income 36,889 $36,889 ------------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of income taxes of ($296) (550) (550) ------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $36,339 -------------------------------------------------------------------------------------------------------------------============ Cash dividends on common stock: Park at $1.30 per share (13,372) ------------------------------------------------------------------------------------------------------------------- Cash dividends paid by U. B. Bancshares, SNB Corp. and Security Banc Corporation prior to merger (4,063) ------------------------------------------------------------------------------------------------------------------- Retire treasury stock from U. B. Bancshares and SNB Corp. mergers - 66,360 shares (2,246) 2,246 ------------------------------------------------------------------------------------------------------------------- Cash payment for fractional shares in U. B. Bancshares and SNB Corp. mergers - 406 shares (39) ------------------------------------------------------------------------------------------------------------------- Shares issued for stock options - 10,915 shares 251 ------------------------------------------------------------------------------------------------------------------- Treasury stock purchased -152,386 shares (13,425) ------------------------------------------------------------------------------------------------------------------- Treasury stock reissued for stock options -13,780 shares 706 ------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 2000 $119,176 $353,026 ($39,768) $16,854) =================================================================================================================== ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $119,229 $365,975 ($46,583) $4,028 ------------------------------------------------------------------------------------------------------------------- Net Income $39,273 $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 (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) $13,412 ===================================================================================================================
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, ------------------------------------- 2001 2000 ------------------------------------------------------------------------------------------------------------------------------------ Operating activities: Net income $39,273 $36,889 ------------------------------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 1,586 2,257 ------------------------------------------------------------------------------------------------------------------------------------ Provision for loan losses 4,651 4,408 ------------------------------------------------------------------------------------------------------------------------------------ Amortization of the excess of cost over net assets of banks purchased 1,988 1,985 ------------------------------------------------------------------------------------------------------------------------------------ Realized investment security gain (142) 0 ------------------------------------------------------------------------------------------------------------------------------------ Changes in assets and liabilities: Decrease in other assets 2,410 3,335 ------------------------------------------------------------------------------------------------------------------------------------ Decrease in other liabilities (10,309) (20,671) ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 39,457 28,203 --------------------------------------------------------------------------------------------------------------------- Investing activities: Proceeds from sales of: Available-for-sale securities 24,968 0 ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from maturity of: Available-for-sale securities 176,398 54,898 ------------------------------------------------------------------------------------------------------------------------------------ Held-to-maturity securities 601 371 ------------------------------------------------------------------------------------------------------------------------------------ Purchases of: Available-for-sale securities (442,172) (54,015) ------------------------------------------------------------------------------------------------------------------------------------ Net decrease (increase) in interest bearing deposits with other banks 1,088 (110) ------------------------------------------------------------------------------------------------------------------------------------ Net decrease (increase) in loans 67,667 (114,446) ------------------------------------------------------------------------------------------------------------------------------------ Purchases of premises and equipment, net (3,039) (792) ------------------------------------------------------------------------------------------------------------------------------------ Net cash used by investing activities (174,489) (114,094) ---------------------------------------------------------------------------------------------------------------------
Continued 7 8 PARK NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) (dollars in thousands)
Six Months Ended June 30, ------------------------------------- 2001 2000 ------------------------------------------------------------------------------------------------------------ Financing activities: Net increase in deposits $32,331 $29,410 ------------------------------------------------------------------------------------------------------------ Net increase (decrease) in short-term borrowings 42,505 (83,334) ------------------------------------------------------------------------------------------------------------ Exercise of stock options 0 251 ------------------------------------------------------------------------------------------------------------ Cash payment for fractional shares (96) (39) ------------------------------------------------------------------------------------------------------------ Purchase of treasury stock, net (9,107) (12,719) ------------------------------------------------------------------------------------------------------------ Long-term debt issued 235,000 165,000 ------------------------------------------------------------------------------------------------------------ Repayment of long-term debt (172,476) (28,054) ------------------------------------------------------------------------------------------------------------ Cash dividends paid (27,595) (24,389) ------------------------------------------------------------------------------------------------------------ Net cash provided from financing activities 100,562 46,126 --------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (34,470) (39,765) --------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 169,577 185,751 ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $135,107 $145,986 ============================================================================================= Supplemental disclosures of cash flow information: Cash paid for: Interest $69,420 $66,724 -------------------------------------------------------------------------------- Income taxes $16,463 $10,160 --------------------------------------------------------------------------------
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, 2001 and 2000. 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, 2001 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 2001. 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, 2000. Certain amounts in 2000 have been reclassified to conform to the financial statement presentation used for 2001. 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 separate subsidiaries by Park. On April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million one bank holding company headquartered in Bucyrus, Ohio in a transaction accounted for as a pooling-of-interests. 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. Park also merged with SNB Corp., a $300 million one bank holding company headquartered in -9- 10 Greenville, Ohio, on April 30, 2000 in a transaction accounted for as a pooling-of-interests. 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 historical financial statements of the Corporation have been restated to show Security Banc Corporation, and Park on a combined basis. Separate results of operations for Park and Security Banc Corporation follow: ------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, 2000 June 30, 2000 ------------------------------------------------------------------------------- (Dollars in Thousands) (EXCEPT PER SHARE DATA) Net Interest Income ------------------------------------- --------------- --------------- Park $34,574 $68,563 ------------------------------------- --------------- --------------- Security Banc Corporation 10,556 20,924 ------------------------------------- --------------- --------------- Combined $45,130 $89,487 ------------------------------------- --------------- --------------- ------------------------------------- --------------- --------------- Net Income ------------------------------------- --------------- --------------- Park $14,438 $28,302 ------------------------------------- --------------- --------------- Security Banc Corporation 4,438 8,587 ------------------------------------- --------------- --------------- Combined $18,876 $36,889 ------------------------------------- --------------- --------------- ------------------------------------- --------------- --------------- Basic Earnings Per Share ------------------------------------- --------------- --------------- Park $1.33 $2.61 ------------------------------------- --------------- --------------- Security Banc Corporation .37 .72 ------------------------------------- --------------- --------------- Combined $1.33 $2.59 ------------------------------------- --------------- --------------- Diluted Earnings Per Share ------------------------------------- --------------- --------------- Park $1.33 $2.60 ------------------------------------- --------------- --------------- Security Banc Corporation .37 .72 ------------------------------------- --------------- --------------- Combined $1.33 $2.58 ------------------------------------- --------------- --------------- Note 3 - 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. -10- 11
---------------------------------------- ----------------------------------------------------------------- (In Thousands) ---------------------------------------- ------------------------------- --------------------------------- Three Months Ended June 30, Six Months Ended June 30, 2001 2000 2001 2000 ---------------------------------------- ---------------- -------------- ----------------- --------------- Beginning of Period $58,165 $52,718 $57,473 $52,140 ---------------------------------------- ---------------- -------------- ----------------- --------------- Provision for loan losses 2,392 2,369 4,651 4,408 ---------------------------------------- ---------------- -------------- ----------------- --------------- Losses charged to the reserve (3,441) (2,092) (6,647) (4,827) ---------------------------------------- ---------------- -------------- ----------------- --------------- Recoveries 2,711 842 4,350 2,116 ---------------------------------------- ---------------- -------------- ----------------- --------------- ---------------------------------------- ---------------- -------------- ----------------- --------------- End of Period $59,827 $53,837 $59,827 $53,837 ---------------------------------------- ================ ============== ================= ===============
Note 4 - 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, 2001 and 2000.
------------------------------------------------- -------------------------------------------------------------------------- (Dollars in thousands, except per share data) ------------------------------------------------- -------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- 2001 2000 2001 2000 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Numerator: ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Net Income $20,383 $18,876 $39,273 $36,889 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator: ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator for basic earnings per share (weighted-average shares) 14,033,886 14,228,058 14,062,112 14,264,003 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Effect of dilutive securities 21,775 27,684 23,831 46,868 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator for diluted earnings per share (adjusted weighted-average shares & assumed conversions) 14,055,661 14,255,742 14,085,943 14,310,871 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Earnings per share: ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Basic earnings per share $1.45 $1.33 $2.79 $2.59 ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Diluted earnings per share $1.45 $1.33 $2.79 $2.58 ------------------------------------------------- ------------------ ------------------ ------------------ -----------------
Note 5 - 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 -11- 12 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), The Citizens National Bank of Urbana (CIT), and The Third Savings and Loan Company (TSL).
---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Three Months Ended June 30, 2001 (In Thousands) ---------------------------------------------------------------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Net Interest $14,702 $4,877 $4,430 $7,062 $1,777 $2,852 $6,542 $1,690 $1,692 $1,278 $46,902 Income ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Provision for 870 330 180 474 120 (50) 300 50 75 43 2,392 Loan Losses ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Other Income 5,093 810 1,113 1,424 294 343 1,686 311 174 111 11,359 ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Other Expense 8,215 2,663 2,566 3,646 1,418 1,677 3,569 1,056 1,025 916 26,751 ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Net Income $7,380 $1,779 $1,869 $3,059 $401 $1,139 $2,999 $601 $456 $700 $20,383 ---------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 2001 ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Assets $1,342,915 484,825 447,191 648,389 189,592 305,131 658,978 182,600 192,707 (107,873) $4,344,455 ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Three Months Ended June 30, 2000 (In Thousands) ---------------------------------------------------------------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Net Interest $14,013 $4,569 $4,204 $6,709 $1,770 $2,795 $6,696 $1,664 $1,821 $889 $45,130 Income ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Provision for 930 347 140 523 30 45 300 -- 30 24 2,369 Loan Losses ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Other Income 4,225 697 838 1,270 217 256 1,563 305 109 290 9,770 ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Other Expense 7,870 2,588 2,357 3,550 1,392 1,611 3,431 1,079 1,003 1,113 25,994 ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Net Income $6,613 $1,543 $1,755 $2,764 $418 $1,066 $3,097 $586 $541 $493 $18,876 ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Balances at June 30, 2000 ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Assets $1,264,997 465,056 404,941 603,460 183,287 305,815 632,668 163,506 194,878 (47,040) $4,171,568 ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Six Months Ended June 30, 2001 (In Thousands) ---------------------------------------------------------------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Net Interest Income $28,843 $9,319 $8,861 $13,980 $3,485 $5,659 $12,937 $3,323 $3,422 $2,504 $92,333 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Provision for Loan Losses 1,590 600 330 918 180 25 600 185 150 73 4,651 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Other Income 9,502 1,513 2,003 2,756 597 744 3,321 714 289 218 21,657 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Other Expense 16,647 5,364 4,976 7,318 2,857 3,440 7,136 2,139 2,047 1,788 53,721 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Net Income $13,896 $3,223 $3,715 $6,130 $797 $2,155 $5,869 $1,163 $902 $1,423 $39,273 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- --------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Six Months Ended June 30, 2000 (In Thousands) --------------------------------------------------------------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ----------- Net Interest Income $27,716 $9,175 $8,428 $13,178 $3,500 $5,541 $13,234 $3,304 $3,595 $1,816 $89,487 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ----------- Provision for Loan Losses 1,860 572 260 862 60 90 600 -- 60 44 4,408 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ----------- Other Income 8,349 1,276 1,623 2,488 408 461 3,080 597 246 380 18,908 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ----------- Other Expense 15,889 5,217 4,744 7,225 2,719 3,157 7,085 2,185 2,024 1,696 51,941 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ----------- Net Income $12,832 $3,090 $3,477 $5,374 $841 $2,076 $5,908 $1,157 $1,059 $1,075 $36,889 ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- -----------
-12- 13 The operating results of the Parent Company and Guardian Finance Company (GFC) (All Other) are used to reconcile the segment totals to the consolidated income statements for the three and six month periods ended June 30, 2001 and 2000. The reconciling amounts for consolidated total assets at June 30, 2001 and 2000 consist of the elimination of intersegment borrowings, and the assets of the Parent Company and GFC which are not eliminated. Note 6 - NEW ACCOUNTING STANDARDS 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 will continue to be amortized over their useful lives. The pooling-of-interests method of accounting for business combinations is no longer permitted. Park will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $500,000 per year. During 2002, Park will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of Park. -13- 14 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, 2001 and 2000. 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 $1.8 million or 3.9% to $46.9 million for the three months ended June 30, 2001 compared to $45.1 million for the second quarter of 2000. 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 2001 with the same quarter in 2000.
------------------------------------------------------------------------------------------------- Three Months Ended June 30, (In Thousands) ------------------------------------------------------------------------------------------------- 2001 2000 -------------------------------------- --------------------------- ------------------------------ Average Tax Average Tax Balance Equivalent Balance Equivalent % % -------------------------------------- -------------- ------------ ---------------- ------------- Loans $2,897,183 8.78% $2,851,201 8.91% -------------------------------------- -------------- ------------ ---------------- ------------- Taxable Investments 874,517 6.68% 839,894 6.68% -------------------------------------- -------------- ------------ ---------------- ------------- Tax Exempt Investments 161,685 6.93% 174,546 6.89% -------------------------------------- -------------- ------------ ---------------- ------------- Federal Funds Sold 5,992 5.97% 20,428 5.69% -------------------------------------- -------------- ------------ ---------------- ------------- Interest Earning Assets $3,939,377 8.24% $3,886,069 8.32% -------------------------------------- -------------- ------------ ---------------- ------------- -------------------------------------- -------------- ------------ ---------------- ------------- Interest Bearing Deposits $2,732,377 4.08% $2,683,315 4.02% -------------------------------------- -------------- ------------ ---------------- ------------- Short-term Borrowings 317,200 3.26% 270,760 5.26% -------------------------------------- -------------- ------------ ---------------- ------------- Long-term Debt 205,273 5.09% 269,822 5.62% -------------------------------------- -------------- ------------ ---------------- ------------- Interest Bearing Liabilities $3,254,850 4.07% $3,223,897 4.27% -------------------------------------- -------------- ------------ ---------------- ------------- Excess Interest Earning Assets $684,527 4.17% $662,172 4.05% -------------------------------------- -------------- ------------ ---------------- ------------- Net Interest Margin 4.88% 4.78% -------------------------------------- -------------- ------------ ---------------- -------------
Average interest earning assets increased by $53 million or 1.4% for the quarter ended June 30, 2001 compared to the same quarter in 2000. Average loan totals increased by $46 million or 1.6% for the second quarter of 2001 compared to the second quarter of 2000. The demand for -14- 15 commercial, commercial real estate, and consumer loans and leases secured by automobiles decreased sharply during the first half of 2001 compared to the same period in 2000. Total loans have decreased by $70 million or 2.3% to $2,886 million at June 30, 2001 compared to $2,956 million at December 31, 2000. In response to the weak loan demand, management has purchased additional investment securities during the first half of 2001. Total investment securities have increased by $255 million or 26.6% to $1,211 million at June 30, 2001 compared to $956 million at December 31, 2000. Loan demand is expected to continue to be weak during the third quarter of 2001. The average yield on the loan portfolio was 8.78% for the second quarter of 2001 compared to 8.91% for the second quarter of 2000. The average prime lending rate for Park's affiliate banks was 7.34% for the second quarter of 2001 compared to 9.24% for the same period in 2000. The Federal Reserve decreased the federal funds rate by 2.75% during the first half of 2001. Park's prime lending rate was decreased 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 the loan portfolio is expected to continue to decrease over the remainder of the year 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 $7 million or .7% to $1,042 million for the second quarter of 2001 compared to the same quarter in 2000. The yield on taxable investment securities was 6.68% for both the second quarter of 2001 and 2000. The yield on tax exempt securities was 6.93% in 2001 compared to 6.89% in 2000. The average maturity or repricing of the investment portfolio was approximately 3.9 years at June 30, 2001 compared to 5.1 years at June 30, 2000. Average interest bearing liabilities increased by $31 million or 1.0% to $3,254 million for the quarter ended June 30, 2001 compared to the same quarter in 2000. Average interest bearing deposits increased by $49 million or 1.8% to $2,732 million in 2001 compared to 2000. Average total borrowings decreased by $18 million or 3.3% to $522 million in 2001 compared to 2000. The average cost of interest bearing liabilities decreased by .20% to 4.07% in 2001 compared to 4.27% in 2000. The average cost of interest bearing deposits increased by .06% to 4.08% in 2001 compared to 4.02% in 2000. The cost of short-term borrowings decreased by 2.00% to 3.26% in 2001 compared to 5.26% in 2000, consistent with the decrease in the federal funds rate in 2001. The cost of long-term debt also decreased to 5.09% in 2001 compared to 5.62% in 2000. The cost of Park's interest bearing liabilities is expected to continue to decrease during the second half of the year as the cost of new certificates of deposit is lower than the portfolio rate. The increase in net interest income of $1.8 million or 3.9% to $46.9 million for the quarter ended June 30, 2001 was primarily 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 .12% to 4.17% in 2001 compared to 4.05% in 2000. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) increased by .10% to 4.88% for the second quarter of 2001 compared to 4.78% in 2000. -15- 16 Net interest income increased by $2.8 million or 3.2% to $92.3 million for the six months ended June 30, 2001 compared to $89.5 million for the same period in 2000. 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 2001 with the same period in 2000.
-------------------------------------- -------------------------------------------------------------- Six Months Ended June 30, (In Thousands) -------------------------------------- ------------------------------ ------------------------------- 2001 2000 -------------------------------------- ------------------------------ ------------------------------- Average Tax Equivalent Average Tax Equivalent Balance % Balance % -------------------------------------- -------------- --------------- --------------- --------------- Loans $2,913,012 8.94% $2,820,666 8.83% -------------------------------------- -------------- --------------- --------------- --------------- Taxable Investments 823,693 6.71% 836,136 6.68% -------------------------------------- -------------- --------------- --------------- --------------- Tax Exempt Investments 163,285 6.93% 176,408 6.99% -------------------------------------- -------------- --------------- --------------- --------------- Federal Funds Sold 21,142 5.88% 23,208 5.56% -------------------------------------- -------------- --------------- --------------- --------------- Interest Earning Assets $3,921,132 8.37% $3,856,418 8.26% -------------------------------------- -------------- --------------- --------------- --------------- -------------------------------------- -------------- --------------- --------------- --------------- Interest Bearing Deposits $2,715,101 4.22% $2,668,455 3.96% -------------------------------------- -------------- --------------- --------------- --------------- Short-Term Borrowings 285,632 3.66% 261,926 5.17% -------------------------------------- -------------- --------------- --------------- --------------- Long-Term Borrowings 239,567 5.32% 266,314 5.35% -------------------------------------- -------------- --------------- --------------- --------------- Interest Bearing Liabilities $3,240,300 4.25% 3,196,695 4.18% -------------------------------------- -------------- --------------- --------------- --------------- Excess Interest-Earning Assets $680,832 4.12% 4.08% -------------------------------------- -------------- --------------- --------------- --------------- Net Interest Margin 4.86% 4.79% -------------------------------------- -------------- --------------- --------------- ---------------
Average interest earning assets increased by $65 million or 1.7% to $3,921 million for the six months ended June 30, 2001 compared to the same period in 2000. Average loans increased by $92 million or 3.3% to $2,913 million for the first half of 2001 compared to the same period in 2000. The yield on loans was 8.94% for the first half of 2001 compared to 8.83% for the first half of 2000. Average investment securities including federal funds sold decreased by $28 million or 2.7% to $1,008 million for the first half of 2001 compared to the same period in 2000. The yield on taxable investment securities was 6.71% for the first half of 2001 compared to 6.68% for the same period in 2000. Average interest-bearing liabilities increased by $44 million or 1.4% to $3,240 million for the first six months of 2001 compared to the same period in 2000. Average interest bearing deposits increased by $47 million or 1.7% to $2,715 million for the first half of 2001 compared to the same period in 2000. Average total borrowings were $525 million at an average cost of 4.42% for the first half of 2001 compared to average total borrowings of $528 million at an average cost of 5.26% for the first half of 2000. The average cost of interest bearing liabilities increased by .07% to 4.25% in 2001 compared to 4.18% in 2000. The average cost of interest bearing deposits increased by .26% to 4.22% in 2001 compared to 3.96% in 2000. The cost of Park's interest bearing liabilities is expected to decrease over the remainder of the year as the cost of new certificates of deposit is lower than the current portfolio rate. -16- 17 The increase in net interest income of $2.8 million or 3.2% to $92.3 million for the first half of 2001 was due to the 1.7% 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 .04% to 4.12% in 2001 compared to 4.08% in 2000. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) increased by .07% to 4.86% for 2001 compared to 4.79% in 2000. PROVISION FOR LOAN LOSSES The provision for loan losses was $2.4 million and $4.7 million, respectively, for the second quarter and first half of 2001 compared to $2.4 million and $4.4 million for the same periods in 2000. Net charge-offs were $730,000 and $2.3 million, respectively, for the three and six month periods ended June 30, 2001 compared to $1.25 million and $2.7 million for the same periods in 2000. Nonperforming loans defined as loans that are 90 days past due, renegotiated loans, and nonaccrual loans were $24.1 million or .84% of loans at June 30, 2001 compared to $20.7 million or .70% of loans at December 31, 2000 and $13.1 million or .45% of loans at June 30, 2000. The reserve for loan losses as a percentage of outstanding loans was 2.07% at June 30, 2001 compared to 1.94% at December 31, 2000 and 1.86% at June 30, 2000. See Note 3 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 $1.6 million or 16.3% to $11.4 million for the three months ended June 30, 2001 and increased by $2.6 million or 13.8% to $21.5 million for the six months ended June 30, 2001 compared to the same periods in 2000. The following is a summary of the change in noninterest income.
---------------------------- ------------------------------------- -------------------------------------- Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- 2001 2000 Change 2001 2000 Change ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- Fees from fiduciary activities $2,224 $2,068 $156 $4,386 $4,119 $267 ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- Service charges on deposit accounts 3,436 3,145 291 6,592 6,109 483 ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- Other service income 2,458 1,347 1,111 4,010 2,607 1,403 ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- Other income 3,241 3,210 31 6,527 6,073 454 ---------------------------- ------------ ----------- ------------ ------------- ------------ ----------- Total $11,359 $9,770 $1,589 $21,515 $18,908 $2,607 ---------------------------- ------------ ----------- ------------ ------------- ------------ -----------
The increase in fee income from fiduciary activities, for both periods, was 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 -17- 18 accounts and to increases in various deposit fees. The increase in fees earned from other service income, for both periods, was primarily due to an increase in the fee income earned from the origination and sale into the secondary market of fixed rate mortgage loans due to lower interest rates. This strong volume is expected to continue during the third quarter. The increase in other income, for both periods, was primarily due to increases in fee income from check card and ATM transactions. GAIN ON SALE OF SECURITIES The gain on sale of securities of $142,000 for the first half of 2001 was due to the sale of United States Treasury notes with the proceeds reinvested in Agency mortgage-backed securities. The Agency mortgage-backed securities yield 1.70% more than the give-up yield on the Treasury notes. OTHER EXPENSE Total other expense increased by $757,000 or 2.9% to $26.8 million for the quarter ended June 30, 2001 and increased by $1.8 million or 3.4% to $53.7 million for the six months ended June 30, 2001 compared to the same periods in 2000. Salaries and employee benefits expense increased by $797,000 or 6.0% to $14.2 million for the quarter ended June 30, 2001 and increased by $1.4 million or 5.2% to $28.7 million for the first six months of 2001 compared to the same periods in 2000. Full time equivalent employees were 1,552 at June 30, 2001 compared to 1,559 at June 30, 2000. Occupancy expense increased by $101,000 or 7.3% to $1.5 million for the three months ended June 30, 2001 and increased by $183,000 or 6.5% to $3.0 million for the six months ended June 30, 2001 compared to the same periods in 2000. The increase in both periods is primarily due to three additional branch offices that have been opened in supermarkets. FEDERAL INCOME TAXES Federal income tax expense was $8.7 million and $16.3 million, respectively, for the three and six month periods ended June 30, 2001 compared to $7.7 million and $15.2 million for the same periods in 2000. The ratio of federal income tax expense to income before taxes was 30.0% for the three months ended June 30, 2001 and 29.4% for the six month period ended June 30, 2001 compared to approximately 29% for the same periods in 2000. The statutory rate was 35% for both 2001 and 2000. 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 $1.5 million or 8.0% to $20.4 million for the three months ended June 30, 2001 compared to $18.9 million for the same period in 2000. For the six months ended June -18- 19 30, 2001, net income increased by $2.4 million or 6.5% to $39.3 million compared to $36.9 million for the same period in 2000. The annualized, net income to average assets ratios (ROA) were 1.95% and 1.90%, respectively, for the three and six month periods ended June 30, 2001 compared to 1.84% and 1.81% for the same periods in 2000. The annualized, net income to average equity ratios (ROE) were 18.23% and 17.79%, respectively, for the three and six month periods ended June 30, 2001 compared to 18.80% and 18.38% for the same periods in 2000. Diluted earnings per share increased by 9.0% to $1.45 for the second quarter of 2001 compared to $1.33 for the same quarter in 2000 and increased by 8.1% to $2.79 for the first half of 2001 compared to $2.58 for the same period in 2000. -19- 20 COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND DECEMBER 31, 2000 CHANGES IN FINANCIAL CONDITION AND LIQUIDITY Total assets increased by $139 million or 3.3% to $4,344 million at June 30, 2001 compared to $4,205 million at December 31, 2000. Total loans decreased by $70 million or 2.4% to $2,887 million as demand for commercial loans, commercial real estate loans, and consumer loans and leases secured by automobiles was weak during the first six months. Due to the drop in interest rates during the first half of 2001, fixed rate mortgage loan volume increased. However, the fixed rate mortgage loans are sold in the secondary market and as a result do not increase the loan portfolio, but the related fee income does increase other service income. Growth in the loan portfolio is expected to be slow during the third quarter as loan demand continues to be weak. Investment securities increased by $255 million or 26.6% to $1,211 million at June 30, 2001 compared to $956 million at December 31, 2000. Management increased the amount of investment securities purchased during the first half of 2001 in response to the weak loan demand. Total liabilities increased by $119 million or 3.2% to $3,882 million at June 30, 2001 compared to $3,763 million at December 31, 2000. Total borrowed money increased by $105 million or 18.6% to $671 million at June 30, 2001 compared to $566 million at December 31, 2000. Total deposits increased by $32 million or 1.0% to $3,185 million at June 30, 2001 compared to $3,152 million at year-end 2000. 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 66.4% at June 30, 2001 compared to 70.3% at December 31, 2000 and 69.3% at June 30, 2000. Cash and cash equivalents totaled $135 million at June 30, 2001 compared to $170 million at December 31, 2000 and $146 million at June 30, 2000. 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, 2001 was $462 million or 10.64% of total assets compared to $443 million or 10.53% of total assets at December 31, 2000 and $416 million or 9.96% of total assets at June 30, 2000. -20- 21 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 10.22% at June 30, 2001 and 9.90% at December 31, 2000. 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 14.89% at June 30, 2001 and 15.00% at December 31, 2000. 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 16.15% at June 30, 2001 and 16.26% at December 31, 2000. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at June 30, 2001. The following table indicates the capital ratios for each subsidiary and Park at June 30, 2001: TIER I TOTAL LEVERAGE RISK-BASED RISK-BASED ------------------------------- -------------- ---------------- -------------- Park National Bank 6.43% 9.19% 12.62% ------------------------------- -------------- ---------------- -------------- Richland Trust Company 6.96% 11.48% 12.75% ------------------------------- -------------- ---------------- -------------- Century National Bank 6.45% 10.48% 12.92% ------------------------------- -------------- ---------------- -------------- First-Knox National Bank 6.92% 9.69% 13.225% ------------------------------- -------------- ---------------- -------------- Second National Bank 6.58% 8.81% 12.34% ------------------------------- -------------- ---------------- -------------- United Bank, N.A. 6.38% 10.34% 11.61% ------------------------------- -------------- ---------------- -------------- Security National Bank 7.10% 10.91% 15.58% ------------------------------- -------------- ---------------- -------------- Citizens National Bank 7.41% 12.58% 17.27% ------------------------------- -------------- ---------------- -------------- Third Savings and Loan 10.01% 12.23% 16.81% ------------------------------- -------------- ---------------- -------------- Park National Corporation 10.22% 14.89% 16.15% ------------------------------- -------------- ---------------- -------------- Minimum Capital Ratio 4.00% 4.00% 8.00% ------------------------------- -------------- ------------------------------- Well Capitalized Ratio 5.00% 6.00% 10.00% ------------------------------- -------------- ---------------- -------------- At the July 16, 2001 Park National Corporation Board of Director's meeting, a cash dividend of $.71 per share was declared payable on September 10, 2001 to stockholders of record on August 24, 2001. 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. -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 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 Not applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS None b. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2001. -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 7, 2001 BY: /s/C. Daniel Delawder -------------- ---------------------- C. Daniel DeLawder President and Chief Executive Officer DATE: August 7, 2001 BY: /s/John W. Kozak -------------- ---------------- John W. Kozak Chief Financial Officer -23-