-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WCT6U+mGoTKDJXux7rId093fP9niVtYlJ6NI0fbjsylp/xvW9C9w2BYSwz60XBnL nH7y2AgSY5B55Ptq/EnGeg== 0000950152-99-006759.txt : 19990816 0000950152-99-006759.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950152-99-006759 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK NATIONAL CORP /OH/ CENTRAL INDEX KEY: 0000805676 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311179518 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13006 FILM NUMBER: 99686812 BUSINESS ADDRESS: STREET 1: 50 NORTH THIRD ST CITY: NEWARK STATE: OH ZIP: 43055 BUSINESS PHONE: 6143498451 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: NEWARK STATE: OH ZIP: 43058-3500 10-Q 1 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, 1999 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 ----- ----- 9,289,359 common shares, no par value per share, outstanding at July 30, 1999. - ------------ Page 1 of 25 2 Exhibit Index at Page 23 PARK NATIONAL CORPORATION CONTENTS
Page ---- PART I. FINANCIAL INFORMATION 3-12 Item 1. Financial Statements 3-12 Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 (unaudited) 3 Consolidated Condensed Statements of Income for the Three Months and Six Months ended June 30, 1999 and 1998 (unaudited) 4,5 Consolidated Condensed Statements of Changes in Stockholders' Equity for the Six Months ended June 30, 1999 and 1998 (unaudited) 6 Consolidated Statements of Cash Flows for the Six Months ended June 30, 1999 and 1998 (unaudited) 7,8 Notes to Consolidated Financial Statements 9-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-22 Item 3. Quantitative and Qualitative Disclosure About Market Risk 22 PART II. OTHER INFORMATION 23 Item 1. Legal Proceedings 23 Item 2. Changes in Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 24 EXHIBIT 25
-2- 3 PARK NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except per share data)
June 30, December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ 103,465 $ 100,291 - ------------------------------------------------------------------------------------------------------- Securities available-for-sale, at fair value (amortized cost of $661,073 and $634,809 at June 30, 1999 and December 31, 1998) 654,799 646,403 - ------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $5,698 and $6,347 at June 30, 1999 and December 31, 1998) 5,502 6,064 - ------------------------------------------------------------------------------------------------------- Loans (net of unearned interest) 1,703,920 1,641,512 - ------------------------------------------------------------------------------------------------------- Allowance for possible loan losses 40,763 37,989 - ------------------------------------------------------------------------------------------------------- Net loans 1,663,157 1,603,523 - ------------------------------------------------------------------------------------------------------- Bank premises and equipment, net 26,404 26,755 - ------------------------------------------------------------------------------------------------------- Other assets 85,719 77,743 - ------------------------------------------------------------------------------------------------------- Total assets $2,539,046 $2,460,779 - ------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits: Noninterest bearing $ 276,925 $ 285,574 - ------------------------------------------------------------------------------------------------------- Interest bearing 1,669,280 1,654,204 - ------------------------------------------------------------------------------------------------------- Total deposits 1,946,205 1,939,778 - ------------------------------------------------------------------------------------------------------- Short-term borrowings 339,207 246,659 - ------------------------------------------------------------------------------------------------------- Long-term debt 77 8,430 - ------------------------------------------------------------------------------------------------------- Other liabilities 18,988 30,222 - ------------------------------------------------------------------------------------------------------- Total liabilities 2,304,477 2,225,089 - ------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 9,554,028 shares issued in 1999 and 9,553,407 issued in 1998) 68,433 68,398 - ------------------------------------------------------------------------------------------------------- Retained earnings 189,487 177,050 - ------------------------------------------------------------------------------------------------------- Treasury stock (262,169 shares in 1999 and 245,491 shares in 1998) (19,273) (17,294) - ------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of taxes (4,078) 7,536 - ------------------------------------------------------------------------------------------------------- Total stockholders' equity 234,569 235,690 - ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,539,046 $2,460,779 - -------------------------------------------------------------------------------------------------------
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, ------------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------ Interest income: Interest and fees on loans $36,579 $36,863 $72,684 $73,309 - ------------------------------------------------------------------------------------------------------ Interest on: Obligations of U.S. Government, its agencies and other securities 8,982 8,367 17,762 16,332 - ------------------------------------------------------------------------------------------------------ Obligations of states and political subdivisions 1,323 1,147 2,666 2,240 - ------------------------------------------------------------------------------------------------------ Other interest income 0 73 13 129 - ------------------------------------------------------------------------------------------------------ Total interest income 46,884 46,450 93,125 92,010 - ------------------------------------------------------------------------------------------------------ Interest expense: Interest on deposits: Demand and savings deposits 3,163 4,124 6,464 8,204 - ------------------------------------------------------------------------------------------------------ Time deposits 12,007 13,158 24,191 26,068 - ------------------------------------------------------------------------------------------------------ Interest on borrowings: Short-term borrowings 2,975 2,097 5,713 4,060 - ------------------------------------------------------------------------------------------------------ Long-term debt 0 225 120 507 - ------------------------------------------------------------------------------------------------------ Total interest expense 18,145 19,604 36,488 38,839 - ------------------------------------------------------------------------------------------------------ Net interest income 28,739 26,846 56,637 53,171 - ------------------------------------------------------------------------------------------------------ Provision for loan losses 2,009 1,674 3,554 3,348 - ------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 26,730 25,172 53,083 49,823 - ------------------------------------------------------------------------------------------------------ Other income 6,573 5,848 12,952 11,829 - ------------------------------------------------------------------------------------------------------ Gain on sale of securities (255) 0 (255) 97 - ------------------------------------------------------------------------------------------------------
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, ----------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------- Other expense: Salaries and employee benefits $ 8,251 $ 7,726 $16,835 $15,620 - ---------------------------------------------------------------------------------------------------------- Occupancy expense 890 875 1,831 1,713 - ---------------------------------------------------------------------------------------------------------- Furniture and equipment expense 988 968 1,974 1,934 - ---------------------------------------------------------------------------------------------------------- Other expense 6,047 5,636 11,744 11,362 - ---------------------------------------------------------------------------------------------------------- Total other expense 16,176 15,205 32,384 30,629 - ---------------------------------------------------------------------------------------------------------- Income before federal income taxes 16,872 15,815 33,396 31,120 - ---------------------------------------------------------------------------------------------------------- Federal income taxes 4,869 4,866 9,795 9,588 - ---------------------------------------------------------------------------------------------------------- Net income $12,003 $10,949 $23,601 $21,532 ========================================================================================================== PER SHARE: Net income: Basic $1.29 $1.17 $2.54 $2.30 ========================================================================================================== Diluted $1.29 $1.17 $2.53 $2.29 ========================================================================================================== Weighted average Basic 9,298,055 9,352,684 9,302,325 9,369,799 ========================================================================================================== Diluted 9,329,619 9,397,929 9,336,524 9,414,913 ========================================================================================================== Cash dividends declared $0.60 $0.48 $1.20 $0.96 ==========================================================================================================
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, 1999 AND 1998 Treasury Other Common Retained Stock Comprehensive Comprehensive Stock Earnings at Cost Income Income - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1997 $68,275 $154,535 $(7,712) $ 7,019 - -------------------------------------------------------------------------------------------------------------------- Net Income 21,532 $ 21,532 - ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized losses on securities available-for-sale net of income taxes of ($355) (660) (660) - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $ 20,872 ==================================================================================================================================== Cash dividends on common stock: Park at $.96 per share (9,000) - -------------------------------------------------------------------------------------------------------------------- Shares issued for stock options - 1,613 shares 89 - -------------------------------------------------------------------------------------------------------------------- Treasury stock purchased - 86,158 shares (8,007) - -------------------------------------------------------------------------------------------------------------------- Treasury stock reissued for stock options - 19,492 shares 1,060 - -------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1998 $68,364 $167,067 $(14,659) $ 6,359 ==================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1998 $68,398 $177,050 $(17,294) $ 7,536 - -------------------------------------------------------------------------------------------------------------------- Net Income $ 23,601 $ 23,601 - ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized losses on securities available-for-sale net of income taxes of ($6,254) (11,614) (11,614) - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $ 11,987 ==================================================================================================================== Cash dividends on common stock: Park at $1.20 per share (11,164) - -------------------------------------------------------------------------------------------------------------------- Shares issued for stock options - 621 shares 35 - -------------------------------------------------------------------------------------------------------------------- Treasury stock purchased - 26,475 shares (2,524) - -------------------------------------------------------------------------------------------------------------------- Treasury stock reissued for stock options - 9,797 shares 545 - -------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1999 $68,433 $189,487 $(19,273) $ (4,078) ==================================================================================================================== THREE MONTHS ENDED JUNE 30, 1999 1998 - --------------------------------------------------------------------------------------------------- Net Income $12,003 $10,949 - --------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of income taxes of ($5,184) in 1999 and ($2) in 1998 (9,627) (3) - --------------------------------------------------------------------------------------------------- Total comprehensive income $ 2,376 $10,946 ===================================================================================================
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, ----------------------- 1999 1998 - --------------------------------------------------------------------------------------------------------- Operating activities: Net income $ 23,601 $ 21,532 - --------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 782 622 - --------------------------------------------------------------------------------------------------------- Provision for loan losses 3,554 3,348 - --------------------------------------------------------------------------------------------------------- Amortization of the excess of cost over net assets of banks purchased 1,150 1,393 - --------------------------------------------------------------------------------------------------------- Realized investment security loss (gain) 255 (97) - --------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: Increase in other assets (2,879) (13,150) - --------------------------------------------------------------------------------------------------------- Decrease in other liabilities (5,648) (4,213) - --------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 20,815 9,435 ------------------------------------------------------------------------------------------ Investing activities: Proceeds from sales of: Available-for-sale securities 23,245 51,839 - --------------------------------------------------------------------------------------------------------- Proceeds from maturity of: Available-for-sale securities 90,704 58,015 - --------------------------------------------------------------------------------------------------------- Held-to-maturity securities 563 989 - --------------------------------------------------------------------------------------------------------- Purchases of: Available-for-sale securities (140,126) (180,405) - --------------------------------------------------------------------------------------------------------- Net increase in loans (62,572) (16,717) - --------------------------------------------------------------------------------------------------------- Purchases of premises and equipment, net (1,389) (1,391) - --------------------------------------------------------------------------------------------------------- Net cash used by investing activities (89,575) (87,670) ------------------------------------------------------------------------------------------
Continued -7- 8 PARK NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINUED) (dollars in thousands)
Six Months Ended June 30, ----------------------- 1999 1998 - --------------------------------------------------------------------------------------------------------- Financing activities: Net increase in deposits $ 6,427 $ 22,627 - ---------------------------------------------------------------------------------------------------------- Net increase in short-term borrowings 92,548 90,727 - ---------------------------------------------------------------------------------------------------------- Exercise of stock options 35 89 - ---------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (1,979) (6,947) - ---------------------------------------------------------------------------------------------------------- Repayment of long-term debt (8,353) (16,307) - ---------------------------------------------------------------------------------------------------------- Cash dividends paid (16,744) (13,513) - ---------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 71,934 76,676 ------------------------------------------------------------------------------------------- Increase/(decrease) in cash and cash equivalents 3,174 (1,559) ------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 100,291 93,585 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 103,465 $ 92,026 =========================================================================================== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 36,657 $ 38,606 ------------------------------------------------------------------------------ Income taxes $ 10,850 $ 11,550 ------------------------------------------------------------------------------
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, 1999 and 1998. 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, 1999 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 1999. 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, 1998. Certain amounts in 1998 have been reclassified to conform to the financial statement presentation used for 1999. Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements. Note 2 - 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.
- ------------------------------------------------------------------------------------------------------------------------------ (In Thousands) - ------------------------------------------------------------------------------------------------------------------------------ Three Months Ended June 30, Six Months Ended June 30, - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Beginning of Period $39,457 $37,251 $37,989 $35,595 - ------------------------------------------------------------------------------------------------------------------------------ Provision for loan losses 2,009 1,674 3,554 3,348 - ------------------------------------------------------------------------------------------------------------------------------ Losses charged to the reserve (1,396) (1,449) (2,932) (2,661) - ------------------------------------------------------------------------------------------------------------------------------ Recoveries 693 803 2,152 1,997 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ End of Period $40,763 $38,279 $40,763 $38,279 ==============================================================================================================================
-9- 10 Note 3 - 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, 1999 and 1998.
- ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) - ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, - ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Numerator: - ---------------------------------------------------------------------------------------------------------------------------- Net Income $12,003 $10,949 $23,601 $21,532 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Denominator: - ---------------------------------------------------------------------------------------------------------------------------- Denominator for basic earnings per share 9,298,055 9,352,684 9,302,325 9,369,799 weighted-average shares - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities 31,564 45,245 34,199 45,114 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share-adjusted weighted-average shares & assumed conversions 9,329,619 9,397,929 9,336,524 9,414,913 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Earnings per share: - ---------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $1.29 $1.17 $2.54 $2.30 - ---------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $1.29 $1.17 $2.53 $2.29 - ----------------------------------------------------------------------------------------------------------------------------
Note 4 - 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), and The First-Knox National Bank of Mount Vernon (FKNB). 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: -10- 11
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PND FND RTC CNB FKND FSD All Other Total - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $10,204 $3,192 $4,427 $4,107 $5,760 $789 $260 $28,739 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for Loan Losses 735 150 124 220 529 211 40 2,009 - ----------------------------------------------------------------------------------------------------------------------------------- Other Income 3,281 439 545 740 1,140 115 58 6,318 - ----------------------------------------------------------------------------------------------------------------------------------- Other Expense 5,655 1,875 2,587 2,199 2,939 401 520 16,176 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $ 4,923 $1,090 $1,497 $1,672 $2,427 $216 $178 $12,003 - -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PND FND RTC CNB FKND FSD All Other Total - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $9,948 $2,933 $3,986 $3,839 $5,186 $723 $231 $26,846 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for Loan Losses 720 150 375 120 279 30 -- 1,674 - ----------------------------------------------------------------------------------------------------------------------------------- Other Income 2,833 596 658 779 904 78 -- 5,848 - ----------------------------------------------------------------------------------------------------------------------------------- Other Expense 5,264 1,714 2,430 2,066 2,998 402 331 15,205 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $4,657 $1,132 $1,222 $1,645 $2,018 $264 $ 11 $10,949 - -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PND FND RTC CNB FKND FSD All Other Total - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 20,253 $ 6,197 $ 8,721 $ 8,097 $ 11,334 $ 1,546 $ 489 $ 56,637 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for Loan Losses 1,470 300 349 340 808 247 40 3,554 - ----------------------------------------------------------------------------------------------------------------------------------- Other Income 6,306 1,083 1,242 1,494 2,263 190 119 12,697 - ----------------------------------------------------------------------------------------------------------------------------------- Other Expense 11,489 3,780 5,185 4,401 5,931 830 768 32,384 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $ 9,450 $ 2,170 $ 2,934 $ 3,338 $ 4,846 $ 481 $ 382 $ 23,601 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1999: - ----------------------------------------------------------------------------------------------------------------------------------- Assets $900,636 $272,230 $418,928 $391,810 $511,016 $61,900 $(17,474) $2,539,046 - -----------------------------------------------------------------------------------------------------------------------------------
-11- 12
- ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PND FND RTC CNB FKND FSD All Other Total - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 19,634 $ 5,683 $ 8,029 $ 7,619 $ 10,341 $ 1,405 $ 460 $ 53,171 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for Loan Losses 1,440 300 750 240 558 60 -- 3,348 - ----------------------------------------------------------------------------------------------------------------------------------- Other Income 5,787 1,147 1,421 1,575 1,862 134 -- 11,926 - ----------------------------------------------------------------------------------------------------------------------------------- Other Expense 10,428 3,451 4,923 4,253 6,178 772 624 30,629 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income $ 9,281 $ 2,082 $ 2,500 $ 3,180 $ 3,938 $ 506 $ 45 $ 21,532 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1998: - ----------------------------------------------------------------------------------------------------------------------------------- Assets $847,393 $261,252 $406,497 $362,564 $480,137 $60,017 $(36,142) $2,381,718 - -----------------------------------------------------------------------------------------------------------------------------------
The operating results for 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, 1999 and 1998 consist of the elimination of intersegment borrowings and the Parent Company and Guardian Finance Company assets which are not eliminated. -12- 13 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, 1999 and 1998. 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 $1.9 million or 7.0% to $28.74 million for the three months ended June 30, 1999 compared to $26.85 million for the second quarter of 1998. 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 1999 with the same quarter in 1998.
- ------------------------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) - ------------------------------------------------------------------------------------------------- 1999 1998 - ------------------------------------------------------------------------------------------------- Average Tax Average Tax Balance Equivalent Balance Equivalent % % - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- LOANS $1,668,814 8.83% $1,586,058 9.35% - ------------------------------------------------------------------------------------------------- TAXABLE INVESTMENTS $ 544,606 6.61% $ 481,899 6.96% - ------------------------------------------------------------------------------------------------- TAX EXEMPT INVESTMENTS $ 103,366 7.34% $ 87,921 7.35% - ------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD -0- -0- $ 5,414 5.36% - ------------------------------------------------------------------------------------------------- INTEREST EARNING ASSETS $2,316,786 8.24% $2,161,292 8.73% - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- INTEREST BEARING DEPOSITS $1,667,465 3.65% $1,620,669 4.28% - ------------------------------------------------------------------------------------------------- SHORT-TERM BORROWINGS $ 272,453 4.38% $ 174,250 4.83% - ------------------------------------------------------------------------------------------------- LONG-TERM DEBT $ 77 2.00% $ 15,722 5.75% - ------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES $1,939,995 3.75% $1,810,641 4.35% - ------------------------------------------------------------------------------------------------- EXCESS INTEREST EARNING ASSETS $ 376,791 4.49% $ 350,651 4.38% - ------------------------------------------------------------------------------------------------- NET INTEREST MARGIN 5.10% 5.09% - -------------------------------------------------------------------------------------------------
Average interest earning assets increased by $156 million or 7.2% to $2,317 million for the quarter ended June 30, 1999 compared to the same quarter in 1998. Average loan totals increased by $83 million or 5.2% to $1,669 million for the second quarter of 1999 compared to the second quarter in 1998. The demand for fixed rate residential real estate loans has been quite strong during the past year due to relatively low longer term interest rates. A large percentage of the fixed rate loan originations are refinances of existing mortgages, some of which are adjustable rate mortgage loans. Park sells in the secondary market all fixed rate mortgage loans that are originated and as a result has experienced a decrease of $26 million in residential real estate loans during the past year. The demand for commercial, commercial real estate, and consumer loans secured by automobiles has continued to be relatively strong and accounts for the growth in average loan balances for the second quarter of 1999 compared to the same period in 1998. -13- 14 The average yield on the loan portfolio was 8.83% for the second quarter of 1999 compared to 9.35% for the same period in 1998. The average prime lending rate for Park's affiliate banks was 7.75% for the second quarter of 1999 compared to 8.50% for the same period in 1998. The Federal Reserve lowered the federal funds rate by .75% during the second half of 1998 and Park's prime lending rate was lowered by the same magnitude at the same time. Approximately 25% of Park's loan portfolio reprices based on the prime lending rate which primarily accounts for the .52% decrease in the average yield on the loan portfolio during the past year. The Federal Reserve increased the federal funds rate by .25% at June 30, 1999 to 5.00% and Park increased its prime lending rate by .25% to 8.00%. This recent increase in interest rates will improve the yield on the loan portfolio for the third quarter of 1999. Average investment securities including federal funds sold increased by $73 million or 12.6% to $648 million for the second quarter of 1999 compared to the same quarter in 1998. The increase in average investment securities resulted primarily from the purchase of mortgage-backed securities and premium callable agency securities with an average life of approximately four years. This increase in investment securities was needed to maintain about the same leverage in the balance sheet. Average equity to average assets was 9.56% for the second quarter of 1999 compared to 9.62% for the same quarter in 1998. The yield on taxable investment securities decreased to 6.61% in 1999 compared to 6.96% in 1998. Long-term interest rates decreased over the last six months of 1998 and as a result, purchases of investment securities generally yield less than the average yield of the portfolio. The remaining average life of the investment portfolio was approximately 4.5 years at June 30, 1999 and 3.4 years at June 30, 1998. Average interest bearing liabilities increased by $129 million or 7.1% to $1,940 million for the quarter ended June 30, 1999 compared to the same quarter in 1998. Average interest bearing deposits increased by $47 million or 2.9% to $1,667 million for the second quarter of 1999 compared to the same period in 1998. Average short-term borrowings increased by $98 million or 56.4% to $272 million and average long-term debt decreased by $16 million to $77,000 for the second quarter of 1999 compared to the same period in 1998. The increase in short-term borrowings was used to fund the increase in the investment portfolio and for the repayment of long-term debt. Higher rate long-term debt was repaid from lower rate short-term borrowings. The average cost of interest bearing liabilities decreased by .60% to 3.75% in 1999 compared to 4.35% in 1998. The average cost of interest bearing deposits decreased by .63% to 3.65% in 1999 compared to 4.28% in 1998 and the average cost of short-term borrowings decreased by .45% to 4.38% in 1999 compared to 4.83% in 1998. The decrease in the cost of interest bearing liabilities in 1999 compared to 1998 is due to the decrease in short-term market interest rates during the second half of 1998. The recent increase in short-term market interest rates will stabilize Park's cost of funds. The increase in net interest income of $1.9 million or 7.0% to $28.74 million for the quarter ended June 30, 1999 was due to both increases in the net interest spread and interest earning assets. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) improved by .11% to 4.49% in 1999 compared to 4.38% in 1998. Average interest earning assets increased by $156 million or 7.2% in 1999 compared to 1998 and excess interest earning assets increased by $26 million or 7.5% to $377 million in 1999 compared to 1998. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) increased by .01% to 5.10% for the second quarter of 1999 compared to 5.09% for the same period in 1998. -14- 15 Net interest income increased by $3.5 million or 6.5% to $56.64 million for the six months ended June 30, 1999 compared to $53.17 million for the same period in 1998. 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 1999 with the same period in 1998.
- ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, - ---------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- AVERAGE TAX EQUIVALENT AVERAGE TAX EQUIVALENT BALANCE % BALANCE % - ---------------------------------------------------------------------------------------------------------------------- LOANS $1,654,970 8.89% $1,584,759 9.35% - ---------------------------------------------------------------------------------------------------------------------- TAXABLE INVESTMENTS $ 537,803 6.66% $ 467,116 7.05% - ---------------------------------------------------------------------------------------------------------------------- TAX EXEMPT INVESTMENTS $ 104,319 7.31% $ 84,933 7.47% - ---------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD $ 456 5.65% $ 4,575 5.57% - ---------------------------------------------------------------------------------------------------------------------- INTEREST EARNING ASSETS $2,297,548 8.30% $2,141,383 8.77% - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- INTEREST BEARING DEPOSITS $1,656,010 3.73% $1,609,730 4.29% - ---------------------------------------------------------------------------------------------------------------------- SHORT-TERM BORROWINGS $ 267,301 4.34% $ 168,506 4.86% - ---------------------------------------------------------------------------------------------------------------------- LONG-TERM BORROWINGS $ 2,452 6.34% $ 17,551 5.83% - ---------------------------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES $1,925,763 3.82% $1,795,787 4.36% - ---------------------------------------------------------------------------------------------------------------------- EXCESS INTEREST-EARNING ASSETS $ 371,785 4.48% $ 345,596 4.41% - ---------------------------------------------------------------------------------------------------------------------- NET INTEREST MARGIN 5.10% 5.11% - ----------------------------------------------------------------------------------------------------------------------
Average interest earning assets increased by $156 million or 7.3% to $2,298 million for the six months ended June 30, 1999 compared to the same period in 1998. Average loans increased by $70 million or 4.4% to $1,655 million for the first half of 1999 compared to the same period in 1998. Loan demand continues to be relatively strong for commercial, commercial real estate, and consumer loans secured by automobiles. The yield on loans was 8.89% for the first half of 1999 compared to 9.35% for the first half of 1998. Average investment securities including federal funds sold increased by $86 million or 15.4% to $643 million for the first half of 1999 compared to the same period in 1998. The yield on taxable investment securities decreased to 6.66% for the first half of 1999 compared to 7.05% for the same period in 1998. Average interest-bearing liabilities increased by $130 million or 7.2% to $1,926 million for the first six months of 1999 compared to the same period in 1998. Average interest bearing deposits increased by $46 million or 2.9% to $1,656 million for the first half of 1999 compared to the same period in 1998. Average short-term borrowings increased by $99 million or 58.6% to $267 million and average long-term debt decreased by $15 million to $2.5 million for the first six months of 1999 compared to the same period in 1998. The increase in short-term borrowings was used to fund the increase in the investment portfolio and for the repayment of long-term debt. Short-term market interest rates decreased by .75% during the second half of 1998 and Park was able to decrease the average cost of interest bearing liabilities by .54% to 3.82% for the first half of 1999 compared to 4.36% for the same period in 1998. The average cost of interest bearing deposits decreased by .56% to 3.73% and the average cost of short-term borrowings decreased by .52% to 4.34% for the first half of 1999 compared to the same period in 1998. The increase in net interest income of $3.5 million or 6.5% to $56.64 million for the first six months of 1999 was due to both increases in the net interest spread and interest earning assets. -15- 16 The net interest spread improved by .07% to 4.48% in 1999 compared to 4.41% in 1998. Average interest earning assets increased by $156 million or 7.3% in 1999 compared to 1998 and excess interest earning assets increased by $26 million or 7.6% to $372 million in 1999 compared to 1998. The tax equivalent net interest margin was 5.10% for the first half of 1999 compared to 5.11% for the same period in 1998. Provision for Loan Losses The provision for loan losses increased by $335,000 to $2.0 million for the three months ended June 30, 1999 and increased by $206,000 to $3.6 million for the six months ended June 30, 1999 compared to the same periods in 1998. Net charge-offs were $703,000 and $780,000, respectively, for the three and six month periods ended June 30, 1999 compared to $646,000 and $664,000 for the same periods in 1998. Nonperforming loans, defined as loans that are 90 days past due, renegotiated loans and nonaccrual loans were $5.1 million or .30% of loans at June 30, 1999 compared to $5.0 million or .30% of loans at December 31, 1998 and $5.4 million or .33% of loans at June 30, 1998. The reserve for loan losses as a percentage of outstanding loans was 2.39% at June 30, 1999 compared to 2.31% at December 31, 1998 and 2.38% at June 30, 1998. See Note 2 for a discussion of the factors considered by management in determining the provision for loan losses. Noninterest Income Noninterest income increased by $725,000 or 12.4% to $6.57 million for the three months ended June 30, 1999 and increased by $1.1 million or 9.5% to $12.95 million for the six months ended June 30, 1999 compared to the same periods in 1998. The following is a summary of the change in noninterest income.
- ------------------------------------------------------------------------------------------------------------------------- June 30, - ------------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 Change 1999 1998 Change - ------------------------------------------------------------------------------------------------------------------------- Fees from fiduciary activities $1,307 $1,185 $ 122 $ 2,634 $ 2,470 $ 164 - ------------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts 1,858 1,683 175 3,550 3,277 273 - ------------------------------------------------------------------------------------------------------------------------- Other service income 1,190 1,304 (114) 2,484 2,662 (178) - ------------------------------------------------------------------------------------------------------------------------- Other income 2,218 1,676 542 4,284 3,420 864 - ------------------------------------------------------------------------------------------------------------------------- Total $6,573 $5,848 $ 725 $12,952 $11,829 $1,123 - -------------------------------------------------------------------------------------------------------------------------
The increase in other income for both periods was primarily due to increases in fee income from automatic teller machines and debit cards and from an increase in rental fees from operating leases. The decrease in other service income for both periods was primarily due to a reduction in fee income earned from the origination and sale in the secondary market of fixed-rate residential mortgage loans. With the recent increase in market interest rates, this trend is expected to continue for the second half of 1999. -16- 17 Gain (loss) on Sale of Securities Losses from the sale of securities were $255,000 for both the three and six month periods ended June 30, 1999 compared to a gain of $97,000 for the first six months of 1998. Longer term interest rates increased during the second quarter of 1999 and as a result the market value of the investment portfolio decreased. The net unrealized holding loss on available-for-sale securities (accumulated other comprehensive income) was $4.1 million at June 30, 1999 compared to a net unrealized gain of $5.5 million at March 31, 1999 and a net unrealized gain of $7.5 million at December 31, 1998. 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. Management expects that increased losses will be realized from the sale of investment securities during the second half of 1999 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 $1.0 million or 6.4% to $16.2 million for the quarter ended June 30, 1999 and increased by $1.8 million or 5.7% to $32.4 million for the six months ended June 30, 1999 compared to the same periods in 1998. Salaries and employee benefits expense increased by $525,000 or 6.8% to $8.3 million for the quarter ended June 30, 1999 and increased by $1.2 million or 7.8% to $16.8 million for the first six months of 1999 compared to the same periods in 1998. Salaries increased by $382,000 or 5.9% for the quarter ended June 30, 1999 and increased by $839,000 or 6.5% for the six months ended June 30, 1999 compared to the same periods in 1998. Full time equivalent employees were 1,025 at June 30, 1999 compared to 1,020 at June 30, 1998. Benefits expense increased by $143,000 or 11.8% for the three months ended June 30, 1999 and increased by $379,000 or 13.8% for the six months ended June 30, 1999 compared to the same periods in 1998. The increase in benefits expense was primarily due to a 20% increase in medical insurance for employees. 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 $411,000 or 7.3% to $6.0 million for the quarter ended June 30, 1999 and increased by $382,000 or 3.4% to $11.7 million for the first six months of 1999 compared to the same periods in 1998. The increase for both periods was due to increases in data processing expense, supplies expense and state franchise taxes. Federal Income Taxes Federal income tax expense was $4.9 million and $9.8 million respectively, for the three and six month periods ended June 30, 1999 compared to $4.9 million and $9.6 million for the same periods in 1998. The ratio of federal income tax expense to income before taxes was approximately 29% for both the three and six month periods ended June 30, 1999 compared to approximately 31% for the same periods in 1998. The statutory rate was 35% for both 1999 and 1998. The primary difference between the effective federal income tax rate and the statutory rate is due to tax-exempt interest income and low income housing tax credits, which have both increased in 1999. -17- 18 Net Income Net income increased by $1.1 million or 9.6% to $12.0 million for the three months ended June 30, 1999 compared to $10.9 million for the same period in 1998. For the six months ended June 30, 1999, net income increased by $2.1 million or 9.6% to $23.6 million compared to $21.5 million for the same period in 1998. The annualized, net income to average assets ratio (ROA) was 1.94% for both the three and six month periods ended June 30, 1999 compared to 1.90% for the second quarter of 1998 and 1.89% for the first six months of 1998. The annualized, net income to average equity ratios (ROE) was 20.33% and 20.18%, respectively, for the three and six month periods ended June 30, 1999 compared to 19.72% and 19.54% for the same periods in 1998. Diluted earnings per share increased by 10.3% to $1.29 for the second quarter of 1999 compared to $1.17 for the same quarter in 1998 and increased by 10.5% to $2.53 for the first half of 1999 compared to $2.29 for the same period in 1998. -18- 19 COMPARISON OF FINANCIAL CONDITION FOR JUNE 30, 1999 AND DECEMBER 31, 1998 Changes in Financial Condition and Liquidity Total assets increased by $78 million or 3.2% to $2,539 million at June 30, 1999 compared to $2,461 million at December 31, 1998. Loans increased by $62 million or 3.8% to $1,704 million and investment securities increased by $8 million or 1.2% to $660 million. The demand for commercial, commercial real estate, and consumer loans secured by automobiles continues to be relatively strong. Total liabilities increased by $79 million or 3.6% to $2,304 million at June 30, 1999 compared to $2,225 million at December 31, 1998. Short-term borrowings increased by $93 million or 37.5% to $339 million and total deposits increased by $6 million or .3% to $1,946 million. The increase in short-term borrowings was needed to fund the increase in assets and to repay $8 million of higher rate long-term debt. 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 67.1% at June 30, 1999 compared to 66.7% at December 31, 1998 and 67.5% at June 30, 1998. Cash and cash equivalents totaled $103 million at June 30, 1999 compared to $100 million at December 31, 1998 and $92 million at June 30, 1998. 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, 1999 was $235 million or 9.24% of total assets compared to $236 million or 9.58% of total assets at December 31, 1998 and $227 million or 9.54% of total assets at June 30, 1998. 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 9.24% at June 30, 1999 and 9.06% at December 31, 1998. 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 13.67% at June 30, 1999 and 13.64% at December 31, 1998. The minimum total risk-based capital ratio (defined as leverage -19- 20 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 14.94% at June 30, 1999 and 14.92% at December 31, 1998. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at June 30, 1999. The following table indicates the capital ratios for each subsidiary and Park at June 30, 1999:
TIER I TOTAL LEVERAGE RISK-BASED RISK-BASED - ------------------------------------------------------------------------------------------ Park National Bank 6.99% 9.50% 11.97% - ------------------------------------------------------------------------------------------ Richland Trust Company 7.52% 14.06% 15.32% - ------------------------------------------------------------------------------------------ Century National Bank 6.69% 11.39% 12.65% - ------------------------------------------------------------------------------------------ First-Knox National Bank 6.92% 9.94% 11.71% - ------------------------------------------------------------------------------------------ Park National Corporation 9.24% 13.67% 14.94% - ------------------------------------------------------------------------------------------ Minimum Capital Ratio 4.00% 4.00% 8.00% - ------------------------------------------------------------------------------------------ Well Capitalized Ratio 5.00% 6.00% 10.00% - ------------------------------------------------------------------------------------------
At the July 19, 1999 Park National Corporation Board of Director's Meeting, a cash dividend of $.60 per share was declared payable on September 10, 1999 to stockholders of record on August 27, 1999. Year 2000 Compliance Issues Park National Corporation ("Park" or the "Corporation") intends this information to constitute notice under the Year 2000 Information and Readiness Disclosure Act as a "Y2K Readiness Disclosure". In early 1997, Park formed a Year 2000 project team made up of key Corporation and affiliate officers to identify and remediate software systems and computer-related devices that require modification for the Year 2000. A project plan has been developed with goals and target dates. It has been approved by Park's Board of Directors and is monitored by the Board on a quarterly basis. The Corporation's project team and business units are in the final stages of completing this plan. The plan follows a five phase approach recommended by regulators and others: awareness, assessment, renovation, validation, and implementation. Park's State of Readiness With regard to information technology ("IT") systems, Park uses standard hardware and off-the-shelf, widely-used banking software packages to satisfy most internal and customer needs. The software is purchased without source programming code. As a result, Park runs the software "as is" without program modifications, thereby eliminating the need for a line by line review of custom programming. Testing is required for all mission critical software - identified as 79 software packages by the Year 2000 project team - to confirm their state of readiness. All software and hardware vendors have been surveyed and have indicated their products' Y2K readiness status. Most vendors have indicated their software or hardware is Y2K compliant. In a few cases, vendors have indicated their hardware or software is not Y2K compliant and a software upgrade or replacement has been purchased, installed and tested for Y2K compliance. -20- 21 Testing of all internally used software packages has been completed. Installation of replacement software is complete except for the replacement of a loan documentation software package to be installed in September, 1999. Mission critical outsourced software -- identified as 10 software packages by the Year 2000 project team - is used to assist Park in serving customers. Park's outsourced systems are offered by service providers that are national in scope. Testing of all outsourced software packages is complete. For non-IT systems, primarily buildings and banking equipment, vendor inquiries and tests have been completed. Microcontrollers or embedded chips are generally not present in Park's buildings due to their age and complexity. Upgrades of a small number of Automated Teller Machines (ATMs) and building security systems are complete. Non-IT systems are Y2K compliant. Y2K readiness inquiries of Park's major borrowers and major funds providers have been performed. In management's judgment, the result of these inquiries indicates that the risk to the Corporation from Y2K failures related to these entities is low. There can be no guarantee, but management's judgment is that loan losses or liquidity problems attributed to the Y2K issue will not materially impact the Corporation's financial condition or results of operations. Costs to Address Park's Year 2000 Issues Due to the importance of IT systems to Park's business, management has not deferred critical systems enhancements to become Y2K ready. Park does not expect its redeployments to have a material impact on the Corporation's financial condition or results of operations. The Corporation has incurred expenses throughout 1998 and the first half of 1999 related to its Y2K project and will continue to incur expenses through 1999. Depreciation expenses related to Y2K will continue thru 2001. These expenses are not expected to materially impact operating results in any one quarter or year, with a significant portion of these expenses represented by existing staff that have been assigned to this project. Estimates are that incremental expenses for 1998 and 1999 will be $1,000,000 and for redeployed staff $2,000,000. From January 1, 1998 through June 30, 1999, incremental expenses are approximately $322,000 and redeployment expenses are approximately $1,500,000. Risks of the Corporation's Year 2000 Issues Park cannot determine the consequences of Y2K problems, if any, on its results of operations, liquidity and financial condition due to its reliance on third parties to facilitate service delivery to the Corporation's customers. These third parties would include utility companies, the federal government, outsource service providers and various critical vendors. Park is engaged in discussions with its third parties and is attempting to obtain information as to their Y2K readiness state. Park does not, however, have sufficient information at the current time to predict whether they will be Y2K ready. While management is executing steps to assure compliance with systems over which it has control, it cannot be assured that third parties upon which Park relies for service delivery will not have business interruptions due to Y2K problems. -21- 22 The Corporation and its banking affiliates are regulated by both state and federal bank regulatory agencies. These agencies have issued numerous directives with respect to the Year 2000 issue, with which Park is acting to comply. Additionally, these regulatory agencies have made and will continue to make on-site examinations to determine Y2K readiness. Park's Contingency Plans As the testing and remediation work is completed for each of the mission critical software packages, a contingency plan is written in case of an unforeseen Y2K failure. Park has prepared a comprehensive Y2K contingency plan which includes detailed operating plans for year-end 1999 and early year 2000. Board of Director approval and testing of the plan will be complete by September 30, 1999. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 This Management's Discussion and Analysis of Financial Condition and Results of Operations, including the discussion under "Year 2000 Readiness Disclosure," contains forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including those specific to the Corporation and those specific to the industry which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to third-party or Corporation failures to achieve timely, effective remediation of Year 2000 issues, general economic conditions, actions of competitors, regulatory actions, changes in legislation and technology changes. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. The Corporation does not undertake any obligation to publicly update any forward-looking statement. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK See Footnote 1 for disclosure that Park does not have any off-balance sheet derivative financial instruments. -22- 23 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 As discussed in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders, any qualified shareholder of the Company who intends to submit a proposal to the Company at the 2000 Annual Meeting of Shareholders (the "2000 Annual Meeting") must submit such proposal to the Company not later than November 11, 1999 to be considered for inclusion in the Company's Proxy Statement and form of Proxy (the "Proxy Materials") relating to that meeting. If a shareholder intends to present a proposal at the 2000 Annual Meeting of Shareholders, but has not sought the inclusion of such proposal in the Company's Proxy Materials, such proposal must be received by the Company prior to January 25, 2000 or the Company's management proxies for the 2000 annual Meeting will be entitled to use their discretionary voting authority should such proposal then be raised, without any discussion of the matter in the Company's Proxy Materials. Item 6. Exhibits and Reports on Form 8-K a. Exhibits See Exhibit 27, Financial Data Schedule on Page 25 b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999. -23- 24 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 10, 1999 BY: /s/ C. Daniel DeLawder ---------------- ---------------------- C. Daniel DeLawder President and Chief Executive Officer DATE: August 10, 1999 BY: /s/ John W. Kozak ---------------- ----------------------- John W. Kozak Chief Financial Officer -24- EX-27 2 EXHIBIT 27
9 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 103,465 0 0 0 654,799 5,502 5,698 1,703,920 40,763 2,539,046 1,946,205 339,207 18,988 77 0 0 68,433 166,136 2,539,046 72,684 20,428 13 93,125 30,655 36,488 56,637 3,554 (255) 32,384 33,396 23,601 0 0 23,601 2.54 2.53 5.10 2,578 2,194 325 0 37,989 2,932 2,152 40,763 40,763 0 0
-----END PRIVACY-ENHANCED MESSAGE-----